Term
| For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is |
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Definition
| the interest rate effect (p. 778) |
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Term
| theory of liquidity preference |
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Definition
| Keyne's theory that the interest rate adjusts to bring money supply and money demand into balance |
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Term
| When the fed increases money supply, it lowers the interest rate and increases the quantity of goods and services demanded for any given price level shifting the aggregate demand curve to the |
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Definition
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Term
| When the Fed contracts the money supply, it raises the interest rate and reduces the quantity of goods and services demanded for any given price level, shifting the aggregate demand curve to the |
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Definition
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Term
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Definition
| the setting of the level of government spending and taxation by government policymakers |
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Definition
| the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending |
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Definition
| the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending |
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Term
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Definition
| changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action |
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Definition
| a curve that shows the short-run trade-off between inflation and unemployment |
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Term
| The Phillips curve shows the combinations of ___ and ___ that arise in the short run as shifts in the aggregate-demand curve move the economy along the SR aggregate supply curve |
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Definition
| inflation and uneployment |
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Term
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Definition
| natural rate of unemployment - a(actual inflation - expected inflation) |
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Term
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Definition
| the claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation. |
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Term
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Definition
| an event that directly alters firms' costs and prices, shifting the economy's aggregate supply curve and thus the phillips curve |
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Term
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Definition
| the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point |
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Term
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Definition
| the theory according to which people optimally use all the information they have, including information about government policies, when forecasting the future |
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Term
| time inconsistency of policy |
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Definition
| this discrepancy between announcements and actions |
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