Macroeconomics Unit 4: Topics in Macroeconomics

Key Concepts and Questions:

* What causes crowding out and how does it influence the economy?

* What are the basic ideas of the monetarism, and rational expectations theory?

* How do the views of the monetarists and Keynesians differ?

* What are the economic effects of government budget deficits?

* What kind of economic burden is created by the federal debt?

* What is the relationship between deficits, interest rates, and inflation?

* While the SRAS is upward sloping to the right, the LRAS is vertical.

* Monetary and fiscal policies have different impacts in the short run than in the long run.

* The Phillips curve illustrates the trade off between inflation and unemployment, though the trade off differs between the short run and the long run.

* How do inflationary expectations influence the economy and how do the new classical and Keynesian views of inflationary expectations differ?

* Long run economic growth can only be achieved by increasing the economy's production possibilities (illustrated by a shift in the PPC and/or the LRAS)

* How can policies intended to address inflation and unemployment influence long run economic growth?

Terms and Topics:

(Some old material has been included to emphasize its importance.)

Ø Monetary policy

Ø Money supply

Ø Fiscal policy

Ø Economic goals

Ø Interest rates

Ø Velocity

Ø Equation of exchange (MV=PQ)

Ø Monetarism

Ø The monetary rule

Ø Crowding out

Ø Phillips Curve

Ø Stagflation

Ø LRAS

Ø SRAS

Ø PPC

Ø Federal debt

Ø Budget deficit

Ø Economic growth

Ø Policies to encourage growth

Ø Problems caused by the debt/deficit

Ø Rational Expectations Theory

Ø Supply Side Economics

Ø Laffer Curve

Ø Marginal tax rates

Ø Economic performance over the past thirty years

Ø Comparison of monetary and fiscal policies