# Shared Flashcard Set

## Details

ECON 2035 Final Exam R. Stahl (2)
ECON 2035 Final Exam R. Stahl (2) incl. Current Events
36
Economics
12/10/2011

## Additional Economics Flashcards

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
 1. decrease   2. decrease
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
 Increase   Decrease
Term
 When a central bank sells foreign currency the net capital outflows ___, causing the real exchange rate to ___.
Definition
 Decrease   Increase
Term
 When the central bank fixes the exchange rate, it fixes the __ rate.
Definition
 Nominal
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
 Floating   Fixed
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
 Explicit   Implicit
Term
 Inflation stability is desirable because it will ___ the social costs, especially as it relates to loan markets and relative price variability.
Definition
 minimize
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
 stabilizes
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
 short
Term
 We don't actually know what the Implicit Inflation Target is, but we believe that it is __%.
Definition
 2%
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
 Discretionary Policy
Term
 ___ - a simple rule or formula that tells the central bank how to run policy
Definition
 Monetary Policy Rule
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
 Strict   Flexible
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
 Neutral
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
 rise   rise
Term
 Hyper-inflation is defined as more than __% per month (or roughly ___% per year)
Definition
 50%/mo.   13,000%/yr.
Term
 A common cause of hyper inflation is __ __.
Definition
 budget deficits
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
 Liquidity Trap
Term
 If the real interest rate is at the lower bound and the economy goes into recession, a ____ has occurred.
Definition
 Liquidity Trap
Term
 The solution to get out of a liquidity trap is: Expansionary Fiscal Policy. This will ___ aggregate expenditures, which ___ aggregate output.
Definition
 Increase   Increase
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
 Employment Act of 1946
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
 Green
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
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