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macroeconomics

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the branch of economics that studies the overall working of a national economy

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aggregate output

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The total quantity of goods and services produced in an economy in a given period.

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income

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the financial gain (earned or unearned) accruing over a given period of time

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aggregate demand

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total demand for goods and services in an economy

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aggregate supply

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total supply of goods and services in an economy

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sticky prices

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Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.

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great depression

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the economic crisis beginning with the stock market crash in 1929 and continuing through the 1930s

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John Maynard Keynes

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English economist who advocated the use of government monetary and fiscal policy to maintain full employment without inflation (1883-1946)

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inflation

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a general and progressive increase in prices

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demand pull inflation

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increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

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cost push inflation

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When prices rise due to an increase in the cost of production.

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hyperinflation

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severe and prolonged inflation that results in the value of money losing its acceptability as a medium of exchange

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deflation

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a contraction of economic activity resulting in a decline of prices

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stagflation

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

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recession

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the state of the economy declines

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business cycle

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recurring fluctuations in economic activity consisting of recession and recovery and growth and decline

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expansion

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a period of economic growth as measured by a rise in real GDP

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contraction

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a period of economic decline marked by falling real GDP

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depression

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a long-term economic state characterized by unemployment and low prices and low levels of trade and investment

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unemployment rate

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the percentage of the work force that is unemployed at any given date

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fiscal policy

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a government policy for dealing with the budget (especially with taxation and borrowing)

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monetary policy

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policy that involves changing the rate of growth of the money supply in circulation in order to affect the cost and availability of credit

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supply side policies

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Government policies that focus on stimulating aggregate supply instead of aggregate demand.

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transfer payments

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Cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. They include Social Security benefits, veterans' benefits, and welfare payments.

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GDP

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Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

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GNP

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Gross National Product - the sum of all goods and services produced in a nation in a year

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final goods

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

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consumption

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The utilization of economic goods to satisfy needs or in manufacturing

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durable goods

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items with lasting value, the purchase of which is considered a form of savings

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nondurable goods

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goods that lasts a short period, such as food, light bulbs, and sneakers

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services

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performance of duties or provision of space and equipment helpful to others

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planned investment

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the amount that firms plan or intend to invest

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government purchases

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spending on goods and services by local, state, and federal governments

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net exports

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exports minus imports

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indirect taxes

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Taxes such as sales, excies, and property taxes as well as taxes that are part of a firm's cost of producing a product, these are usually passed on to the consumer

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subsidies

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a grant or contribution of money, especially one made by a government

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net factor payments

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These are the payments received by domestic factors of production from abroad minus the payments to foreign factors of production from domestic sources.

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net national product

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A measure of all goods and services produced by a country in a year, including production from its investments abroad, minus the loss or degradation of natural resource capital as a result of productivity.

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personal saving rate

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the percentage of disposable personal income that is saved

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nominal GDP

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the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)

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underground economy

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buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal

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gross national income

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The total value of goods and services produced by a country per year plus net income earned abroad by its nationals; formerly called "gross national product."

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frictional unemployment

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unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

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structural unemployment

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unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

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natural rate of unemployment

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The "normal" unemployment rate due to frictional and structural conditions in labor markets. It is the unemployment rate that occurs when the economy is operating at a sustainable rate of output

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cyclical unemployment

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unemployment that rises during economic downturns and falls when the economy improves

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CPI

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an index of the cost of all goods and services to a typical consumer

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producer price index

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a measure of the cost of a basket of goods and services bought by firms

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real interest rate

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the interest rate corrected for the effects of inflation

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savings

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money set aside, generally in a bank or investments

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consumption function

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The relationship between consumption and income.

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marginal propensity to consume

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MPC = Marginal Propensity to Consume - the ratio of the change in consumption spending to a given change in income. MPC = change in C/change in Y

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marginal propensity to save

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the change in one's savings caused by the change in one's income. change in savings (S)/change in income (Y)

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planned aggregate expenditure

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the total amount the economy plans to spend in a given period. It is equal to Consumption (C) plus Planned Investment (I) AE= C+I

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money multiplier

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The multiple by which deposits can increase for every dollar increase in reserves; equal to 1 divided by the required reserve ratio

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paradox of thrift

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A Keynesian concept explaining why consumers will not help the economy get out of a recession

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net taxes

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The amount remaining after costs of goods sold and operating expenses are subtracted from sales

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disposable income

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income (after taxes) that is available to you for saving or spending

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budget deficit

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an excess of expenditures over revenues

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leakages and injections

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exceptions in the circular flow of income.

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government spending multiplier

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the ratio of the change in the equilibrium level of output to a change in government spending (1/MPS)

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tax multiplier

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The ratio of change in the equilibrium level of output to a change in taxes

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balanced budget multiplier

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Gives the change in equilibrium output that results from 1-unit increase or decrease in both taxes and government spending.

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federal debt

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all the money borrowed by the federal government over the years and still outstanding

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automatic stabilizers

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changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action

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fiscal drag

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The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion.

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structural deficit

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the deficit that remains at full employment

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cyclical deficit

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the deficit that occurs because of a downturn in the business cycle.

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commodity money

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objects that have value in themselves and that are also used as money

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fiat money

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money that has value because the government has ordered that it is an acceptable

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currency debasement

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the decrease in the value of money that occurs when its supply is increased rapidly

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M1

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narrowest measure of the money supply that includes all coins and paper bills in circulation, traveler's checks, checking account balances, and balances in credit unions

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M2

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All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits.

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required reserves ratio

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Percentage of deposits that the fed requires a bank to hold in vault cash or on deposit with the Fed.

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FOMC

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The Federal Open Market Committee is the most powerful committee of the FED, because it makes the decisions that affect the economy as a whole by manipulating the money supply.

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discount rate

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the rate of interest set by the Federal Reserve that member banks are charged when they borrow money through the Federal Reserve System

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tight money

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the economic condition in which credit is difficult to secure and interest rates are high

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easy money

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the economic condition in which credit is easy to secure

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expansionary policies

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fiscal policies, like higher spending and tax cuts, that encourage economic growth

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crowding out effect

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the loss of funds for private investment caused by government borrowing

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contractionary policy

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a fiscal policy used to reduce economic growth, often through decreased spending or higher taxes

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aggregate demand

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the amount of goods and services in the economy that will be purchased at all possible price levels

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aggregate supply

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

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cost shock

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a change in costs that shifts the short-run aggregate supply curve

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supply shock

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An unexpected event that causes the short-run aggregate supply curve to shift

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sticky wages

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occur when workers are unable to change their nominal wage rate easily in response to changing overall prices

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COLA

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cost of living adjustment

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efficiency wage theory

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A theory stating that wages influence worker productivity

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Phillip's curve

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A curve that shows the short-run trade-off between inflation and unemployment.

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bond

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a certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money

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stock

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a certificate documenting the shareholder's ownership in the corporation

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average propensity to consume

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fraction or % of disposable income that households plan to spend for consumer goods and services; consumption divided by disposable income

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nominal wage rate

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The wage rate in current dollars.

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real wage rate

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wage rate adjusted for inflation

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productivity

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the ratio of the quantity and quality of units produced to the labor per unit of time

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Okun's Law

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This details the inverse relationship between unemployment and real GDP.

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economic growth

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

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aggregate production function

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a function describing the relationship between the quantity of inputs used in a country and the quantity of output produced in a country

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velocity of money

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the rate at which money changes hands

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quantity theory of money

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a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate

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real business cycle theory

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an attempt to explain business cycle fluctuations under the assumptions of complete price and wage flexibility and rational expectations

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Laffer Curve

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a graph purporting to show the relation between tax rates and government income

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exchange rate

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the charge for exchanging currency of one country for currency of another

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tariff

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a government tax on imports or exports

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dumping

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selling goods abroad at a price below that charged in the domestic market

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Smoot-Hawley tariff

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raised US tariffs, prolonged depression

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GATT

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General Agreement on Tariffs and Trade; international trade organization ehtat encourages free trade by lowering tariffs and other trade restrictions

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NAFTA

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North American Free Trade Agreement; allows open trade with US, Mexico, and Canada

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balance of payments

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a system of recording all of a country's economic transactions with the rest of the world over a period of one year

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balance of trade

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the difference in value over a period of time of a country's imports and exports of merchandise

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trade deficit

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an excess of imports over exports

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balance on current account

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the exports of a goods and services of a nation minus its imports of goods and services plus its net investment income and net transfers in a year

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net exports

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exports minus imports

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floating exchange rates

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Prices of different currencies move up and down based on the demand for and the supply of each currency

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