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OMO: The abbreviation for open market operations, which is the Federal Reserve System's buying and selling of government securities in an effort to alter bank reserves and subsequently the nation's money supply. These actions, under the direction of the Federal Open Market Committee, are the Fed's number one, most effective, most often used tool of monetary policy. If, for example, the Fed wants to increase the money supply (termed easy money) it buy's government securities. If the Fed chooses to reduce the money supply (called tight money) it sells some government securities.

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Lesson 2: Economic Science | Unit 5: Cause and Effect Page: 17 of 20

Topic: Purpose <=PAGE BACK | PAGE NEXT=>

The purpose of science is to identify the fundamental, basic laws of nature that guide our every moves.
  • The purpose of the scientific method is to explain the world by identifying cause and effect.
  • For every action there is a consequence. And for every consequence there is a cause.
The first step is to identify cause and effect links is correlation:

  • Correlation. If event A causes event B, then event A is correlated with event B. But, correlation does not mean causation. Two events can be correlated, without one causing the other. Note the fallacy of false cause.
  • Time Proximity. Event A and event B must happen at about the same time.
  • Time Sequence. Event A must precede event B. If event B occurs first, then it can't be caused by event A.

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AGGREGATE DEMAND INCREASE, LONG-RUN AGGREGATE MARKET

A shock to the long-run aggregate market caused by an increase in aggregate demand resulting in and illustrated by a rightward shift of the aggregate demand curve. An increase in aggregate demand in the long-run aggregate market results in an increase in the price level but no change in real production. The level of real production resulting from the aggregate demand shock is full-employment real production.

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Today, you are likely to spend a great deal of time surfing the Internet trying to buy either a set of luggage without wheels or a how-to book on wine tasting. Be on the lookout for telephone calls from long-lost relatives.
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Okun's Law posits that the unemployment rate increases by 1% for every 2% gap between real GDP and full-employment real GDP.
"The greatest things ever done on Earth have been done little by little. "

-- William Jennings Bryan

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