Term
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Definition
| transactions that comprise of the buying and selling of assets |
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Term
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Definition
International payments for goods and services (i.e. exports and imports), factor income (e.g. repatriated profits), and transfers (e.g. direct cash transfers between countries) |
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Term
| Merchandise Account Balance |
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Definition
| Exports of goods - Imports of goods (ONLY) |
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Term
| Purchasing power parity (PPP) |
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Definition
| The nominal exchange rate at which a given basket of goods and services would cost the same in each country |
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Term
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Definition
Non-Accelerating Interest Rate of Unemployment, levels of unemployment below which inflation rises |
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Term
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Definition
Original cost in U.S. dollars x (New cost/Old cost) |
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Term
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Definition
Country A’s currency per U.S. dollar x (price level of U.S./price level of Country A) |
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Term
Short-run Phillips curve: a FALL in commodities prices leads to.... |
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Definition
a POSITIVE supply shock, which lowers the aggregate price level and reduces inflation. |
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Term
Short-run Phillips curve: a RISE in commodities prices leads to...
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Definition
a NEGATIVE supply shock, which raises aggregate price level and increases inflation |
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Term
| What does the Long-Run Phillips curve look like? |
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Definition
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Term
| Why won't people lend money at a negative nominal interest rate? |
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Definition
| People are better off simply holding their cash |
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Term
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Definition
inflation caused by an increase in the price of an input with economy-wide importance
Leftward shift of the SRAS curve (negative supply shock) |
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Term
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Definition
inflation caused by a rightward shift of the AD curve
“too much money chasing too few goods” |
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Term
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Definition
% difference between actual output and potential output |
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Term
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Definition
there is an inverse relationship between the output gap and the difference between actual and the natural rate of unemployment |
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Term
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Definition
Illustrates the negative relationship between inflation and unemployment in the short run |
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Term
| How does a negative supply shock affect the short run Phillip's curve? |
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Definition
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Term
| How does a positive supply shock affect the short-run Phillip's curve? |
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Definition
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Term
| What are two things that shift the short-run Phillip's curve? |
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Definition
| supply shocks and expected future inflation |
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Term
| How does higher expected future inflation affect the short-run Phillip's curve? |
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Definition
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Term
| How does lower expected future inflation affect the short-run Phillip's curve? |
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Definition
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Term
| Current Account + Financial Account = |
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Definition
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Term
| How do you calculate GDP? |
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Definition
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Term
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Definition
capital will tend to flow from countries with low interest rates to countries with high interest rates |
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Term
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Definition
monetary policy is ineffective because the nominal interest rate cannot fall below zero |
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Term
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Definition
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Term
What does the classical model of the price level assume?
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Definition
the real quantity of money (M/P) is always at its long-run equilibrium value |
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Term
| Are discouraged workers considered unemployed? |
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Definition
| No, they are no longer looking for a job |
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Term
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Definition
| those working part-time that are able to work full-time but unable to find jobs |
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Term
| Natural rate of unemployment |
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Definition
| Frictional + Structural unemployment rates |
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Term
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Definition
| Actual Unemployment Rate - Natural Unemployment Rate |
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Term
| What is the consumption function? |
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Definition
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Term
| How do you calculate the multiplier? |
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Definition
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Term
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Definition
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Term
| Change in GDP by transfers |
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Definition
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Term
When MPC is large, multiplier is.... |
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Definition
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Term
When MPS is small, multiplier is... |
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Definition
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Term
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Definition
| change in Consumer spending/disposable income |
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Term
| Short-Run Aggregate Supply Curve (SRAS) |
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Definition
| Upward sloping because of sticky wages, constant unit costs |
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Term
| Long-Run Aggregate Supply Curve (LRAS) |
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Definition
| All prices (even wages) flexible in the long run. Vertical line at potential output |
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Term
| In the long run, inflationary and recessionary gaps are self-correcting. Why? |
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Definition
| Nominal wages rise in order to close an inflationary gap or fall in order to close recessionary gap |
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Term
| In the long run, nominal wages are: |
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Definition
| Flexible because contracts and informal agreements are renegotiated in the long run. |
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Term
| What is the effect of Expansionary Fiscal Policy? |
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Definition
| Increases AD by shifting curve to the right |
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Term
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Definition
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Term
| What is the effect of Contractionary Fiscal Policy? |
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Definition
| Decreases AD by shifting curve to the left |
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Term
| What are the tools of fiscal policy? |
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Definition
| Taxes, Transfers, Government Spending |
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Term
| What happens when the Fed sells T-bills? |
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Definition
| decreases monetary supply, increases the interest rate |
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Term
| What happens when the Fed buys T-bills? |
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Definition
| increases money supply, decreases interest rate |
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Term
| Expansionary monetary policy |
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Definition
| Need a fall in interest rates to have AD increase. Increase the MS by buying T-bills on the open market |
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Term
| Contractionary monetary policy: |
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Definition
| Need a increase in interest rates to have AD decrease. Decrease the MS by selling T-bills on the open market |
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Term
| Planned investment spending: |
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Definition
investment spending that businesses intend to undertake in a given period |
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Term
| Unplanned Inventory Investment |
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Definition
| When sales differ from expectations |
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Term
| If sales are less than expected, how does this affect the Unplanned Inventory Investment? |
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Definition
| positive UII; increase inventories |
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Term
| If sales are more than expected, how does this affect the Unplanned Inventory Investment? |
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Definition
negative UII; decrease
inventories to meet current sales demand |
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Term
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Definition
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Term
| How are investment spending and the interest rate correlated? |
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Definition
| Negatively (they move in opposite directions) |
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Term
| What is the main policy tool of the Federal Reserve? |
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Definition
| Changing the interest rate |
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Term
| What is the opportunity cost of holding money? |
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Definition
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Term
| What happens when the opportunity cost of money increases? |
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Definition
| Investment spending goes down |
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Term
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Definition
| asset we hold for the purpose of acquiring goods and services. |
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Term
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Definition
| asset to hold purchasing power over time |
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Term
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Definition
| common measure on which to base our economics decisions |
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Term
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Definition
money that has intrinsic value
Ex: gold and silver coins |
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Term
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Definition
money that has no intrinsic value
but is guaranteed to be converted to something with value
Ex: US money during the gold standard |
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Term
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Definition
no intrinsic value but society agrees that it is the
official means of payment
Ex: current paper money in the US |
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Term
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Definition
| Currency in circulation + checkable demand deposits + traveler’s checks |
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Term
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Definition
M1 + “near-moneys”
Near-moneys: assets that can easily be converted into cash but cannot be directly used as a medium of exchange
Ex: savings accounts, time deposits (CDs), money market accounts |
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Term
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Definition
| Financial intermediary that uses the liquid deposits it takes in from households to finance the illiquid investments of borrowers |
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Term
| How do banks create money? |
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Definition
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Term
| What is the required reserve ratio in the US? |
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Definition
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Term
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Definition
| the expected real interest rate is unaffected by the expecture future rate of inflation |
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