Macroeconomic Debates

These flashcards cover key concepts related to macroeconomic policy debates discussed in the lecture.

Activist Policy

Using expansionary or contractionary policy to stabilize the economy.

Recessionary Gap

When actual output is less than the potential output (Y < YN).

Inflationary Gap

When actual output exceeds potential output (Y > YN).

Long-Run Adjustment Mechanism

Process through which the economy returns to long-run equilibrium.

Stabilization Policy

Policy aimed at reducing fluctuations in economic activity.

Crowding Out

When government spending reduces private sector investment.

Crowding In

When reduced government spending increases private sector investment.

Permanent Income Hypothesis

Theory suggesting that temporary changes in income will have minimal effect on spending.

Lags in Monetary Policy

Delays between the recognition of an economic problem and the implementation of a policy response.

Over-shooting

When a policy response overshoots its target, potentially creating new economic problems.

Tax Multiplier

The ratio of change in GDP to the change in taxes.

Supply-Side Fiscal Policy

Policies aimed at increasing supply by changing tax rates.

Laffer Curve

Illustrates the relationship between tax rates and tax revenue.

Discretionary Monetary Policy

Policy that allows the central bank to make decisions based on current economic conditions.

Monetary Policy Rule

A fixed rule for managing the money supply, as opposed to discretionary actions.

Balanced Budget Amendment

A proposed requirement that the government budget be balanced every year.

Economic Growth

An increase in the production of goods and services over a certain period.