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MACRO
FINAL
52
Business
Undergraduate 3
04/30/2018

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Term
agg demand ince
Definition
Suppose that the White House decides to sharply increase military spending without decreasing government spending in other areas. This measure​ would cause
Term
an​ increase, since the fall in prices was a positive supply shock that lowered production costs.
Definition
Oil prices declined in the summer of​ 2008, following months of increases since the winter of 2007. Considering only this fall in oil​ prices, the impact on the​ short-run aggregate supply was
Term
unchanged
Definition
If the oil price decline is viewed as a temporary​ shock, the anticipated impact on the​ long-run aggregate supply is
Term
demand shocks
Definition
exogenous events that cause shifts in the aggregate demand curve.
Term
negative demand shocks
Definition
events that induce planned spending at any given inflation rate to fall, thus pushing the AD curve leftward
Term
positive demand shocks
Definition
events that induce planned spending at any given rate to rise, thus pushing the AD curve rightward
Term
examples of positive demand shocks
Definition
-The Federal Reserve autonomously loosens monetary policy
-Sudden optimism within the business community induces a big jump in planned business expenditures.
-War breaks​ out, forcing the government to substantially enhance defense expenditures.
Term
examples of negative demand shocks
Definition
-The government imposes much higher taxes on households.
-Consumer pessimism deepens as the media reports disappointing news about the economy.
-Foreign economies F crash​, producing a substantial drop in net exports.
Term
non-examples of demand shocks
Definition
-The government adopts ​ill-advised regulations that diminish the​ economy's overall efficiency.
-A temporary disruption in oil production occurs, pushing oil prices higher
-The​ nation's labor unions push forcefully for higher wages and expanded benefits.
Term
supply shocks
Definition
exogenous events that cause shifts in the aggregate supply curve
Term
positive supply shocks
Definition
events that induce, at any given inflation rate, an increase in supply, which shifts the AS curve rightward
Term
negative supply shocks
Definition
events that induce, at any given inflation rate, a decrease in supply, which shifts the AS curve leftward
Term
permanent supply shocks
Definition
events that ultimately make output and inflation different, mostly associated with regulations and technology
Term
examples of positive supply shocks
Definition
-The U.S. dollar sharply appreciates​, suddenly lowering the prices of imported inputs
-Phenomenally Phenome good weather leads to outstanding harvests of most grains.
-Startling advances in nanotechnology dramatically raise productivity across the economy.
Term
examples of negative supply shocks
Definition
-The government adopts ​ill-advised regulations that diminish the​ economy's overall efficiency.
-The​ nation's labor unions aggressively press for higher wages and expanded benefits.
-Hurricanes blast the U.S. Gulf​ Coast, seriously damaging refining facilities.
Term
non-examples of supply shocks
Definition
-The Federal Reserve autonomously tightens monetary policy.
-Foreign economies rebound​, producing a substantial rise in net exports.
-Sudden optimism among firms induces a big jump in planned business expenditures.
Term
lower output and more inflation
Definition
short run effects of negative supply shocks
Term
output unchanged, inflation lower, and the real interest rate unchanged
Definition
in the long run, autonomous tightening of monetary policy leaves...
Term
stabilizing economic activity and price stability
Definition
what are the two primary objectives of macroeconomic stabilization policy?
Term
With monetary policy- as fiscal policy takes longer to deliberate and enact.
Definition
is stabilization policy more likely to be conducted with monetary policy or fiscal policy? Why?
Term
an aggregate demand shock and/or a permanent supply shock
Definition
in what situations will the divine coincidence prevail?
Term
Shifting the aggregate demand curve to regain price stability will move the economy farther away from potential output.
Definition
What happens when policy makers respond to a temporary supply​ shock?
Term
an increase in the real interest rate from autonomous monetary policy tightening
Definition
shifting the MP curve leftward illustrates..
Term
the economy adjusts slowly
Definition
policy activists generally believe that
Term
because prices, especially wages, are sticky
Definition
why do activists believe the economy's self- correcting mechanism is slow
Term
cost push inflation, where unemployment rate is greater than the natural rate
Definition
a temporary negative supply shock would tend to result in
Term
demand pull inflation, where unemployment rate is less than the natural rate
Definition
increasing aggregate demand to reach an output target above potential output would tend to result in
Term
The Taylor rule implies that the Federal Reserve should increase the real interest rate as inflation​ increases, and the Fed tends to do the same in its policy.
Definition
How does the Taylor Rule relate to the monetary policy curve?
Term
when at 0, the MP curve becomes a negative relationship, which results in lower inflation producing a higher real interest rate and lower planned spending
Definition
How does the policy rate hitting a floor of zero lead to an upward sloping aggregate demand curve?
Term
because the falling inflation produced by a negative output gap produces higher interest rates when at the ZLB. This increase lowers planned spending and widens the output gap
Definition
why does the self correcting mechanism stop working when the policy rate hits the zero lower bound?
Term
it would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate
Definition
if the economy is in a long-run equilibrium when the Federal Reserve decides decides that its inflation target is too low and chooses to raise it...
Term
target any inflation rate in the long run
Definition
through autonomous monetary policy adjustments the Federal Reserve can...
Term
surplus
Definition
when government revenue exceeds spending, the government runs a ...
Term
deficit
Definition
when government spending exceeds revenue, the government experiences a ...
Term
the govt can finance the deficit by selling bonds or by issuing more money
Definition
What are the two main ways the government can finance deficit​ spending?
Term
the us govt favors selling bonds
Definition
which method of finance deficit spending is more commonly used between selling bonds or issuing more money?
Term
by increasing govt spending or by cutting taxes
Definition
how can government increase the quantity of aggregate output demanded by changing govt spending and taxes?
Term
an additional dollar of demand for output
Definition
each additional dollar of govt spending represents ..
Term
a portion of each dollar of increased disposable income will be saved rather than spent to buy output
Definition
each additional dollar of tax cuts generates less than an additional dollar of demand for output because..
Term
supply siders believe that tax cuts shift the AD and LRAS curves to the right, increasing aggregate output in both the short run and the long run
Definition
how does a supply side analysis of the effects of a tax cut differ from one that focuses solely on aggregate demand?
Term
the rise in inflation from a fiscal expansion triggers a fall in the real interest rate, the monetary authorities actually prefer that the policy rate be lower, and the monetary authorities no longer follow the taylor principle
Definition
fiscal policy multipliers are higher when the policy rate has hit the floor of the zero lower bound because once the floor is hit ...
Term
financing o the deficit
Definition
whether budget deficits lead to inflation in the long run depends on the...
Term
if a country cannot finance the deficit by issuing bonds and instead resorts to financing the deficit by printing money
Definition
what determines whether budget deficits will result in inflation in the long run
Term
-The revenue from seignorage will eventually decrease as it happens with any tax when the tax rate is high
-A high inflation rate will lead to a tax on the holders of money balances.
-The government will use​ "new money" to purchase real goods and​ services, possibly creating more inflation.
Definition
what would happen to revenue from seignorage if the inflation rate is very high?
Term
it holds that tax cuts have no effect on spending and national saving because consumers are forward looking, so when taxes are cut they save their increase in disposable income because they recognize that today's tax cuts means higher taxes tomorrow
Definition
how does the Ricardian equivalence view the effects of tax cuts and budget deficits?
Term
when consumers recognize tax cuts make them no richer, they do not spend more
Definition
which of the following is true of the Ricardian equivalence view?
Term
during the 2000s, existing large budget deficits and a large fiscal stimulus of the Obama administration will likely cause the ratio to fall
Definition
which of the following factors has not influenced the debt-to-gdp ratio in the United States since 1940?
Term
-wages and prices will rise more rapidly and the AS curve will shift to the left
-there is excess tightness in the labor market
-output is above its potential level
Definition
if the unemployment rate is below its natural rate, then...
Term
quantity demanded equals quantity supplied at a point where inflation equals expected inflation
Definition
in the Ad-AS framework, long run equilibrium implies that
Term
-an eventual increase in aggregate supply for any inflation rate if the central bank does not respond by lowering interest rates
-a permanently lower equilibrium inflation rate if the central bank does not respond by lowering interest rates
-a short run decrease in output
Definition
a negative shock in aggregate demand will likely result in
Term
output is permanently lowered whether the central bank reacts or not to a short run decrease in output
Definition
when a permanent negative supply shock hits the economy in the long run...
Term
will tend to have little economic effect
Definition
according to Ricardian Equivalence theory, a tax cut...
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