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Monetary and Fiscal Policy Review
Practice the vocabulary words from the lesson.
- The economic theory created by John Maynard Keynes that focuses on government intervention in an economy.
Answer: Keynesian Economics
- The economic theory created by Adam Smith that states that an economy left alone will self-regulate and achieve equilibrium.
Answer: Classical Economics
- The lag in time it takes governments and economists to recognize the change in a country's economic situation.
Answer: Recognition Lag
- The lag in time between when a change in economic situation has been realized and when a corrective action is put in place.
Answer: Implementation lag
- When an economy is currently operating at a GDP level beyond its full employment GDP.
Answer: Inflationary Gap
- When an economy is currently operating at a GDP level below its full employment GDP.
Answer: Recessionary Gap
- The level at which an economy is considered to be at full employment of its available resources .
Answer: Long Run Equilibrium
- An economic policy that attempts to slow down an economy.
Answer: Contractionary Policy
- An economic policy that attempts to encourage an economy to grow.
Answer: Expansionary Policy
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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.
Answer: Natural Rate of Unemployment
- The federal Government's spending and taxing policies that affect the economy.
Answer: Fiscal Policy
- The Federal Reserve's actions that influence the money supply, the cost of money and credit.
Answer: Monetary Policy
- The economic idea that wages and prices don't fluctuate easily with changes in economic activity.
Answer: Sticky wages and prices
- The economic idea that wages and prices will fluctuate with changes in economic activity.
Answer: Flexible wages and prices
- An economic situation with high unemployment and high inflation; coined to describe economic conditions in the United States during the 1970s.
Answer: Stagflation