question

Aggregate behavior

answer

the behavior of al households and firms together

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Aggregate output

answer

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

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Business cycle

answer

the short-term ups and downs that economies experience in their performance

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Circular flow

answer

a diagram showing the income received and payments made by each sector of the economy

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Contraction/recession/slump

answer

the period in the business cycle from a peak down to a trough during which output and employment fall

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Corporate bonds

answer

promissory notes issued by firms when they borrow money

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Depression

answer

a prolonged and deep recession

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Dividends

answer

the portion of a firm's profits that the firm pays out each period to its shareholders

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Expansion/boom

answer

the period of the business cycle from a trough up to a peak during which output and employment grow

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Fine-tuning

answer

the phrase used by Walter Heller to refer to the government's role in regulating inflation and unemployment

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Fiscal policy

answer

government policies concerning taxes and spending

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Great Depression

answer

the period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s

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Hyperinflation

answer

a period of very rapid increases in the overall price level

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Macroeconomics

answer

deals with the economy as a whole, 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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Microeconomics

answer

examines the functioning of individual decision-making units--firms and households

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Monetary policy

answer

the tools used by the Federal Reserve to control the short-term interest rate

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Recession

answer

a period during which aggregate output declines (for two consecutive quarters)

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Shares of stock

answer

financial instruments that give to the holder a share in the firm's ownership and therefore the right to share in the firm's profits

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Stagflation

answer

a situation of both high inflation and high unemployment

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Sticky prices

answer

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

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Transfer payments

answer

cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments ( Social Security benefits, veterans' benefits, and welfare payments)

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Treasury bonds, notes, and bills

answer

promissory notes issued by the federal government when it borrows money

question

Unemployment rate

answer

the percentage of the labor force that is unemployed

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National income and product accounts

answer

data collected and published by the government describing the various components of national income and output in the economy

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Final goods and services

answer

goods and services produced for final use

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Intermediate goods

answer

goods that are produced by one firm for use in further processing by another firm

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Value added

answer

the difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage

question

Gross national product (GNP)

answer

the total market value of a final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced

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Expenditure approach

answer

a method of computing GDP that measures the total amount spent on all final goods and services in a given period

question

Income approach

answer

a method of computing GDP that measures the income-wages, rents, interest, and profits-received by all factors of production in producing final goods and services

question

Personal consumption expenditures

answer

expenditures by consumers on goods and services

question

Durable goods

answer

goods that last a relatively long time, such as cars and household appliances

question

Nondurable goods

answer

goods that are used up fairly quickly, such as food and clothing

question

Services

answer

the things we buy that so not involve the production of physical things, such as legal and medical services and education

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Gross private domestic investment

answer

total investment in capital-that is, the purchase of new housing, plants, equipment and inventory by the private (or nongovernment) sector

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Nonresidential investment

answer

expenditures by firms for machines, tools, plants, and so on

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Residential investment

answer

expenditures by households and firms on new houses and apartment buildings

question

Change in business inventories

answer

the amount by which firms' inventories change during a period; inventories are the goods that firms produce now but intend to sell later

question

Depreciation

answer

the amount by which and asset's value falls in a given period

question

Gross investment

answer

the total value of all newly produced capital goods (plant, equipment, housing, and inventory) produced in a given period

question

Net investment

answer

gross investment minus depreciation

question

Government consumption and gross investment

answer

expenditures by federal, state, and local governments for final goods and services

question

National income

answer

the total income earned by the factors of production owned by a country's citizens

question

Compensation of employees

answer

includes wages, salaries, and various supplements-employer contributions to social insurance and pension funds, for example-paid to households by firms and by the government

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Net interest

answer

the interest paid by business

question

Indirect taxes minus subsidies

answer

taxes such as sales taxes, customs duties, and license fees less subsidies that the government pays for which it receives no goods or services in return

question

Surplus of government enterprises

answer

income of government enterprises

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Net national product (NNP)

answer

gross national product minus depreciation; a nation's total product minus what is required to maintain the value of its capital stock

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Nominal GDP

answer

gross domestic product measured in current dollars

question

Base year

answer

the year chosen for the weights in a fixed-weight procedure

question

Fixed-rate procedure

answer

a procedure that uses weights from a given base year

question

Informal economy

answer

the part of the economy in which transactions take place and in which income is generated that is unreported and therefore not counted in GDP

question

Gross national income (GNI)

answer

GNP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation

question

Employed

answer

any person 16 or older who works for pay for 1 or more hours a week, works without pay for 15 or more hours a week in a family enterprise, or who has a job but has been temporarily absent

question

unemployed

answer

a person 16 or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks

question

labor force

answer

the number of people employed and unemployed

question

not in labor force

answer

a person who is not looking for a job

question

unemployment rate

answer

the ratio of the number of people unemployed to the total number of people in the labor force

question

labor force participation rate

answer

the ratio of the labor force to the total population 16 and older

question

discouraged worker effect

answer

the decline in unemployment rate that results when people who want to work but cannot find jobs grow discouraged and drop out of the labor force

question

frictional unemployment

answer

unemployment due to the normal turnover in the labor market (short-run job/skill-matching problems)

question

structural unemployment

answer

unemployment due to changes in the structure of the economy that result in a significant loss of jobs in certain industries

question

natural rate of unemployment

answer

the unemployment rate that occurs as a normal part of the functioning economy

question

cyclical unemployment

answer

unemployment that is above frictional plus structural unemployment

question

consumer price index (CPI)

answer

a price index computed monthly by Bureau of Labor Statistics using a bundle that is meant to represent the 'market basket' purchased monthly by the typical urban consumer

question

Market basket

answer

how a typical consumer divides his or her money among various goods and services

question

producer price indexes (PPI)

answer

measures of prices that producers receive for products at various stages in the production process

question

real interest rate

answer

the difference between the interest rate on a loan and the inflation rate

question

per capita output growth

answer

the growth rate of output per person in the economy

question

productivity growth

answer

the growth rate of output per worker

question

consumption function

answer

relationship between consumption and income C=a+b(Y-T)

question

marginal propensity to consume (MPC)

answer

the fraction of income that is spent on consumption

question

aggregate saving

answer

the part of aggregate income that is not consumed

question

marginal propensity to save (MPS)

answer

the fraction of income that is saved MPS+MPC=1

question

planned investment (I)

answer

the additions to capital stock and inventory that are planned by firms

question

actual investment

answer

the actual amount of investment that takes place that includes items like unplanned changes in inventories

question

equilibrium

answer

occurs when there is no tendency to change. in the macroeconomic goods market it is when planned aggregate expenditure equals aggregate output. Y=AE

question

planned aggregate expenditure

answer

the total amount the economy plans to spend in a given period, equal to consumption plus planned investment. AE=C+I(+G)

question

multiplier

answer

the ratio of the change in equilibrium level of output to a change in some exogenous variable

question

exogenous variable

answer

a variable that is assumed not to depend on the state of the economy

question

discretional fiscal policy

answer

changes in taxes or spending that are the result of deliberate changes in government policy

question

net taxes

answer

taxes paid by firms and households to the government minus transfer payments made to households by the government

question

disposable income

answer

total income minus taxes

question

budget deficit

answer

the difference between what a government spends and what it collects in taxes in a given period G-T

question

government spending multiplier

answer

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

question

tax multiplier

answer

the ratio of change in the equilibrium level of output to a change in taxes -(MPC/MPS)

question

balanced budget multiplier

answer

the ratio of change in the equilibrium level of output to a change in government spending (that is balanced by a change in taxes [G=T]) 1

question

federal surplus/deficit

answer

federal government receipts minus expenditures

question

automatic stabilizers

answer

revenue and expenditure items in the federal budget that automatically chafe with the state of the economy in a way that stabilizes GDP (tax revenues, unemployment benefits)

question

automatic destabilizers

answer

revenue and expenditure items in the federal budget that automatically change with the state of the economy in a way that destabilizes GDP (inflation, interest rate)

question

fiscal drag

answer

the negative effect on the economy;y that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion. Legislation indexed the tax brackets to the overall price level in 1982 to eliminate fiscal drag

question

full-employment budget

answer

what the federal budget would be if the economy were producing at the full-employment level of output

question

structural deficit

answer

the deficit that remains at full employment

question

cyclical deficit

answer

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

question

store of value

answer

an asset that can be used to transport purchasing power from one time period to another

question

unit of account

answer

a standard unit that provides a consistent way of quoting prices

question

commodity monies

answer

items used as money that also have intrinsic value in some other use

question

fiat/token money

answer

items designated as money that are intrinsically worthless

question

legal tender

answer

money that a government has required to be accepted in settlement of debts

question

currency debasement

answer

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

question

M1/ transactions money

answer

money that can be directly used for transactions

question

M2/ broad money

answer

M1 plus savings accounts, money market accounts, and other near monies

question

run on a bank

answer

occurs when many of those who have claims on a bank present them at the same time

question

reserves

answer

deposits at the federal reserve bank plus cash on hand

question

required reserve ratio

answer

the percentage of its total deposits that a bank must keep as reserves

question

money multiplier

answer

the multiple by which deposits can increase for every dollar increase in reserves; 1/RRR

question

discount rate

answer

the interest rate that banks pay to the Fed to borrow from it

question

open market operations

answer

the purchase and sale by the Fed of government securities in the open market; used to expand or contract the amount of reserves and thus the money supply

question

transaction motive

answer

the main reason that people hold money-to buy things

question

speculation motive

answer

one reason for holding bonds instead of money: because the market price of interest-bearing bonds is inversely related to the interest rate.

question

AS curve

answer

relationship between aggregate output supplied by all firms and overall price level

question

cost/supply shock

answer

a change in costs that shifts the short-run AS curve

question

IS curve

answer

relationship between aggregate output and interest rate

question

Fed rule

answer

equation that shows how the fed's interest rate decision depends on the state of the economy r=aY+BP+yZ

question

real wealth effect

answer

the change in consumption brought about by a change in real wealth that results from a change in price level

question

Potential output/GDP

answer

the level of aggregate output that can be sustained in the long run without inflation

question

binding situation

answer

state of the economy in which the Fed rule calls for a negative interest rate

question

cost-push/supply-side inflation

answer

inflation caused by an increase in costs

question

demand-pull inflation

answer

inflation initiated by an increase in aggregate demand

question

accelerator effect

answer

the tendency for investment to increase when aggregate output increases and vice-versa accelerating growth/decline of output

question

excess labor and capital

answer

labor and capital that are not needed to produce the firm's current level of output

question

adjustment costs

answer

the costs that a firm incurs when it changes production level

question

inventory investment

answer

change in the stock of inventories production-sales

question

optimal level of inventories

answer

level of inventory at which extra cost from lowering inventories equal the extra gain

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