Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.

KEY TERMS

Question

Classical model of the price level
Inflation tax
Okun’s law
Short-run Phillips curve
Nonaccelerating inflation rate of unemployment (NAIRU)
Long-run Phillips curve
Debt deflation
Zero bound
Liquidity trap
a graphical representation of the relationship between unemployment and inflation in the long run after expectations of inflation have had time to adjust to experience.
the unemployment rate at which, other things equal, inflation does not change over time.
a graphical representation of the negative short-run relationship between the unemployment rate and the inflation rate.
the negative relationship between the output gap and the unemployment rate, whereby each additional percentage point of output gap reduces the unemployment rate by about ½ of a percentage point.
the reduction in the value of money held by the public caused by inflation.
the lower bound of zero on the nominal interest rate.
the economy is in a liquidity trap when monetary policy is ineffective because nominal interest rates are up against the zero bound.
the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation; occurs because borrowers, whose real debt rises as a result of deflation, are likely to cut spending sharply, and lenders, whose real assets are now more valuable, are less likely to increase spending.
a simplified financial model of the price level in which the real quantity of money, M/P, is always at its long-run equilibrium level. This model ignores the distinction between the short run and the long run but is useful for analyzing the case of high inflation.