Modules 30-36

What is the budget balance equation?

T-G-TR

If the economy is operating well below potential output, what is likely?

The cyclically adjusted budget balance is smaller than the actual budget balance

According to money neutrality, changes in the money supply will affect what in the long run?

aggregate price level

cyclically adjusted budget balance is?

an estimate of what the budget balance would be if real GDP were exactly equal to potential output

When the federal government finances a deficit, the government may

borrow funds

government spending that results in persistent deficits, government borrowing, and reduction in private investment is referred as

crowding out

What is a problem with persistent increases in government debt

government borrowing may crowd out private investment

If the Fed buys T bills the money supply will?

increase

When a central bank prints money to pay its government debts, causing rising prices that erode the purchasing power of money held by the public, it is called:

inflation tax

If an economy has just suffered a serious recession but Real GDP is expanding once again, we can conclude the unemployment rate will:

initially rise, if people who were previously discouraged enter the work force but do not find jobs right away.

In the long run, any given percentage increase in the money supply:

leads to an equal percentage increase in the Money supply

Monetary neutrality implies that in the long run

monetary policy does not affect the level of economic activity.

When the Treasury Department borrows from the public to finance the government's purchases of goods and services, and the Fed purchases the debt back from the public in the form of Treasury bills, it is known as:

monetizing the debt

The difference between real GDP and potential GDP is known as the

output gap

if government decides to print money to finance a deficit:

people who currently hold money will be penalized as inflation increases.

an inflation tax is the result of?

printing money to cover a budget deficit

economists refer to the revenue generated by the governments right to print to money

seigniorage

The budget balance is equal to

taxes minus government spending and transfer payments

What is true if actual output equals unemployment

the actual unemployment rate is equal to the natural rate of unemployment

The cyclically adjusted budget deficit adjusts the actual budget deficit for the effect of

the business cycle

Historically, governments have turned to seignorage to pay their bills when:

the government lacks the will to reduce the budget deficit by raising taxes or reducing spending

The public debt increases when

the government runs a budget deficit

according to the quantity of money theory...?

the money supply times velocity is equal to nominal GDP

The inflation tax is:

the reduction in the value of money that is held by the public caused by inflation

during high periods of inflation, SRAS is

vertical

What is an explanation for an upward sloping SRAS

wages and prices are sticky in the short run but flexible in the long run