Chapter 6 - Inflation, Unemployment, and Stabilization Practices

Default

________ disrupts a country's financial markets and erodes public trust in both the government and the economy.

multiplier effect

Through the ________, a lower interest rate will lead to greater investment spending, which will lead to higher real GDP, which will lead to more consumer spending, and so on.

Federal Reserve

When actual real GDP falls short of potential output, the ________ and other central banks prefer to engage in expansionary monetary policy.

Stanford economist John Taylor

________ proposed in 1993 that monetary policy should be guided by a simple formula that takes into consideration both business cycle and inflation concerns.

tax income

When the economy falls, the propensity for ________ to decline and transfers to rise serves to limit the size of recessions.

Taylor

The ________ rule for monetary policy is a formula for determining the federal funds rate that takes both inflation and the output gap into account.

Inflationary measures

________ typically provide short- term political advantages, while efforts to bring inflation down have short- term political costs.

budget balance

The ________ and business cycle have a constant relationship as it incorporates a recession that moves the total balance towards a deficit.