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124 Cards in this Set
- Front
- Back
scarcity
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wants are greater than resources
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TANSTAAFL
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There Ain't No Such Thing As A Free Lunch
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opportunity cost
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real costs measurable in terms of value forgone when a choice is made (the value of what you gave up)
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production possiblities
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many different combinations of goods or services that can be produced with the same resources
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"guns vs. butter"
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representation of an economic choice--in wartime, making weapons means that consumer goods are not made
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factors of production
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types of resources: land, labor, capital, and entrepreneurial
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land resources
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natural resourses (trees, minerals, ect)
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labor resources
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human capital, skills and knowledge of people
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capital resources
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"real capital" or "capital goods"--goods produced to later be used to make final goods and services for consumption
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entrepreneurial resources
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decision-making that brings together the other resources
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competition
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sellers' efforts to attract buyers, results when markets are free of entrance and exit barriers, results in lower prices and/or better quality
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complementary goods
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two goods that depend on one another (french fries and ketchup)
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ceterius paribus
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"all other things being equal"
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margin
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difference between the costs of two alternatives or the difference between the two benefits
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positive economics
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economic analysis based upon what is
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normative economics
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economic analysis based on what should be
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microeconomics
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study of individual parts of economy, the actions of individuals and firms
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macroeconomics
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study of economy as whole, focuses on aggregate behaviors of producers and comsumers
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market systems
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(free enterprise, capitalism, private enterpries, or free market)
economic systems in which the rights of individuals and private ownership are most highly valued |
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planned/command system
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a group makes economic decisions as a whole, or government makes decisions in the name of society (command if by absolute ruler)
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traditional system
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not dominant today, relies on reciprocity and other traditional values
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mercantilism
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economic practices of Europe in the 16-18th centuries, central planning, strong government control, and a heavy reliance on exports to build wealth in gold and silver reserves
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socialism
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systems in which a group voluntarily shares their resources for the good of all
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communism
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political/economic movement associated with the writings of Karl Mark. NOT SAME AS SOCIALISM, necessarily
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laissez-faire
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government does not interfere with private choices
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market
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any situation in which resources, goods, or services are exchanged
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price
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common language that makes comparison of two or more abstract values easier, signals for producers and consumers
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law of supply
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quantity supplied is directly related to the price (price increases, supply increases)
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law of demand
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quantity demanded is inversely related to the price (as price increases, demand decreases)
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utility
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use
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marginal utility
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additional utility of consumption of an additional unit of a good or service (at some point, will go to 0 because you can only use so much of anything)
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equilibrium price
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price at which supply equals demand, aka "market-clearing price"
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inelastic demand
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a change in price results in little or no change in the quantity demanded (insulin, salt)
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elasticity
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relationship of the change in price to the change in demand
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price elasticity of demand
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percentage of change in quantity demanded over percentage change in price
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cross-price elasticity
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relationship between demand for one product and the price of another, helps determine complimentary and substitute goods
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variable cost
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cost that changes with level of production
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marginal revenue
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increase in total revenue from sale of next unit
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marginal cost
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cost of next unit of production
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point of diminishing reterns
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adding more production factors results in a smaller and smaller output
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perfect competition market
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market with many buyers and sellers, unrestrained entry and exit, identical goods or services, and equal access to market info for all competitors (no advantages)
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monopoly
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non-competitve market in which production/price is controlled by a single producer
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patent
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gvt. grant of the exclusive right to make, use, and/or sell something for a specific time period
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copyright
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legal right of the creator to exclusive control of an original literary or artistic product
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regulated monopolies
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monopolies with strict price controls and universal service requirements
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monopolistic competetive market
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significant number of sellers with different products and few barriers to entry
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oligopoly
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market controlled by a few firms, barriers to entry, products identical or slightly different
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price ceiling
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maximum legal price--increases demand and reduces supply
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shortage
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situation when demand exceeds supply at the market price
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price floor
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minimum legal price, decreases demand, increases supply (to help producers)
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surplus
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suply exceeds demand
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explicit costs
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actual expenditures for resources used for production
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implicit costs
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opportunity costs of time and capital resources foregone
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total product
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number of units produced
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average product
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number of units of output per unit of input
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marginal product
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additional output from the addition of a unit of input
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diminishing marginal product
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marginal output will increase more slowly or even decrease
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productivity
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measure of output per unit of input, measure of efficiency
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labor productivity
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measure of labor resource efficiency
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aggregate
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overall levels
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circular flow model
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represents constant flow of resources from their owners to the producers and the flow of goods and services from producers to consumers
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consumer sovereignty
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consumers are driving force in the market
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Say's Law
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supply creates its own demand, demand must equal production value
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aggregate demand
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total demand in an economy
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aggregate supply
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total supply in an economy
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leading economic indicators
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orders, stock prices, ect: numbers that indicate the direction the economy will take in the future
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current economic indicators
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employment, income, output, sales: indicate current economic activity
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lagging economic indicators
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length of unemployment, consumer debt: indicate past levels of economic activity
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Index of Leading Economic Indicators
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weighted index of 12 crucial measurements that generally indicate the direction of the economy
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Humphrey-Hawkins Act
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1978 Full Employment and Balanced Growth Act: Congress and executive must design and implement public policies that pursue the goals of growth of output, full employment, and price stability
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Employment Act of 1946
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gvt must endeavor to promote maximum employment, production, and purchasing power
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interest rates
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tool used to stimulate or slow growth, job creation, and moderate price increases, cost of using money
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gross domestic product
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total value of all final goods and services produced within a period of time in a nation. GDP=Consumption+Investment+Gvt Purchases+(or -) Net Exports
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Gross National Product
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involves value of production of nation's permanent residents regardless of where they work
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externalities
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external and unintended benefits or costs of an economic activity
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nominal GDP
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GDP expressed in terms of current dollar value
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per capita gross domestic product
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GDP divided by the population
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Real GDP growth rate
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measure of growth after adjusting for inflation
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consumer price index
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measurement of the change in the cost of a fixed basket of products and services
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producer price index
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measures wholesale price levels
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GDP price deflator
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measures changes in price level relative to the growth of GDB yearly
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cost-push inflation
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caused by a rise in the costs of factors of production
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demand-pull inflation
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casued by consumer demand bidding up the prices of goods and services
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labor force
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number of people 16 and older employed plus the number of people seeking employment
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unemployment rate
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number of unemployed divided by the labor force (supposed to be under 4%)
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recession
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GDP does not grow or declines over two consecutive quarters
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depression
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severe and long-term recession with significant unemployment
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expansion
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sustained period of growth
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business cycle
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model of the predictable increases and decreases in economic activity and output
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theory of rational expectations
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people's expectation about future economic states will guide their behavior so that that state happens (self-fulfilling prophecy )
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Index of Consumer Confidence
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tracks optimisim and pessimism of consumers, fairly new
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money
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tool ("grease") that facilitates trade. Medium of exchnge, unit of account (measure of value), mechanism to store value
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demand deposits
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checking account transactions
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interest rate
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cost of using money or credit
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Gresham's Law
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"good" money (people want to keep) is replaced in the market by "bad" money--explains hoarding
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monetary policy
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actions that influence the money supply and interest rates
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Federal Reserve System
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established 1913, Board of Governors and 12 FR banks, implements monetary policy
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quantity theory of money
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equation of exchange: money*velocity=price*quantity
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open market operations
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buying and selling of government securitites
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Federal Open Market Committee
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determines targets for key interest rates, esp the Fed Funds Rate (rate at which banks borrow overnight from other banks)
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discount rate
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rate at which FR Banks loan funds to member banks in the event that they require more reserves
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money multiplier
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reciprocal of the reserve requirement, determines total increase or decrease in the money supply
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wealth effect
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when people feel wealthier they increase demand for goods and services, and prices increase
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real interest rate
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rate charged over and above the anticipated rate of inflation
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prime rate
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interest rate banks charge best customers for short-term loans
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fiscal policy
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use of gvt spending and taxation to influence the level of economic activity
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national/public debt
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net of gvt deficits and surpluses over the years
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expansionary policies
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spending and taxation policies meant to stimulate economic growth
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contractionary policies
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used to reduce economic activity
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Keynsian theory
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government spending could be used to
"replace" public spending during a recession to stimulate the economy |
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Smoot-Hawley Act
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brought about high tarriffs, in the 30s
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Phillips curve
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theoretical trade-off between inflation and unemployment: proved wrong by 70s and 90s
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stagflation
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combination of high unemployment and high inflation (in the early 80s)
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developed countries
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US, ect, have large industrial production base, lots of technology, and skilled workforce, GDP over 10,000
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Developing countries
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Algeria, Mexico: more dependent on agriculture than developed, lack widespread technology, GDP 3,000-10,000
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Less-developed countries
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Afghanistan, have enough natural and human resouces but depend on external capital for development, GDP less than 3000, usually politcal or cultural barriers
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comparative advantage
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choice to produce one or more goods for which opportunity cost is low (specialization)
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exchange rate
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price of one nation's currency in terms of another's currency
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tariff
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tax on imports
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quota
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limit on the quantity or value of good that can be imported or exported
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General Agreement on Tariffs and Trade
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ongoing discussion in rounds to reduce tariffs and promote free trade
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World Trade Organization
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created in 1995, 140 members, created to enforce rules of tarde
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North American Free Trade Agreement
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effective Jan 1 1994, pact that aims to establish free trade zone containing US, Mexico, and Canada
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European Union
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free trade organization in Europe, common currency the euro
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