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GDP

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(gross domestic product): the total market value of all final goods and services produced during a given time period within a country's borders. Equal to the total income of the nation's households or the total expenditures on the nation's output. Real GDP Formula- (nominal GDP/ GDP deflator) * 100.

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Aggregate Expenditure

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all spending for final goods and services in an economy; C + Ig + G + Xn = AE.

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AE model

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AE is the sum of all expenditure (less imports). AE= C + I + G + X - M, where C = total consumption expenditure, I = investment expenditure, G = government expenditure, X = export expenditure, M = import expenditure.

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Inflation

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a rise in the average level of prices in the economy over time (percentage change in the CPI).

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Stagflation

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a macroeconomic situation in which both inflation and unemployment increase; caused by a negative supply shock.

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CPI

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(consumer price index): an index that measures the price of a fixed market basket of consumer goods bought by a typical consumer. The CPI is used to calculate the inflation rate in a nation.

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GDP deflator

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the price index for all final goods and services used to adjust the nominal GDP into real GDP.

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Cost-pull inflation

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inflation resulting from a decease in AS (from higher wage rates and raw material prices, such as the price of oil) and accompanied by a decrease in real output and employment. Also referred to as "stagflation" or "adverse aggregate supply shock".

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Demand-pull inflation

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inflation resulting from an increase in AD without a corresponding increase in AS.

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Keynesian theory

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an economic theory named after British economist John Maynard Keynes. The theory is based on the concept that in order for an economy to grow and be stable, active government intervention is required.

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Say's Law

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the principle, propounded by Jean Baptiste Say, that the supply of goods is always matched by the demand for them.

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Supply-side versus Demand-side

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Supply side economics- macroeconomic perspective that emphasizes fiscal policies aimed at altering the state of the economy through Ig (short run) and the aggregate supply (long run). Demand side economics- an economic theory which suggests that economic stimulation comes best from increasing the demand for goods and services. It is first and foremost a means of ridding an economy of a recession and stimulating economic growth while preventing inflation.

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Supply-side economics

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macroeconomic perspective that emphasizes fiscal policies aimed at altering the state of the economy through Ig (short run) and the aggregate supply (long run).

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Demand-side economics

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an economic theory which suggests that economic stimulation comes best from increasing the demand for goods and services. It is first and foremost a means of ridding an economy of a recession and stimulating economic growth while preventing inflation.

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Economics

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the social science that deals with the problem of how to allocate the world's scarce resources between the competing and unlimited wants and needs of people. *a social science is a field of academic scholarship that examines the interactions, between humans, our institutions, our organizations, and the natural and social environment we inhabit.

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Laffer curve

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a relationship postulated between tax rates and tax receipts indicating that rates above a certain level actually produce less revenue because they discourage taxable endeavors and vice versa.

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Phillips curve

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(long run)- a curve vertical at the natural rate of unemployment showing that in the long run there is no trade off between the price level and the level of unemployment in an economy. (short run)- a downward sloping curve showing the short run inverse relationship between the level of inflation and the level of unemployment.

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Marginal propensity to consume (MPC)

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The fraction of any change in income spent on domestically produced goods and services; equal to the change in consumption divided by the change in disposable income.

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Marginal propensity to save (MPS)

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the fraction of any change in income that is saved; equal to the change in savings divided by the change in disposable income.

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Fiscal versus Monetary policy

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fiscal policy is the use of government revenue collection and expenditure to influence the economy while monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

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GDP multiplier

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in Keynesian economic theory, a factor that quantifies the change in total income as compared to the injection of capital deposits or investments which originally fueled the growth. It is usually used as a measurement of the effects of government spending on income, and it can be calculated as one divided by the marginal propensity to save.

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Dumping

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in international trade, the export by a country or company of a product at a price charged in the domestic market. As dumping usually involved substantial export volumes of the product, it often has the effect of endangering the financial viability of manufacturers or produces of the product in the importing nation. Dumping is also a colloquial term that refers to the act of offloading a stock with little regard for its price.

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AD/AS model

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Aggregate Demand (AD)- a schedule of curve that shows the total quantity demand for all goods and services of a nation at various price levels at a given period of time. Aggregate Supply (AS)- the total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time.

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Aggregate Demand (AD)

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a schedule of curve that shows the total quantity demand for all goods and services of a nation at various price levels at a given period of time.

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Aggregate Supply (AS)

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the total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time.

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Monetary policy

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the central bank's manipulation of the supply of money aimed at raising or lowering interest rates to stimulate or contract the level of aggregate demand to promote the macroeconomic objectives of price-level stability and full employment.

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Fiscal policy

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changes in government spending and tax collections implemented by government with the aim of either increasing or decreasing aggregate demand to achieve the macroeconomic objectives of full employment and price- level stability.

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Crowding out effect

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the rise in interest rates and the resulting decrease in investment spending in the economy caused by increased government borrowing in the loanable funds market; seen as a disadvantageous side effect of expansionary fiscal policy.

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Currency Appreciation versus Depreciation

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the appreciation of a country's currency refers to an increase in the value of that country's currency while currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system.

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Bonds

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a certificate of debt issued by a company or a government to an investor.

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Federal Reserve System

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the Federal Reserve is the central bank of the United States. Its unique structure includes a federal government agency, the Board of Governors in Washington, D.C., and 12 regional Reserve Banks.

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Commercial / Investment Banks

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a commercial bank's principal functions are to receive demand deposits and to make short- term loans, while an investment bank is a financial institution that deals primarily with raising capital, corporate mergers and acquisitions, and securities trades.

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Commercial Bank

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principal functions are to receive demand deposits and to make short- term loans.

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Investment Bank

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a financial institution that deals primarily with raising capital, corporate mergers and acquisitions, and securities trades.

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Money multiplier

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the mathematical relationship between the monetary base and money supply of an economy. It explains the increase in the amount of cash in circulation generated by the banks' ability to lend money out of their depositors' funds.

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Balance sheet

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statement of the assets and liabilities that determines a firm's net (solvency).

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FOMC

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(Federal Open Market Committee): a committee within the Federal Reserve System that is charged under United States law with overseeing the nation's open market operations. It makes key decisions about interest rates and the growth of the United States money supply.

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Expansionary policy

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combination of government increases in spending and a net decrease on taxes, for the purpose of increasing aggregate demand.

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Contractionary policy

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(monetary)- a demand side policy whereby the central bank reduces the supply of money, increasing interest rates and reducing aggregate demand. It could be used to bring down high inflation rates. (fiscal)- a demand side policy whereby government increases taxes or decreases its expenditures in order to reduce aggregate demand. It could be used in a period of high inflation to bring down the inflation rate.

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BLS

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(Bureau of Labor Statistics): an agency of the U.S. Federal government, specifically a branch of the U.S. Department of Labor, that compiles and reports a wide range of economic data and measurements.

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GATT

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(General Agreement on Tariffs and Trade): A treaty, signed in 1947 by 23 countries including the United States, that was designed to reduce trade barriers. It now carries the signatures of about 100 countries and over the years has been pretty effective in reducing tariffs, eliminating some import quotas, and promoting commerce.

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WTO

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(World Trade Organization): an international organization that oversees multilateral trade among nations. The WTO was established in 1995 by the Uruguay round of trade negotiations to replace the General Agreement on Tariffs and Trade that had been in place for the preceding five decades. It administers multilateral trade agreements, provides a forum for trade negotiations, handles trade disputes, monitors national trade policies, and provides technical assistance and training for developing countries. The WTO has about 150 member countries.

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Rule of Seventy

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a way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. This rule is commonly wed with and annual compound interest rate to quickly determine how long it would take to double your money.

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Comparative versus Absolute advantage

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Comparative- when an individual, a firm or a nation is able to produce a particular product at a lower-opportunity cost than another individual, firm, or nation. Comparative advantage is the basis on which nations trade with one another. Absolute- a country or individual has an absolute advantage in the production of a good when the country can produce the good using fewer resources than another country or individual.

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Comparative advantage

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when an individual, a firm or a nation is able to produce a particular product at a lower-opportunity cost than another individual, firm, or nation. Comparative advantage is the basis on which nations trade with one another.

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Absolute advantage

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a country or individual has an absolute advantage in the production of a good when the country can produce the good using fewer resources than another country or individual.

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Dead Weight loss

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the foregone total societal surplus associated with the levy of a tax that discourages what had heretofore been a mutually advantageous market transaction.

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Balance of payments

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measures all the monetary exchanges between one nation and all other nations. Includes the current account and the capital account.

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Reserve accounts ratio

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the portion (expressed as a percent) of depositors' balances banks must have on hand as cash. This is a requirement determined by the country's central bank, which in the U.S. is the Federal Reserve. The reserve ratio affects the money supply in a country.

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Fractional Reserve Banking

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a banking in which banks hold only a fraction of deposits as required reserves and can lend some of the money deposited by their customers to other borrowers.

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Protective/ Revenue Tariffs

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Protective tariff- import duties on manufactured goods. Revenue tariff- pays interest on debts and funds the government.

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Protective tariff

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import duties on manufactured goods.

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Revenue tariff

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pays interest on debts and funds the government.

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