Test 4 book terms Flashcards
Balance sheet
accounting toll that lists assets and liabilities
Bank capital
a banks net worth (assets - liabilities)
Barter
trading goods/services without money
Commodity money
item used as money but has value as something other than money
Commodity-backed currencies
currency with value backed up by gold or commodity
Demand deposit
checkable deposit in banks available ‘on demand’
Double coincidence of wants
situation where 2 people each want a good/service the other provides
Fiat Money
Currency that has no intrinsic value but is declared by the government to be legal tender
Financial intermediary
institution that operates between a saver & borrower
M1 money supply
Money supply that includes currency & checking accounts & (recently) savings accounts
M2 money supply
Includes everything in M1 but also investments & certificates of deposit
Money market fund
deposits of many investors pooled together in invested in a safe way like short term government bonds
Money multiplier formula
Total money in economy divided by original quantity of money; or, change in total money divided by change in the original quantity
Standard of deferred payment
money must also be acceptable to make purchases today that will be paid in the future
Store of value
preserves economic value for the future
Time deposit
account that depositor commits to leave in the bank for period of time for higher interest rate; also called certificate of deposit
Unit of account
common measure of market value
Contractionary monetary policy
monetary policy that reduces the supply of money
Countercyclical
moving in the opposite direction of business cycle of down/upturns
Discount rate
interest rate charged by central bank on the loans to commercial banks
Expansionary monetary policy
policy that increases supply of money & loans
Inflation targeting
Rule that the central bank can only focus on keeping inflation low
Lender of last resort
institution that provides short-term emergency loans in financial crisis
Open market operations
central bank selling/buying treasury bonds to influence the quantity of money & level of interest rates
Quantitative easing
Purchase of long-term government and private mortgage-backed securities by central banks to make credit available & increase AD
Velocity
speed which money circulates; nominal GDP/money supply
Automatic stabilizers
tax & spending rules that effect AD without additional change in legislation
Balanced budget
when government spending & taxes are equal
Budget deficit
Federal government spends more than it taxes in a fiscal year
Contractionary fiscal policy
policy that decreases AD via cuts in gov spending or increase in taxes
Corporate income tax
tax on corporate profits
Crowding out
federal spending/borrowing causes interest rates to rise & business investment to fall
Discretionary fiscal policy
government passes new law that explicitly changes overall tax/spending levels with the intent of influencing the economy
Estate & gift tax
tax on people who pass assets to the next generation
Excise tax
tax on specific good i.e. tobacco, alcohol, guns, gas
Expansionary fiscal policy
policy that increases AD via tax cuts or increased spending
Implementation lag
lag in dispersing funds
Individual income tax
tax based on income to individuals
Legislative lag
lag in getting a fiscal policy bill passed
Marginal tax rates
tax that must be paid on all yearly income
National debt
total accumulation of government borrowing over time
Payroll tax
tax on pay received from employers; funneled to social security & medicare
Progressive tax
taxes raise throughout income brackets
Proportional tax
Flat tax rate for all incomes
Regressive tax
Higher income pays less
Standardized employment budget
budget deficit/surplus in any year adjusted for what it would be if the economy were producing at potential GDP
Ricardian equivalence
theory that rational private households might shift their savings to offset government saving/borrowing
Twin deficits
deficits that occur when a country is running both a trade & budget deficit
Converging economy
economy of a country that has demonstrated the ability to catch up to the technology leaders by investing in physical & human capital
East asian tigers
economies of Taiwan, Singapore, Hong Kong, & South Korea which maintained high growth rates & rapid export led industrialization in the 60s-90s allowing them to converge with tech leaders
Growth consensus
series of studies that show 70% of the difference in income per person across the world is explained by differences in physical capital
High-income country
Nation with per capita income of $12,475 or more
Low-income country
nation with per capita income of less than $1,025
Middle-income country
nation with per capita income between $1,025 and $12,475
