question

The study of how individuals, firms, and society make decisions to allocate limited resources to many competing wants.

answer

Economics

question

Unlimited wants clash with limited resources.

answer

Scarcity

question

The factors that motivate individuals and firms to make decisions in their best interest.

answer

Incentives

question

The decision making by individuals, businesses,industries, and governments.

answer

Microeconomics

question

The broader issues in the economy such as inflation,unemployment, and national output of goods and services.

answer

Macroeconomics

question

Assumption used in economics where other relevant factors or variables are held constant.

answer

Ceteris Paribus

question

How well resources are used and allocated. Getting the people what they want at the lowest possible resource cost.

answer

Efficiency

question

The fairness of various issues and policies.

answer

Equity

question

A question that can be answered using available information or facts.

answer

Positive Question

question

A question that is based on societal beliefs on what should or should not take place.

answer

Normative Question

question

The value of the next best alternative; what you give up to do something or purchase something.

answer

Opportunity Cost

question

The process of converting resources and entrepreneurial ability into goods and services.

answer

Production

question

Land, Labor, Capital, and Entrepreneurial Ability.

answer

Resources

question

Natural resources such as mineral deposits, oil, natural gas, and water.

answer

Land

question

Mental and physical talents of an individual who produces products and services.

answer

Labor

question

manufactured products such as tractors, welding equipment, and computers that are used to produce other goods and services.

answer

Capital

question

combine land, labor, and capital to produce goods and services.

answer

Entrepreneurs

question

Goods and services are produced at their lowest opportunity cost.

answer

Production Efficiency

question

The mix of goods and services produced is just what the society desires.

answer

Allocative Efficiency

question

Shows the combinations of two goods that are possible for a society to produce at full employment.

answer

Production Possibilities Frontier

question

One county can produce more of a good than another country.

answer

Absolute Advantage

question

One country has a lower opportunity cost of producing a good than another country.

answer

Comparative Advantage

question

Institutions that bring buyers and sellers together so they can interact and transact with each other.

answer

Markets

question

A name given to the market economy because prices provide considerable information to both buyers and sellers.

answer

Price System

question

An individuals valuation of a good or service equal to the most and individual is willing and able to pay.

answer

Willingness-to-pay

question

The maximum amount of a product that buyers are willing and able to purchase over some time period at various prices holding all other relevant factors constant.

answer

Demand

question

Holding all other relevant factors constant, as price increases, quantity demanded falls, and as price decreases, quantity demanded rises.

answer

Law of Demand

question

A graphical illustration of the law of demand, which shows the relationship between the price of a good and the quantity demanded.

answer

Demand Curve

question

A table that shows the quantity of a good a consumer purchases at each price.

answer

Demand Schedule

question

Market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price.

answer

Horizontal summation

question

Nonprice factors that affect demand, including tastes and preferences, income, prices of related goods, number of buyers and expectations.

answer

Determinants of Demand

question

A good for which an increase in income results in rising demand.

answer

Normal good

question

A good for which an increase in income results in declining demand.

answer

Inferior good

question

Goods consumers will substitute for one another depending on the relative prices.

answer

Substitute Goods

question

Goods that are typically consumed together.

answer

Complementary Goods

question

Occurs when one or more of the determinants of demand changes, shown as a shift in the entire demand curve.

answer

Change in Demand

question

Occurs when the price of the product changes, shown as movement along an existing demand curve.

answer

Change in Quantity Demanded

question

The maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant.

answer

Supply

question

Holding all other relevant factors constant as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall.

answer

Law of Supply

question

A graphical illustration of the law of supply, which shows the relationship between the price of a good and the quantity supplied.

answer

Supply Curve

question

Nonprice factors that affect supply, including production technology, costs of resources, prices of other commodities, expectations, number of sellers, and taxes and subsidies.

answer

Determinants of Supply

question

Occurs when one or more of the determinants of supply change, shown as a shift in the entire supply curve.

answer

Change in Supply

question

Occurs when the price of the product changes, shown as a movement along an existing supply curve.

answer

Change in Quantity Supplied

question

Market forces are in balance when the quantities demanded by consumers just equal the quantities supplied by producers.

answer

Equilibrium

question

Market equilibrium price is the price that results when quantity demanded is just equal to quantity supplied.

answer

Equilibrium Price

question

Market equilibrium when quantity is the output that results when quantity demanded is just equal to quantity supplied.

answer

Equilibrium quantity

question

Occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded.

answer

Surplus

question

Occurs when the price is below market equilibrium, and quantity demanded exceeds quantity supplied.

answer

Shortage

question

The difference between market price and what consumers would be willing to pay. It is equal to the area above market price and below the demand curve.

answer

Consumer Surplus

question

The difference between market price and the price at which firms are willing to supply the product. It is equal to the area below market price and above the supply curve.

answer

Producer Surplus

question

The sum of consumer surplus and producer surplus, and a measure of the overall net benefit gained from a market.

answer

Total surplus

question

The reduction in total surplus that results from the inefficiency of a market not in equilibrium.

answer

Deadweight Loss

question

Occurs when a free market does not lead to a socially desirable outcome.

answer

Market failure

question

Occurs when one party to a transaction has significantly better information than another party.

answer

Asymmetric Information

question

A market that is allowed to function without any government intervention.

answer

Laissez-faire

question

A government-set maximum price that can be charged for a product or service.

answer

Price ceiling

question

Occurs when a good or service is not consumed by the person who values it the most, and typically results when a price ceiling creates an artificial shortage in the market.

answer

Misallocation of resources

question

A government-set minimum price that can be charged for a product or service.

answer

Price floor

question

Alternating increases and decreases in economic activity that are typically punctuated by periods of recession and recovery.

answer

Business cycle

question

A recession that begins after only a short period of economic recovery from the previous recession.

answer

Double-dip recession

question

Shows the relationship between the interest rate earned on a bond (measured on the vertical axis) and the length of time until the bond's maturity date (shown on the horizontal axis).

answer

Yield Curve

question

Illustrates how households and firms interact through product and resource markets and shows that economic aggregates can be determined by either examining spending flows or income flows to household.

answer

Circular Flow Diagram

question

A measure of the economy's total output; is equal to the total market value of all final goods and services produced by resources in a given year.

answer

Gross Domestic Product (GDP)

question

Goods and services purchased by residents of the United States, whether individuals or businesses; they included durable goods, nondurable goods, and services.

answer

Personal Consumption Expenditures

question

Investments in such things as structures (residential and nonresidential), equipment, and software, and changes in private business inventories.

answer

Gross Private Domestic Investment (GPDI)

question

Includes the wages and salaries of government employees (federal, state, and local); the purchase of products and services from private businesses and the rest of the world; and government purchases of new structures and equipment.

answer

Government Spending

question

Exports minus imports for the current period.

answer

Net exports

question

All income including wages, salaries, and benefits, profits, rental income, and interest.

answer

National income

question

Gross domestic product minus depreciation, or the capital consumption allowance.

answer

Net domestic product

question

All income including wages, salaries, and other labor income; proprietors' income; rental income; personal interest and dividend income and transfer payments received, with personal contributions for social insurance subtracted out.

answer

Personal Income

question

Personal income minus taxes.

answer

Disposable personal income

question

A country's GDP divided by its population. Provides a measure of a country's relative standard of living.

answer

GDP per capita

question

Includes all transactions that are conducted but are not licensed and/or generate income that is not reported to the government (taxes).

answer

Informal economy

question

A measure of changes in the cost of living. A general rise in prices throughout the economy.

answer

Inflation

question

The absolute level of a price index.

answer

Price level

question

A reduction in the rate of inflation.

answer

Disinflation

question

A decline in overall prices throughout the economy.

answer

Deflation

question

A measure of the average change in prices paid by urban consumers for a typical market basket of consumer goods and services.

answer

Consumer Price Index (CPI)

question

A measure of the average changes in the prices received by domestic producers for their output.

answer

Producer Price Index

question

An index of the average prices for all goods and services in the economy, including consumer goods, investment goods, government goods and services, and exports.

answer

GDP Deflator

question

An extremely high rate of inflation.

answer

Hyperinflation

question

The total number of those employed and unemployed.

answer

Labor force

question

given up actively looking for work and, as a result, are not counted as unemployed.

answer

Discouraged Workers

question

Unemployment for any economy that includes workers who voluntarily quit their jobs to search for better positions, or are moving to new jobs but may still take several days or weeks before they can report to their new employers.

answer

Frictional Unemployment

question

Unemployment caused by changes in the structure of consumer demands or technology.

answer

Structural Unemployment

question

Unemployment that results from changes in the business cycle.

answer

Cyclical Unemployment

question

That level of unemployment at which price and wage decisions are consistent.

answer

Natural rate of unemployment

question

Usually measured by the annual percentage change in real GDP, reflecting an improvement in the standard of living.

answer

Economic Growth

question

The ability of growth to build on previous growth. It allows a value such as GDP to increase significantly over time as income increases on top of previous increases in income.

answer

Compounding

question

The total value of final goods and services produced in a country in a year measured using prices in a base year.

answer

Real GDP

question

Real GDP divided by population. Provides a rough estimate of a country's standard of living.

answer

Real GDP per capita

question

provides an estimate of the number of years for a value to double, and is calculated as 70 divided by the annual growth rate.

answer

Rule of 70

question

Measures the output that is produced using various combinations of inputs and a fixed level of technology.

answer

Production Function

question

How effectively inputs are converted into outputs.

answer

Productivity

question

improvements to the labor force from investments in skills, knowledge, and overall quality of workers and their productivity.

answer

Investment in human capital

question

The capital employed per worker. A higher ratio means higher labor productivity and, as a result, higher wages.

answer

Capital-to-labor ratio

question

Each additional unit of capital provides a smaller increase in output than the previous unit of capital.

answer

Diminishing returns to capital

question

Countries with smaller starting levels of capital experience larger benefits from increased capital, allowing these countries to grow faster than countries with abundant capital.

answer

Catch-up effect

question

The portion of output produced that is not explained by the number of inputs used in production.

answer

Total factor productivity

question

The public capital of a nation, including transportation networks, power-generating plants and transmission facilities, public education institutions, and other intangible resources such as protection of property rights and stable monetary environment.

answer

Infrastructure

question

Consist of consumer spending, business investment spending, government spending, and net foreign spending.

answer

Aggregate expenditures

question

Spending by individuals and households on both durable goods and nondurable goods.

answer

Consumption

question

The difference between income and consumption; the amount of disposable income not spent.

answer

Savings

question

The percentage of income that is consumed (Consumption spending / Income)

answer

Average Propensity to Consume (APC)

question

The percentage of income that is saved. (Savings / Income)

answer

Average Propensity to Save (APS)

question

The change in consumption associated with a given change in income. (Change in consumption / Change in Income)

answer

Marginal Propensity to Consume (MPC)

question

The change in savings associated with a given change in income (Change in savings / Change in Income)

answer

Marginal Propensity to Save (MPS)

question

Spending by businesses that adds to the productive capacity of the economy.

answer

Investment

question

In the simple model, the economy is at rest; spending injections are equal to withdrawals.

answer

Keynesian Macroeconomic Equilibrium

question

Increments of spending, including investment, government spending, and exports

answer

Injections

question

Activities that remove spending from the economy, including saving, taxes, and imports

answer

Withdrawals

question

Spending changes alter equilibrium income by the spending change times the multiplier. 1/(1-MPC) 1/MPS

answer

Multiplier

question

When investment is positively related to income and households intend to save more, they reduce consumption, income, and output, reducing investment so that the result is that consumers actually end up saving less.

answer

Paradox of thrift

question

Equal changes in government spending and taxation lead to an equal change in income.

answer

Balanced budget multiplier

question

The increase in aggregate spending needed to bring a depressed economy back to full employment; equal to the GDP gap divided by the multiplier.

answer

Recessionary gap

question

The spending reduction necessary (when expanded by the multiplier) to bring an overheated economy back to full employment.

answer

Inflationary gap

question

The output of goods and services demanded at different price levels

answer

Aggregate Demand

question

Households usually hold some of their wealth in financial assets such as savings accounts, bonds, and cash, and a rising aggregate price level means that the purchasing power of this monetary wealth declines, reducing output demanded.

answer

Wealth Effect

question

The real GDP that firms will produce at varying price levels.

answer

Aggregate Supply

question

The long-run aggregate supply curve is vertical at full employment because the economy has reached its capacity to produce.

answer

LRAS curve

question

The short-run aggregate supply curve is positively sloped because many input costs are slow to change in the short run (sticky wages)

answer

SRAS curve

question

Occurs at the intersection of the short-run aggregate supply and aggregate demand curves.

answer

Macroeconomic Equilibrium

question

Results when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises.

answer

Demand-pull inflation

question

Results when a supply shock hits the economy, reducing short-run aggregate supply, and thus reducing output and increasing the price level.

answer

Cost-push inflation

question

The part of the budget that works its way through the appropriations process of Congress each year and includes such programs as national defense, transportation, science, environment, and income security.

answer

Discretionary Spending

question

Spending authorized by permanent laws that does not go through the same appropriations process as discretionary spending.

answer

Mandatory Spending

question

involves adjusting government spending and tax policies with the express short-run goal of moving the economy toward full employment, expanding economic growth, or controlling inflation.

answer

Discretionary fiscal policy

question

Involves increasing government spending, increasing transfer payments, or decreasing taxes to increase aggregate demand to expand output and the economy.

answer

Expansionary fiscal policy

question

Involves increasing withdrawals from the economy by reducing government spending, transfer payments, or raising taxes to decrease aggregate demand to contract output and the economy.

answer

Contractionary fiscal policy

question

Policies that focus on shifting the long-run aggregate supply curve to the right, expanding the economy without increasing inflationary pressures.

answer

Supply-side fiscal policy

question

Shows a hypothetical relationship between income tax rates and tax revenues.

answer

Laffer Curve

question

Tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by Congress or other policymakers.

answer

Automatic stabilizers

question

The time policy makers must wait for economic data to be collected, processed, and reported.

answer

Information lag

question

The time it takes for policymakers to confirm that the economy is in a recession or a recovery.

answer

Recognition lag

question

The time it takes Congress and the administration to decide on a policy once a problem is recognized.

answer

Decision lag

question

The time required to turn fiscal policy into law and eventually have an impact on the economy.

answer

Implementation lag

question

The economic analysis of public and political decision making, looking at issues such as voting, the impact of election incentives on politicians, the influence of special interest groups, and rent seeking behaviors.

answer

Public choice theory

question

The amount by which annual government spending exceeds tax revenues.

answer

Deficit

question

The total accumulation of past deficits less surpluses; it includes Treasury bills, notes, and bonds, and U.S. Savings Bonds.

answer

Public debt

question

Federal expenditures and taxes would have to be equal each year.

answer

Annually balanced budget

question

Balancing the budget over the course of the business cycle by restricting spending or raising taxes when the economy is booming and using these surpluses to offset the deficits that occur during recessions.

answer

Cyclically balanced budget

question

Essentially ignores the impact of the budget on the business cycle and focuses on fostering economic growth and stable prices, while keeping the economy as close as possible to full employment.

answer

Functional finance

question

The government budget is limited by the fact that G-T = Change in M + Change in B + Change in A.

answer

Government budget constraint

question

Public debt owned by U.S. banks corporations, mutual funds, pension plans, and individuals.

answer

Internally held debt

question

Public debt held by foreigners, which is roughly equal to half of the outstanding U.S. debt held by the public.

answer

Externally held debt

question

Arises from deficit spending requiring the government to borrow, thus driving up interest rates and reducing consumer spending and business investment.

answer

Crowding-out effect

question

A measure of the present value of all projected future revenues compared to the present value of projected future spending.

answer

Fiscal sustainability

question

Anything that is accepted in exchange for goods and services or for the payment of debt.

answer

Money

question

Money without intrinsic values but nonetheless accepted as money because the government has decreed it to be money.

answer

Fiat money

question

The direct exchange of goods and services for other goods and services.

answer

Barter

question

Money is a medium of exchange because goods and services are sold for money, then the money is used to purchase other goods and services.

answer

Medium of exchange

question

Money provides a yardstick for measuring and comparing the values of a wide variety of goods and services. It eliminates the problem of double coincidence of wants associated with barter.

answer

Unit of account

question

The function that enables people to save the money they earn today and use it to buy the goods and services they want tomorrow.

answer

Store of value

question

How quick, easily, and reliably an asset can be converted into cash.

answer

Liquidity

question

The narrowest definition of money; includes currency, traveler's checks, demand deposits, and other accounts that have check-writing or debt capabilities. The most liquid

answer

M1

question

A broader definition of money that includes "near monies" that are not as liquid as cash, including deposits in savings accounts money market accounts and money market mutual fund accounts.

answer

M2

question

A complex set of institutions, including banks, bond markets, and stock markets, that allocate scarce resources from savers to borrowers.

answer

Financial system

question

Financial firms that acquire funds from savers and then lend these funds to borrowers.

answer

Financial intermediaries

question

The earnings, such as interest or capital gains, that a saver receives for making funds available to others. It is calculated as earnings divided by the amount invested.

answer

Return on investment

question

The pattern of higher risk assets offering higher average annual returns on investment than lower risk assets.

answer

Tradeoff between risk and return

question

Promotional low interest rates offered by lenders for a short period of time to attract new customers and to encourage spending.

answer

Teaser rates

question

The effect of interest added to existing debt or savings leading to substantial growth in debt or savings over the long run.

answer

Compounding effect

question

The minimum number of years a worker must be employed before the company's contribution to retirement account becomes permanent.

answer

Vesting period

question

A retirement program into which an employer pays a monthly amount to retired employees until they die.

answer

Pensions

question

The percentage of a bank's total deposits that are held in reserves, either as cash in the vault or as deposits at the regional Federal Reserve Bank.

answer

Reserve ratio

question

The required ratio of funds that commercial banks and other depository institutions must hold in reserve against deposits.

answer

Reserve Requirement

question

Describes a banking system in which a portion of bank deposits are held as vault cash or in an account with the regional Federal Reserve Bank, while the rest of the deposits are loaned out to generate the money creation process.

answer

Fractional reserve banking system

question

Reserves held by banks above the legally required amount.

answer

Excess reserves

question

Measures the potential or maximum amount the money supply can increase when a dollar of new deposits enter the system and is defined as 1 divided by the reserve requirement.

answer

Money multiplier

question

A reduction in the amount of money that is used for lending that reduces the money multiplier. It is caused by banks choosing to hold excess reserves and from individuals, businesses, and foreigners choosing to hold more cash.

answer

Leakages

question

A situation when a bank's liabilities exceed it's assets.

answer

Solvency crisis

question

The central bank of the United States.

answer

Federal reserve system

question

A twelve-member committee that is composed of members of the Board of Governors of the Fed and selected presidents of the regional Federal Reserve Banks. It oversees open market operations.

answer

Federal Open Market Committee (FOMC)

question

the interest rate financial institutions charge each other for overnight loans used as reserves.

answer

Federal funds rate

question

The interest rate the Federal Reserve charges commercial banks and other depository institutions to borrow reserves from a regional Federal Reserve Bank.

answer

Discount rate

question

The buying and selling of U.S. government securities, such as Treasury bills and bonds, to adjust reserves in the banking system.

answer

Open Market Operations

question

Fed actions designed to increase excess reserves and the money supply to stimulate the economy (expand income and employment)

answer

Expansionary Monetary Policy

question

Fed actions designed to decrease excess reserves and the money supply to shrink income and employment, usually to fight inflation.

answer

Contractionary monetary policy

question

The heart of classical monetary theory uses the equation Supply of money X Velocity of money = Price level X Economy's output level

answer

Equation of exchange

question

When interest rates are so low that people believe rates can only rise, they hold on to money rather than investing in bonds and suffering the expected capital loss.

answer

Liquidity trap

question

Fed actions designed to increase excess reserves and the money supply to stimulate the economy

answer

Easy Money, quantitative easing, or accommodative monetary policy

question

Fed actions designed to decrease excess reserves and the money supply to shrink income and employment, usually to fight inflation.

answer

Tight money or restrictive monetary policy

question

keeps growth of money stocks such as M1 or M2 on a steady path, following the equation of exchange, to set a long-run path for the economy that keeps inflation in check.

answer

Monetary rule

question

the central bank sets a target on the inflation rate and adjusts monetary policy to keep inflation in that range.

answer

Inflation targeting

question

A rule for the federal funds target that suggests that the target is equal to 2% + current inflation rate + 1/2(inflation gap) + 1/2(Output gap).

answer

Taylor rule

question

Mortgages that are given to borrowers who are a poor credit risk loans charge a higher interest rate, which can be profitable to lenders if borrowers make their payments on time.

answer

Subprime mortgage

question

Occurs when investors borrow money at low interest rates to purchase investments that may provide higher rates of return.

answer

Leverage

question

A financial instrument that ensures against the potential default on an asset.

answer

Credit default swap

question

The original curve posited a negative relationship between wages and unemployment, but later versions related unemployment to inflation rates.

answer

Phillips Curve

question

The rate of inflation expected by workers for any given period.

answer

Inflationary expectations

question

Simultaneous occurrence of rising inflation and rising unemployment.

answer

Stagflation

question

Inflationary expectations are formed from a simple extrapolation from past events

answer

Adaptive expectations

question

Rational economic agents are assumed to make the best possible use of all publicly available information, then make informed, rational judgements on what the future holds.

answer

Rational expectations

question

Employers often pay their workers wages above the market-clearing level to improve morale and productivity, reduce turnover, and create a disincentive for employees to shirk their duties.

answer

Efficiency wage theory

question

A phenomenon that takes place after a recession, when output begins to rise, but employment growth does not.

answer

Jobless recovery

question

Occurs when debt is reduced by increasing the money supply, thereby making each dollar less valuable through inflation.

answer

Monetized debt

question

A country that does not engage in international trade, also known as a closed economy.

answer

Autarky

question

Goods and services that are purchased from abroad

answer

Imports

question

Goods and services that are sold abroad

answer

Exports

question

The ratio of the price of exported goods to the price of imported goods.

answer

Terms of trade

question

A tax on imported products.

answer

Tariff

question

A government set limit on the quantity of imports into a country

answer

Quota

question

An industry so underdeveloped that protection is needed for it to become competitive on the world stage or to ensure its survival.

answer

Infant Industry

question

selling goods abroad at lower prices than in home markets, and often below costs.

answer

Dumping

question

Includes payments for imports and exports of goods and services, incomes flowing into and out of the country, and net transfers of money.

answer

Current account

question

Summarizes the flow of money into and out of domestic and foreign assets, including investments by foreign companies in domestic plants or subsidiaries, and other foreign holdings of U.S. assets, including mutual funds, stocks, bonds, and deposits in U.S. banks.

answer

Capital account

question

The rate at which one currency can be exchanged for another, or just the price of one currency for another.

answer

Exchange rate

question

The rate at which one currency can be exchanged for another

answer

Nominal exchange rate

question

The price of one country's currency for another when the price levels of both countries are take into account.

answer

Real exchange rate

question

The rate of exchange that allows a specific amount of currency in one country to purchase the same quantity of goods in another country.

answer

Purchasing power parity

question

When the value of currency rises relative to other currencies.

answer

Appreciation

question

When the value of currency falls relative to other currencies.

answer

Depreciation

question

Each government determines its exchange rates, then uses macroeconomic policy to maintain the rate.

answer

Fixed exchange rate

question

A country's currency exchange rate is determined in international currency exchange markets, given the country's macroeconomic policies.

answer

Flexible or floating exchange rate

question

Describes the decision of a country to adopt another country's currency (most often the U.S. dollar) as its own official currency.

answer

Dollarization

TCU Macroeconomics Final Exam Morgan – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards