Macro Review Vocab

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Aggregate Demand
A schedule/curve that shows the total quantity of goods and services that would be demanded at various price levels
Aggregate Supply
A schedule/curve that shows the total quantity of goods and services that would be supplied at various price levels
Absolute Advantage
A situation in which a person/country can produce more of a particular product from a specific quantity of resources than another
Comparative Advantage
A situation in which a person/country can produce a specific product at a lower opportunity cost than another person/country
Business Cycle
Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases
Circular Flow Model
An illustration showing the flow of resources from households and firms of products from firms to households
Allocative Efficiency
The apportionment of resources among firms and industries to obtain the production of products most wanted by consumers
Automatic Stabilizers
Increasing government budget deficit during a recession and increasing government budget deficit during an expansion without any action by policymakers
Consumer Price Index (CPI)
Measures the prices of a fixed "market basket" of some 300 goods and services bought by a typical "consumer"
Producer Price Index
Measures inflation for producers
Contractionary Fiscal Policy
Decrease government spending, increasing net taxes, or some combination of the two, to decrease AD and control inflation
Expansionary Fiscal Policy
Increase government spending, decreasing net taxes, or some combination of the two, to increase AD and control recessions
Economics
The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity
Factors of Production
4 economic resources: land, labor, capital, and entrepreneurial ability
Law of Demand
the principle that, other things equal, an increase in a product's price will decrease te quantity of it demanded, and conversely for a decrease in price
Law of Supply
An increase in the price of a product will increase the quantity of it supplied and converse for a price decrease
Price Ceiling
A legally established the maximum price for a good, or service. Normally set at a price below the equilibrium price
Price Floor
A legally established minimum price for a good or service. Normally set at a price above equilibrium price
Cost-Push Inflation
Increases in the price level (inflation) resulting from an increase in resource costs
Demand-Pull Inflation
Increases in the price level resulting from increases in aggregate demand
Crowding-Out Effect
Rise in interest rates and a resulting decrease in planned investment caused by the federal governments increased borrowing to finance budget deficits and refinance debt
Frictional Unemployment
Caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs
Structural Unemployment
Workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available
Cyclical Unemployment
Caused by insufficient total spending and which typically begins in the recession phase of the business cycle
Seasonal Unemployment
Not having a job a certain season (Landscapers)
Demand Deposit
A deposit of money that can be withdrawn without prior notice
Depreciation vs. Appreciation of a Currency
Depreciation- decrease in the value of the dollar Appreciation- increase in the value of the dollar
Discount Rate
The interest rate that the federal reserve banks charge on the loan they make to commercial banks and thrift institutions
Open Market Operations
The purchase and sales of U.S government securities that the Federal Reserve System undertakes in order to influence interest rates and the money supply
Reserve Requirement
The specified minimum percentage of its checkable deposits that each commercial bank or thrift institution must keep on deposit at the federal reserve bank in its district or hold as vault cash
Economic Resources
The land, labor, capital, and entrepreneurial ability that are used to produce goods and services- factors of production
Excess Reserves vs. Required Reserves
The amount by which a commercial banks or thrift institutions actual reserves exceed its required reserves; actual-required
Expenditures Approach to GDP
The method that adds all expenditures made for final goods and final services to measure the GDP
Income Approach to GDP
Method that adds al the income generated by the production of final goods and final services to measure GDP
Exports vs. Imports
exports- goods/services sold to other nations
imports- goods/services bought from other nations
Federal Funds Rate
The interest rate that US banks and other depository institutions charge one another on overnight loans made out of their excess reserves
Fiat Money
ANything that is money because govternment has decreed it to be money
Fiscal Policy
changes in government spending and tax collections designed to achieve full employment, price stablity, and economic growth
Monetary Policy
A central bank's changing of the money supply to influence interest rates and assist the economy in achieving price level stablitity, full employment, and economic growth
Full Employment
The use of all avaliable resources to produce want, satisfying goods, and srevices
GDP
Gross domestic product- total market value of all final goods and services produced annually within the boundaries of a nation
Inflation
A rise in the general level of prices in an economy
Productivity
A measure of average output or real output per unit of input
Law of Increasing Opportunity Cost
As the production of a good increases, the opportunity cost of producing an additional unit rises
Liquidity
The degree to which an asset can be converted quickly into cash with little loss of purchasing power
M1 and M2
Currency and checkable deposits
Macroeconomics
Part of the economics concerned with performace of the economy as a whole
Microeconomics
Part of economics concerned with decisions of indivuals and indiviual markets.
Neutrality of Money
Has to equal 1%
Okun's Law
Generalization that any one-percent-point rise in the unemployment rate about the full-employment rate of unemployment is a rise in neotive GDP gap by 2% of potential output
Opportunity Cost
Amount of other products that must be forgone to produce a unit of a product
Philips Curve
Curve showing relationship between unemployment rate and annual rate of increase in the price level
Theory of Rational Expectations
Firms and households expect monetary and fiscal policies to have certain effects on the economy and take actions that make policies ineffective
Say's Law
Production of goods and services creates an equal demand for those goods and services
Stagflation
Inflation accompanied by stagnation in the rate of growth of output and increase in unemployment in the eocnomy
Utility
Want-satisfying power of a good or service
Substitute Good
products/services that can be used in place of each other; when the price of one drops, the demand for the other goes up
Complementary Good
products/services that are used together; when the price of one drops, the demand for the other goes up
Law of Diminishing Marginal Utility
the principle that as a consumer increases the consumption of a good/service, the marginal utility obtained from each additional unit of the good/service decreases
Factor Market
households sell, firms buy
Product Market
households buy, firms sell
Intermediate Goods
Products that are purchased for resale or further processing or manufacturing
Price Index
An index number that shows how the weighted average price of a "market basket" of goods changes over time relative to its price in a specific base year
Market Basket of Goods
A permanent set of goods and services that are bought and sold as staples in a functional economy
Real Interest Rate
The interest rate expressed in dollars of constant value and equal to the nominal interest rates less then the expected rate of inflation
Nominal Interest Rate
The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation
Natural Rate of Unemployment
The full employment rate of unemployment; the unemployment rate occurring when there is no cyclical unemployment and economy is achieving its potential output
Disposable Income
Personal income - personal taxes; income available for personal consumption expendintures and personal saving
Interest Rate Effect
The tendency for increases in the price level to increase the demand for money, raise interest rates, and as a result reduce total spending and real output in the economy
Net Export Effect
exports - imports
Current Account vs. Financial Account
The section in a nations international balance of payments that records its exports and imports of goods and services, its net investment income, and its net transfer
Supply Shocks
sudden, unexpected changes in aggregate supply
Tariff
a tax imposed by a nation on an imported good
Quota
A fixed share of something that a person or group is emitted to receive or its bound to contribute
Marginal Analysis/Cost
The comparison of marginal benefits and marginal costs, usually for decision making
Underground Economy
Black market, stocks, and gambling (payed off the books)
Base Year
The year with which others are compared when an index is constructed
Labor Force
Persons 16 years of age or older who are not in instuitions and emploed/unemployed and seeking worl
Sticky Prices/Wages
Prodct prices that remain in place even though supply or demand has changed
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