Cyclically adjusted budget balance Government debt Fiscal year Public debt Debt–GDP ratio Implicit liabilities Target federal funds rate Expansionary monetary policy Contractionary monetary policy Taylor rule for monetary policy Inflation targeting Monetary neutrality Classical model of the price level Inflation tax Cost-push inflation Demand-pull inflation Short-run Phillips curve Nonaccelerating inflation rate of unemployment (NAIRU) Long-run Phillips curve Debt deflation Zero bound Liquidity trap Keynesian economics Macroeconomic policy activism Monetarism Discretionary monetary policy Monetary policy rule Quantity Theory of Money Velocity of money Natural rate hypothesis Political business cycle New classical macroeconomics Rational expectations New Keynesian economics Real business cycle theory | the view that individuals and firms make decisions optimally, using all available information. the use of changes in the interest rate or the money supply by the central bank to stabilize the economy. inflation that is caused by a significant increase in the price of an input with economy-wide importance. a rule for setting the federal funds rate that takes into account both the inflation rate and the output gap. a set of ideas that argues that market imperfections can lead to price stickiness for the economy as a whole. shows the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience. a reduction in the value of money held by the public caused by inflation. the lower bound of zero on the nominal interest rate: it cannot go below zero. monetary policy that increases aggregate demand. the concept that changes in the money supply have no real effects on the economy. asserts that GDP will grow steadily if the money supply grows steadily. a formula that determines the central bank’s actions. the Federal Reserve’s desired level for the federal funds rate; the Federal Reserve can move the interest rate and achieve this target through open-market operations that shift the money supply curve. the ratio of nominal GDP to the money supply; a measure of the number of times the average dollar bill is spent per year. inflation that is caused by an increase in aggregate demand. the unemployment rate at which inflation does not change over time. emphasizes the positive relationship between the price level and the money supply; relies on the velocity equation (M × V = P × Y). an estimate of what the budget balance would be if real GDP were exactly equal to potential output. monetary policy that reduces aggregate demand. occurs when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target. the government’s debt as a percentage of GDP. a situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound. represents the negative short-run relationship between the unemployment rate and the inflation rate. runs from October 1 to September 30 and is labeled according to the calendar year in which it ends. the accumulation of past budget deficits, minus past budget surpluses. the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation. unnecessary instability in the economy resulting from when politicians use macroeconomic policy to serve political ends. a set of ideas that focuses on the ability of shifts in aggregate demand to influence aggregate output in the short run. an approach to the business cycle that returns to the classical view that shifts in the aggregate demand curve affect only the aggregate price level, not aggregate output. government debt held by individuals and institutions outside the government. spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics. to avoid accelerating inflation over time, the unemployment rate must be high enough that the actual inflation rate equals the expected inflation rate. the use of monetary and fiscal policy to smooth out the business cycle. model in which the real quantity of money is always at its long-run equilibrium level. claims that fluctuations in the rate of growth of total factor productivity cause the business cycle. |