Term
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Definition
| Unemployment that arises from a mis-match between the skill set of the worker and the jobs that are available |
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Term
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Definition
| Unemployment that arises because of scarcity of information |
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Term
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Definition
| Percentage of the labor force that is activaly looking for work and cannot find it in a given period |
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Term
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Definition
| The employed as a percentage of the total population over the age of sixteen |
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Term
| Natural Rate of Unemployment (voluntary unemployment) |
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Definition
| That rate of unemployment that is consistent with full employment |
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Term
| 5 Reasons why full unemployment is undesirable |
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Definition
1) Occupational Freedom: workers have the freedom to quit
2) Employer freedom: it is the right of the employer to fire a worker
3) technology is dynamic and shifts production
4) Changes in consumer values cause unemployment
5) jobs are not an end in themselves but are the means to an end |
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Term
| 5 Assumptions of the Keynesian Spending Model |
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Definition
1) Economy is stuck in an under-employment equilibrium (mass idleness of goods, labor and capital)
2) People are hoarding money on a large scale--the only economic good people demand is money
3) Producers, consumers and workers completely lack expectations of changes in prices
4) Price system is completely broken in labor, commodity and production markets (no microeconomics)
5) supply is given--economy is driven by demand |
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Term
| Keynesian Equation for Real GNP |
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Definition
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Term
| Keynesian Spending Multiplier |
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Definition
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Term
| 9 Classical Criticisms of the Keynesian Model |
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Definition
1) Confuses surpluses with free goods
2) Predicated on rigid wages and prices
3) no microeconomics in the macro model
4) Assumes that the government knows exactly where the economy is at any given point
5) Assumes inflation and unemployment are trade-offs
6) Believes that the supply-side of the market is irrelevant
7)Assumes that the government has its own resources to stimulate the economy
8) No expectations built into the macro model
9) Devoid of empirical evidence |
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Term
| 3 Monetary Instruments of the Fed |
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Definition
1) Open-Market Operations
2) Discount Rate
3) Reserve Requirements |
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Term
| The Federal Reserve is a _________ Reserve System |
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Definition
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Term
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Definition
| Currency in circulation + all bank reserves - vault cash that cannot be lent |
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Term
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Definition
| Deposits with the Fed + required reserves + excess reserves |
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Term
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Definition
| Monetary base X Money multiplier |
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Term
| Smoot-Hawley Tariff (1930) |
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Definition
| Virtually ended all international trade; Passed by the Hoover administration |
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Term
| Roosevelt Administration: Revenue Act |
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Definition
| Doubled income taxes in the United States |
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Term
| Roosevelt Administration: AAA (1933) |
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Definition
| Agricultural Adjustment Act-- predicated on the assumption of general overproduction of agricultural goods--paid farmers to destroy their crops |
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Term
| Roosevelt Administration: National Industrial Recovery Act (1933) |
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Definition
Created the minimum wage
monopolization of industy
set production quotas that restricted output and raised prices
Shortened the workweek and raised wages |
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Term
| Roosevelt Administration: Wagner Act |
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Definition
Unionization
predicated on the assumption that high wage rates = high purchasing power |
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Term
| Roosevelt Administration: Fair Labor Standards Act (FISA) |
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Definition
| re-instituted the minimum wage |
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Term
| Roosevelt Administration: WPA, Welfare, unemployment compensation |
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Definition
"works project adnimistration"
did not reduce unemployment |
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Term
| Roosevelt Administration: Taxes |
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Definition
| Income, estate, corporate, social security |
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Term
| Roosevelt Administration: Action of the Federal Reserve |
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Definition
| Contracted the money supply-- 6% increase in unemployment |
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Term
| "Studies in the Quantity Theory of Money" |
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Definition
| Milton Friedman--restated MV = PQ |
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Term
| "A Monetary History of the United States" |
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Definition
Friedman and Schwartz
Found "M" to be the most unstable variable in the quantity theory |
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Term
| "The Monetary Dynamics of Hyperinflation" |
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Definition
Cagan
Only after prices have changed does the expectation of changes cause the velocity of money to change |
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Term
| Permanent Income Hypothesis |
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Definition
| It is not the current income that determines the consumption function but the expected permanent income |
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Term
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Definition
| It is only unexpected inflation that stimulates the economy |
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Term
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Definition
| There are multiple shifting Phillips' Curves as workers learn that there has been inflation |
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Term
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Definition
1) In the short-run, you can always trick workers into real wage rate reductions with unexpected inflation. In the long-run, you cannot.
2) When there is large scale unemployment, changes in aggregate demand show up first in changes in real output. Once full employment is approached, any increases in aggregate demand show up in higher nominal prices with inflation. |
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Term
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Definition
1) Erratic monetary policy is the cause of economic instabilities
2) money instability comes from the money demand, not the money supply
3) The free-market is basically stable, government is what creates the economic instability
4) Since the government doesn't know where the economy is at any given time, the best it can do is follow predictable rules for fiscal policy.
5) Monetary transmission mechanism is between money supply and money demand
6) everything the government spends must come from the private sector
7) The nominal interest rate is the real interest rate impounded with inflation expectations
8) Macroeconomics without a foundation of microeconomics = illusion
9) Government cannot improve economic performance by intervention in any markets |
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