Test 4 book terms

Question 1

Balance sheet

Answer 1

accounting toll that lists assets and liabilities

Question 2

Bank capital

Answer 2

a banks net worth (assets - liabilities)

Question 3

Barter

Answer 3

trading goods/services without money

Question 4

Commodity money

Answer 4

item used as money but has value as something other than money

Question 5

Commodity-backed currencies

Answer 5

currency with value backed up by gold or commodity

Question 6

Demand deposit

Answer 6

checkable deposit in banks available ‘on demand’

Question 7

Double coincidence of wants

Answer 7

situation where 2 people each want a good/service the other provides

Question 8

Fiat Money

Answer 8

Currency that has no intrinsic value but is declared by the government to be legal tender

Question 9

Financial intermediary

Answer 9

institution that operates between a saver & borrower

Question 10

M1 money supply

Answer 10

Money supply that includes currency & checking accounts & (recently) savings accounts

Question 11

M2 money supply

Answer 11

Includes everything in M1 but also investments & certificates of deposit

Question 12

Money market fund

Answer 12

deposits of many investors pooled together in invested in a safe way like short term government bonds

Question 13

Money multiplier formula

Answer 13

Total money in economy divided by original quantity of money; or, change in total money divided by change in the original quantity

Question 14

Standard of deferred payment

Answer 14

money must also be acceptable to make purchases today that will be paid in the future

Question 15

Store of value

Answer 15

preserves economic value for the future

Question 16

Time deposit

Answer 16

account that depositor commits to leave in the bank for period of time for higher interest rate; also called certificate of deposit

Question 17

Unit of account

Answer 17

common measure of market value

Question 18

Contractionary monetary policy

Answer 18

monetary policy that reduces the supply of money

Question 19

Countercyclical

Answer 19

moving in the opposite direction of business cycle of down/upturns

Question 20

Discount rate

Answer 20

interest rate charged by central bank on the loans to commercial banks

Question 21

Expansionary monetary policy

Answer 21

policy that increases supply of money & loans

Question 22

Inflation targeting

Answer 22

Rule that the central bank can only focus on keeping inflation low

Question 23

Lender of last resort

Answer 23

institution that provides short-term emergency loans in financial crisis

Question 24

Open market operations

Answer 24

central bank selling/buying treasury bonds to influence the quantity of money & level of interest rates

Question 25

Quantitative easing

Answer 25

Purchase of long-term government and private mortgage-backed securities by central banks to make credit available & increase AD

Question 26

Velocity

Answer 26

speed which money circulates; nominal GDP/money supply

Question 27

Automatic stabilizers

Answer 27

tax & spending rules that effect AD without additional change in legislation

Question 28

Balanced budget

Answer 28

when government spending & taxes are equal

Question 29

Budget deficit

Answer 29

Federal government spends more than it taxes in a fiscal year

Question 30

Contractionary fiscal policy

Answer 30

policy that decreases AD via cuts in gov spending or increase in taxes

Question 31

Corporate income tax

Answer 31

tax on corporate profits

Question 32

Crowding out

Answer 32

federal spending/borrowing causes interest rates to rise & business investment to fall

Question 33

Discretionary fiscal policy

Answer 33

government passes new law that explicitly changes overall tax/spending levels with the intent of influencing the economy

Question 34

Estate & gift tax

Answer 34

tax on people who pass assets to the next generation

Question 35

Excise tax

Answer 35

tax on specific good i.e. tobacco, alcohol, guns, gas

Question 36

Expansionary fiscal policy

Answer 36

policy that increases AD via tax cuts or increased spending

Question 37

Implementation lag

Answer 37

lag in dispersing funds

Question 38

Individual income tax

Answer 38

tax based on income to individuals

Question 39

Legislative lag

Answer 39

lag in getting a fiscal policy bill passed

Question 40

Marginal tax rates

Answer 40

tax that must be paid on all yearly income

Question 41

National debt

Answer 41

total accumulation of government borrowing over time

Question 42

Payroll tax

Answer 42

tax on pay received from employers; funneled to social security & medicare

Question 43

Progressive tax

Answer 43

taxes raise throughout income brackets

Question 44

Proportional tax

Answer 44

Flat tax rate for all incomes

Question 45

Regressive tax

Answer 45

Higher income pays less

Question 46

Standardized employment budget

Answer 46

budget deficit/surplus in any year adjusted for what it would be if the economy were producing at potential GDP

Question 47

Ricardian equivalence

Answer 47

theory that rational private households might shift their savings to offset government saving/borrowing

Question 48

Twin deficits

Answer 48

deficits that occur when a country is running both a trade & budget deficit

Question 49

Converging economy

Answer 49

economy of a country that has demonstrated the ability to catch up to the technology leaders by investing in physical & human capital

Question 50

East asian tigers

Answer 50

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

Question 51

Growth consensus

Answer 51

series of studies that show 70% of the difference in income per person across the world is explained by differences in physical capital

Question 52

High-income country

Answer 52

Nation with per capita income of $12,475 or more

Question 53

Low-income country

Answer 53

nation with per capita income of less than $1,025

Question 54

Middle-income country

Answer 54

nation with per capita income between $1,025 and $12,475