Term
Current Events:
Non-farm Payroll Jobs Change: ___
Unemployment %: ___ (Change from previous period: ___% |
|
Definition
+120,000 jobs added
8.6% (Down 0.4% from 9%) |
|
|
Term
4 ways central banks can control exchange rates:
1) Change the ___ ___ ___
2) __-__ __
3) Use __ __
4) __ __ |
|
Definition
1) Change the Real Interest Rate
2) Foreign-Exchange Interventions
3) Use Capital Controls
4) Policy Coordination |
|
|
Term
Suppose there is an increase in the confidence of the domestic economy.
This will reduce net capital outflow, causing aggregate expenditures to 1. __.
To respond and keep the real exchange rate constant, the central bank has to 2. __ the real interest rate so that net capital outflows increase to the original value
|
|
Definition
|
|
Term
| __ - a method of controlling foreign exchange rates where central bank purchases and sells foreign currencies. |
|
Definition
| Foreign Exchange Interventions |
|
|
Term
| When a central bank buys foreign currency the net capital outflows ___, causing the real exchange rate to ___. |
|
Definition
|
|
Term
| When a central bank sells foreign currency the net capital outflows ___, causing the real exchange rate to ___. |
|
Definition
|
|
Term
| When the central bank fixes the exchange rate, it fixes the __ rate. |
|
Definition
|
|
Term
Formula for the __ Exchange Rate:
ε = eP / P*
P = _
P* = _
ε = _
e = _
|
|
Definition
P = Domestic price level
P* = Foreign Price Level
ε = Real Exchange Rate
e = Nominal Exchange Rate
|
|
|
Term
|
___ exchange rate - policy that allows the exchange rate to fluctuate in response to economic stocks
__ exchange rate - policy that holds the exchange rate at a constant level
|
|
Definition
|
|
Term
__ inflation target - a range or rate that a central bank publically announces as its long-run goal for inflation
__ inflation target -an inflation level that policymakers seek without a formal announcement |
|
Definition
|
|
Term
|
Inflation stability is desirable because it will ___ the social costs, especially as it relates to loan markets and relative price variability.
|
|
Definition
|
|
Term
Taylor Rule:
r = r n +ayẎ + Aπ(π – πT)
r = ___
rn = ___
Ẏ =__ (formula for Ẏ = __)
π - πτ = ___
ay, aπ = __
|
|
Definition
r = real interest rate
rn = neutral interest rate
Ẏ = output gap (Ẏ = (Y-Y*)/Y*
π - πτ = inflation gap
ay, aπ = confidence that represent how strongly the interest rate responds to changes in the output (ay) and inflation gaps (aπ)
|
|
|
Term
| The Taylor Rule ___ the economy after an expenditure shock. |
|
Definition
|
|
Term
Okun's Law
Ẏ = -2(U – U*)
U = __
U* = __
|
|
Definition
U = Unemployment Rate
U* = Natural Rate of Unemployment |
|
|
Term
| Most central banks use __-term interest rate as their policy instrument, where they use interest rate adjustments to attempt to achieve output and inflation stability. |
|
Definition
|
|
Term
| We don't actually know what the Implicit Inflation Target is, but we believe that it is __%. |
|
Definition
|
|
Term
___ -monetary policy that is adjusted at each point in time based on the judgment of the central bank (This is how the FOMC operates)
|
|
Definition
|
|
Term
| ___ - a simple rule or formula that tells the central bank how to run policy |
|
Definition
|
|
Term
___ -a form of monetary policy in which the central bank announces an explicit target for the inflation rate – achieving this target is the bank’s primary goal.
First country to adopt this policy was ___ in 1989, followed by __.
|
|
Definition
Inflation Targeting
New Zealand
Canada |
|
|
Term
2 types of inflation targeting:
__ targeting -meeting the target is the only goal of the central bank
__ targeting - central bank is concerned about both meeting the target and stabilizing output – inflation targeting is not a rigid as a traditional policy rule |
|
Definition
|
|
Term
Three reasons for a move to be more transparent:
1. Central bankers need to be ____ and have a duty to explain their actions to the public
2. Effect of transparency on ___ expectations
3. Central bank can have better control over long-term ___ by being able to guide short-term ___ |
|
Definition
held accountable
inflation rate
Interest Rates
Interest Rates |
|
|
Term
If output increases, then output gap ___. Taylor rule says that the real interest rate should ___.
If the inflation rate DECREASES then the rule says to ___ the real interest rate. |
|
Definition
Increases. Increase.
Decrease |
|
|
Term
|
if gaps are both (the inflation rate equals the target inflation rate and output is at potential), then the real interest rate is equal to the ___ rate.
|
|
Definition
|
|
Term
After-Tax Real Interest Rate - the interest rate adjusted for both taxes and inflation – DECREASES as inflation rate INCREASES
ȓ = (1 – τ)r-τπ
ȓ =
τ =
r
π =
|
|
Definition
ȓ = After-tax real interest rate
τ = tax rate
r = real interest rate
π = inflation rate
|
|
|
Term
| When inflation occurs, nominal interest rates __, and taxes __. |
|
Definition
|
|
Term
| Hyper-inflation is defined as more than __% per month (or roughly ___% per year) |
|
Definition
|
|
Term
| A common cause of hyper inflation is __ __. |
|
Definition
|
|
Term
| ____ - a situation in which output is below potential at a nominal interest rate of zero (a real interest rate of –π), eliminating the central bank’s usual ability to raise output and inflation. |
|
Definition
|
|
Term
|
If the real interest rate is at the lower bound and the economy goes into recession, a ____ has occurred.
|
|
Definition
|
|
Term
The solution to get out of a liquidity trap is:
Expansionary Fiscal Policy.
This will ___ aggregate expenditures, which ___ aggregate output. |
|
Definition
|
|
Term
|
Money growth rate INCREASES–-> nominal interest rate __1__ –-> real interest rate __2__ (assuming constant inflation rate expectations) --> __3__ aggregate output -->__4__ inflation rate on Philip’s curve
|
|
Definition
1. Decreases
2. Decreases
3. Increases
4. Increases |
|
|
Term
| __ - Its main purpose was to lay the responsibility of economic stability of inflation and unemployment onto the federal government |
|
Definition
|
|
Term
| Legislation in the United States, enacted in 1978, that sought to curtail the stagflation that marked most of the 1970s. The Act set up four goals for the federal government: full employment, economic growth, balanced budget, and elimination of inflation. It stated that the government preferred private investment to accomplish these goals, but, if it was not forthcoming, then the government could make investments to spur demand and, if necessary, create make-work jobs along the lines of the New Deal. |
|
Definition
| Humphrey-Hawkins Act of 1978 |
|
|
Term
The __ Book has two parts:
Part 1 contains Board of Governors staff’s estimates of current economic variables and gives interpretations of what the data means
Part 2 contains staff’s forecast of the main economic variables
|
|
Definition
|
|
Term
The __ Book contains 2 parts:
Part 2 contains changes of financial markets since previous FOMC meeting
Part 2 contains 3 possible options and reviews the pros and cons of each choice
|
|
Definition
|
|
