Vocab Terms Flashcards
GDP
The total market value of all final goods and services produced annualy within the boundaries of the United States, whether by U.S. or foreign-supplied resources.
GDP = C + I + G + (Ex - Im)
Aggregate Expidenture
The total amount spent for final goods and services in an economy.
AE = C + I + G + (NX)
AE model
A macroeconomic model that focuses on the short-run relationship
between total spending and real GDP, assuming that the price level
is constant.
Inflation
When the buying power of a currency decreases.
Stagflation
Inflation accompanied by stagnation in the rate of growth of output and an increase in unemployment in the economy; simultaneous increases in the inflation rate and the unemployment rate.
CPI
Consumer price index; an index that measures the prices of a fixed “market basket” of some 300 goods and services bought by a “typical” consumer.
GDP Deflator
A measure of the level of prices of all new, domestically produced, final goods and services in an economy.
x 100
Cost-push inflation
Increases in the price level (inflation) resulting from an increase in resource costs (for example, raw-material prices) and hence in per-unit production costs; inflation caused by reductions in aggregate supply.
Demand-pull inflation
Increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand.
Keynesian Theory
The macroeconomic generalizations that lead to the conclusion that a capitalistic economy is characterized by macroeconomic instability and that fiscal policy (government investment in infrastructure) and monetary policy (a reduction in interest rates) can be used to promote full employment, price-level stability, and economic growth.
Say’s Law
The largely discredited macroeconomic generalization that the production of goods and services (supply) creates an equal demand for those goods and services.
Supply side
A view of macroeconomics that emphasizes the role of costs and aggregate supply in explaining inflation, unemployment, and economic growth.
Laffer Curve
A curve relating government tax rates and tax revenues and on which a particular tax rate (between zero and 100 percent) maximizes tax revenues.
Phillips Curve
A curve showing the relationsip between the unemployment rate (on the horizontal axis) and the annual rate of increase in the price level (vertical axis).
Marginal propensity to consume (MPC)
The fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income.
Marginal propensity to save (MPS)
The fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income.
Investment demand
The negative relation between investment expenditures and the interest rate, based on the marginal efficiency of investment for different capital investment projects.
GDP Multiplier
A factor that quantifies the change in total income as compared to the injection of capital deposits or investments which originally fueled the growth. It is usually used as a measurement of the effects of government spending on income, and it can be calculated as one divided by the marginal propensity to save.
Aggregate demand-aggregate supply (AD-AS) model
The macroeconomic model that uses aggregate deamand and aggregate supply to determine and explain the price level and the real domestic output.
Monetary Policy
A central bank’s changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth.
Fiscal Policy
Changes in government spending and tax collections designted to achieve a full-employment and noninflationary domestic output; also called discretionary fiscal policy.
Crowding-out effect
A rise in interest rates and a resulting decrease in planned investment caused by the Federal government’s increased borrowing to finance budget deficits and refinance debt.
Money Supply
The entire stock of currency and other liquid instruments in a country’s economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts.
Bonds
A financial device through which a borrower (a firm or government) is obligated to pay the principal and interest on a loan at a specific date in the future.
Federal Reserve System
The U.S. central bank, consisting of the Board of Govenors of the Federal Reserve and the 12 Federal Reserve banks, which controls the lending activity of the nation’s banks and thrifts and thus the money supply; commonly referred to as the “Fed”.
Commercial Bank
A firm that engages in the business of banking (accepts deposits, offers checking accounts, and makes loans).
Investment Bank
A financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients.
Money multiplier
The expansion of a country’s money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is money used to create more money and is calculated by dividing total bank deposits by the reserve requirement.
Balance sheet
A statement of the assets, liabilityes, and networth of a firm or individual at some given time.
Federal Open Market Committee (FOMC)
The 12-member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities.
Expansionary Policy
A macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation (price increases). One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, rebates and increased government spending. Expansionary policies can also come from central banks, which focus on increasing the money supply in the economy.
Contradictory Policy
A type of policy that is used as a macroeconomic tool by the country’s central bank or finance ministry to slow down an economy. Contractionary policies are enacted by a government to reduce the money supply and ultimately the spending in a country.
Bureau of Labor Statistics (BLS)
A government agency that produces economic data that reflects the state of the U.S. economy. This data includes the Consumer Price Index, the unemployment rate and the Producer Price Index.
The General Agreement on Tariffs and Trade (GATT)
A treaty created following the conclusion of World War II. The General Agreement on Tariffs and Trade (GATT) was implemented to further regulate world trade to aide in the economic recovery following the war. GATT’s main objective was to reduce the barriers of international trade through the reduction of tariffs, quotas and subsidies.
World Trade Organization (WTO)
An organization of 149 nations (as of fall 2006) that oversees the provisions of the current world trade agreement, resolves trade disputes stemming from it, and holds forums for further rounds of trade negotiations.
Rule of 70
A method for determining the number of years it will take for some measure to double, given its annual percentage. Ex: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.
Comparative advantage
A lower relative opportunity cost than that of another producer or country.
Absolute advantage
The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. Entities with absolute advantages can produce a product or service using a smaller number of inputs and/or using a more efficient process than another party producing the same product or service.
Balance of payments (BOP)
A summary of all the transactions that took place between the individuals, firms, and government units of one nation and those of all other nations during a year.
Fractional Reserve Banking
A reserve requirement that is less than 100 percent of the checkable-deposit liabilities of a conmmercial bank or thrift institution.
