Chapter 18 Vocab
1. stabilization politics- they keep the economy healthy and to make the federal
government uses monetary and fiscal policies.
2. unemployment rate- the percentage of the civilian labor force that is without jobs but
that is actively looking for work.
3. full employment- when the unemployment rate is less than 6.5 percent.
4. underground economy- consists of people who do not follow federal and state laws
with respect to reporting earnings.
5.demand-pull inflation- prices rise as the result of excessive business and consumer
demand.
6. stagflation- combination of inflation and low economic activity.
7. cost-push inflation- states that the wage demands of labor unions and the excessive
profit motive of large corporations push up prices.
8. fiscal policy- federal government's use of taxation and spending policies to affect
overall business activity.
9. circular flow of income- this model pictures income as flowing continually between
businesses and consumers.
10. monetarism- the theory that deals with the relation between the amount of money the
Federal Reserve places in circulation and the level of activity in the economy.
11. monetarists- people that support monetarism.
12. monetary rule- The Fed should allow the money supply to grow at a rate of perhaps
3-5 percent per year.
13. time tags- periods between the time fiscal policy is enacted and the time it becomes
effective.