Econ 2002 Extra Vocab For Midterm 2

Front 1

economic growth

Back 1

long-run process occurring as an economy's potential output increases, in the long-run, economic activity moves towards it level of potential output and thus constitutes economic growth, thus an outward shift in PPC

Front 2

growth

Back 2

economy's ability to produce goods and services, as indicated by its level of potential output

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potential GDP

Back 3

level of real GDP attained when all firms are operating at normal capacity (what we are capable of producing)

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normal capacity

Back 4

normal hours and a normal sized workforce

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real GDP relationship to potential output

Back 5

real GDP fluctuates about potential output

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exponential growth

Back 6

when a quantity grows at a given percentage rate

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recessionary gaps

Back 7

real GDP below potential (great hardship)

Front 8

inflationary gaps

Back 8

real GDP rose above potential (produces dramatic increases in price levels)

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rule of 72

Back 9

a variable's approximate doubling time equals 72/growth rate

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output per capita

Back 10

real GDP per person, real GDP / n, guages an economy's material standard of living

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percent rate of growth of output per capita

Back 11

= percent rate of growth of output - percept rate of growth of population

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labor productivity

Back 12

an increase in the quantity of goods and services that can be produced by one worker or by one hour of work

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economic growth

Back 13

outward shift in the PPC and a shift to the right in the long run aggregate supply

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sources of growth

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increased labor and physical capital, improved factors of production quality, and technology, and increased savings

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retained earnigns

Back 15

companies can keep part of their profits to reinvest back into the company so that they can increase productive capacity

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aggregate production function

Back 16

relates the total output of an economy to the total amount of labor employed in the economy, all other determinants of production (capital, natural resources, technology) unchanged; if operating on this then producing its potential output

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diminishing marginal returns

Back 17

when additional units of a variable factor add less and less to total output, given constant quantities of other factors

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financial security

Back 18

a document stating the terms under which funds pass from the buyer to the seller

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stock

Back 19

financial security representing partial ownership of a firm

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bond

Back 20

financial security promising to repay a fixed amount of funds, a loan from a household to a firm

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financial intermediaries

Back 21

firms such as banks, mutual funds, pension funds, and insurance companies that borrow funds from savers and lend them to borrowers

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services of financial sector

Back 22

risk sharing, liquidity, information

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risk-sharing

Back 23

investors can spread their money over many different types of financial assets to reduce their risk

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liquidity

Back 24

savers can quickly convert their investments into cash

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information

Back 25

prices of these securities represent the beliefs about the future revenue stream of the companies from those holding securities

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productivity

Back 26

the amount of output per worker, enhanced productivity from the increase in the real wage

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relationship between savings and investment

Back 27

equal to each other in a closed economy, = Y - C - G

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budget surplus

Back 28

public spending is greater than zero

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budget deficit

Back 29

public spending is less than zero

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market for loanable funds

Back 30

conceptual interaction of borrowers and lenders determining the market interest rate and the quantity of loanable funds exchanged (savings and investment)

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crowding out

Back 31

the decline in private expenditures as a result of increases in government purchases

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developing country

Back 32

a country that is not among the high income nations of the world

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characteristics of low-income countries

Back 33

inequality, health and education, unemployment, reliance on agriculture, rapid population growth

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inequality

Back 34

income is low and unequally distributed, poverty is high, illustrated by Lorenz curves

Front 35

Lorenz curve

Back 35

shows the cumulative shares of income received by individuals or groups, if every household received the same income the curve would be an upward sloping diagonal line

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health and education

Back 36

low levels of human capital, health-care facilities are inadequate, poor educational resources, little progress in improving human capital

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unemployment

Back 37

low levels of potential output, producing well below potential; migration leads to unemployment in urban areas, ethnic violence, poverty, drought force migration

Front 38

reliance on agriculture

Back 38

low productivity of agriculture and concentration of employment here, employs majority of population but produces less than one third of GDP

Front 39

economic development

Back 39

characteristics of rising incomes and improving standards of living, so output must increase (relative to population growth), a process that produces sustained and widely shared gains in real GDP per capita

Front 40

relationship between savings and investment

Back 40

high savings rate usually means high investment rates which fosters development

Front 41

aggregate demand

Back 41

the relationship between the total quantity of goods and services demanded and the price level, all other determinants unchanged

Front 42

aggregate demand curve

Back 42

price level measured as implicit price deflator and real GDP measured by quantity of goods and services demanded

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quantity of goods and services demanded

Back 43

sum of the components of real GDP

Front 44

downward sloping aggregate demand curve

Back 44

wealth effect, interest rate effect, international trade effect

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wealth effect

Back 45

the tendency for a change in the price level to affect real wealth and thus alter consumption

Front 46

interest rate effect (Keynes effect)

Back 46

tendency for a change in the price level to affect the interest rate and thus to affect the quantity of investment demanded

Front 47

international trade effect

Back 47

tendency for a change in the price level to affect net exports

Front 48

movement along aggregate demand curve

Back 48

change in the aggregate quantity of goods and services demanded

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exchange rate

Back 49

the price of a currency in terms of another currency or currencies

Front 50

shift in the aggregate demand curve

Back 50

change in aggregate demand which is a change in the aggregate quantity of goods and services demanded at every price level

Front 51

consumer confidence

Back 51

if there are expectations of good economic conditions by consumers, they are more likely to buy major items resulting in an increase in the real value of consumption and increase in aggregate demand

Front 52

tax policy

Back 52

cut in personal income taxes leaves people with more after-tax income, may induce them to increase consumption

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rebates

Back 53

taxpayers sent checks in hopes they will be used for consumption

Front 54

transfer payments

Back 54

ex: welfare and social security; used to push people to spend which hopefully raises consumption and aggregate demand

Front 55

investment

Back 55

production of new capital that will be used for future production of goods and services

Front 56

multiplier

Back 56

the ratio of the change in the quantity of real GDP demanded at each price level to the initial change in one or more components of aggregate demand that produced it, = change(in real GDP demanded at each price level) / initial change (component of aggregate demand)

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short run

Back 57

a period in which wages and some other prices are sticky and do not respond to changes in economic conditions, may prevent the economy from operating at potential output

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sticky price

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price that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus, prevents the economy from achieving its natural level of employment and its potential output

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long run

Back 59

period in which wages and prices are flexible, in the long-run, employment will move to its natural level and real GDP to potential

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long-run aggregate supply curve

Back 60

relationship between the level of output produced by firms to the price level in the long run, a vertical line at the economy's potential level of output

Front 61

intersection of aggregate demand curve and LRAS curve

Back 61

determines its equilibrium real GDP and price level in the long run

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short-run aggregate supply curve

Back 62

relationship between production and price level in the short run

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wage stickiness

Back 63

contracts fix nominal wages for the life of the contract even though economic conditions could change while the agreement is still in force

Front 64

price stickiness

Back 64

can be caused by wage stickiness, adjust ment costs associated with changing prices

Front 65

recessionary gap

Back 65

gap between the level of real GDP and potential output when real GDP is less than potential output

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inflationary gap

Back 66

gap between the level of real GDP and potential output, when real GDP is greater than potential output

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nonintervention policy

Back 67

a policy choice to take no action to try to close a recessionary or an inflationary gap but to allow the economy to adjust on its own to its potential output

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stabilization policy

Back 68

policy in which the government or central bank acts to move the economy to its potential output

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expansionary policy

Back 69

a stabilization policy designed to increase real GDP

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contractionary policy

Back 70

a stabilization policy designed to reduce real GDP

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fiscal policy

Back 71

the use of government purchases, transfer payments, and taxes to influence the level of economic activity

Front 72

monetary policy

Back 72

the use of central bank policies to influence the level of economic activity

Front 73

money

Back 73

anything that serves as a medium of exchange, asset people are willing to accept in exchange of goods and services or payment in return

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medium of exchange

Back 74

anything that is widely accepted as a means of payment

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asset

Back 75

anything of value

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functions of money

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medium of exchange, unit of account, store of value, standard or deferred payment

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barter

Back 77

occurs when an individual exchanges goods directly for other goods, without money

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unit of account

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a consistent means of measuring the value of things

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store of value

Back 79

an item that holds value over time

Front 80

qualities of money

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acceptable, standardized quality, durable, valuable relative to weight, divisible, homogeneous, uniform, portable, stable supply

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types of money

Back 81

commodity, fiat, checkable

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commodity money

Back 82

money that has value apart from its use as money, a disadvantage is that its quantity can fluctuate erratically and can vary in quality

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fiat money

Back 83

money that some authority, generally a government, has ordered to be accepted as a medium of exchange

Front 84

checkable deposits

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balances in checking accounts, can be converted to currency but generally isn't, simply serves as a medium of exchange

Front 85

check

Back 85

a written order to a bank to transfer ownership of a checkable deposit

Front 86

Gresham's law

Back 86

the tendency for a lower-quality commodity to drive a higher-quality commodity out of circulation

Front 87

money supply

Back 87

the total quantity of money in the economy at any one time, measure because it affects economic activity

Front 88

liquidity

Back 88

the ease with which an asset can be converted into currency

Front 89

M1

Back 89

currency in circulation, checkable deposits, traveler's checks

Front 90

M2

Back 90

includes M1 and also other deposits such as savings accounts

Front 91

financial intermediary

Back 91

an institution that amasses funds from one group and makes them available to another

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bank

Back 92

a financial intermediary that accepts deposits, makes loans, and offers checking accounts; offers customers opportunity to open checking accounts, thus creating checkable deposits; can pay interest to their depositors, cover operating costs, and earn a profit with the interest earned from loans

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balance sheet

Back 93

financial statement showing assets, liabilities, and net worth

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liabilities

Back 94

obligations to other parties

Front 95

net worth

Back 95

assets less liabilities

Front 96

reserves

Back 96

bank assets held as cash in vaults and in deposits with the Federal Reserve

Front 97

fractional reserve banking system

Back 97

system in which banks hold reserves whose value is less than the sum of claims outstanding on those reserves

Front 98

required reserves

Back 98

quantity of reserves banks are required to hold

Front 99

required reserve ratio

Back 99

reserve requirement, specifies the ratio of reserves to checkable deposits a bank must maintain

Front 100

excess reserves

Back 100

reserves held in excess of the required level

Front 101

loaned up

Back 101

when a bank's excess reserves equal zero

Front 102

deposit multiplier

Back 102

the ratio of the maximum possible change in checkable deposits to the change in reserves, = 1/required reserve ratio

Front 103

simple deposit multiplier, money multiplier

Back 103

how much money checking account deposits will grow with initial increase in reserves

Front 104

central bank

Back 104

performs five functions, 1. acts as a banker to the central government, 2. acts as a banker to the banks, 3. acts as a regulator of banks, 4. conducts monetary policy, 5. supports the stability of the financial system

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Federal reserve act

Back 105

seek to maintain the Fed's independence, has Board of Governors

Front 106

powers of the Fed

Back 106

setting reserve requirements, operating the discount window and other credit facilities, conducting open-market operations

Front 107

discount rate

Back 107

the interest rate changed by the Fed when it lends reserves to banks, the Board of Governors sets this

Front 108

federal funds market

Back 108

a market in which banks lend reserves to one another

Front 109

federal funds rate

Back 109

the interest rate charged for such loans, determined by banks' demand for and supply of these demands

Front 110

open-market operations

Back 110

Fed's ability to buy and sell federal government bonds

Front 111

bond

Back 111

a promise by the issuer of the bond to pay the owner of the bond a payment or a series of payments on a specific date or dates

Front 112

financial markets

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markets in which funds accumulate by one group are made available to another group

Front 113

the bond market

Back 113

firms and governments often borrow to pursue new projects either through banks or obtain credit by selling bonds

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face value of a bond

Back 114

the amount the issuer of a bond will have to pay on the maturity date

Front 115

maturity date

Back 115

the date when a bond/loan matures, or comes due

Front 116

interest rate

Back 116

the payment made for the use of money, expressed as a percentage of the amount borrowed, = 100 x (face value - bond price) / bond price)

Front 117

foreign exchange market

Back 117

a market in which currencies of different countries are traded for one another

Front 118

trade weighted exchange rate

Back 118

an index of exchange rates

Front 119

demand for money

Back 119

the relationship between the quantity of money people want to hold and the factors that determine that quantity

Front 120

transactions demand for money

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money people hold to pay for goods and services they anticipate buying

Front 121

precautionary demand for money

Back 121

the money people hold for contingencies

Front 122

speculative demand for money

Back 122

money held in response to concern that bond prices and the prices of other financial assets might change

Front 123

demand curve for money

Back 123

shows the quantity of money demanded at each interest rate, all other things unchanged

Front 124

determinants of demand for money

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real GDP, price level, expectations, transfer costs, preferences

Front 125

supply curve of money

Back 125

shows relationship between the quantity of money supplied and the market interest rate, all other things unchanged; vertical line

Front 126

money market

Back 126

the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money

Front 127

money market equilibrium

Back 127

the interest rate at which the quantity of money demanded is equal to the quantity of money supplied

Front 128

changes in money demand

Back 128

change in cost of transferring money between money and non-money deposits, change in expectations, change in preferences