Econ Terms Flashcards
spending by households on goods and services, with the exception of the purchase of new housing
Consumption
Coins and bills in the hands of the public
Currency
conditions that prevent firms from freely entering or exiting a market
Barriers to Entry
severe recession
Depression
graphical depiction of relationship between level of desired expenditures in an economy and the price level
Aggregate demand curve
graphical depiction of relationship between quantity of goods and services firms which to supply and the price level
Aggregate supply curve
total output divided by the quantity of labor employed in its production
Average labor productivity
sudden rush of depositors seeking to withdraw funds from the banking system
Bank run
fluctuations in aggregate economic activity
Business cycle
long-lived goods that are themselves produced and are used to produce other goods and services, but are not used up in the production process
Capital goods
group of firms that collude in a given market to restrain competition, often making quota arrangements among themselves
Cartel
proposition that if private parties can bargain without cost over the allocation of resources, then they can solve the problem of externalities on their own
Coase Theorem
ability to produce a good or service at a lower opportunity cost than other producers
Comparative advantage
market with many buyers and sellers trading a homogenous good or service in which each buyer and seller is a price taker
Competitive market
two goods for which a rise in the price of one leads to a decline in the demand for the other
Complements
index constructed by comparing the cost of purchasing a fixed basket of goods at different times
Consumer Price Index (CPI)
difference between the amount that a buyer would be willing to pay for a good or service and the price actually paid
Consumer surplus
decrease in private investment that occurs as a result of a reduction in government saving or an increase in government borrowing
Crowding out
unemployment caused by deviations of output from its potential level
Cyclical unemployment
reduction in total surplus that results from a market distortion such as a tax
Deadweight loss
graphical representation of the quantity of a good or service demanded as a function of the price
Demand curve
table showing the relationship between the price of a good or service and the quantity demanded
Demand schedule
property whereby each each additional increase in inputs results in a smaller increase in the quantity produced
Diminishing returns to scale
interest rate that the Federal Reserve charges banks when they must borrow reserves from it
Discount rate
difference between the revenue realized by a producer and the opportunity cost of production
Economic Profit
percentage change in quantity demanded or supplied as a result of a one percent change in price
Elasticity
an individual who takes on the risk of attempting to create new products or services, establish new markets, or develop new methods of production
Entrepreneur
situation in which the forces in a system are in balance so that the situation is stable and unchanging
Equilibrium
ability to prevent buyers from enjoying the benefits of consuming a good or service without paying for it
Excludability
period between a trough and a peak in economic activity
Expansion
when the action of one person affects the well-being of someone else but where neither party pays nor is paid for these effects
Externality
Founded in Great Britain in 1884, Fabians pursued socialism through gradual political reforms, as opposed to the violent struggles witnessed in Russia, China, Vietnam, Korea, and other nations.
Fabian Society
rate that banks charge other banks when they lend reserves
Federal Funds Rate
goods or services that are purchased by their ultimate user
Final Goods
institutions through which individuals with savings can supply these funds to persons or firms that wish to borrow money to purchase consumption goods or invest in physical capital
Financial markets
use of taxes and spending to influence aggregate demand and through it the level of overall economic activity
Fiscal policy
cost of production that is independent of the quantity produced
Fixed cost
when a company invests in an operational entity in a foreign country that the company or individual will manage directly
Foreign Direct Investment (FDI)
unemployment that results because it takes time for workers to search for jobs that are best suited to their tastes and skills
Frictional unemployment
benefits that both individuals or nations realize from mutually beneficial exchange
Gains from trade
spending on goods and services by federal, state, and local governments
Government purchases
market value of final goods and services produced in an economy during a specified period of time
Gross Domestic Product (GDP)
skills and experience that are acquired through education, training, and on the job experience that increase a worker’s productivity
Human capital
case of a market with a small number of sellers, so that sellers have market power
Imperfect competition
good for which the quantity demanded falls as buyers’ income increases
Inferior good
general increase in prices
Inflation
any type of service that can be exchanged over the internet or via other methods of communications (call centers, software development and sales, accounting, etc.)
Internet technology services
formal and informal rules that structure human interactions
Institutions
third party who acts as a link between two others who wish to transact business
Intermediary
good or service that is used in the process of producing other goods and services
Intermediate good
organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world
International Monetary Fund (IMF)
spending on capital equipment, inventories, and structures, including household purchases of new housing
Investment
model of short-run aggregate economic fluctuations inspired by the analysis of British economist John Maynard Keynes, which attributes short-run deviations in output from potential to variations in the level of aggregate demand or aggregate supply
Keynesian Model
sum of those individuals who are employed and those who are seeking paid work but haven’t found it
Labor force
fraction of the working-age population who are in the labor force
Labor force participation rate
holding other things equal, the quantity demanded is negatively related to the price
Law of Demand
holding other things equal, the quantity supplied is positively related to the price
Law of Supply
ease with which a nonmonetary asset may be converted into money
Liquidity
practice of elected officials trading votes
Logrolling
additional cost of production associated with a small increase in the quantity produced
Marginal cost
additional revenue resulting from a small increase in the quantity produced
Marginal revenue
quantity of currency plus bank reserves
Monetary base
use of the supply of money in the economy by the Federal Reserve to influence the level of aggregate demand
Monetary policy
asset that is a medium of exchange, unit of account, and store of value
Money
ratio of the money supply to the monetary base
Money multiplier
quantity of money available to the economy
Money supply
market in which there is free entry/exit, but every producer supplies a differentiated product and faces a downward sloping demand curve
Monopolistic competition
market in which there is a single producer
Monopoly
level of unemployment that would exist if the economy were producing at its potential output
Natural rate of unemployment
difference between the purchases of foreign assets by domestic residents and the purchases of domestic assets by foreign residents
Net capital outflow
difference between the value of goods and services sold to foreigners and the value of goods and services purchased from foreigners
Net exports
proposition that in the long run, changes in the quantity of money affect the price level but do not affect any real quantities
Neutrality of money
production of goods and services valued at current prices
Nominal GDP
good or service for which demand is positively related to the buyer’s income
Normal Good
economic analysis used to guide decisions about what should be as opposed to what is the case
Normative economics
relationship identified by Arthur Okun between the output gap and the level of cyclical unemployment
Okun’s Law
market in which there are just a few producers
Oligopoly
tool used by Federal Reserve to adjust the money supply by buying or selling US government bonds in the financial market
Open Market Operations
cost of any choice is what must be given up by making that choice
Opportunity cost
difference between actual output and potential output
Output gap
describes an allocation in which the only way to make any individual/group of individuals better off would require making at least one other person worse off
Pareto efficiency
literally per head, used to denote an average value for a population
Per capita
purchase of shares of stock or bonds
Portfolio investments
use of tools of economic analysis to describe and explain economic phenomena and to make prediction about what will happen under particular circumstances
Positive economics
quantity of output that would be produce by an economy if all of its resources were being employed at normal rates
Potential output
when a business sells the same product to different buyers at different prices
Price discrimination
amount by which demand for a given product changes in response to changes in price; specifically, the percentage change in demand that corresponds to a one percent change in the price
Price elasticity of demand
difference between the price that producers receive for supplying a good and their marginal cost of producing it
Producer surplus
graphical depiction of the combinations of output that can be produced by an economy
Production possibility frontier (PPF)
good/service for which it is not possible to establish individual property rights
Public good
when individual choices are made by comparing benefits and costs of different actions and then selection the action that produces the greatest benefit
Rationality
production of goods/services valued at constant prices
Real GDP
period between a peak and a trough in economic activity
Recession
using political influence to increase one’s economic profits at the expense of others
Rent seeking
amount of reserves that the Federal Reserve requires banks to hold
Reserve requirement
fraction of deposit liabilities that banks hold to meet depositor withdrawals
Reserves
goods/services characterized by the fact that one person’s enjoyment of the good/service reduces the quantity available for others’ enjoyment
Rival goods
different between a person’s disposable income and his/her expenditures
Savings
inescapable fact of human existence that results from the fact that the available resources are always less then our limitless desires
Scarcity
results from the mismatch in skills, locations, or other important characteristics between job seekers and available jobs
Structural unemployment
two goods for which an increase in the price of one leads to an increase in the demand for the other
Substitutes
graphical representation of the quantity of a good/service supplied as a function of the price
Supply curve
table showing relationship between the price of a good/service and the quantity supplied
Supply schedule
knowledge about techniques by which inputs are transformed into the goods/services that households desire
Technology
total revenue received by a supplier
Total revenue
sum of consumer and producer surplus
Total surplus
depletion of a common resource due to overuse
Tragedy of the commons
state of actively seeking paid work but being unable to find it
Unemployment
number of unemployed workers as a fraction of the total labor force
Unemployment rate
cost of production that depends on the quantity produced
Variable Cost
ratio of nominal GDP to money supply; in effect, the average number of transaction supported by each dollar of the money supply
Velocity of money
total value of assets used as a store of value
Wealth
