Terms in this set (73)
A schedule or curve which shows the total quantity of goods and services demanded (purchased) at different price levels.
the total amount spent for final goods and services in the economy.
the comparison among producers of a good according to their productivity (NOT their opportunity costs).
the apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price (marginal benefit) are equal.
changes in fiscal policy that stimulate AD when the economy goes into a rece4ssion without policymakers having to take any deliberate action.
recurrent ups and downs over a period of years in the level of economic activity.
human-made resources (machinery and equipment) used to produce goods and services; goods which do not directly satisfy human wants.
Catch up effect:
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.
"other things equal" used as a reminder that all variables other than the ones being studied are assumed to be constant.
Circular flow diagram:
a visual model of the economy that shows how dollars flow through markets among households and firms.
the theoretical separation of nominal and real variables.
a lower relative cost than another producer.
an index which measures the prices of a fixed market basked of consumer goods bought by a typical consumer.
Consumption schedule (curve):
a schedule showing the amounts households plan to spend for consumer goods at different levels of income.
Contractionary fiscal policy:
a decrease in AD brought about by a decrease in government spending for goods and services, an increase in net taxes, or some combination of the two.
Contractionary monetary policy:
a decrease in AD brought about by a decrease in the money supply, which in turn results from the Fed selling government securities, increasing the discount rate, or increasing the reserve requirement.
Cost push inflation:
inflation resulting from a decrease in AS (from higher wage rates and raw material prices) and accompanied by a decrease in real output and employment.
Crowding out effect:
the rise in interest rates and the resulting decrease in investment spending in the economy caused by increased borrowing in the money market by the government.
Unemployment caused by insufficient AD.
a deposit in a commerical bank against which checks may be written.
Demand pull inflation:
inflation resulting from an increase in AD
Depreciation of the dollar:
a decrease in the value of the dollar relative to another currency; a dollar now buys a smaller amount of the foreign currency.
the interest rate which the FED charge on the loans they make to commercial banks.
getting the most from our scarce resources: for a given amount of input producing the greatest amount of goods and services. Or, producing a certain amount of goods and services with the least amount of inputs.
land, labor, capital, and entrepreneurial ability which are used in the production of goods and services.
the property of distributing economic prosperity fairly among the members of society.
the amount by which a bank's actual reserves exceeds its required reserves.
the method which adds all the expenditures made for final goods and services to measure the GDP (the alternative is to add up incomes - the income approach).
Exports: goods and services produced in a nation and sold to customers in other nations.
Fallacy of composition:
incorrectly reasoning that what is true for the individual (or part) is therefore necessarily true for the group (or whole)
Federal funds rate:
the interest rate banks charge one another on overnight loans made out of their excess reserves.
anything that is money because government has decreed it to be money (it has no intrinsic value)
changes in government spending and tax collections designed to achieve a full employment and noninflationary domestic output.
45 degree line:
a line along which the value of the GDP (measured horizontally) is equal to the value of Aggregate expenditures (measured vertically). All points on this line are equilibrium points!
Fractional reserve banking:
a banking system in which banks hold only a fraction of deposits as reserves.
unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers "between jobs"
when the unemployment rate is equal to the full employment unemployment rate there is only frictional and structural unemployment; cyclical unemployment equals zero. At this point we are also at potential output.
the total market value of all final goods and services produced during a given time period within the boundaries of the U.S., whether by American or foreign-supplied resources.
the price index for all final goods and services used to adjust the money GDP into real GDP. (a substitute for the CPI).
the total market value of all final goods and services produced within a given time period by American residents, whether these people are located in the U.S. or abroad.
spending on goods and services produced in a foreign nation.
a rise in the general level of prices in the economy (percentage change in either the CPI or the GDP deflator)
spending on capital equipment, inventories, and structures. NOT the purchase of financial assets (stocks and bonds).
the tendency of firms and households seeking to further their self interests in competitive markets to further the best interest of society as a whole.
total output divided by the quantity of labor employed to product the output.
Law of increasing opportunity cost:
as the amount of a product produced is increased, the opportunity cost of producing an additional unit of the product increases.
money or things which can be quickly and easily converted into money with little or no loss of purchasing power.
the AS curve associated with a time period in which input prices and output prices move freely.
the narrowly defined money supply; currency and checkable deposits.
a more broadly defined money supply; equal to M1 plus noncheckable savings deposits, money market deposits, mutual funds, and small time deposits.
very broadly defined money supply: includes M2 plus large time deposits.
the study of economy-wide phenomona, including inflation, unemployment, and economic growth.
decision making which involves a comparison of marginal (extra) benefits and marginal costs.
Marginal propensity to consume (MPC):
fraction of any change in income spent for goods and services; equal to the change in consumption divided by the change in disposable income.
Marginal propensity to save (MPS):
fraction of any change in income that is saved; equal to the change in savings divided by the change in disposable income.
the costs of changing prices
the proposition that changes in the money supply do not affect real variables
the macroeconomic view that the main cause of changes in aggregate output and the price level are fluctuations in the money supply; advocates a monetary rule.
changing the money supply to assist the economy to achieve a full employment, noninflationary level of total output.
any item which is generally acceptable to sellers in exchange for goods and services.
Natural rate hypothesis:
the idea that the economy is stable in the long run at the natural rate of unemployment; views the long run Philips curve as vertical at the natural rate of unemployment.
that part of economics pertaining to value judgements about what the economy should be like; concerned with economic goals and policies.
the generalization that any one percentage point rise in the unemployment rate above the full employment unemployment rate will increase the GDP gap by 2.5 percent of the potential GDP of the economy. So...start in long run equilibrium - as the unemployment rate increases by 1% we see GDP growth decrease by 2.5 percent.
the amount of other products which must be forgone or sacrificed to produce a unit of a product.
a curve showing the relationship between the unemployment rate and the inflation rate. In the short run it shows a negative (inverse) relationship. In the long run there is no relationship.
the analysis of facts or data to establish scientific generalizations about economic behavior (as opposed to normative economics).
the real output an economy is able to produce when it fully employs its available resources.
a graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
the production of a good in the least costly way (minimum ATC)
the macroeconomic generalization that the production of goods and services (supply) creates an equal aggregate demand for these goods and services. The implication is that we can never have a recession due to a shortfall in AD (this law was shown to be false!)
inflation accompanied by stagnation in the rate of growth of output and a high unemployment rate in the economy. Caused by a decrease in AS.
unemployment caused by changes in the structure of demand for goods and in technology; workers who are unemployed because their skills are not demanded by employers, they lack sufficient skills to obtain employment, or they cannot easily move to locations where jobs are available.
Terms of trade:
the rate at which units of one product can be exchanged for units of another product; the amount of one good or service given up to obtain one unit of another good or service.
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