Vocabulary
Practice the vocabulary words from the lesson.
Keynesian Economics
The economic theory created by John Maynard Keynes that focuses on government intervention in an economy.
Classical Economics
The economic theory created by Adam Smith that states that an economy left alone will self-regulate and achieve equilibrium.
Recognition Lag
The lag in time it takes governments and economists to recognize the change in a country's economic situation.
Implementation lag
The lag in time between when a change in economic situation has been realized and when a corrective action is put in place.
Inflationary Gap
When an economy is currently operating at a GDP level beyond its full employment GDP.
Recessionary Gap
When an economy is currently operating at a GDP level below its full employment GDP.
Long Run Equilibrium
The level at which an economy is considered to be at full employment of its available resources .
Contractionary Policy
An economic policy that attempts to slow down an economy.
Expansionary Policy
An economic policy that attempts to encourage an economy to grow.
Natural Rate of Unemployment
The lowest rate of unemployment that an economy can sustain without the danger of inflation, considered to be between 4-5% in the United States.
Fiscal Policy
The federal Government's spending and taxing policies that affect the economy.
Monetary Policy
The Federal Reserve's actions that influence the money supply, the cost of money and credit.
Sticky wages and prices
The economic idea that wages and prices don't fluctuate easily with changes in economic activity.
Flexible wages and prices
The economic idea that wages and prices will fluctuate with changes in economic activity.
Stagflation
An economic situation with high unemployment and high inflation; coined to describe economic conditions in the United States during the 1970s.