Term
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Definition
| The government's spending and taxing policies. |
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Term
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Definition
| The behavior of the Federal Reserve concerning the nation's money supply. |
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Term
| Discretionary Fiscal Policy |
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Definition
| Changes in taxes or spending that are the result of deliberate changes in government policy. |
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Term
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Definition
| Taxes paid by firms and households to the government minus transfer payments made to households by the government. |
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Term
| Disposable, or After-tax, Income (Yd) |
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Definition
| Total income minus net taxes: Y-T. |
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Term
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Definition
| The difference between what a government spends and what it collects in taxes in a given period: G-T. |
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Term
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Definition
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Term
| Leakages/Injections Approach to Equilibrium |
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Definition
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Term
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Definition
| The ratio of change in the equilibrium level of output to a change in taxes. -(MPC/MPS) |
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Term
| Government Spending Multiplier |
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Definition
| The ratio of the change in the equilibrium level of output to change in government spending. (1/MPS) |
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Term
| Balanced-Budget Multiplier |
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Definition
| The ratio of change in the equilibrium level of output to a change in government spending where the change in government spending is balanced by a change in taxes so as not to create any deficit. |
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Term
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Definition
| The budget of the federal government. |
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Term
| Federal Surplus (+) or Deficit (-) |
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Definition
| Federal government receipts minus expenditures. |
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Term
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Definition
| The total amount owed by the federal government. |
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Term
| Privately Held Federal Debt |
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Definition
| The privately held (non-government-owned) debt of the U.S. government. |
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Term
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Definition
| Revenue and expenditure items in the federal budget that automatically change with the state of the economy. |
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Term
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Definition
| The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion. |
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Term
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Definition
| What the federal budget would be if the economy were producing at a full-employment level of output. |
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Term
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Definition
| The deficit that remains at full-employment. |
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Term
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Definition
| The deficit that occurs because of a downturn in the business cycle. |
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Term
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Definition
| The direct exchange of goods and services for other goods and services. |
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Term
| Medium of Exchange or Means of Payment |
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Definition
| What sellers generally accept and buyers usually use to pay for goods and services. |
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Term
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Definition
| An asset that can be used to transport purchasing power from one time period to another. |
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Term
| Liquidity Property of Money |
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Definition
| The property of money that makes it a good medium of exchange as well as a store of value: It is portable and readily accepted and thus easily exchanged for goods. |
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Term
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Definition
| Items used as money that also have intrinsic value in some other use. |
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Term
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Definition
| Items designated as money that are intrinsically worthless. |
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Term
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Definition
| Money that a government has required to be accepted in settlement of debts. |
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Term
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Definition
| The decrease in the value of money that occurs when its supply is increased rapidly. |
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Term
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Definition
| Money that can be directly used for transactions. |
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Term
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Definition
| Close substitutes for transactions money, such as savings accounts and money market accounts. |
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Term
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Definition
| M1 plus savings accounts, money market accounts, and other near monies. |
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Term
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Definition
| Banks and other institutions that act as a link between those who have money to lend and those who want to borrow money. |
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Term
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Definition
| Occurs when many of those who have claims on a bank (deposits) present them at the same time. |
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Term
| Federal Reserve Bank, "the Fed" |
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Definition
| The central bank of the United States. |
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Term
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Definition
| The deposits that a bank has at the Federal Reserve bank plus its cash on hand. |
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Term
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Definition
| The percentage of its total deposits that a bank must keep as reserves at the Federal Reserve. |
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Term
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Definition
| The difference between a bank's actual reserves and its required reserves. |
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Term
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Definition
| The multiple by which deposits can increase for every dollar increase in reserves: equal to 1 divided by the required reserve ratio. |
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Term
| Federal Open Market Committee (FOMC) |
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Definition
| A group composed of the seven members of the Fed's Board of Governors, the president of the New York Federal Reserve Bank, and 4 of the other 11 district bank presidents on a rotating basis; it sets goals concerning the money supply and interest rates and directs the operation of the Open Market Desk in New York. |
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Term
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Definition
| One of the functions of the Fed: It provides funds to troubled banks that cannot find any other sources of funds. |
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Term
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Definition
| Interest rate that banks pay to the Fed to borrow from it. |
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Term
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Definition
| The pressure that in the past the Fed exerted on member banks to discourage them from borrowing heavily from the Fed. |
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Term
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Definition
| The fee that borrowers pay to lenders for the use of their funds. |
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Term
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Definition
| The annual interest payment on a loan expressed as a percentage of the loan. Equal to the amount of interest received per year divided by the amount of the loan. |
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Term
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Definition
| The main reason that people hold money-to buy things. |
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Term
| Nonsynchronization of Income and Spending |
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Definition
| The mismatch between the timing of money inflow to the household and the timing of money outflow for household expenses. |
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Term
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Definition
| One reason for holding bonds instead of money: Because the market value of interest-bearing bonds is inversely related to the interest rate, investors may wish to hold bonds when interest rates are high with the hope of selling them when interest rates fall. |
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Term
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Definition
| Fed policies that contract the money supply in an effort to restrain the economy. |
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Term
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Definition
| Fed policies that expand the money supply in an effort to stimulate the economy. |
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Term
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Definition
| The market in which goods and services are exchanged and in which the equilibrium level of aggregate output is determined. |
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Term
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Definition
| The market in which financial instruments are exchanged and in which the equilibrium level of the interest rate is determined. |
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Term
| Expansionary Fiscal Policy |
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Definition
| An increase in government spending or a reduction in net taxes aimed at increasing aggregate output (income) (Y). |
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Term
| Expansionary Monetary Policy |
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Definition
| An increase in the money supply aimed at increasing aggregate output (income) (Y). |
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Term
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Definition
| The tendency for increases in government spending to cause reductions reductions in private investment spending. |
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Term
| Interest Sensitivity or Insensitivity of Planned Investment |
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Definition
| The responsiveness of planned investment spending to changes in the interest rate. |
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Term
| Contractionary Fiscal Policy |
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Definition
| A decrease in government spending or an increase in net taxes aimed at decreasing aggregate output (income) (Y). |
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Term
| Contractionary Monetary Policy |
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Definition
| A decrease in the money supply aimed at decreasing aggregate output (income) (Y). |
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Term
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Definition
| The combination of monetary and fiscal policies in use at a given time. |
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Term
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Definition
| The total demand for goods and services in the economy. |
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Term
| Aggregate Demand (AD) Curve |
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Definition
| A curve that shows the negative relationship between aggregate output (income) and the price level. |
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Term
| Real Wealth, or Real Balanace, Effect |
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Definition
| The change in consumption brought about by a change in real wealth that results from a change in the price level. |
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Term
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Definition
| The total supply of all goods and services in an economy. |
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Term
| Aggregate Supply (AS) Curve |
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Definition
| A graph that shows the relationship between the aggregate quantity of output supplied by all firms in an economy and the overall price level. |
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Term
| Cost Shock, or Supply Shock |
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Definition
| A change in costs that shifts the aggregate supply (AS) curve. |
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Term
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Definition
| The price level at which the aggregate demand and aggregate supply curves intersect. |
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Term
| Potential Output, or Potential GDP |
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Definition
| The level of aggregate output that can be sustained in the long run without inflation. |
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Term
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Definition
| Inflation that is initiated by an increase in aggregate demand. |
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Term
| Cost-Push, or Supply-Side, Inflation |
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Definition
| Inflation caused by an increase in costs. |
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Term
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Definition
| Occurs when output is falling at the same time prices are rising. |
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Term
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Definition
| A period of very rapid increases in the price level. |
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Term
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Definition
| The portion of unemployment that is due to the normal working of the labor market; used to denote short-run job/skill matching problems. |
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Term
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Definition
| The portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries. |
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Term
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Definition
| The increase in unemployment that occurs during recessions and depressions. |
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Term
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Definition
| A graph that illustrates the amount of labor that firms want to employ at each given wage rate. |
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Term
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Definition
| A graph that illustrates the amount of labor that households want to supply at each given wage rate. |
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Term
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Definition
| The downward rigidity of wages as an explanation for the existence of unemployment. |
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Term
| Social, or Implicit, Contracts |
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Definition
| Unspoken agreements between workers and firms that firms will not cut wages. |
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Term
| Relative-Wage Explanation of Unemployment |
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Definition
| An explanation for sticky wages (and therefore unemployment): If workers are concerned about their wages relative to other works in other firms and industries, they may be unwilling to accept a wage cut unless they know that all other workers are receiving similar cuts. |
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Term
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Definition
| Employment contracts that stipulate workers' wages, usually for a period of 1 to 3 years. |
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Term
| Cost-of-Living Adjustments (COLAs) |
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Definition
| Contract provisions that tie wages to changes in the cost of living. The greater the inflation rate, the more wages are raised. |
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Term
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Definition
| An explanation for unemployment that holds that the productivity of workers increases with the wage rate. If this is so, firms may have an incentive to pay wages above the market-clearing rate. |
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Term
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Definition
| Laws that set a floor for wage rates-that is, a minimum hourly rate for any kind of labor. |
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Term
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Definition
| The percentage change in the price level. |
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Term
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Definition
| A graph showing the relationship between the inflation rate and the unemployment rate. |
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Term
| Natural Rate of Unemployment |
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Definition
| The unemployment that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment and structural unemployment. |
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Term
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Definition
| The nonaccelerating inflation rate of unemployment. |
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Term
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Definition
| Describes both monetary and fiscal policy, the goals of which are to smooth out fluctuations in output and employment and to keep prices as stable as possible. |
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Term
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Definition
| Delays in the economy's response to stabilization policies. |
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Term
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Definition
| The time it takes for policy makers to recognize the existence of a boom or a slump. |
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Term
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Definition
| The time it takes to put the desired policy into effect once economists and policy makers recognize that the economy is in a boom or a slump. |
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Term
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Definition
| The time that it takes for the economy to adjust to the new conditions after a new policy is implemented; the lag that occurs because of the operation of the economy itself. |
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Term
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Definition
| When a monetary authority chooses its interest rate values with the aim of keeping the inflation rate within some specified band over some specified horizon. |
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Term
| Gramm-Rudman-Hollings Act |
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Definition
| Passed by the U.S. Congress and signed by President Reagan in 1986, this law set out to reduce the federal deficit by $36 billion per year, with a deficit of zero slated by 1991. |
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Term
| Deficit Response Index (DRI) |
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Definition
| The amount by which the deficit changes with a $1 change in GDP. |
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Term
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Definition
| Something that causes a negative shift in consumption or investment schedules or that leads to a decrease in U.S. exports. |
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Term
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Definition
| Revenue and expenditure items in the federal budget that automatically change with the economy in such a way as to destabilize GDP. |
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