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Advanced Macroeconomics — Growth and Monetary Theory

Economic growth models and monetary policy frameworks

S
solow_residual 23 terms Dec 20, 2025
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Terms 23

1
Solow Growth Model
Growth from capital accumulation and exogenous technological progress; steady state where investment = depreciation
2
Steady State
Long-run equilibrium where capital per worker and output per worker are constant
3
Golden Rule
Consumption-maximizing capital level in steady state; MPK = δ (depreciation rate)
4
Convergence Hypothesis
Poor countries grow faster than rich ones; conditional on similar fundamentals
5
Endogenous Growth Theory
Romer: technological progress driven by internal factors (R&D, human capital); no steady state limit
6
Total Factor Productivity (TFP)
Solow residual; output growth not explained by inputs; measure of technological progress
7
IS Curve
Goods market equilibrium: output = planned expenditure; negative slope in Y-r space
8
LM Curve
Money market equilibrium: money supply = demand; positive slope; now often replaced by interest rate rule
9
IS-LM Model
Short-run model of output and interest rate; fiscal policy shifts IS; monetary policy shifts LM
10
AD-AS Model
Aggregate demand and supply; SRAS upward sloping; LRAS vertical at potential output
11
Phillips Curve
Short-run tradeoff between inflation and unemployment; π = π_e − β(u − u*)
12
NAIRU
Non-Accelerating Inflation Rate of Unemployment; natural rate; long-run vertical Phillips curve
13
Quantity Theory of Money
MV = PY; money supply × velocity = price level × real output
14
Money Multiplier
1/reserve ratio; amount of money created per dollar of reserves
15
Liquidity Trap
Nominal interest rates at zero lower bound; monetary policy ineffective; Keynes, Krugman
16
Taylor Rule
i = r* + π + 0.5(π−π*) + 0.5(y−y*); prescribes interest rate based on inflation and output gaps
17
Quantitative Easing (QE)
Central bank purchases assets beyond conventional rate cuts; expands monetary base
18
Ricardian Equivalence
Tax cuts financed by borrowing don't stimulate demand; rational agents anticipate future taxes
19
Crowding Out
Government borrowing raises interest rates; reduces private investment; offsets fiscal stimulus
20
Open Economy Trilemma
Cannot simultaneously have fixed exchange rate, free capital flows, and independent monetary policy
21
Mundell-Fleming Model
IS-LM extended to open economy; shows effects of fiscal and monetary policy under different exchange regimes
22
Purchasing Power Parity (PPP)
Exchange rates should equalize price levels across countries; Big Mac Index
23
Uncovered Interest Rate Parity
Expected exchange rate change offsets interest rate differential between countries