Macroeconomics

Financing constraint:

A limit on the quantity of

funds a firm can raise—such as through borrowing—

in order to buy capital.

Fiscal policy:

The government’s choice regarding

levels of spending and taxation.

Fisher effect:

The one-for-one influence of ex-

pected inflation on the nominal interest rate.

Fisher equation:

The equation stating that the

nominal interest rate is the sum of the real interest

rate and expected inflation (i

 r  E ).

Fixed exchange rate:

An exchange rate that is set

by the central bank’s willingness to buy and sell the

domestic currency for foreign currencies at a prede-

termined price. (Cf. floating exchange rate.)

Flexible prices:

Prices that adjust quickly to equil -

ibrate supply and demand. (Cf. sticky prices.)