Economic Inflation: Causes, Types, and Effects on Production and Monetary Policy

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Economics - Macroeconomics

jake12testoswi Created by 10 mon ago

Cards in this deck(100)

Long run inflation occurs if the quantity of money grows faster than the potential _____ .

Short run inflation can start due to many factors, and real GDP and the _____ level interact.

The two sources of inflation are demand-pull inflation and _____ inflation.

Demand pull inflation starts because _____ demand increases.

Examples of demand-pull inflation factors include a cut in interest rate and an increase in _____ of money.

The initial effect of an increase in aggregate demand starting from full employment is a rightward shift in _____ demand.

The first step in demand-pull inflation is a rising _____ .

In response to demand-pull inflation, the money wage rate rises, and the _____ curve shifts leftward.

A demand-pull inflation spiral is sustained by an ongoing increase in the _____ of money.

Cost-push inflation starts with an increase in _____ .

Two main sources of increased costs are an increase in money wage rate and the money price of raw materials such as _____ .

A factor price rise shifts the SAS curve leftward and the _____ level rises.

An initial increase in costs creates a one-time rise in the _____ level, not inflation.

To create inflation, aggregate demand must increase, so the Bank of Canada must respond to unemployment and increase the _____ of money persistently.

To fix high unemployment, the BOC stimulates aggregate demand, causing real GDP to increase and the _____ levels to rise again.

An example of cost-push inflation is when oil producers raise oil prices, and the BOC responds by increasing the _____ of money.

Stagflation is a combination of a rising price level and a decreasing real _____ .

Cost-push inflation begins with a decrease in short-run _____ supply.

A rational expectation is a forecast based on all relevant _____ .

When the inflation forecast is correct, the economy operates at full _____ .

If aggregate demand grows faster than expected, real GDP moves above potential GDP, and the economy experiences _____ inflation.

If aggregate demand grows more slowly than expected, real GDP falls below potential GDP, and the economy behaves like _____ inflation.

Deflation is caused when the price level falls persistently if aggregate demand increases at a slower rate than aggregate _____ .

The quantity theory and deflation formula is: inflation rate = money growth rate + rate of velocity change - real _____ growth rate.

Deflation occurs if the money growth rate is less than the real GDP growth rate minus the rate of _____ change.

Unanticipated inflation redistributes income and wealth, lowers real GDP and employment, and diverts resources from _____ .

Deflation can be ended by increasing the growth rate of money so that it exceeds the growth rate of real GDP minus the rate of _____ change.

The Phillips curve shows the relationship between the inflation rate and the _____ rate.

The two time frames for the Phillips curve are the short run and the _____ run.

The short-run Phillips curve shows the tradeoff between the inflation rate and the unemployment rate, holding constant and is _____ sloping.

The two parts of the short-run Phillips curve are the expected inflation rate and the _____ unemployment rate.

The short-run Phillips curve passes through the natural unemployment rate and the expected _____ rate.

If the inflation rate exceeds the expected inflation rate, the _____ rate increases.

The long-run Phillips curve shows the relationship between inflation and unemployment when the actual inflation rate equals the _____ inflation rate.

If there is a change in expected inflation, the short-run Phillips curve shifts downward by an amount equal to the fall in the expected _____ rate.

A change in the natural unemployment rate shifts both the long-run and short-run _____ curves.

The federal budget is an annual statement of the federal government's outlays and _____ .

The two purposes of the federal budget are to finance the activities of the federal government and achieve _____ objectives.

Fiscal policy is the use of the federal budget to achieve macroeconomic objectives like full employment, sustained economic growth, and price level _____ .

Fiscal policy is made by the federal government and parliament, where the minister of finance presents the budget plan and then _____ debates it.

The largest item of outlays in the federal budget is _____ payments.

The largest revenue source for the federal government is _____ income taxes.

The government has a budget surplus if revenues _____ outlays.

The government has a budget deficit if outlays _____ revenue.

The government has a balanced budget if revenues _____ outlays.

The budget deficit in 2019 was _____ billion.

The federal government's budget balance is calculated as revenues minus _____ .

Government debt is the total amount that the government borrows, which is the sum of past deficits minus past _____ .

Debt enables holders to buy assets that will earn a return that exceeds the _____ paid on the debt.

Supply-side effects of fiscal policy have important effects on employment and potential _____ .

A tax wedge is the gap created between the before-tax and after-tax _____ rate.

Taxes on consumption add to the tax wedge because they raise prices paid for consumption goods and services, equivalent to a cut in the real _____ rate.

A tax on capital income lowers the quantity of saving and investment and slows the growth rate of real _____ .

The real after-tax interest rate is calculated as: nominal interest rate (%) * (1 - tax rate (%)) - _____ (%).

Fiscal stimulus is the use of fiscal policy to increase production and _____ .

Taxes depend on the nominal _____ rate.

The two types of fiscal stimulus are automatic and _____ .

Automatic fiscal policy is a fiscal policy action triggered by the state of the economy with no _____ action.

Discretionary fiscal policy is a policy action that is initiated by an act of _____ .

Two things in the government budget that change automatically with the state of the economy are tax revenues and _____ .

The tax rate is set by _____ .

The amount of tax dollars depends on tax rates and _____ .

When real GDP increases in an expansion, tax revenue _____ .

Outlays occur when the government creates programs that pay benefits to qualified people and _____ .

When the economy is in expansion, unemployment falls, so unemployment benefits _____ .

Automatic stimulus in a recession occurs when tax revenues decrease and outlays increase, helping to shrink the _____ gap.

Automatic stimulus in a boom occurs when tax revenue increases and outlays decrease, helping to shrink the _____ gap.

A structural surplus/deficit is the budget balance that would occur if the economy were at full employment and real GDP were equal to _____ GDP.

A cyclical surplus/deficit is the actual surplus or deficit minus the structural surplus or deficit, occurring purely because real GDP does not equal _____ GDP.

Discretionary fiscal stimulus focuses on its effects on aggregate _____ .

The two main fiscal multipliers are the government expenditure multiplier and the _____ multiplier.

The government expenditure multiplier is the quantity effect of a change in government expenditure on real _____ .

The tax multiplier is the quantity effect of a change in taxes on aggregate _____ .

The three time lags dealing with the use of discretionary fiscal policy are recognition lag, law-making lag, and _____ lag.

Recognition lag is the time it takes to figure out that a fiscal policy action is _____ .

Law-making lag is the time it takes for parliament to pass laws needed to change taxes or _____ .

Impact lag is the time it takes from passing a tax or spending change to its effect on real GDP being _____ .

The Bank of Canada Act 1935 states that the bank's job is to control the quantity of money and interest rates to avoid inflation and prevent excessive swings in real GDP growth and _____ .

The inflation target set in the 2021 monetary policy agreement is a 2 percent midpoint of a 1 to 3 percent _____ -control range.

The 2021 monetary policy agreement will run until December 31, _____ .

In the 2021 monetary policy agreement, the target is defined in terms of the 12-month rate of change in total _____ .

Inflation rate targeting uses the _____ as a measure of inflation.

Two main benefits of adopting an inflation-control target are fewer surprises/mistakes on the part of savers and investors and anchoring expectations about future _____ .

Two fears of inflation targeting are that the bank might permit the unemployment rate to rise or real GDP growth to slow, and the bank might permit the value of the dollar to rise on the foreign exchange market, making _____ suffer.

Two arguments of supporters of inflation targeting are that keeping inflation low is the best way to achieve full employment and sustained economic growth, and the bank has a good record and tries not to create a _____ .

The Bank of Canada's governing council is responsible for _____ policy.

The governor of the Bank of Canada is _____ Macklem.

A monetary policy instrument is a variable that the Bank of Canada can directly control or closely _____ .

The three possible instruments of the Bank of Canada are the quantity of money (monetary base), the price of Canadian money on the foreign exchange market (exchange rate), and the opportunity cost of holding money (short term _____ rate).

If the Bank decreases the quantity of money, both the interest rate and the _____ rate would rise.

If the Bank raised the interest rate, the quantity of money would decrease, and the _____ rate would rise.

If the Bank lowered the exchange rate, the quantity of money would increase, and the _____ rate would fall.

The overnight loans rate is the interest rate on overnight loans that chartered banks make to each _____ .

The two ways the BOC can achieve its target are the operating band and open market _____ .

The operating band is the target overnight loans rate plus 0.25 percentage points, and the operating band is _____ percentage points wide.

The two ways the bank creates the operating band setting are the bank rate and the _____ balances rate.

The bank rate is the interest rate the bank charges big banks on _____ .

The settlement balances rate is the interest rate the bank pays on reserves, set at the target overnight loans rate minus _____ percentage points.

The overnight loan rate cannot exceed the bank rate because a bank could make a profit by borrowing from the Bank of Canada and lending it to another _____ .

The overnight loans rate cannot fall below the settlement balances rate because a bank could make a profit by borrowing from another bank and increasing its reserves at the _____ .

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