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87 Cards in this Set

  • Front
  • Back
the science of scarcity, how people and society deal with scarity
positive economics
the study of WHAT is in economics matters; data, facts
normative economics
study of WHAT SHOULD BE in economic matters; subjective, judgmental
satisfaction one recieves from a good
the dissatisfaction someone recieves from a bad
land, labor, capital
the materials, the people, the machines, and things used to help the production
the talent someone has to organize the land labor and capital to produce goods, and seek new branches of oppurtunities
rationing device
means for deciding who gets what of availible resources
maginal benefits
the additional benefits
fallacy of composition
the view that what is good for the individual, is not necessarily good for the group
the process of foucusing on a limited number of variables to explain of predict an event
how often does federal head decide interest rate
8 times
before trade
after trade
law of dimiishing marginak utlity
for a given time period the amount of benifit gained by consuming equal units of a good will decrease as the amount consued increases
demand schedule
the numerical tabulation of quanity demanded at different prices
normal good
as income rises demand rises
inferior good
as income rises demand falls
nuetral good
as income rises, demand does not change
substitute goods
2 goods that fulfill similar needs or desires
complement goods
2 goods that are used jointly in consumtion; if the demand for one rises the price of the other falls
law of supply
as the price of a good rises, the supply of a good will rise
law of demand
as the price of a good rises, then the demand for the good will fall
supply schedule
the numerical tabulation of the amount of a good supplied at different price levels
total surplus
the addition of consumer surplus + SUPPLIER SURPLUS
tie-in sale
the sale in which a good can only be purchasesd if another good is purchased with it
deadweight loss
the cost to society of not producing the compeitive, or demand-supply determined level of output
the average price of goods an average conusmer buys

TE($) in current yr * 100
TE in base year
base year
1982-1984 CPI = 100
unemployment rate
# of unemployed
civilian labor force
Change in price level
CPI later- CPI earlier
CPI earlier * 100
Real Income
Nominal income
CPI * 100
$ in todays &
$ in earlier * CPI of now
CPI of earlier
employment rate
# of employed
noninstitutional population
GDP (expediture)
government spending
exports - imports
C =

Y(d) = disposible income

Y(d) = Y - taxes
Keynesian TE
Govnerment Expeditures
1 - MPC
Real balance Effect
Change in Purchasing power of $
denominated assests
that results from price level changes
Monetary wealth
Value of a persons Cash
International trade effect
Change in foriegn sector spending as there is a change in the price level
Menu Costs
Costs of changing prices
Aggregate demand changes if
CIGE changes
C = wealth, expected prices,
interest rate, isncome taxes
I = interest rate, expected
sales, buisness taxes
G = Governemtn Spending

E = Forieg Real Income,
Exchange rate
says law
supply creates its own demand, the supply will create enough demand for the all the goods and services to be bought up
marginal propensity to consume
change in saving
change in dispoable income
progressive income tax
income tax system in which tax rate rises as ones taxabe income rises
proportional income tax
an income tax system in which ones tax rate is the same no matter what ones taxable income is
regressive income tax
in income tax system in which ones taxable income rate decreases as ones taxable income increases
cyclical deficit
part of the budget deficit that is a result of a downturn in economic activity
structural deficit
part of the budet deficit that would exisit even if the economy were opperating at full employment
fiscal policy
changes in the government expeditures and\or taxes to achieve economic goals (low employment, stable prices, economic growth)
expansioinary fiscal policy
increases in govenment expediture, and decresing in taxes
automatic fiscal policy
chnges in governemnt expediture and/or taxes to achieve particular economic goals
laffer curve
a curve that shwos the relationship between tax rate and tax revenue
tax base
when refering to income taxes the total amount of taxable income.

tax revenue = tax base * avg. tax rate
good widely accepted for purposes of exchange and repayment of debt
Federal reserve notes
pape rmoney issues by fed
M1 + savings + small demnomination time deposits + money market
simple deposit multiplier
r (reserve ratio)
cash leakage
when funds are held as currency instead of being saved
open market operations
buying and selling of governemnt securities by the fed
federal opne market committee
FOMC - 12 members/ policy making body of the fed / has the authority to conduct open market operations
monetary policy
changes in the money supply to ahcieve particular macroeconomic goals
us trasury securities
bonds and bondlike securities issued by the tresury when it is borrowing money
federal funds rate
the interest rate that banks charge one another for loans
discount rate
interest rate the fed charges depository institutions to borrow money
equation of exchange
an equation that states the money supply ties the velocity must equal the price level time real GDP
Average number of times a dollar is spent to buy final goods and servicies a year
simple quanity theory of money
theory that assumed velocity and real GDO ae constant and predicts changes in the money supply lead strictly proportional changes in the price level
one shot inflation
one time increase in the price evel; increase in the price level that doesnt continue
continued inflation
continued increase in the price level
liquidity effect
change in the interest rate due to a change in the supply of loanable funds
income effect
change in the interest rate due to a change in the real GDP
price level effect
change interest rate due to a change in the price level
expectations effect
change in interest rate due to a change in the expected inflation rate
nominal interest rate
real interest rate + expected inflation rate
transmissioin mechanism
states that ripple effects created in the money market eventually effects the goods and services market
liquidity trap
the horizontal portion in the demand curve for money
people that believe that monetary and fiscal policies should be diliberatly used to smooth out the buisness cycle
non activists
the opposite of acitivits
fine tuning
the use of montary and fiscal policy to get rid of small undesirable things in the buisness cycle
phillips curve
the curve that shows the relationship between wage inflation and unemployment
the simultaneous occurence of high inflation and high unemployment
friedman natural rate theory
Long Run unemplyment, is the natural unemployment
adaptive expectation
expectations that an individual forms from past experience and modify as the present and future become the past
rational expectations
expectations that an individual bases off past experiences and off future expectations
policy uneffetiveness proposition
if policy change is correctly anticipated, and individuals form rational expectations and wages and prices are flexible, then neither fiscal nor monetary policies are effective