| Term | Definition |
|---|
| Economic Growth | Economic Goal, higher standard of living, more and better goods |
| Full Employment | Economic Goal, good jobs available for all willing to work |
| Price Stability | Economic Goal, avoid large fluctuations in the price level, effect on real Y |
| Economic Efficiency | Economic Goal, economizing problem |
| Economic Freedom | Economic Goal, when, where, how long you work--what you buy, etc. |
| Equitable Distribution of Y | Economic Goal, equal or fair, avoid extremes |
| Economic Security | Economic Goal, help for those disadvantaged or in crisis |
| Reasonable Balance of Trade | Economic Goal, don't want extreme of inports and/or exports |
| Improving the Physical Environment | Economic Goal regarding environment |
| Functional Distribution of Income | land, labor, capital, entrepreneurial ability |
| Personal Distribution of Income | income earned by household |
| ATR | Average Tax Rate T/Y |
| MTR | Marginal Tax Rate ^T/^Y, tells you how much you pay on your next $1 of income |
| Progressive | ATR goes up as Y goes up |
| Proportional Taxes | constant ATR |
| Regressive Taxes | ATR drops as Y goes up |
| Capital | K, manufactured aids to production |
| Investment | I, expenditures on capital equipment |
| Sole Proprietorship | independently owned, personal responsibility |
| Partnership | 2 or more share ownership and responsibility |
| Corporation | publically owned |
| Government's Role | 1) Legal Structure 2) Maintain Competition 3) Redistribution of Y 4) Reallocation of Resources 5) Promote Macro Stability |
| GDP | Gross Domestic Product: total market value of all final goods and services produced on US soil in 1 year (includes foreign firms located here but not US firms located elsewhere |
| GNP | Gross National Product: total market value of all final goods and services produced by US firms here and abroad |
| Final Good | intended for final use, not intended for resale nor further processing, manufacturing, etc |
| Intermediate Good | intended for resale, if you owna pizza shop and buy cheese- that's an intermediate good because it is intended for resale |
| GDP Excludes | financial transactions (purchase of stocks and bonds-does not reflect production, only counts if money is used to buy equipment nor transfer payments) second hand sales (used car) |
| Business Cycle | 1) Peak 2) Recession 3) Trough 4) Recovery |
| Frictional Unemployment | assume marketable skills, should be able to find a job, most is in some sense voluntary--recent grads, stay @ home returning to work, seasonally employed--inevitable don't eliminate |
| Structural Unemployment | no marketable skills, need reeducation 1) changes in consumer tastes and prefs. 2) changes in technology--inevitable don't eliminate |
| Cyclical Unemployment | the result of a drop in AD, type that moves you inside PPC--bad thing, the result of a bad economy |
| Natural Unemployment | Frictional + Structural |
| Okun's Law | for every 1% that the actual rate of unemployment is greater than the natural rate of unemployment there will be a 2% GDP gap |
| Demand Pull Inflation | caused by an increase in AD, when demand increase it pulls up prices with it |
| Cost Push Inflation | result of increases in production cost |
| Hyperinflation | an extreme version of demand-pull, caused by the government printing too much money |
| Aggregate Expenditures | C+I+G+Xn |
| Basic Keynesian Principle | changes in AE causes changes in Output (and income and employment), when you change AE businesses will change output first later change price, if you raise prices too soon you risk alientaing customers |
| Income | consumption + saving (savings is a residual, you save what if left from consumption) |
| Income - Taxes | = Disposable Income = Consumption + Savings |
| APC | C/Y |
| APS | S/Y |
| MPC | ^C/^Y |
| MPS | ^S/^Y |
| APC+APS | 1 |
| MPC+MPS | 1 |
| #1 Factor in Spending | Income |
| Shifters of C | 1) ^ Wealth 2) ^ Interest rates 3) ^ household expect. 4) household debt 5) ^ taxes |
| Expected Rate of Return | profit / cost * 100 |
| Shifters of AS | ^ resource prices, ^ productivity, ^ legal or institutional envrionment of business, ^ market power |
| Tools of Fiscal Policy | ^ G, ^T, ^ transfers |
| Discretionary Stabilizers | requires explicit policy action by legislative or administrative agreement |
| Automatic Stabilizers | G and T ^s that occur automatically during the business cycle, no explicit policy action is required |
| Countercyclical Policy | a policy designed to smooth out business cycle fluctuations, both expansionary and contractionary |
| Benefits of Fiscal Policy | Stabilization, Infrastructure, Redistribution of wealth, Public Goods and Externalities |
| Recognition Lag | a problem of fiscal policy, how long does it take before we realize there is a problem that must be dealt with |
| Administrative Lag | a problem of fiscal policy, to do something about a problem, policies to improve the situation must pass thru both houses of congress and be approved by the pres. |
| Operational/Impact Lag | a problem of fiscal policy, when will policies for improvement actually begin to work |
| Crowding Out | a problem of fiscal policy, when the gov't increases spending by borrowing, ultimately AD will drop which is the opposite of what you set out to do--gov't borrowing may "crowd out" private investment exp. |
| Deficit | Governement is spending more than it receives in taxes |
| Surplus | Government is receiving more taxes than it is spending |
| Debt | total of all outstanding bonds, bills, and notes issued by the Treasury to those who have lent money |
| Functions of Money | Medium of Exchange, Unit of Account, Store of Value |
| M1 | currency and checkable deposits |
| M2 | M1 + savings accounts + small time deposits (CDs<$100,000) + Money Market Mutual Funds of Individuals |
| M3 | M2 + large time deposits (CD>$100,000) |
| MZM | Money Zero Maturity, M2-savings accounts + MMMF of Businesses |
| Near Monies | financial assets, the most important of which are noncheckable savings accounts, time deposits, and US short term securities and savings bonds, which are not a medium of exchange but can be easily converted into money |
| Total Demand for Money | Dm = Dt + Da |
| Asset demand for Money | shoebox demand, increase in r = savings, decrease in r = shoebox |
| Tools for Monetary Policy | Buying and Selling of Gov't Bonds, ^ Discount Rate, ^ Reserve Ratio |
| Discount Rate | the interest rate that the FED charges on the loans they make to commericial banks |
| Reserve Ratio | sets the required reserve rate |
Combine with other sets
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