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Goods

answer

Items purchased to satisfy needs and wants

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Services

answer

Activities performed by people, firms or government agencies to satisfy economic wants.

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Capital

answer

An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

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Entrepreneurship

answer

the process of starting, organizing, managing, and assuming the responsibility for a business

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Scarcity

answer

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

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Economics

answer

The study of choices leading to the best possible use of scarce resources in order to best satisfy the unlimited human needs and wants.

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Rationing Device

answer

A means for deciding who gets what portion of the available resources and goods.

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Opportunity Cost

answer

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

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Marginal Benefits

answer

Additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity.

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Marginal Costs

answer

the change in total cost due to a one-unit increasing the variable input; the cost of using more of a factor of production.

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Efficiency

answer

A measure of how well or how productively resources are used to achieve a goal

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Exchange

answer

The act of obtaining a desired object from someone by offering something in return.

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Positive Economics

answer

An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

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Normative Economics

answer

The body of economics based on normative statements, which involve beliefs, or value judgements about what ought to be. Normative statements cannot be true or false; they can only be assessed relative to beliefs and value judgements. Normative economics forms the basis of economic policies.

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Microeconomics

answer

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

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Macroeconomics

answer

Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.

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Production Possibilities Curve

answer

All possible combination of the maximum amounts of two goods that can be produced by an economy, given fixed and unchanging resources and technology.

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Law of Increasing Opportunity Costs

answer

As more of a particular product is produced, the opportunity cost, in terms of what must be given up of other goods to produce each unit of the product, increases. Explains the convex shape of a nation's production possibilities curve.

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Productive Efficiency

answer

Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient

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Productive Inefficiency

answer

The condition where less than the maximum output is produced with the given resources and technology. Productive inefficiency implies that more of one good can be produced without any less of another being produced.

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Terms of Trade

answer

The rate at which units of one product can be exchanged for units of another product; the price of a good or service; the amount of one good or service that must be given up to obtain 1 unit of another good or service

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Comparative Advantage

answer

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.

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Absolute Advantage

answer

the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

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Demand

answer

The desire, willingness, and ability to buy a good or service

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Law of Demand

answer

A law stating that there is a negative causal relationship between the price of a good and quantity of the good demanded, over a particular time.

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Ceteris Paribus

answer

a Latin phrase that means "all other things held constant"

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Absolute Price

answer

the price of a good or service denominated in a currency. It's the money cost of a product.

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Relative Price

answer

The price of a specific good or service in comparison to the prices of other goods and services.

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Law of Diminishing Marginal Utility

answer

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

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Normal Good

answer

a good for which, other things equal, an increase in income leads to an increase in demand

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Inferior Good

answer

a good for which, other things equal, an increase in income leads to a decrease in demand

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Supply

answer

A stock of a resource from which a person or place can be provided with the necessary amount of that resource.

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Law of Supply

answer

As a price increases the quantity of the good provided increases, as the price of a good decreases, the number provided decreases.

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Subsidy

answer

A government payment that supports a business or market

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Surplus

answer

A situation in which the quantity supplied is greater than the quantity demanded

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Shortage

answer

A situation in which quantity demanded is greater than quantity supplied

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Equilibrium Price

answer

the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy

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Equilibrium Quantity

answer

the amount of output that results in no shortage or surplus, the amount of goods and service bought and sold in the economy

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Disequilibrium

answer

any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market

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Consumers' Surplus

answer

Value to buyers - Amount paid by buyers

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Producers' Surplus

answer

The difference between the price sellers receive for a good and minimum price they would sell the good

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Total Surplus

answer

Consumer Surplus + Producer Surplus

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Price Ceiling

answer

A legal maximum on the price at which a good can be sold

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Price Floor

answer

A legal minimum on the price at which a good can be sold

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Real GDP

answer

the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year

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Fiscal Policy

answer

Government policy that attempts to manage the economy by controlling taxing and spending.

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Monetary Policy

answer

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

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Price Level

answer

A measure of the average prices of goods and services in the economy

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Price Index

answer

An index that traces the relative changes in the price of an individual good (or a market basket of goods) over time

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Consumer Price Index

answer

Shows changes in the average prices of goods and services purchased by consumers over a period of time

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Base Year

answer

A Base Year is the year used for comparison for the level of a particular economic index.

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Inflation

answer

A rise in the general price level (and decrease in dollar value) owing to an increase in the volume of money and credit in relation to available goods.

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Real Income

answer

Income measured in terms of the goods and services it can buy; real income changes when the price changes

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Nominal Income

answer

The amount of money income received in a given time period, measured in current dollars.

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Unemployment Rate

answer

Measures the number of people who are able to work, but do not have a job during a period of time.

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Employment Rate

answer

The percentage of the civilian noninstitutional population that is employed: (Employment rate = Number of employed persons/Civilian noninstitutional population.)

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Labor Force Participation Rate

answer

The percentage of the civilian noninstitutional population that is in the civilian labor force: Labor force participation rate = Civilian labor force/Civilian noninstitutional population.

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Frictional unemployment

answer

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

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Structural Unemployment

answer

A type of unemployment that occurs as a result of technological changes and changing patterns of demand, as well as geographical changes, and labor market rigidities.

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Cyclical Unemployment

answer

Unemployment that rises during economic downturns and falls when the economy improves. Getting laid off due to a recession is the classic case of this.

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Full Employment

answer

Refers to maximum use of all resources in the economy to produce the maximum quantity of goods and services that the economy is capable of producing, implying zero unemployment.

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Natural Unemployment

answer

Unemployment resulting from a situation where there is no cyclical unemployment, only structural, frictional and seasonal. It is seen as the rate of full employment where demand for labor equals the supply of labor. Any increase in AD will only cause inflation

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Gross Domestic Product

answer

The total value of goods and services produced within the borders of a country during a specific time period, usually one year.

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Final Good

answer

goods and services that have been purchased for final use and not for resale or further processing or manufacturing

question

Intermediate Good

answer

nonfinal goods; those that someone purchased either to resell immediately or to incorporate into other goods

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Double Counting

answer

the mistake of including the value of intermediate stages of production in GDP on top of the value of the final good

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Value Added

answer

The difference between the price of the final product and the cost of raw materials, labor, and other inputs.

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Transfer Payment

answer

Benefits given by the government directly to individuals. Transfer payments may be either cash transfers, such as Social Security payments and retirement payments to former government employees, or in-kind transfers, such as food stamps and low-interest loans for college education.

question

Consumption

answer

(economics) the utilization of economic goods to satisfy needs or in manufacturing

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Investment

answer

the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit

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Inventory Investment

answer

goods that businesses put aside in storage, including materials and supplies, work in process, and finished goods

question

Fixed Investment

answer

Business purchases of capital goods, such as machinery and factories, and purchases of new residential housing.

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Government Purchases

answer

Spending by federal, state, and local governments on goods and services.

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Government Transfer Payments

answer

Transfer payments are made by the U.S. Federal Government to individuals through programs such as Social Security, Welfare and Veteran's benefits.

question

Imports

answer

Goods and services bought domestically but produced in other countries

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Exports

answer

Goods and Services sold to other countries

question

Net Exports

answer

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

question

National Income

answer

The total income of an economy, often used interchangeable with the value of aggregate output.

question

Net Domestic Product

answer

the value of a nation's total output (GDP) minus the total value lost through depreciation on machines and equipment

question

Personal Income

answer

Salaries and wages as well as investment income and government payments to individuals

question

Disposable Income

answer

Income remaining for a person to spend or save after all taxes have been paid

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Economic Growth

answer

steady growth in the productive capacity of the economy (and so a growth of national income)

question

Business Cycle

answer

Fluctuations in economic activity, such as employment and production

question

Aggregate Demand

answer

The total quantity of goods and services that all buyers in an economy (Consumers, Firms, the Government, and Foreigners) want to buy over a particular time period, at different possible price levels.

question

Aggregate Demand Curve

answer

The curve that shows that relationship between total quantity of goods and services that all buyers in an economy want to buy over a particular time period.

question

Purchasing Power

answer

the ability to purchase goods and services, a comparison of income versus the relative cost of a set standard of goods and services in different geographic areas

question

Interest Rate Effect

answer

The changes in household and business buying as the interest rate changes (in turn, a reflection of a change in the demand for or supply of credit brought on by price level changes).

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Exchange Rate

answer

The rate at which one currency can be exchanged for another, or the number of units of foreign currency that corresponds to the domestic currency.

question

Appreciation

answer

an increase in the value of a currency as measured by the amount of foreign currency it can buy

question

Depreciation

answer

Any decrease or loss in value caused by age, wear, or market conditions

question

Aggregate Supply

answer

the total amount of goods and services in the economy available at all possible price levels

question

Short Run Aggregate Supply Curve

answer

a curve that shows the relationship between price level and rGDP produced by firms when wage costs are fixed

question

Long Run Aggregate Supply Curve

answer

is the relationship between Real GDP and the Price Level at full employment. Unemployment is at its natural rate.

question

Say's Law

answer

supply creates its own demand. "Adam smith of France" . savings is essential for investment and hence for economic growth-> not spending is okay. production is the driver and supply ( output/production )will only happen if theres a demand ( spending/expenditure)

question

Recessionary Gap

answer

A situation where real GDP is less than potential GDP, and unemployment is greater than the natural rate of unemployment.

question

Inflationary Gap

answer

A situation where real GDP is greater than potential GDP, and unemployment is lower than the natural rate of unemployment.

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Laissez-Faire

answer

Idea that government should play as small a role as possible in economic affairs.

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Marginal Propensity to Consume

answer

The fraction of a change in disposable income that is spent on consumption - the change in consumption expenditure divided by the change in disposable income that brought it about.

question

Autonomous Consumption

answer

the level of consumption which does not depend on income (the argument is that even with zero income you still need to buy enough food to eat, through borrowing or running down savings)

question

Marginal Propensity to Save

answer

The fraction of a change in disposable income that is spent on consumption - the change in consumption expenditure divided by the change in disposable income that brought it about.

question

Money Multiplier

answer

The amount of money the banking system generates with each dollar of reserves, the multiple by which deposits can increase for every dollar increase in reserves; equal to 1 divided by the required reserve ratio.

question

Medium of Exchange

answer

anything that is used to determine value during the exchange of goods and services

question

Unit of Account

answer

a standard unit in which prices can be quoted and values of goods can be compared

question

Store of Value

answer

an item that people can use to transfer purchasing power from the present to the future

question

M1 Money

answer

Supply of the most immediate form of money. Includes currency, demand deposits, and travelers checks.

question

Federal Reserve Notes

answer

paper currency issued by the Fed that eventually replaced all other types of federal currency

question

Checkable Deposits

answer

deposits in bank accounts from which depositors may make withdrawals by writing checks

question

M2 Money

answer

a measure of the money supply: it consists of M1 plus other relatively liquid assets(savings accounts, small time deposit accounts, market deposit accounts)

question

M3 Money

answer

consists of M1, M2 and other certain financial assets (long term deposits, commercial paper, bankers' acceptances, etc)

question

Savings Deposit

answer

an interest-earning account at a commercial bank or thrift institution; normally, checks cannot be written on savings deposits, and the funds in a savings deposit can be withdrawn at any time without a penalty payment

question

Money Market Deposit Account

answer

account that pays relatively high rates of interest, requires a minimum balance, and allows immediate access to funds

question

Time Deposit

answer

A savings plan with a set length of time that money must be kept in the account with a penalty for withdrawing early

question

Money Market Mutual Fund

answer

a fund that pools money from small savers to purchase short-term government and corporate securities

question

Fractional Reserve Banking

answer

system in which only a fraction of the deposits in a bank is kept on hand, or in reserve; the remainder is available to lend

question

Federal Reserve System

answer

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

question

Required Reserve Ratio

answer

The percentage of its total deposits that a bank must keep as reserves at the Federal Reserve.

question

Required Reserves

answer

reserves that a bank is legally required to hold, based on its checking account deposits

question

Excess Reserves

answer

reserves that banks hold over and above the legal requirement

question

T-Account

answer

Is a tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities.

question

Simple Deposit Multiplier

answer

the ratio of the amount of deposits created by banks to the amount of new reserves

question

Cash Leakage

answer

occurs when funds are held as currency instead of deposited into a checking account

question

Equation of Exchange

answer

M X V = P X Q (the money supply times its velocity equals the price level times output)

question

Velocity of Money

answer

describing the number of times the typical dollar of M1 or M2 is used to make purchases during a year

question

Simple Quantity Theory of Money

answer

The theory assuming that velocity (V) and Real GDP (Q) are constant and predicting that changes in the money supply (M) lead to strictly proportional changes in the price level (P).

question

One-Shot Inflation

answer

Is a one time increase in the price level. It can come from the demand side of the economy, or the supply side. this inflation can be caused by an increase in AD or by a decrease in SRAS.

question

Continued Inflation

answer

If the price level increases at a high rate year after year. Continued inflation could be caused by continued decreases in SRAS. Continued inflation almost always caused by continued increased in AD. Continued increases in AD are caused by continued increases in money supply.

question

Liquidity Effect

answer

The change in the interest rate due to a change in the supply of loanable funds.

question

Income Effect

answer

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.

question

Price-Level Effect

answer

A rise in the price level causes the demand for the money at each interest rate to increase and the demand curve to shift to the right.

question

Expectations Effect

answer

perception and behavior changes as a result of personal experiences or the expectations of others

question

Nominal Interest Rate

answer

the interest rate as usually reported without a correction for the effects of inflation

question

Real Interest Rate

answer

the interest rate corrected for the effects of inflation

question

Demand for Money

answer

The quantities of money people are willing and able to hold at alternative interest rates, ceteri

question

Expansionary Monetary Policy

answer

Refers to monetary policy usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending.

question

Contractionary Monetary Policy

answer

A monetary policy usually pursued in an inflationary period. It involves increasing the interest rate (to lower investment and consumption spending).

question

Phillips Curve

answer

indicates a short-run inverse relationship between inflation and unemployment rates

question

Stagflation

answer

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

question

Adaptive Expectations

answer

expectations that individuals form from past experience and modify slowly as the present and the future become the past

question

Rational Expectations

answer

the idea that households and businesses will use all the information available to them when making economic decisions

question

Policy Ineffectiveness

answer

which says that if prices and wages are flexible and if people hold rational expectations, then any government policy to stimulate demand will have no impact on GDP unless the policy is unanticipated

question

Absolute Real Economic Growth

answer

An increase in Real GDP from one period to the next.

question

Per Capita Real Economic Growth

answer

an increase from one period to the next in per capita real gdp which is the real gdp divided population

question

Industrial Policy

answer

The strategies by which a government works actively with industries to promote their growth and tailor trade policy to their needs.

question

Balance of Payments

answer

an accounting of the funds that flow into and out of a country comprised of the capital account and the current account

question

Debit

answer

Any transaction that increases the assets of a firm or reduces liabilities.

question

Foreign Exchange Market

answer

system of financial institutions that facilitate the buying and selling of foreign currencies

question

Credit

answer

The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

question

Current Account Balance

answer

the difference between the revenues earned from exports of goods and services and the expenditure on the imports of goods and services

question

Capital Account

answer

a portion of the balance of payments comprised of foreign purchases of U.S. assets minus U.S. purchases of foreign assets, plus the change in official reserves

question

Capital Account Balance

answer

includes foreign government and private investment in the US netted against US investment in foreign countries

question

International Monetary Fund (IMF)

answer

An international organization of 183 countries, established in 1947 with the goal of promoting cooperation and exchange between nations, and to aid the growth of international trade.

question

Globalization

answer

Actions or processes that involve the entire world and result in making something worldwide in scope.

question

Tariff

answer

A government tax on imports or exports

question

Closed Economy

answer

An economy that has no international trade. THIS DOES NOT REALLY EXIST IN THE REAL WORLD.

question

Open Economy

answer

An economy that has international trade: (imports and exports) usually appears in connection with economic theories and models as virtually all economies in the real world are open economies (though to varying degrees).

question

Stock

answer

the capital raised by a business or corporation through the issue and subscription of shares.

question

Dow Jones Industrial Average

answer

Measure based on the stock prices of 30 representation large firms trading on New York Stock Exchange

question

Investment Bank

answer

a bank that buys stocks and shares and then sells them to members of the public, and offers financial advice to businesses

question

Dividend

answer

A payment from profits by a company's Board of Director's to shareholders. (Dividends are issued on a regular basis and can be either increased or decreased).

question

Bond

answer

A financial security that represents a promise to repay a fixed amount of funds

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