Macroeconomics Vocabulary Flashcards

Terms Definitions
excess supply
Marginal propensity to consume:
liquid assets of a bank
Chapter 1

Describe the economizing problem for society
side effects or unintended consequences, either positive or negative, that affect persons, or entites such as the environment, that are not among the economic actors directly involved in the economic activity that caused the effect
monetary policy
federal reserve and central bank
Physical Capital
Equipments/tools and structures used to produce goods and services in an economy.This is input, but when it was first created it was output.
international specialization
directing domestic resources to output that a nation is highly efficent at production.
Discuss current thinking on fiscal policy

Chapter 13
fiscal policy
The government's power to increase/decrease government spending and increase/decrease taxes in order to stabilize the economy.
something whose quantity can be measured over a period of time
stocks of raw materials or manufactured goods being held until they can be used or sold
Monetary aggregate
Financial assets that can't be directly used as a medium of exhange but can be readily converted into cash or checkable bank deposits.
Real interest rate
-adjusted for inflation-measured in terms of purchasing power not dollars
Crowding out
Fall in investment because the government is borrowing (instead of allowing firms to borrow).
A set of simplifying assumptions about some aspect of the real world
The IS curve represents equilibrium in the
Goods market
Explain the effects of the decreasing aggregate supply on real output and the price level and related changes to cost push inflation

Chapter 12
consists of the physical and mental talents of individuals used in producing goods and services
The unreported or illegal production of goods and services in the economy that is not counted in GDP
Underground economy
price ceiling
a mazimum allowable price, specified by law
an economy with a foreign sector
open economy
the time elapsing between the formulation of an economic policy and its actual effects on the economy
time lags
observation and recording of the specific phenomena of concern
empirical investigation
nominal GDP
the value of GDP in current dollars
Monetary Neutrality
The proposition that changes in the money supply do not affect real variables.
examples of common goods
-open pasture-fishing areas in ocean-pool in apartment complex-highway
creative destruction
new capital replaces old capital and generates an investment boom
follower countries
as it relates to economic growth, countries that adopt advanced technologies that previously were developed and used by leader countries
Do changes in the interest rate shift the demand curve for money?
price floor
minimum price fixed by the government (constant state of surplus) and market cannot get back to equailibrium
Substitute Good?
When two products are substitutes, the price of one and demand for other move in same direction.
dependent variable
a variable that changes as a consequence of a change in some other (independent) variable; the "effect" or outcome
the multiplier for a change in net taxes will be ____ than the government purchases multiplier
CH. 9

An increase in real GDP, typically expressed as an annual rate of real GDP growth.
Economic growth
`illiquid' assets
bonds or stocks, or savings accounts at bank
{ not accepted in exchange for goods and services (bad)
{ but they earn a return
the sector of the economy that involves the provision of services rather than of tangible goods
tertiary sector
consumer purchases that are expected to last longer than three years. These are generally items of equipment, such as vehicles and appliances, used by households to produce goods and services for their own use
consumer durable goods
a situation of rest, in which there are no forces that create change
real GDP
A measure of GDP that controls for changes in price
Tools of Monetary Policy
1. Open Market Operations (OMO)
2. Reserve Ratio
3. Discount Rate
Fed Funds Rate
Interest Rate banks charge one another when they borrow from each other. (Overnight Transactions)
comparative advantage
is the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than for any other.
change in supply
a shift of the entire supply curve
market value of a firm's output minus the value of inputs the firm bought from others
value added
long-run aggregate supply curve
the aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level
All goods and services bought by households
Personal consumption expenditures
a discount rate that reflects social rather than market valuation of future costs and benefits; usually lower than the market discount rate
social discount rate
the price of imports relative to exports
terms of trade
a response by suppliers in which they react to unexpectedly low sales of their good primarily by reducing production levels rather than by reducing the price, and to unexpectly high sales by increasing production rather than raising the price
quantity adjustments
money multiplier
the ratio of the money supply to the monetary base
appreciation of the dollar
-occurs if each dollar "buys" more units of a foreign currency-US good becomes more expensive to foreign consumer -Foreign good becomes less expensive to US consumer
Fractional Reserve Banking System
the banking pracice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder.
The production possibilities curve
the maximum output of two products: based on the assumptions of full employment and productive effiency, fixed resources, fixed technology and that the economy is only producing two goods1
blend private and public control and collectively serve as the nation’s central bank; banker’s bank
12 Federal Reserve Banks
Population Survey:

Criteria for Employment
Persons who, during the week before the survey:
1. Worked 1+ hours as paid employee or 15+ hours unpaid in family biz
2. Were temporarily absent from jobs or businesses
What do Supply-Siders believe?
tax cuts- incentives increase, more I, more K, more L, AS increase
lower trade barriers
human K investment
infrastructure improvement
the fixed amount paid by the seller of a bond every year
coupon amount
a market in which there are many buyers and sellers, all units of the good are identical, and there is free entry and exit and perfect information
perfectly competitive market
Growth in money supply should
increase at the same rate as GDP
Division of Labour
The breaking up of a process into a series of specialized tasks, each doe by a different worker
how do nations vary in their production techniques?
Us- capitol intensive production.. factorieshowever not everyone has advanced technology-labor intensive production...cheaper because factory workers are expensive in US (minimun wage)-land intensive production: agriculture economies (midwest us, Brazil)
change in supply
a change in the schedule and shift of the curve to the left or right
What causes consumption function to shift?
Net Wealth, Price level, Interest Rate, Expectations
the number of people age 65 and over for each hundred people aged 15-64
old-age dependency ratio
Nominal Interest Rate (market interest rate)
The annual percentage increase in the nominal value of a financial asset
When the Fed increases the reserve requirement, it:
Contracts the money supply because banks have less to lend.
The multiple by which income changes as a result of a change in aggregate expenditure
Income multiplier

It is written as:

multiplier = (change in Y )/(change in AE)
Optimal Fiscal Policy (what's up and what's down)
Taxes are down
G or Tr are up
What are the 4 responsibilities of an entrepreneur?
1) Takes initiative
2) Makes strategic decisions
3) Innovator
4) Risk bearer
What determines the quantity of money in a floating foreign exchange rate environment?
The central bank changes money base to alter money supplyDuring periods of high financial flows in, assets are sold to decrease money baseDuring periods of high financial flows out,, assets are bought to increase money base
What is the biggest source of increase in the US Labor Force Particitpation Rate since the 1960's?
The increase in the number women entering the labor force
The formula to determine the income multiplier is written as...
1/(1 - MPC).

Since (1 - MPC) = MPS, the formula can be written:

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