Chapter 2 Flashcards
paradox of thrift
When families ans businesses are woried about the possibility of economic had times, they prepare by cutting their spending. This reduction depresses the economy
Self-regulating economy
Problems such as unemployment are resolved without government intervention, through the working of the invisible hand.
Keynesian economics
Economic slumps are caused by inadequate spending, and they can be mitigated by government intervention
Monetary policy
Uses changes in the quantity of money to alter interest rates and affect overall spending
Fiscal policy
Uses changes in government spending and taxes to affect overall spending
Recessions
Periods of economic downturn when output and employment are falling
“contractions”
Expansions
Periods of economic upturn when output and employment are rising
“recoveries”
Business cycle
The short-run alternation between recesisions and expansions
Business-cycle peak
The point at which the economy turns from expansion to recession
Business-cycle trough
The point at which the economy turns from recession to expansion
Indicator os conditions in the labor market
Unemployment rate
Long-run economic growth
The sustained upward trend in the economy’s out put over time
Inflation
A rising overall level of prices
deflation
A falling overall level of prices
Money supply
The total quantity of assets that can be readily used to make purchases
overall prices in the long run determined by changes in money supply
Hyperinflation
In which prices rise by thousands or hundreds of thousands of percent
Price stability
When the overall level of prices changes slowly or not at all
Open economy
An economy that trades goods and services with other countries
Trade deficit
When the value of goods and services bought from foreigners is more than the value of goods and services it sells to them
imports > exports
Trade surplus
When value of goods and services bought from foreigners is less than the value of the goods and services it sells to them
exports > imports
Long-run growth per capita
A sustained upward trend output per person is the key to higher wages and a rising standard of living
