macroeconomics final exam
rise, fall, pro
When the economy is booming, tax revenues tend to ____ and government expenditures tend to ______. Thus, the budget balance (T-G) is naturally _____-cyclical.
quantity equation, long run, money, inflation
Why did Milton Friedman claim that inflation was always and everywhere a monetary phenomenon? By the _________ EQUATION 𝑀𝑣 = 𝑃𝑌, we have the change in M/M equals to change in P/P or 𝑔𝑀 = pi since both 𝑌 = 𝑌 𝑛 and 𝑣 are constant in the ______ RUN. In other words, the growth in ________ has totally translated into ________ in the long run.
marginal product, diminishing, down
Why does the labor demand curve slope down? Explain intuitively. -Firms are willing to pay workers up to their ________ ________ in real wages. Because the marginal product of labor is ________ING in the number of workers, the labor demand curve slopes _______. I.e., more workers implies lower marginal product of labor implies firms are willing to pay lower real wages.
Tax, income
____ revenues have historically been around 15-20% of GDP, with about half of this coming from individual ________ taxes.
user cost of capital
_____ ______ OF _______-is the cost of using capital for one period, since you could have saved at the market interest rate, there is an opportunity cost r
zero bound period
_____ ______ ______-is basically the lowest the interest rate can go
seignorage
____________-is the use of printing money to finance spending (aka as the "inflation tax"), involves a raise in money growth and inflation.
Unobservable variables
______________ _________S: one of the difficulties associated with counter cyclical policy; " The economy is said to be in equilibrium when output is equal to the natural level of output and unemployment is equal to the natural rate of unemployment." It is hard to know these variables at any one moment in time
monopolies, production, profits, less
explain intuitively why an increase in the market power of firms should lead to a decline in their demand for labor: an increase in the market power of firms means they act more like __________S, who wish to restrict __________ so that they can raise prices and hence _______S. Firms need to hire ______ labor to produce the lowered amount and so their labor demand falls.
real,
-saving and investment depend on the ______ interest rate (r) since they are expressed in terms of goods
total factor productivity, exogenous
A key weakness of the Solow model is that its ability to match the stylized facts of economic growth relies upon ______ _______ _________ (A) growing over time. But this growth is assumed to be ____________. Because growth and development accounting exercises imply that much of the variation in growth and levels of income per worker comes from TFP, this means that the Solow model fails to explain one of the most important components of economic growth.
endogenous growth model, positively, research
An __________ _________ MODEL is a model of economic growth in which the growth rate of factor productivity is explicitly modeled. A fraction (r) of the workforce does research instead of production. The growth rate of technology depends ________LY on the fraction of the population doing research. -same general results as the Solow model -The difference is that the growth rate of factor productivity is a function of the parameters of the model, namely the fraction of the population engaged in _________
Supply-side shocks and Stagflation
Another difficulty of countercyclical policy is: ______-SIDE ______S AND __________-Which is where a bad Supply side shock raises prices But lowers output. Policymakers then face a difficult trade off Between stabilizing prices and stabilizing output
Quantitative Uncertainty
Another difficulty of countercyclical policy is: _________ ________ about policy responses: Which is knowing which numbers Will be the optimal decision for policymakers to target
Forecasting into the future
Another difficulty of countercyclical policy is: difficulty of ___________ING INTO THE _______-actual outcome could be very different from what policy makers thought would happen
Time lags, information lag
One of the difficulties with using counter cyclical policy is TIME LAGS: and one of those is the __________ LAG: which is the amount of time Needed to acquire information About the state of the economy.
deregulation, costs, corporate, income, unemployment
Examples from Carter and Reagan era: 1- __________: airlines, telecommunications ... (μ down) 2- Lower ______S to hiring/firing workers (de-unionization) (higher MPN ) 3- Cutting ________ income taxes (μ down) 4- Cut _______ taxes (shift L s down) 5- Lower _________ benefits (z down)
conditional convergence
Countries that begin with levels of capital per effective worker less than the BGP level will experience rapid growth for a while until the economy catches up to the BGP. On the other hand, economies that begin with levels of capital per effective worker greater than the BGP level will experience slower growth for a while. This phenomenon is known as _________ ___________.
When wages go up for an individual: -Opportunity cost of leisure is high, so buy less leisure and therefore work more: substitution effect -Working same amount, agent is now richer. So buy more of all normal goods, including leisure and therefore work less: income effect -At low wages, substitution effect > income effect, so LS slopes up -At high wages, substitution effect < income effect, so LS curves backward ("backward bending labor supply curve")
Define the income and substitution effects in labor supply and discuss their implications for the shape of the labor supply curve of an individual.
FDIC, insurance, national industrial recovery act, protection, Roosevelt, regime change, gold standard
Discuss two forces or policies that might have contributed to the end of the Great Depression. Explain. -Creation of _______: this system of deposit ________ helped stop runs on banks -NATIONAL ________ _________ ACT: This policy guaranteed firms _______TION from too much competition in exchange for not cutting wages and prices. Stopping the latter may have helped stop the deflationary spiral -Hope through election of ________ ("________ CHANGE"): renewed optimism with the election of this president could have raised CS and SP. We see a dramatic decline in real interest rates right at time of his coming to office -Timing of exit from ______ STANDARD across countries: countries who left this standard experienced recoveries while those who stayed on this standard experienced longer depression
plan of action, subsequent periods, commit, conditional, incentive, severe, both inflation and unemployment, lower
Explain the time inconsistency problem concisely and intuitively. What factors determine when the time inconsistency problem will be most severe? -The time-inconsistency problem is the idea that a ______ OF _______ which one initially finds to be optimal may not be optimal in ________ ________S when one has the option to deviate from it. In the context of monetary policy, policymakers would choose a low inflation rate if they could ________ to it, as this would induce low expectations of inflation. But _________AL on having convinced people that inflation will be low, policymakers then have an _________ to raise the inflation rate to lower unemployment. There are two key conditions that make the time inconsistency problem _______. First, policymakers have to care about _______ INFLATION AND UNEMPLOYMENT and second, they also must want to achieve an unemployment rate that is _____ER than the natural rate.
Shocks, Destabilization
In theory, in terms of countercyclical policy: fiscal and monetary policy makers Can stabilize both prices and output in response two _______S in aggregate demand By shifting aggregate demand In the opposite direction. However, time legs can cause__________
higher unemployment, lower inflation, shift, inflation, unemployment, controls
How can we reconcile the absence of a negative relationship between inflation and unemployment in US data since World War II with the Phillips Curve in our model? The Phillips curve in our model is given by: 𝜋 = 𝜋^ 𝑒 − 𝛼(𝑢 − 𝑢 ^𝑛 ) Which can equivalently be written as 𝜋 = [𝜋^ 𝑒 + 𝛼𝑢 ^𝑛] − 𝛼u This implies that, for given inflation expectations and natural rate of unemployment, _______ UNEMPLOYMENT will be associated with ______ INFLATION. But the curve will _______ up or down when ________ expectations or the natural rate of _____________ change. This is what happened in the 1970s when inflation expectations and the natural rate of UE both rose. Once one _________S for these shift, the Phillips curve is apparent in the US data since World War II.
up
If the central bank buys a $100 bond then the money supply goes ____ (and vice versa)
US recession, Y,P,C,I,R,N and W/P, benchmark
In an average ____ _________, Y, P, C, I, R, N AND W/P all fall, this is important because this provides the _________ for the prediction of the model and helps us to find the possible source of recessions in our business cycle model
fiscal, contractionary, banking crisis, investment, monetary, offset, deflationary spiral, real
List and discuss two factors that contributed ("amplified") the severity of the Great Depression. -_______ policy (1): policy makers pursued _________NARY fiscal policy at start of Great Depression. (1) -______ING CRISIS (1): collapse of banks lowered ________MENT and induced banks to hoard reserves thereby lowering money supply. (1) -__________ policy (1): failed to _______ the decline in money supply from banking crisis. - ____________ SPIRAL (1): big deflation during the Great Depression made ______ interest rates go up.
growth, long run, decision lags, incentive, elected
Name and discuss two reasons why monetary policy has becomes the primary tool for economic stabilization. -Money _______ ultimately determines inflation in the _____ RUN. -No meaningful ________ ____S: monetary policy makers can respond very quickly to economic conditions -Fewer ________ problems than fiscal policy: central bankers are not ______ED and do not gain directly from boosting employment.
Time lags, decision lag
One of the difficulties with using countercyclical policy is TIME LAGS: and one of those is the ______ LAG: Which is the amount of time Needed for policymakers To decide upon and implement A policy action
Time lags, impact lag
One of the difficulties with using countercyclical policy is TIME LAGS: and one of those is the _______ LAG: Which is the amount of time it takes For a policy action To actually affect the economy
expenditures
Social Security and Medicare/Medicaid (especially Medicare) account for a growing fraction of (Federal) government _________S.
lower inflation versus higher output, right
Supply side policies in the face of supply side shocks, policy makers must face a tradeoff: _______ INFLATION VERSUS ______ OUTPUT -an alternative solution is for supply side policies to shift aggregate supply to the _____.
exogenously, present value, future dividends, decreases, future periods
Suppose that investors must pay taxes on dividends at rate τ. Derive the value of stock prices in terms of current and future dividends and taxes and discuss what this implies for the immediate response of stock prices to a future increase in dividend taxes. -Suppose the interest rate is given _________LY as a constant 𝑟. The price of stock is the ________ VALUE of all _______ DIVIDENDS. It is straightforward to see that the stock price __________S immediately as 𝜏 increases, even if the increase in τ only happens in _______ PERIODS.
2009, tax cuts, states, spending, more aid
The Stimulus Package of _____ -aka American Recovery and Reinvestment Act this involved ____ ____S, transfers to _____S, government ______ING and transfers -this package was predicted to lower unemployment some evidence that this stimulus package was effective was that states who received _____ ______ had smaller drop in employment
gold, real estate, stock market
The earlier countries abandoned the _______ standard and started new deal; the better -2 primary reasons causing Japanese slow-down: ______ _____ bubble popped and ______ ______ bubble popped
maximizes, 25, United States
The income taxation rate that ________S tax revenues is between 60% and 80%. The current average effective tax rate in the US is around ____%. Thus, for the US, t < tp . -The _______ ________S has one of the lowest income tax rates across industrial countries.
warmer climates, land-locked
The role of geography is another reason why efficiency may be so low in developing countries; poor countries tend to be located in ________ CLIMATES (which are associated with more diseases and lower agricultural productivity). In addition many developing countries are _______-______ED hence have no easy access to oceanic transportation which hinders economic development
properties of the long run growth experience, US and UK, income, constant, same, constant, rental, capital-labor ratio grows, growth
What are the Kaldor and Kuznets facts? Why are they important? The Kaldor and Kuznets facts are _________S OF THE _____ _____ _______ EXPERIENCE of the ____ AND _____ economies. They are the following: a) Growth in ________ per worker is approximately _________ over time b) Growth in real wages is about the _______ as growth in income per worker c) The capital-output ratio is approximately ________ over time d) The _______ rate of capital is approximately constant over time e) The _______-_______ RATIO GROWS over time. These facts are useful to help us discipline or test models of economic ________: if they are not consistent with these facts, then they are unlikely to be informative about the growth process in the long-run.
CS and SP, output, consumption, investment, interest rate, data, inflation, precedes
What are the two primary explanations for recessions suggested by our business cycle model? Why these and not others? One possibility of recession suggested by the model is diminished expectations in which both ____ AND _____ declines together. The diminished expectations well explained the simultaneous decline in _______, ________TION, _________MENT and ________ RATE in the context of negative demand shocks. In addition, ______ suggests that CS and SP fall before recession begins. The other possibility is because of the ________ control by the Fed. Contractionary monetary policy shocks in the data yield the same qualitative dynamics as US recessions, once one takes into account the fact that the rise in interest rates _________S the decline in output during downturns. Other shocks in our model cannot explain the comovement in Y, C, I, r, and P observed during recessions.
Destabilization of the economy
What happens if Policy action affects the economy too late?
identify, responds, shock, predicts, close, confidence, business cycle, expansionary shock
What is the Bob Lucas criterion for evaluating the performance of a model? How does our business cycle model fare by this metric? -1) _________ a shock in the real world and figure out how the economy ________S to that shock. 2) Apply the same _______ to the model and see what response to the model ________S. 3) If the predicted response of the model is ______ to that in the real world, then we have some __________ in the model. Our __________ CYCLE model did pretty well overall for each of identified shocks. For monetary policy shocks, the main conflict was with respect to real wages: an ___________ SHOCK in the real world is associated with an increase in real wages whereas our model predicts a decline in real wages.
expected prices, equal, actual prices, high, increase, high, employment, produced
What is the natural level of output conceptually? Explain intuitively how it depends on the capital stock -The natural level of output is the level of output in the economy when _________ED PRICES are _______ to _______ PRICES. When the capital stock is ______, this will tend to _________ production. A large capital stock also implies a _______ marginal product of labor so firms will hire more workers. Hence __________ will also be higher. Hence, both factors of production will be high, leading to an increase in the amount __________ by the economy.
The natural rate of unemployment is the rate of unemployment that would occur if expected prices equal to actual prices: Pe = P. A decline in μ (increase in competitiveness) means firms would not have as much market power and so would produce more. To produce more, they would need to hire more workers, so the unemployment rate would be lower.
What is the natural rate of unemployment? Explain intuitively how it would change if there was an increase in competitiveness in the economy (decline in μ).
longer term or riskier assets, central, open, short, zero, mortgage backed securities, down
What was Quantitative Easing during the Great Recession? Why was it used? Quantitative easing is the purchase of ______ER TERM OR ______ER ASSETS by the _______ bank. Typically central banks perform _______ market operations using very ______ term government (safe) assets. During the Great Recession, as short-term interest rates fell to _____, central banks started purchasing longer-term government bonds as well as other types of assets, such as _________ _____ED SECURITIES. One objective of these purchases was to drive _______ the interest rate on these longer term assets since long-term interest rates, unlike short-term rates, were not at zero yet.
deficit, bonds, interest
When spending exceeds revenues, the government runs a ______. This is financed by issuing government _______S which are repaid with ________ (high deficits are followed by high interest payments which is a cost of deficits)
SP or animal spirts
_____(letters) OR ________ _______S-how people make financial decisions such as buying and selling securities in times of economics stress or uncertainty, hence human emotion driving decisions.
law of motion of capital
______ OF ______ OF _______ basically says "stuff breaks so you repair it or get new stuff" and emulates that capital stock is changing overtime
random walk hypothesis, unpredictable
______ ________ _______: changes in consumption should be unpredictable or the best guess about tomorrow's consumption is today's consumption. This comes from consumer preferences to smooth consumption and their ability to borrow and save. For example, if they knew income would change through retirement, they would reduce consumption today and save for tomorrow. Therefore, only UNPREDICTABLE changes in income should change consumption
open market operations
______ ________ _________S-central bank sells or buys bonds in the open market to implement their monetary policy
Tobin's Q, greater, more
______'S ____- The ratio of marginal product of capital to the user cost (when q>1, MPK>r+depreciation so return to capital is ______ER than the cost, so firms should be investing ______. (and vice versa))
money multiplier
_______ ______: MM=1/RR where rr is the reserve ratio. for example, the fact that a $100 purchase of bonds by the central bank ultimately increases the money supply by more than $100. (1/R, where R is the reserve ratio)
zero deficit policy
_______ _______ POLICY: is what many state governments must do and would entail raising taxes and cutting spending when economy is doing poorly.
reservation wage
_______ _______- the lowest amount a new employee will accept to work. This is influenced by unemployment benefits, the provision of universal health care, the value of leisure, etc****
taylor rule, inflation
_______ _______: matches closely the historical interest rate decisions made by the Fed. (even when CB does not literally follow specific rules, these rules are a useful way to compare monetary policy decisions across time/regions.) -fed has become consistently more focused on fighting ________ than in the past.
monetarism, constant
_______: Information and impact lags are too severe for monetary policy to serve as useful stabilization mechanism. Optimal policy is ________ money growth rate.
intensive margin of labor supply
________ ______ OF _______ ______: captures the average change in hours worked by individuals already employed when the wage changes.
liquidity trap
________ ________ causes a failure of monetary policy and is a situation in which interest rates are low and savings rates are high (consumers choose to avoid bonds/investments and keep their funds in savings and checking because of the prevailing belief that interest rates will soon rise)
phillips curve
________S _______-a curve that shows the short tun trade-off between inflation and unemployment (they have a negative relationship) 𝜋 = 𝜋 ^𝑒 − 𝛼(𝑢 − 𝑢 ^𝑛 )
quantitative easing
_________ _______ING is the purchase of longer term or riskier assets by the central bank. Typically central banks perform open market operations using very short term government (safe) assets.
development accounting
_________ ________ING is the decomposition of differences in income per worker across countries between differences in physical and human capital per worker versus differences in total factor productivity. (not how much you invest but what you invest in)
permanent income hypothesis
_________ _________ ________- takes into account current and future expected income and expected average long term income. Consumption should respond strongly to changes in permanent income, but very little to transitory changes in income (smoothed over time), hence the marginal propensity to consume out of a transitory change is very small
ricardian equivalence
_________ _________- an economic hypothesis says that the timing of government transfer payment and lump sum taxes has no effect on the real economy. -notion that for government spending, whether that spending is financed by taxes or debt, has no effect on consumption of interest rates (demand is unchanged)
growth accounting, factor accumulation
_________ __________ING is the decomposition of growth in income per worker into the shares due to increasing capital per worker, human capital and other factors. This is useful because growth is due to increases in physical and human capital which is known as _________ ____________TION
stagflation
_________- term to describe that the economic situation in which the inflation is high while the economic growth is low (total output is produced under the natural level) which is where a bad supply side shock raises prices but lowers output (modern view of business cycles states that supply shocks are to blame)
consumption smoothing, diminishing
__________ ________ING- is where despite having 2 vastly different income patterns, optimal consumption is identical each period (this reflects _______ING marginal utility) -3 tests yield opposite results (permanent income hypothesis, random walk hypothesis, non-rational behavior and limited access to credit markets and liquidity constraints)
institutions, geography, ideology, competition, colonialism
__________S are the set of rules and incentives that govern a society. some of these are more conducive to economic activity than others... (these set rules on protection of property rights, monopoly rights, power of elites, etc) why do countries have different sets of rules? _________PHY, ________GY, _________TION, _________LISM
marginal product of captial
___________ ____________ OF __________: aka When firms consider buying another unit of capital, a key consideration is by how much that extra unit of capital will expand production.(MPK)
investment, durable
____________, for economists, is the purchase of ________ items (capital) to be used in the process of production. This includes machinery, structures, trucks, computers, equipment
nominal versus real, nominal, real
another challenge for monetary policy makers is _______ VERSUS ______ interest rates. -central banks can directly affect ________ interest rates, but interest rates that matter for consumers and investors are ______ interest rates
time-inconsistency problem, commitment, cheat, discretion
another challenge for monetary policy makers is the ______-_________ PROBLEM: is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time. 1. problem with _________: its unsustainable. -when both the central bank places any positive weight on unemployment and in the loss function and the natural rate of unemployment exceeds the desired rate of unemployment, the central bank will try and "______" by raising inflation higher than it had promised which leads to this problem. (yielding high inflation and high loss function) 2. problem with _________ -final outcome has higher inflation and loss function than in the case of commitment (but same unemployment rates), the central bank has incentive to cheat if agents believe inflation will be low and the final outcome will yield high inflation and no gain in unemployment.
solow model, natural, capital stock is changing
basic idea behind the _______ MODEL: simplified version of "________" output over time -Similarities: a) firm's maximization problem b) aggregate production function -Differences: a) labor is in-elastically supplied b) _______ STOCK IS ______ING over time c) no demand side of model
raises
higher discount factor/interest rate ______S savings today
shocks, analogous, OK, monetary, prices
how did we assess the validity of our AS-AD model in class? How well did the model do? We assessed the validity of the AS-AD model by comparing the effect of historical _______S in the model to the response of the ___________ variables in the data. The model did mostly _____ (letters) but attributed recession like behavior mostly to __________ policy. The model missed key facts like the slow/sticky response of _______S in the short run
zero decision lags, limited political influence, inflation
in counter cyclical Monetary Policy; Why monetary policy is the primary economic stabilization tool: ZERO _____ LAGS,Limited _______ influence (though see Greenspan), ________ is primarily a monetary phenomenon.
laffer curve
in supply side policies; An additional claim sometimes made: lowering income (or capital gains) tax rates raises tax revenues bc more people will choose to work and the theoretical justification is the _____ CURVE (hump shaped) -graphically/theoretically demonstrates the relationship between income tax and tax revenue collected by the government.
1/R
in terms of the money multiplier, the multiplier is ___/__, where R is the reserve ratio
deficits, recent surge
in the long-run budget outlook for the United states, Rising ______S and debt/GDP ratio are projected in coming decades, but these have little to do with the ______ ______ in deficits
technology, effective worker, proportional
income per worker can be broken down into two components: a _________GY term and a capital per ________ ______ER term. Because capital per effective worker is constant along the BGP, this is why income per worker simply grows at a rate __________AL to technological progress along the BGP.
MPK=interest rate + depreciation
optimal level of capital for firms equation
marginal propensity to consumer
permanent income hypothesis says that the ________ _______ TO ________ out of a transitory change in income is very small
faster, slower
prediction of the solow model; The further an economy is "below" its BGP, the ________ER the economy should grow and the further an economy is "above" its BGP, the ________ER the economy should grow
solow model, richer, poorer
predictions of the ________ MODEL: 1. countries with higher savings rates should tend to be ______ER 2. Countries with higher population rates should tend to be ______ER
central bank, open market operations
the ______ _______ controls the money supply and is typically adjusted via _____ _______ ________S: which are the purchase/sale of bonds in bond markets (guarantees monetary value in the future)
Solow model, proportional, fastest, convergence, balanced growth path
the _______ MODEL predicts that each country will converge to its balanced growth path. -with positive technological progress, income per capita along the balanced growth path grows at a rate ___________ to technological progress -regions/states with low initial incomes should grow ______EST as they catch up to balanced growth path -there is no evidence of ___________ in income when looking across all countries in the world since 1960, however the level of each country's _______ED _______ _______ depends on the savings rate, population growth, etc.
stabilization programs, fiscal, monetary, income, credibility
ways to help end hyperinflations 1. __________ PROGRAMS: which are economically/socially costly and frequently fail; such as unemployment compensation and other transfer payment programs 2. _______ reform: reductions in govt spending, tax reform 3._________ reform: eliminate monetization of debt, monetary peg 4. ________ policies: such as wage and price controls 5. _________ is key (think time inconsistency, govt must be serious about reform, guarantees of no policy reversals)
unemployment benefits, progressive income taxes, medicaid, food stampls
what are four examples of automatic stabilizers?
more aid, bigger, smaller
what are some of the evidences that the stimulus package of 2009 was effective? -states who received ______ _____ had smaller drops in employment -countries with ______ER stimulus packages did better than forecasted -evidence of effectiveness of automatic stabilizers: countries with bigger stabilizers needed _____ER stimulus packages
decision lags, political incentives, automatic stabilizers
what are the 2 reasons why discretionary fiscal policy is rarely used? -______ _____S tend to be particularly long -_______ _______S sometimes clash with optimal economic policy and a solution to this is ________IC ________S: which are policies that automatically raise spending or lower taxes when output is low and vice versa.
central bank independence, conservative central bankers, rules versus discretion
what are the possible solutions to time-inconsistency? 1. _______ ______ ___________ (lowers political pressures to push unemployment rates down by inflating the economy) 2. _________ _______ ________S (appoint central bankers who disproportionately dislike inflation) 3. ______S VERSUS _______: one way to restore the commitment solution is to force the central bank to follow a specific rule for setting interest rates (I.E. the Taylor rule)
technology, savings, depreciation
what fundamental parameters effect the steady state level of income per capita? ___________GY(this goes up, so will SS level of income per capita), _______S(this goes up,then higher capital stock and SS level of income per capita), _________TION (this goes up, yields lower capital stocks and lower income per capita)
sensitively, permanent, temporary
what implications does the permanent income hypothesis have for the response of consumption to temporary versus permanent tax cuts? -permanent income hypothesis says those consumers will only respond __________LY to the change in ________ income. This implies that consumption increases by a larger amount after permanent tax cuts rather than after _________ tax cuts
short term versus long term interest rates, future, current
what is one of the challenges of monetary policy makers where Central banks target very short-term interest rates. But the interest rates that affect consumers and investors are typically long-term interest rates? ______ TERM VERSUS _____ TERM ______ ______S 2 key implications: 1. Current long-term interest rates depend on expectations of _______ short-term interest rates (this also affects fiscal policy) 2. Differences between _______ short-term and long-term interest rates reflect the market's expectation of future short-term interest rates (illustrated by the yield curve)
fed, short, long
what is one of the challenges of monetary policy makers where the ______ can control _____-term interest rates but ______-term interest rates are another matter?
information and impact lags
what is one of the challenges of monetary policy makers which involve lags? _________ AND ______ LAGS
2, AS-AD, monetary, monetary, interest rates
what is the evidence supporting the view that the fed has caused most of the recessions in the US since WWII? The evidence is based around ___(actual number) key facts, first the ____-____ model suggests that ________ policy can have similar effects to those seen during recessions. Second, the fed was conducting _________ policy actions (largely raising ________ ________S) immediately prior to most of the recessions in the post WWII period.
Mv=PY
what is the quantity equation? M: money supply v: velocity of money P: price level Y: quantity produced -relating the price level and the quantity of money. (basis for the quantity theory of money) in the long run: Gm= Pi
raise the reservation wage, natural level of output
what is the tradeoff of automatic stabilizers? -these policies tend to _____ THE __________ ______ and push the ______ LEVEL OF ________ down (tradeoff between more stable output(equity) versus higher average output (efficiency))
quantitative easing and forward guidance
what were the 2 unusual forms of monetary policy used in the great recession? (since reaching the zero bound period) _________ ________ING AND ________ ________(the provisions of explicit guidance about future monetary policy decisions, designed to convince people that interest rates will stay low for very extended periods, which should lower long term interest rates and raise inflation expectations, thereby lowering real interest rates)
infant industries
why could trade be bad for development? _________ _________S: foreign competition, could prevent the development of new and more advanced industries in a country, leaving it underdeveloped.
competition, technological frontier, efficient
why could trade be good for development? -imports raise the degree of ___________ faced by domestic firms, hence making them more efficient -importing foreign capital can allow countries to jump to the __________ FRONTIER -exporting also forced domestic firms to face foreign competition, enticing them to become more _________
