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Complete list of Terms and Definitions for macroeconomics5

Terms Definitions
shortage excecss demand
Net Exports Exports minus imports
who regulates monetary policy the fed
Define the full employment unemployment rate or the natural rate of unemployment Chapter 9 Finish
trading one thing for another exchange
structural policy structure and institutions of society
investment is acquisition of capital by firms
depriciation the decrease in an asset's value
Explain how Federal Reserve can contract the money supply by selling government securities to commercial banks and the public Chapter 16 Finish
GDP gross domestic product The value of the total amount of final goods and services produced by our economy during a particular period of time. A key indicator of the health of a country's economy.
a market for immediate delivery spot market
refraining from consuming in the current period saving
durable goods are consumed over time..exceeding 1 year
Nominal interest rates -not adjusted for inflation-measured in terms of number of dollars received or paid
Junk bonds Bonds sold by "financially shaky" corporations in order to raise money. High interest rates.
classical dichotomy the theoretical separation of nominal and real variables
Monetary and fiscal policies are examples of Stabilization Policies
Explain why the aggregate supply curve in the immediate short runs horizontal Chapter 12 Finish
land includes all natural resources used in the production process
Goods used to produce other goods Intermediate goods
sellers surplus the difference between the price received by the seller and his or her recervation priceq
governments and other local, national, and international organizations established for some public purpose beyond individual or family self-interest, and not operating with the goal of making a profit public-purpose sphere
a financial instrument that, in return for the loan of funds, commits its seller to pay a fixed amount every year (called the coupon amount), as well as to repay the amount of principal (called the bond's face value) on a particular date in the future (ca bond
lowering an exchange rate within a fixed exchange reate system devaluation
real wages wage rates paid to employees adjusted for changes in the price level
Fiat Money Money without intrinsic value that is used as money because of government decree.
price ceilings -designed to keep prices from moving higher -upper limit on prices designed to assist consumers-helps consumers-creates shortage
is aggregate demand a schedule or a fixed number? schedule
information technology new and more efficient methods of delivering and receiving information through use of computers, fax machines, wireless phones, adn the internet
business cycles used to describe fluctuations in the GDP
fixed resources the assumption that change of the state of technology does nto change during analysis
What are the 5 determinants of demand? Tastes (Preferences) Expectations Prices of Related Goods Number of Buyers Income
economizing problem the need to make choices because economic wants exceed economic means
net tax multiplier formula -MPC X expenditure multiplier ΔGDP= net tax multiplier X ΔT
The ratio of capital to labor, reflecting the quantity of capital used by each laborer in production Capital-labor ratio
Productivity refers to the amount of goods and services produced from each unit of labour input
an excess of imports over exports, causingn net exports to be negative trade deficit
people who desire and are available for a job, but give discouragement as the reason for no longer looking for work discouraged workers
increases in the level of production in a country or region economic growth
economic growth sustained increases in the real GDP of an economy over a long period of time
Excess Reserves The quantity of money a bank holds that exceeds its required reserves
Real GDP A measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices (measures the actual physical volumeof production and is adjusted for inflation)
Command socialist economy Economy in which government is the primary owner of capital and natural resources and has broad power to allocate the use of factors of production.
efficiency (economic efficiency) occurs when all goods and services are produced and consumed at their respective socially optimal levels
situation in which a given % increase in amounts of input leads to an even large % increase in amount of output produced (ex. economies of scale... highways, internet, etc) increasing returns
World Trade Organization (WTO) oversees trade agreements reached by the member nations and rules on trade disputes among them
The difference between the value of a good that a firm produces and the value of the goods the firm uses to produce it Value added
net private domestic investment gross private domestic investment less consumption of fixed capital
the use of tools controlled by the government,such as banking regulations and the issuance of currency, to try to affect the levels of money supply, interest rates, and credit monetary policy
committing to letting the money supply grow at a fixed percentage rate per year money supply rule
the interest rate that banks charge their most trusted commercial borrowers prime bank rate
the nominal interest rate minus expected inflation expected real interest rate
Nominal GDP Y = P (price component) * Q (quantity component)
comparative advantage who gives up less or has the lower opportunity cost
Expansionary Output Graph Price Level - Goes DownGDP - Goes Up
2 types of comparative advantage problems output problem and input problem
face value of any piece of currency is unrelated to its intrinsic value (the value of the physical material out of which that piece of currency is constructed) token money
Terms: Job Losers someone who is fired or laid off from a job - can be permanent or temporary
What are the demand shocks? AD increase- postive demand shock AD decrease- negative demand shock
a good that is used along with another good complementary good
a measure of GDP taht seeks to reflect the actual value of production goods and services produced, by removing the effect of cahnges in prices real GDP
Open Market Operations Buy and Selling Gov bonds on the open bond market(Most important bc of Flexibility)
Change in Quantity Demanded A change in the specific quantity of the good demanded, represented by a change from one point on a demand curve to another point, either on the original demand curve or on a new one.
Inside of the production possibilities curve inefficiency and there fore is not desirable.
substitute good a good that can be used in place of another good
Marginal Propensity to save the fraction of achage in teh income tha tis saved; the change in saving divided by the change in incom ethat caused it
a tax which collects a larger share of income from poorer households regressive income tax
equal according to Fisher Effect change in rate of inflation and change in nominal interest rate
GDP is $7 trillion. if consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then: Exports are equal to imports.
Labor force participation rate the labor force as a percentage of the adult populatiion
Why would the Fed buy bonds economy is in recession needs to be picked up
what are the four functions of money? 1. medium of exchange 2. unit of account 3. store of value 4. liquidity
What is necessary to reduce the rate of inflation? -demand must be decreased by lowering money supply-supply must be increased by increasing production and imports-both
what must happen for real gdp per capita to grow real gdp must grow faster than population
C + Ii = C + S, where saving equals intended investment Equilibrium level of national income note that: The I = S equation describes the economy in macroequilibrium. No excess demand or supply exists. Aggregate expenditure equal aggregate supply.
shortage excess demand
savings equals S=DI-Cnegative is dissavings
Fed sells bills... Decreases Money Supply
Chapter 5 Determine which two countries has a comparative advantage in the example Finish
study of past events historical investigation
Causes of Recession Oil Prices Finance Crisis -Subprime Lending -Cheap Credit -Over Leveraging
capital formation is encouraged by... capital development
Monopolies are allowed if they setup legally
Identify differences in the way cyclical folk wages affect industries producing capital and consumer durable goods and how they affect industries producing consumer non-durable goods and services Chapter 9 Finish
multiplier formula 1/(1-MPC) x Δcomponent of ae
working fewer hours than desired, and/or a job that does not utilize one's skills underemployment
unemployment that arises because people's skills, experience, education, and/or location do not match what employers need structural unemployment
Indexing the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specific price index. prevents the purchasing power of the nominal quantity from being eroded by inflation
speculative demand money to be used for investment
budget deficit the difference between what a government spends and what it collects in taxes in a given period: G-T
Theory A hypothesis that has not been rejected after widespread testing and that wins general acceptance
sellers surplus the difference between the price received by the seller and his/her reservation price
Explain how the Federal Reserve can expand the money supply by buying government securities from commercial banks and from the public Chapter 16 Finish
inverse relationship the relationship between two variables that change in the opposite direction, negative relationship
The time interval during which suppliers are able to change the quantity of some but not all the resources they use to produce goods and services Short run
Coordination Failures Failure to reach mutually beneficial equilibrium
a formal, oftwen written, agreement that states the terms of exchange and may be enforceable through a legal system explicit contract
nominal interest rate minus inflation real interest rate
the possibility of using one resource instead of another substitutability
natural rate of unemployment only frictional and structural employment
Unit of Account Function of Money: The yardstick people use to post prices and record debts.
Compound Interest *** Government policies that affect the long-term growth rate by a small amount will have a major economic impact. ***
better technological change 1) more education2) more capital formation3) more basic research and development
multiplier ratio of a change in the equilibrium GDp to the change in investment or in any other component of AE or AD; the number by which a change in any such component must be multiplied to find the resulting change int eh equilibrium GDP
expected inflation rate nominal interest rate minus real interest rate
The value of production when all inputs are fully employed ___________ Potential Output
Melissa's salary in year 1 was $30,000. In year 2 she was paid #34,000. The CPI was 140.1 in year 1 and 146.7 in year 2. Based on this information, Melissa's real income ____ from year 1 to year 2. a) increased b) decreased c) remained constant a) increased
protective tariffs excise taxes or duties placed on imported goods
d: budget deficit the excess of government purchases over net taxes when G is greater than T = G-T government cannot spend funds it does not have, it must cover its deficit by borrowing in the loanable funds market.
GDP only includes. final goods tangible goods (like DVDs, mountain bikes, beer, etc.) intangible services (like dry cleaning, concerts, cell phone service, etc.). currently produced goods, not goods produced in the past
the phillips curve shows natural unemployment and natural unemployment show what kind of unemployment structural and frictional
the system of economic rules, norms, and interactions by which economic actors and actions in different parts of the world are connected to one another global economy
the development of new products and new, more efficient, methods of production technological progress
reserves that banks are required to hold by the Fed required reserves
exchange rate rate at which currencies trade for one another in the market
Aggregate Demand is composed of: 1. Consumer Expenditures, C 2. Investment Spending, I 3. Government Spending, G 4. New Exports (NX=X-M)
Consumption The act of using goods or services to satisfy wants
Sources of Economic Growth o Policies to increase human capital: Providing free public educationo Policies that promote savings and investment: Public investment- bridges, airports, dams, etc.o Policies that support research and development
stopped looking for work due to restrictions marginally attached workers
Trade Surplus The value of goods and services bought from foreigners is less than the value of the goods and services it sells to them.
positive economics The analysis of facts or data to establish scientific generalizations about economic behavior.
determinants of aggregate supply factors such as input prices, productivity, and the legal-institutional environment that, if they change, shift the aggregate supply curve
the unexpected gain or loss of income that a person experiences. It is the difference between a person's regular and actual income in any year. Transitory income
Random walk the path of a variable whose changes are impossible to predict.
an index comparing real production in the current year ot the reference year, calculated using a series of year-to-year Fisher quantity indexes chain-type quantity index
the theory that "insider" workers who are already employed may have the power to prevent "outsider" workers from competing with them and lowering their wages insider-outsider theory
a restriction on the quantity of a good that can be imported or exported trade quota
funds not loaned out by a private bank, but kept as vault cash or on deposit at the Federal Reserve 11 bank reserves
full employment occurs when 1) there is no cyclical unemployment2) there is only frictional and structural unemployment3) the economy is at the natural rate of unemployment
number of employed persons increased impact unemployment rate- decreaselabor force participation rate- increase
Natural Rate of Employment Present when the inflation rate is neither rising nor falling.
rationing function of prices the ability of competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent
group of three economists appointed by the president to provide expertise and assistance on economic matters council of Economic Advisors
The collection and use of data to test economic theories. Empirical economies.
what is internal debt? US government debt held by US households and institutions
a measure of economic well-being that adds many benefits, and subtracts many costs, that are not included in GDP. This measure is calculated by the nonprofit group Redefining Progress Genuine Process Indicator (GPI)
when interst rates are so low that the central bank finds it impossible to reduce them further liquidity trap
Why does the Aggregate Demand Curve downward? wealth, interest and international trade effects.
Consumer Price Index (CPI) An index of the average prices of goods and services commonly bought by households
how to cope with surplus -gov can restrict supply or increase demand. -or they can purchase the surplus output (subsidizeing farmers) and store or otherwise dispose of it
The income and substitution effects account for: A) the downward sloping demand curve. B) movements along a given supply curve. C) the "other things equal" assumption. D) the upward sloping supply curve. A) the downward sloping demand curve.
According to William Stanley Jevons, years of good harvest, low food prices, and higher real income and employment, is what theory of the business cycle Sunspot theory it states that: years of good harvest, low food prices, and higher real income and employment, are inversely related to the number of sunspots. • The sunspot theory mostly applies to agricultural economies, and is less relevant to modern industrialized countries.
the lowest rate of unemployment that can be sustained without causing rapidly rising inflation non-accelerating inflation rate of unemployment (NAIRU)
Foreign Investment Review Act (FIRA) Passed in Canada in 1974 and attempted to monitor and regulate the purchase of Canada's productive capacity by foreigners. Repealed in 1984.
Law of diminishing marginal utility states? Buyer of product will derive less utility from each successive unit of the product consumed
Final Goods and Services Goods and servies sold to final or end users
using a production possibilities curve, a technological advance that increases the economys potiential output would cause an outward (to the right) shift of the curve
Economic systems differ according to what two main characteristics? A) The technology used in production, and the quantity and quality of natural resources. B) How goods are produced, and who gets them. C) Who owns the factors of production, and the me B) How goods are produced, and who gets them.
What are the impacts of a tight monetary policy on the price-level and real output? When would a tight monetary policy be appropriate? Contracts the money supply and raises interest rates. Appropriate when the economy needs to be restrained.
What is the market demand curve? When you take the sum of all the Demand curves
Explain functions of the Fed and FARR COLM SUPIC Fa - fical agent Rr - required reserve ratio Co - collecting check Lm - lending money Sup - supervising banks Ic - issuing currency