question

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.

question

Inflation

answer

A rise in the general level of prices in an economy.

question

Economics

answer

study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice

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Economy

answer

A system for coordinating a society's productive and consumptive activities.

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Market Economy

answer

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

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Command Economy

answer

An economy in which production, investment, prices, and incomes are determined centrally by a government.

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Property Rights

answer

Legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in the courts.

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Marginal Analysis

answer

Analysis that involves comparing marginal benefits and marginal costs.

question

Opportunity Cost

answer

Making a choice to give up one thing in order to get something else.

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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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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

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics.

question

Business Cycle

answer

It shows fluctuations in the level of economic activity in an economy over time and suggests that the changes are cyclical. There are four stages, depression (slump), recovery, boom, and recession. https://o.quizlet.com/3RehNvEe14.PrGuZ-iJVNA_m.jpg

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Depression

answer

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

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Recession

answer

A period of declining real GDP, accompanied by lower real income and higher unemployment.

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Expansion

answer

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

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Unemployment Rate

answer

Number of unemployed/civilian labor force https://o.quizlet.com/l2TDfVQ.sRukd4rdmNU.Zw_m.png

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Labour Force

answer

Everyone who is employed plus those unemployed (out of work but actively seeking work)

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Deflation

answer

A decline in the price level

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Price Stability

answer

no inflation or deflation; no rapid changes in price level

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Economic Growth

answer

An increase in real output as measured by real GDP or per capita real GDP.

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Economic Model

answer

A simplified equation, graph, or figure showing how something works.

question

Production Possibility Frontier

answer

Diagram representing maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed. https://o.quizlet.com/8RkiLugrz8xo.ju-k7zuKw_m.png

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Production Possibility Curve

answer

Diagram representing maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed. https://o.quizlet.com/8RkiLugrz8xo.ju-k7zuKw_m.png

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Trade off

answer

Alternative that must be given up when one choice is made rather than another.

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Efficiency

answer

Condition in which maximum output is obtained from the resources used to produce goods and services

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Specialisation

answer

Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.

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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 to produce a good using fewer inputs than another producer

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Competitive Market

answer

A market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold.

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Supply Curve

answer

A curve that shows the relationship between the price of a product and the quantity of the product supplied. https://o.quizlet.com/cD1gLJtOr2TJt6JUhbhEcA_m.jpg

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Law of Supply

answer

Holding all else equal, when the price of a good rises, suppliers increase their quantity supplied for that good

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Quantity Supplied

answer

The amount of a good or service that a firm is willing and able to supply at a given price.

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Quantity Demanded

answer

The amount of a good or service that a consumer is willing and able to purchase at a given price.

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Law of Demand

answer

Holding all else equal, when the price of a good rises, consumers decrease their quantity demanded for that good

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Demand Curve

answer

A graph of the relationship between the price of a good and the quantity demanded https://o.quizlet.com/M72ltsAuAE..vgvbOMMATQ_m.png

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Demand Schedule

answer

A table that shows the relationship between the price of a good and the quantity demanded

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Substitutes

answer

Goods and services that can be used for the same purpose.

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Compliments

answer

Two goods for which a decrease in the price of one good increases the demand for the other good

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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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Equilibrium

answer

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded https://o.quizlet.com/jk6T-wi6jRgio66-9EBnPw_m.png

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Excess Supply or Surplus

answer

A situation in which quantity supplied is greater than quantity demanded

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Excess Demand or Shortage

answer

A situation in which quantity demanded is greater than quantity supplied https://o.quizlet.com/i/5yflpd3xc4vyNIo7vkDzSA_m.jpg

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Price Controls

answer

Government-mandated prices that are generally imposed in the form of maximum or minimum legal prices.

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Price Ceiling

answer

A maximum price that can be legally charged for a good or service https://o.quizlet.com/gjs3AX4CM2cQJb6B22icqQ_m.png

question

Price Floor

answer

A legal minimum on the price at which a good can be sold https://o.quizlet.com/.31XeMmOEYExLpDhUGXLuw_m.png

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Quota

answer

A limit placed on the quantities of a product that can be imported

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Deadweight Loss

answer

The fall in total surplus that results from a market distortion, such as a tax. https://o.quizlet.com/ZR6GVa.FslIvK.ZEd7obSw_m.png

question

Circular Flow Diagram

answer

A diagram of the economy that shows the flow of goods and services, factors of production, and monetary payments between households and firms https://o.quizlet.com/i/IJgkT8_9tjuJCxI-dyEemA_m.jpg

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Product Market

answer

A market in which products are sold by firms and bought by households.

question

Factor Market

answer

A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

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Stocks

answer

shares of ownership in a company

question

Bonds

answer

A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate.

question

Government Transfers / Transfer Payments

answer

payments by the government to individuals for which no good or service is provided in return

question

Imports

answer

Goods and services bought domestically but produced in other countries

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Exports

answer

Goods and services that are produced domestically and sold abroad

question

Investment Spending

answer

spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories

question

Real GDP

answer

gross domestic product (GDP) adjusted to account for changes in currency values and price changes

question

Value Added

answer

The difference between a good's selling price and the "intermediate goods" used to make the good

question

GDP Formula

answer

Y = C + I + G + (X - M)

question

Nominal GDP

answer

GDP measured in current prices

question

GDP per capita

answer

total value of goods and services produced in a year divided by the population

question

Underemployed

answer

Working at a job for which one is overqualified, or working part-time when full-time work is desired.

question

Frictional Unemployment

answer

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

question

Structural Unemployment

answer

unemployment that results from a mismatch between the skills of the unemployed and the skills required in the labour market

question

Cyclical Unemployment / Demand Deficient Unemployment

answer

Unemployment attributable to a general decline in macroeconomic activity, especially expenditures on gross domestic product, that occurs during a business-cycle contraction. When the economy dips into a contraction, or recession, aggregate demand declines, so less output is produced and fewer workers and other resources are employed

question

Efficiency Wages

answer

above-equilibrium wages paid by firms to increase worker productivity

question

Natural Rate of Unemployment

answer

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

question

Shoe Leather Costs

answer

the increased costs of transactions caused by inflation

question

Menu Costs

answer

The costs to firms of changing prices

question

Nominal Interest Rate

answer

Market interest rate actually charged by the financial institutions and earned by bondholders

question

Real Interest Rate

answer

Nominal Interest Rate - Inflation Rate

question

GDP Deflator

answer

A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100

question

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

question

Consumer Price Index

answer

A measure of the overall cost of the goods and services bought by a typical consumer

question

Producer Price Index

answer

An average of the prices received by producers of goods and services at all stages of the production process

question

Marginal Propensity to Consume

answer

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

question

Marginal Propensity to Save

answer

Increase in household savings when disposable income rises by £1.

question

Spending Multiplier

answer

1/MPS; the factor by which GDP grows as a result of more spending

question

Multiplier

answer

Ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that automomous change.

question

Consumption Function

answer

The relationship between consumption spending and disposable income

question

Investment Spending

answer

spending on productive physical capital, such as machinery and construction of structures, and on changes to inventories

question

Planned Investment Spending

answer

the investment spending that businesses intend to undertake during a given period

question

Unplanned Inventory Investment

answer

occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories

question

Aggregate Demand Curve

answer

A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government.

question

Wealth Effect

answer

When price levels increase, the market value of certain financial assets decreases (fixed rate bonds) causing individuals to have less wealt

question

Interest Rate Effect

answer

If the average price level rises, consumers and firms might need to borrow more money for spending and capital investment, which increases the interest rate and delays current consumption. This postponement reduces current consumption of domestic production as the price level rises.

question

Fiscal Policy

answer

The federal government efforts to keep the economy stable by increasing or decreasing taxes or government spending

question

Monetary Policy

answer

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

question

Aggregate Supply Curve

answer

shows the quantity of goods and services that firms choose to produce and sell at each price level

question

Short Run Aggregate Supply Curve

answer

aggregate supply that varies with the level of demand for goods and services and that is shifted by changes in the cost of factors of production

question

Long Run Aggregate Supply Curve

answer

shows the relationship between the price level and the quantity of real GDP supplied in the long run --> no actual relation; the curve is vertical

question

Nominal Wage

answer

the amount of money received by a worker per unit of time (hour, day, etc.); money wage

question

Sticky Wage

answer

are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages

question

Potential Output

answer

the level of output the economy could produce if operating at full employment

question

Long Run Equilibrium

answer

the condition that exists in the economy when wages and prices have adjusted to their equilibrium levels and workers do not have any relevant misperceptions. Occurs at the intersection of the AD and LRAS curves https://o.quizlet.com/i/R7IGZGwHRcYWMh5MG-qwYA_m.jpg

question

Demand Shock

answer

an event that shifts the aggregate demand curve

question

Supply Shock

answer

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

question

Stagflation

answer

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

question

Recessionary Gap

answer

Amount by which equilibrium output is below potential output.

question

Inflationary Gap

answer

The amount by which aggregate spending at full employment exceeds full-employment output.

question

Output Gap

answer

The gap between real GDP and potential GDP

question

Expansionary Fiscal Policy

answer

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

question

Contractionary Fiscal Policy

answer

A decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation.

question

Lump Sum Taxes

answer

taxes that dont depend on the taxpayers incomes

question

Automatic Stabilizers

answer

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

question

Discretionary Fiscal Policy

answer

Deliberate changes of government expenditures and/or taxes to achieve economic goals.

question

Savings-Investment Spending Identity

answer

an accounting fact that states that savings and investment spending are always equal for the economy as a whole.

question

Interest Rate

answer

Cost of borrowing money, expressed as a percentage of the amount borrowed per year.

question

Budget Surplus

answer

An excess of tax revenue over government spending

question

Budget Deficit

answer

Government expenditures that exceed receipts.

question

Budget Balance

answer

the difference between tax revenue and government spending

question

National Savings

answer

the sum of private savings and the government's budget balance; the total amount of savings generated within the economy.

question

Capital Inflow

answer

the net inflow of funds into a country; the difference between the total inflow of foreign funds to the home country and the total outflow of domestic funds to other countries. A positive net capital inflow represents funds borrowed from foreigners to finance domestic investment; a negative net capital inflow represents funds lent to foreigners to finance foreign investment.

question

Asset

answer

Anything of value that is owned

question

Liability

answer

An amount owed by a business

question

Net Worth

answer

Assets minus Liabilities

question

Equity

answer

Amount of owners' or shareholders' portion of a business.

question

Liquidity

answer

A measure of the ease with which an asset can be converted into money without a significant loss of value.

question

Financial Intermediaries

answer

Institutions that "connect" borrowers and lenders by accepting funds from lenders and loaning funds to borrowers

question

Mutual Fund

answer

a regulated investment company with a pool of assets that regularly sells and redeems its shares

question

Pension Fund

answer

Large pools of money set aside by corporations, unions, and governments for later use in paying retirement benefits to their employees or members

question

401K

answer

A defined contribution plan that automatically takes out money from an employee's paycheck before income taxes and invests it in mutual funds for purposes of retirement savings

question

Diversification

answer

Buying several different investment alternatives to spread the risk of investing.

question

Money Supply

answer

The amount of money in a country or economy.

question

M1

answer

A measure of the money supply that includes cash, demand deposits, and traveler's checks

question

M2

answer

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

question

M3

answer

All of M1 + M2 + large denomination time deposits and large-denomination repurchase agreements.

question

Medium of Exchange

answer

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

question

Store of Value

answer

Something that keeps its value if it is stored rather than used

question

Unit of Account

answer

A means for comparing the values of goods and services

question

Fiat Money

answer

Money that has value because the government has ordered that it is an acceptable means to pay debts

question

Commodity Money

answer

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

question

Near Monies

answer

close substitutes for transactions money, such as savings accounts and money market accounts

question

Present Value

answer

FV/(1 + i) to the n'th power

question

Future Value

answer

PV(1+i)^n

question

Bank Reserves

answer

the currency banks hold in their vaults plus their deposits at the Federal Reserve

question

T Account

answer

Accounting device used to analyze transactions. https://o.quizlet.com/i/SakATaSfQJXKrrmB1JkPow_m.jpg

question

Reserve Ratio

answer

The fraction of deposits that banks hold as reserves

question

Reserve Requirement

answer

This is the percentage of their deposits that member banks must keep available in a Federal Reserve Bank.

question

Money Multiplier

answer

1/RR

question

Discount Window

answer

a protection against bank runs in which the Federal Reserve stands ready to lend money to banks in trouble.

question

Fractional Banking

answer

a banking system in which banks hold only a fraction of deposits as reserves

question

Excess Reserves

answer

reserves that banks hold over and above the legal requirement

question

Loanable Funds

answer

The aggregate of all the individual markets in which households, firms, governments, banks, and other financial institutions borrow and lend

question

Federal Reserve Bank

answer

The central bank for the United States, charged with enforcing monetary policy.

question

FOMC

answer

(Federal Open Market Committee) A body that controls the Fed's sale and purchase of government securities. The FOMC consists of the seven members of the Federal Reserve Board, plus the President of the Federal Reserve Bank of New York, and four other Federal Reserve Bank presidents.

question

Commercial Banks

answer

Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public

question

Investment Banks

answer

Financial institutions that assist firms in the process of issuing securities to investors. Investment banks also advise firms engaged in mergers and acquisitions, and they are active in the business of selling and trading securities in secondary markets.

question

Savings and Loans

answer

A place that specializes in accepting savings deposits and making mortgages and other loans

question

Leverage

answer

Borrowing by an individual or institution to expand the size of an investment. In so doing, the potential return from the investment may increase as well as the risk of the investment.

question

Subprime Lending

answer

lending to home-buyers who don't meet the usual criteria for being able to afford their payments

question

Securization

answer

the process of packaging a group of assets into a financial security ( a security is a holders legal interest in a corporation, certificate, or note that may increase in financial value over time. this potential for increase makes it an investment

question

Collateral

answer

A security pledged for the repayment of a loan.

question

Discount Rate

answer

The interest rate on the loans that the Fed makes to banks

question

Federal Funds Rate

answer

The interest rate at which banks make overnight loans to one another

question

Open Market Operations

answer

Buying & selling government securities to change the supply of money

question

Money Market

answer

A mutal fund or account thtat invest in short-term, liquid investments. these funds generally pay better that a savings accountwith a bank, but less than a typical stock mutual fund. These funds are comsidered very low risk.

question

Money Demand Curve

answer

shows the relationship between the quantity of money demanded and the interest rate https://o.quizlet.com/MNLQQ6oWVaJ3oJokOAsbOA_m.png

question

Money Supply Curve

answer

shows how the quantity of money supplied varies with the interest rate https://o.quizlet.com/bn5-41UXZrCDESOb5dypHw_m.png

question

Loanable Funds Market

answer

a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders https://o.quizlet.com/BMl-DqJVHwRj6Sg85gbIbg_m.png

question

Fisher Effect

answer

A rise in the rate of inflation causes the nominal rate to rise just enough so that the real rate of interest is unaffected. In other words, the real rate is invariant to the rate of inflation.

question

Lorenz Curve

answer

Graph showing how much the actual distribution of income differs from an equal distribution https://o.quizlet.com/ktVw.mbydRCFmSBHtq6FoQ_m.jpg

question

Laffer Curve

answer

Term used to describe a tax revenue curve suggesting the supply side economics result that lower taxes can raise government revenues. https://o.quizlet.com/WN-dcNX1hYaHKIKGgmx9ow_m.png

question

Real Interest Rate

answer

Nominal Interest Rate - Inflation Rate

question

Fiscal Year

answer

Runs from October 1st to September 30th

question

Public Debt

answer

all of the money borrowed by the government and not yet repaid, plus the accrued interest on that money; also called the national debt or federal debt

question

Debt-GDP Ratio

answer

government debt as a percentage of GDP, frequently used as a measure of a government's ability to pay its debts.

question

Monetary Neutrality

answer

the proposition that changes in the money supply do not affect real variables

question

Inflation Tax

answer

the reduction in the value of money held by the public caused by inflation

question

Cost Push Inflation

answer

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

question

Demand Pull Inflation

answer

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

question

Short Run Phillips Curve

answer

is the negative short run relationship between the unemployment rate and the inflation rate https://o.quizlet.com/o1YxFn.sm.ib.MKGWOeKSw_m.jpg

question

Long Run Phillips Curve

answer

Relationship between the inflation rate and the unemployment rate in the long run, looks at long-term natural rate of unemployment. https://o.quizlet.com/uEtwPkShqEB0U9LcfGGaHA_m.jpg

question

Supply Shocks

answer

A supply shock is an economy-wide phenomenon that affects the costs of firms, and the position of the AS curve, either positively or negatively

question

Natural Rate of Unemployment

answer

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.

question

Classical Economic Thought

answer

includes the invisible hand, Laissez Faire, limited role of the government, supply creates its own demand, economy will be pushing towards a fuller capacity, lower interest rates, and that wages and prices will adjust downward and eventually people will start hiring again, whatever money isnt spent will be put in the bank and borrowed which circulates it

question

Keynesian Economic Thought

answer

named after English economist John Maynard Keynes, the theory emphasizing that government spending and deficits can help the economy deal with its ups and downs. Proponents of this theory advocate using the power of government to stimulate the economy when it is lagging.

question

Monetarist

answer

Economists who believe that (1) monetary instability is the major cause of fluctuations in real GDP and (2) rapid growth of the money supply is the major cause of inflation.

question

Monetarism

answer

An economic philosophy that assumes inflation occurs when there is too much money chasing too few goods. Suggests that the proper thing for government to do is to have a steady, predictably increase in the money supply at a rate about equal to the growth in the economy's productivity

question

Quantity Theory of Money

answer

A theory that asserts that the quantity of money determines the price level and that the growth rate of money determines the rate of inflation

question

Velocity of Money

answer

The average number of times each dollar in the money supply is used to purchase goods and services included in GDP

question

Rational Expectations

answer

the view that individuals and firms make decisions optimally, using all available information

question

Production Function

answer

The relationship between quantity of inputs used to make a good and the quantity of output of that good https://o.quizlet.com/i/sbg8bTkX_y3N_HTiUrucHg_m.jpg

question

Infrastructure

answer

(n.) a basic foundation or framework; a system of public works; the resources and facilities required for an activity; permanent military installations

question

Balance of Payments

answer

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

question

Current Account

answer

A category of balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.

question

Capital Account

answer

(economics) that part of the balance of payments recording a nation's outflow and inflow of financial securities

question

Official Reserves

answer

are the government's holdings of foreign currency

question

Trade Balance

answer

the value of a nation's exports minus the value of its imports; also called net exports

question

Foreign Exchange Market

answer

The market in which the currencies of different countries are bought and sold.

question

Exchange Rate

answer

The price at which one currency is exchanged for another.

question

Appreciation

answer

An increase in the value of a currency

question

Depreciation

answer

A decrease in exchange rate in a floating exchange rate system

question

Revaluation

answer

An increase in the official value of a currency (in a fixed-exchange-rate system).

question

Devaluation

answer

A decrease in the governmentally defined value of a currency.

question

Real Exchange Rate

answer

the rate at which a person can trade the goods and services of one country for the goods and services of another

question

Purchasing Power Parity

answer

a measure of how many units of currency are needed in one country to buy the amount of goods and services that one unit of currency will buy in another country

question

Fixed Exchange Rate

answer

An exchange rate policy under which a government commits itself to keep its currency at or around a specific value in terms of another currency or a commodity, such as gold.

question

Floating Exchange Rate

answer

A system under which the exchange rate for converting one currency into another is continuously adjusted depending on the law of supply and demand

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