Phillips curve, crowding out, economic growth, deficits and debt, and supply-side policies.
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- What does the short-run Phillips Curve show about the relationship between inflation and unemployment?
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An inverse trade-off between them- At what level of unemployment is the long-run Phillips Curve vertical?
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At the natural rate of unemployment (NAIRU)- How does an increase in expected inflation affect the short-run Phillips Curve?
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It shifts the curve upward- Under adaptive expectations theory, what determines inflation forecasts?
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Past values of inflation- Under rational expectations theory, what information do economic actors use to form forecasts?
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All available relevant information- How does central bank credibility affect the inflation-unemployment trade-off?
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It reduces the trade-off, making the Phillips Curve flatter- What happens to the demand for loanable funds when government increases borrowing?
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It increases- What is the mechanism by which government borrowing reduces private investment?
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Higher real interest rates from increased demand for loanable funds- How can foreign capital inflows affect crowding out in an open economy?
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They can partially offset the reduction in domestic private investment- How does the national debt relate to budget deficits?
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National debt accumulates from repeated budget deficits over time- What is the structural deficit?
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The portion of the budget deficit that would exist at full employment- What is the cyclical deficit?
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The portion of the deficit caused by economic output below full employment- What does the debt-to-GDP ratio measure?
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The government's debt burden relative to the size of the economy- What does it mean if the debt-to-GDP ratio is rising?
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Debt is growing faster than the economy- What does Ricardian equivalence suggest about debt-financed tax cuts?
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They have no long-run effect on consumption or economic growth
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