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Macroeconomics > Key Terms from Textbook > Flashcards

Key Terms from Textbook Flashcards

1
Q

Economics

A

study of how people, individually and collectively, manage resources

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2
Q

Microeconomics

A

the study of how individuals and firms manage resources

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3
Q

Macroeconomics

A

the study of the economy on a regional, national, or international scale

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4
Q

Rational Behaviour

A

making choices to achieve goals in the most effective way possible

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5
Q

Scarcity

A

the condition of wanting more than we can get with available resources

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6
Q

Opportunity Cost

A

the value of what you have to give up in order to get something; the value of your next best alternative

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7
Q

Marginal Decision Making

A

comparison of additional benefits of a choice against the additional costs it would bring, without considering related benefits and costs of past choices

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8
Q

Sunk Cost

A

a cost that has already been incurred and cannot be recovered or refunded

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9
Q

Incentive

A

something that causes people to behave in a certain way by changing the trade-offs they face

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10
Q

Efficiency

A

use of resources in the most productive way possible to produce the goods and services that have the greatest total economic value to society

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11
Q

Correlation

A

a consistently observed relationship between two events or variables

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12
Q

Causation

A

a relationship between two events in which one brings about the other

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13
Q

Model

A

a simplified representation of the important parts of a complicated situation

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14
Q

Circular Flow Model

A

a simplified representation of how the economy’s transactions work together

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15
Q

Positive Statement

A

a factual declaration about how the world actually works

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16
Q

Normative Statement

A

a claim about how the world should be

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17
Q

Gross Domestic Product (GDP)

A

the sum of the market values of all final goods and services produced within a country in a given period of time

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18
Q

Gross National Product (GNP)

A

the sum of the market values of all final goods and services produced plus capital owned by the residents of a country in a given period of time

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19
Q

Consumption (C)

A

spending on goods and services by private individuals and households

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20
Q

Investment (I)

A

spending on productive inputs, such as factories, machinery, and inventories

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21
Q

Inventory

A

the stock of goods that a company produces now but does not sell immediately

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22
Q

Government Purchases (G)

A

spending on goods and services by private individuals and households

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23
Q

Net Exports (NX)

A

exports - imports; the value f goods and services produced domestically and consumed abroad minus the values of goods and services produced abroad and consumed domestically

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24
Q

Real GDP

A

GDP calculation in which goods and services are valued at constant prices

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25
Q

Nominal GDP

A

GDP calculation in which goods and services are valued at current prices

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26
Q

GDP Deflator

A

a measure of the overall increase in prices in an economy, using the ration between the real and nominal GDP

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27
Q

GDP per Capita

A

a country’s GDP divided by its population

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28
Q

Recession

A

a period of significant economic decline

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29
Q

Depression

A

a particularly severe or extended recession

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30
Q

Market Basket

A

a list of specific goods and services in fixed quantities

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31
Q

Price Index

A

a measure showing how much the cost of a market basket has risen or fallen relative to the cost in a base period or location

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32
Q

Consumer Price Index (CPI)

A

a measure that tracks changes in the cost of a basket of goods and services purchased by a typical Canadian household as calculated by Statistics Canada

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33
Q

Inflation Rate

A

the size of the change in the overall price level

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34
Q

Indexing

A

the practice of automatically increasing payments as the cost of living increases

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35
Q

Purchasing Power Parity

A

the theory that price levels in different countries should be the same when stated in a common currency

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36
Q

PPP-Adjustment

A

recalculating economic statistics to account for differences in price levels across countries

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37
Q

Productivity

A

output produced per worker

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38
Q

Physical Capital

A

the stock of equipment and structures that allow for production of goods and services

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39
Q

Human Capital

A

the set of skills, knowledge, experience, and talent that determines the productivity of workers

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40
Q

Convergence Theory

A

the theory that countries that start out poor will initially grow faster than rich ones but will eventually converge to the same growth rate

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41
Q

Investment Trade-Off

A

a substitution of current consumption or investment in physical capital for future production

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42
Q

Domestic Savings

A

savings for capital investment that come from within a country, equals domestic income minus consumption spending

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43
Q

Foreign Direct Investment (FDI)

A

investment when a firm runs part of its operation abroad or invests in another company abroad

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44
Q

unemployment

A

situation in which someone wants to work but cannot find a job

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45
Q

Labour Force

A

people who are in the working-age population and are either employed or unemployed

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46
Q

Unemployment Rate

A

the number of unemployed people divided by the number of people in the labour force

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47
Q

Labour-Force Participation Rate

A

the number of people in the labour force divided by the number of people in the labour force

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48
Q

discouraged workers

A

workers who have looked for work in the past year but have given up looking because of the condition of the labour market

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49
Q

underemployed

A

workers who are either working less than they would like to or are working in jobs below their skill level

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50
Q

Labour Demand Curve

A

a graph showing the relationship between the wage rate and the total labour demanded from all the firms in the economy

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51
Q

Labour Supply Curve

A

a graph showing the relationship between the total labour supplied in the economy and the wage rate

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52
Q

Natural Rate of Unemployment

A

the minimum level of unemployment that is unavoidable in a dynamic economy

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53
Q

Frictional Unemployment

A

unemployment caused by workers who are changing location, job, or career

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54
Q

Structural Unemployment

A

unemployment due to a mismatch between the skills workers can offer and the skills in demand

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55
Q

Real-Wage or Classical Unemployment

A

unemployment that results from wages being higher than the market-clearing level

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56
Q

Cyclical Employment

A

unemployment resulting from changes in GDP

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57
Q

Labour Unions

A

groups of employees who join together to bargain with their employers over salaries and work conditions

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58
Q

Efficiency Wages

A

a wage that is deliberately set above the market rate to increase worker productivity

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59
Q

Employment Insurance

A

money paid by the government to people who are unemployed

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60
Q

Aggregate Demand Curve

A

a curve that shows the relationship between the overall price level in the economy and the total demand

61
Q

Aggregate Supply Curve

A

a curve that shows the relationship between the overall price level in the economy and total production by firms

62
Q

Business Cycle

A

fluctuations of GDP either above or below the potential level of GDP in the economy

63
Q

Supply Shock

A

significant event that directly affects production and the aggregate-supply curve in the short run

64
Q

Fiscal Policy

A

government decisions about the level of taxation and government spending

65
Q

Expansionary Fiscal Policy

A

fiscal policy that increase aggregate demand

66
Q

Contractionary Fiscal Policy

A

fiscal policy that decreases aggregate demand

67
Q

Automatic Stabilizers

A

taxes and government spending that affect fiscal policy without specific action from policy makers

68
Q

Multiplier Effect

A

the increase in consumer spending that occurs when spending by one person causes others to spend more, too, increasing the impact of the initial spending on the economy

69
Q

Marginal Propensity to Consumer (MPC)

A

the amount that consumption increases when after-tax income increase by $1

70
Q

Government Spending Multiplier

A

the amount by which GDP increases when government spending increases by $1

71
Q

Budget Deficit

A

the amount of money a government spends beyond the revenue it brings in

72
Q

Budget Surplus

A

the amount of revenue a government brings in beyond what it spends

73
Q

Public Debt

A

the total amount of money that a government owes at a point in time

74
Q

Financial Market

A

a market in which people trade future claims on funds or goods

75
Q

Market for Loanable Funds

A

a market in which savers supply funds to those who want to borrow

76
Q

Savings

A

the portion that is not immediately spent on consumption of g and s

77
Q

Investment

A

spending on productive inputs, such as factories, machinery, and inventories

78
Q

Interest Rate

A

the price of borrowing money for a specified period of time, expressed as a percentage per dollar borrowed and per unit of time

79
Q

Crowding Out

A

the reduction in private borrowing caused by an increase in government spending

GOVERNMENT CROWDS OUT US PEASANTS

80
Q

Default

A

the failure of a borrower to pay back a loan according to the agreed-upon terms

81
Q

Risk-Free Rate

A

the interest rate at which money would be loaned if there were no risk of default; usually approximated by interest rates on government debt

82
Q

Financial System

A

the group of institutions that bring together savers, borrowers, investors, and insurers in a set of interconnected markets where people trade financial products

83
Q

Financial Intermediaries

A

institutions that channel funds from people who have them to people who want them

84
Q

Liquidity

A

a measure of how easily a particular asset can be converted quickly to cash without much loss of value

85
Q

Diversification

A

the process by which risks are shared across many different assets or people, reducing the impact of any particular risk on any one individual

86
Q

Stock

A

a financial asset that represents partial ownership of a company

87
Q

Dividend

A

a payment made periodically, typically quarterly or annually, to all shareholders of a company

88
Q

Loan

A

an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount plus an-agree

89
Q

Bond

A

a form of debt that represents a promise by the bond issuer to repay the face value of the loan, at a specified maturity date, and to pay periodic interest at a specific percentage rate

90
Q

Derivative

A

an asset whose value is based on the value of another asset

91
Q

Mutual Fund

A

any a portfolio of stocks and other assets managed by a professional who makes decisions on behalf of clients

92
Q

Pension Fund

A

professionally managed portfolio of assets intended to provide an income to retirees

93
Q

Market Risk

A

any risk that is broadly shared by the entire market or economy

94
Q

Idiosyncratic Risk

A

any risk that is unique to a particular company or asset

95
Q

Standard Deviation

A

a measure of how spread out a set of numbers is

96
Q

Net Present Value (NPV)

A

a measure of the current value of a stream of cash flows expected in the future

97
Q

Efficient-Market Hypothesis

A

the idea that market pries always incorporate all available information, and therefore represent true value as correctly as is possible

98
Q

Arbitrage

A

the process of taking advantage of market inefficiencies to earn profit

99
Q

Private Savings

A

the savings of individuals or corporations within a country

100
Q

Public Savings

A

the difference between government tax revenue and government spending

101
Q

National Savings

A

the sun of the private savings of individuals and corporations plus the public savings of the government

102
Q

Closed Economy

A

an economy that does not interact with other countries’ economy

103
Q

Open Economy

A

an economy that interacts with other countries’ economies

104
Q

Net Capital Flow

A

the difference between capital inflows and capital outflows

105
Q

Money

A

the set of all assets that are regularly used to direct the purchase of g & s

106
Q

Store of Value

A

a certain amount of purchasing power that money retains over time

107
Q

Medium of Exchange

A

the ability to use money to purchase g & s

108
Q

Fiat Money

A

money created by rule, without any commodity to back it

109
Q

Demand Deposits

A

funds held in bank accounts that can be withdrawn by depositors at any time without advanced notice

110
Q

Reserves

A

the money that a bank keeps on hand, either in cash of in deposits at the federal bank

111
Q

Reserve Ratio

A

the ratio of the total amount of demand deposits at a bank to the amount kept as cash reserves

112
Q

Desired Reserves

A

in the absence of required reserves, the amount of reserves a bank wishes to hold

113
Q

Excess Reserves

A

any additional amount, beyond the required reserves, a bank chooses to keep in reserves

114
Q

Money Multiplier

A

the ratio of money created by the lending activities of the banking system to the money created by the central bank

115
Q

Fractional-Reserve Banking

A

a banking system in which banks keep on reserves less than 100% of their deposits

116
Q

Money Supply

A

the amount of money available in the economy

117
Q

M1

A

include cash plus chequeing account balances

118
Q

M2

A

M1 plus savings accounts and other financial instruments where money is locked away for a specified amount of time: less liquid than M1

119
Q

Central Bank

A

the institution ultimately responsible for managing the nation’s money supply and coordinating the actions of the banking system to ensure a sound economy

120
Q

Monetary Policy

A

actions by the central bank to manage the money supply, in pursuit of certain macroeconomic goals

121
Q

Reserve Requirement

A

the regulation that sets the minimum fraction of deposits banks must hold in the reserve

122
Q

Open-Market Operations

A

sales or purchases of government bonds by the central bank, to of from commercial banks, on the open market

123
Q

Contractionary Monetary Policy

A

actions that reduce the money supply in order to increase aggregate demand

124
Q

Expansionary Monetary Policy

A

actions that increase the money supply in order to increase aggregate demand

125
Q

Overnight Rate

A

the interest rate at which banks choose to lend reserves held at the Bank of Canada to one another, usually just overnight

126
Q

Liquidity-Preference Model

A

the idea that the quantity of money people want to hold is a function of the interest rate

127
Q

Leverage

A

the practice of using borrowed money to pay for investments

128
Q

Securitization

A

the practice of packaging individual debts into a single uniform asset

129
Q

Stagflation

A

high inflation despite low economic growth and high unemployment

130
Q

Too Big to Fall

A

so large in terms of assets or customer, or so historically important, that banking regulators allow the bank of company to keep operating despite insolvency

131
Q

Quantitative Easing

A

policies that are designed to directly increase the money supply by a certain amount

132
Q

Follow a Herd Instinct

A

investing in something simply because everyone else is doing it

133
Q

Recency Effect

A

human tendency to overvalue recent experience when trying to predict the future

134
Q

Margin Call

A

if it looks like you’re in danger of running through your money, the broker will force you to sell your stock and use the money to pay back the loan

135
Q

Securitization

A

the practice of packaging individual debts into a single uniform asset

136
Q

Balance of Trade

A

the value fo exports minus the value of imports

137
Q

Trade Deficit

A

a negative balance of trade; a greater amount of imports than exports

138
Q

Trade Surplus

A

a positive balance of trade; greater amount of exports than imports

139
Q

Foreign Direct Investment (FDI)

A

investment when a firm runs art of its operation abroad it invests in another company abroad

140
Q

Foreign Portfolio Investment (FPI)

A

investment funded by foreign sources but operated domestically

141
Q

Net Capital Outflow (NCO)

A

the net flow of funds invested outside of a country

142
Q

Balance-of-Payments Identify

A

an equation that shows that the value of net exports equals the net capital outflow

143
Q

Exchange Rate

A

the value of one currency expressed n terms of another currency

144
Q

Exchange Rate-Appreciation

A

an increase in the value of a currency relative to other currencies

145
Q

Exchange Rate-Depreciation

A

a decrease in the value of a currency relative to other currencies

146
Q

Floating Exchange Rate

A

an exchange rate whose value is determined by the market

147
Q

Fixed Exchange Rate

A

an exchange rate that is set by the government, instead of determined by the market

148
Q

Nominal Exchange Rate

A

the stated rate at which one country’s currency can be traded for another country’s currency

149
Q

Real Exchange Rate

A

the value of goods in one country expressed in terms of the same goods in another country

Macroeconomics (4 decks)

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