a hypothetical market that brings together those who want to lend money and those who want to borrow money.
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rate of return
(on a project) is the profit earned on the project expressed as a percentage of its cost.
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crowding out
occurs when a government deficit drives up the interest rate and leads to reduced investment spending.
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investment tax credit
an amount that firms are allowed by law to deduct from their taxes based on their investment spending.
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cyclically adjusted budget balence
an estimate of what the budget balance would be if real GDP were exactly equal to potential output.
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gov’t debt
the accumulation of past budget deficits, minus past budget surpluses.
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debt-GDP ratio
the government's debt as a percentage of GDP.
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target federal funds rate
the Federal Reserve's desired level for the federal funds rate; the Federal Reserve can achieve this target through open market operations.
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expansionary monetary policy
monetary policy that increases aggregate demand.
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contractionary monetary policy
monetary policy that reduces aggregate demand.
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taylor rule for monetary policy
rule for setting the federal funds rate that takes into account both the inflation rate and the output gap.
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inflation targeting
when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target.
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monetary neutrality
the concept that changes in the money supply have no real effects on the economy.
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monetarism
asserts that GDP will grow steadily if the money supply grows steadily.
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quantity theory of money
emphasizes the positive relationship between the price level and the money supply; relies on the velocity equation (M V = P Y).
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velocity of money
the ratio of nominal GDP to the money supply; a measure of the number of times the average dollar bill is spent per year.
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rule of 70
a mathematical formula that tells us that the time it takes a variable that grows gradually over time to double is approximately 70 divided by that variable's annual growth rate.
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labor productivity
output per worker; also known simply as productivity.
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physical capital
often referred to simply as capital—consists of manufactured (human-made) productive resources, such as equipment, buildings, tools, and machines, used to produce other goods and services.
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human capital
the improvement in labor created by the education and knowledge that is embodied in the workforce.
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technology
the technical means for producing goods and services.
Studied by 25 people
