Macroeconomics: Match Concepts to Definitions 1. Fiscal Policy 2. Balanced trade

Question

Macroeconomics: Match Concepts to Definitions

1. Fiscal Policy

2. Balanced trade

3. Aggregate Expenditure Model.

4. Aggregate Demand-Supply Model

5. Liquidity Preference

6. Liquidity Trap

7. MPC

8. Natural rate hypothesis

9. Long run Phillips Curve

10. Rational Expectations

A. Positive level of net exports

B. Net exports are equal to zero.

C. Economy fluctuates around potential output, cannot be persistently below potential

D. Relationship between real Consumption plus Investment plus Government plus Net Exports and price level.

E. The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.

F. When interest rates are close to zero.

G. Government spending and taxation policy.

H. Interest rate adjusts to bring money supply and money demand into equilibrium.

I. Relationship between total desired or planned expenditures on goods and services in the economy and real income assuming no change in the price level.

J. Only unanticipated changes in monetary policy had real effects. As soon as people understood that Fed targeted a lower rate of inflation, prices and wages would adjust, without the need for sustained high unemployment.

K. Fraction of extra income that households consume rather than save

L. Any attempt to keep the unemployment rate below the natural rate will cause inflation to spiral upward.

Explanation / Answer

The table is mentioned below:

Terms Correct 1. Fiscal Policy G. Government spending and taxation policy. 2. Balanced trade A. Positive level of net exports 3. Aggregate Expenditure Model D. Relationship between real Consumption plus Investment plus Government plus Net Exports and price level. 4. Aggregate Demand-Supply Model I. Relationship between total desired or planned expenditures on goods and services in the economy and real income assuming no change in the price level. 5. Liquidity Preference H. Interest rate adjusts to bring money supply and money demand into equilibrium. 6. Liquidity Trap ....... 7. MPC K. Fraction of extra income that households consume rather than save 8. Natural rate hypothesis L. Any attempt to keep the unemployment rate below the natural rate will cause inflation to spiral upward. 9. Long run Phillips Curve J. Only unanticipated changes in monetary policy had real effects. As soon as people understood that Fed targeted a lower rate of inflation, prices and wages would adjust, without the need for sustained high unemployment. 10. Rational Expectations C. Economy fluctuates around potential output, cannot be persistently below potential

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