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149 Cards in this Set

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National Income Accounting
Measurement of the national economy's performance, dealing with the overall economy's output and income.
Gross Domestic Product (GDP)
Total dollar value of all final goods and services produced in a nation in a single year.
Consumer Sector Category
Goods and services bought by consumers for their direct use.
Investment Sector Category
Business purchases of tools, machines, buildings, etc, used to produce other goods.
Government Sector Category
Goods and services bought by federal, state, and local governments.
Net Exports
Difference between what the nation sells to other countries and what it buys from other countries.
Depreciation
Loss of value because of wear and tear to durable goods and capital goods.
Net Domestic Product (NDP)
Value of the nation's total output(GDP) minus the total value lost through depreciation on equipment.
National Income (NI)
Total income earned by everyone in the economy.
Personal Income (PI)
Total income that individuals receive before personal taxes are paid.
Transfer Payments
Welfare and other supplementary payments that a state or the federal government makes to individuals.
Disposable Personal Income (DI)
Income remaining for people to spend or save after all taxes have been paid.
Inflation
Prolonged rise in the general price level of goods and services.
Purchasing Power
The real goods and services that money can buy; determines the value of money.
Deflation
Prolonged decline in the general price level of goods and services.
Consumer Price Index (CPI)
Measure of the change in price over time of a specific group of goods and services used by the average household.
Market Basket
Representative group of goods and services used to compile the consumer price index.
Base Year
Year used as a point of comparison for other years in a series of statistics.
Producer Price Index (PPI)
Measure of the change in price over time that the United States producers charge for their goods and services.
GDP Price Deflator
Price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year.
Real GDP
GDP that has been adjusted for inflation by applying the price deflator.
Aggregates
Summation of all the individual parts in the economy.
Aggregate Demand
Total quantity of goods and services in the entire economy that all citizens will demand at any single time.
Aggregate Demand Curve
A graphed line showing the relationship between the aggregate quantity demanded and the average of all prices as measured by the implicit GDP price deflator.
Aggregate Supply
Real domestic output of producers based on the rise and fall of the price level.
Aggregate Supply Curve
A graphed line showing the relationship between the aggregate quantity supplied and the average of all prices as measured by the implicit GDP price deflator.
Business Fluctuations
Ups and downs in an economy.
Business Cycle
Irregular changes in the level of total output measured by real GDP.
Peak/Boom
Period of prosperity in a business cycle in which economic activity is at its highest point.
Contraction
Part of the business cycle during which economic activity is slowing down.
Recession
Part of the business cycle in which the nation's output (real GDP) does not grow for at least six months.
Depression
Major slowdown of economic activity.
Trough
Lowest part of the business cycle in which the downward spiral of the economy levels off.
Expansion/Recovery
Part of the business cycle in which economic activity slowly increases.
Innovations
Inventions and new production tchniques.
Economic Indicators
Statistics that measure variables in the economy.
Leading Indicators
Statistics that point to what will happen in the economy.
Coincident Indicators
Economic indicators that usually change at the same time as changes in overall business activity.
Lagging Indicators
Indicators that seem to lag behind changes in overall business actvity.
Money
Anything customarily used as a medium of exchange, a unit of accounting, and a store of value.
Medium of Exchange
Use of money in exchange for goods or services.
Barter
Exchange of goods and services for other goods and services.
Unit of Accounting
Use of money as a yardstick for comparing the values of goods and services in relation to one another.
Store of Value
Use of money to store purchasing power for later use.
Commodity Money
A medium of exchange such as cattle or gems that has value as a good asie from its value as money.
Representative Money
Money that is backed by an item of value, such as gold or silver.
Fiat Money
Money that has value because a government order has established it as acceptable for payment of debts.
Legal Tender
Money that by law must be accepted for payment of public and private debts.
Overdraft Checking
Checking account that allows a customer to write a check for more money that exists in his or her account.
Electronic Funds Transfer (EFT)
System of putting onto computers all the banking functions that in the past were handled on paper.
Automated Teller Machines (ATMs)
Unit that allows consumers to do their banking without the help of a teller.
Checking Account
Account in which deposited money can be withdrawn at any time by writing a check.
Checkable Deposits
Money deposited in a bank that can be withdrawn at any time by presenting a check.
Thrift Institutions
Mutual savings banks, S&L's, and credit unions that offer many of the same services as commercial banks.
Debit Card
Device used to make cashless purchases; money is electronically withdrawn from the consumer's checkable account and transferred directly to the store's bank account.
Near Moneys
Assets, such as savings accounts, that can be turned into money relatively easily and without the risk of loss of value.
M1
Narrowest definition of the money supply; consists of moneys that can be spent immediately and against which checks can be written.
M2
Broader definition of the money supply; includes all of M1, plus such near moneys as money market mutual fund balances, certificates of deposit, and Eurodollars.
Fed
The Federal Reserve System created in 1913 as the nation's central banking organization.
Monetary Policy
Policy that involves changing the rate of growth of the supply of money in circulation in order to affect the cost and availability of credit.
Board of Governors
Part of the Fed that directs the Fed's operations; supervises the 12 Federal Reserve district banks and regulates certain activities of member banks and all other depository institutions.
Federal Advisory Council (FAC)
12 member group in the Fed that assists the Board of Governors by reporting on general business conditions in the nation; meets at least 4 times a year.
Federal Open Market Committee (FOMC)
12-member committee in the Fed that meets 8 times a year to decide the course of action that the Fed should take to control the money supply.
Check Clearing
Method by which a check that has been deposited in one institution is transferred to the issuer's depository institution.
Loose Money Policy
Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation.
Tight Money Policy
Monetary policy that makes credit expensive and in short supply in an effort to slow the economy.
Fractional Reserve Banking
System in which only a fraction of the deposits in a bank is kept on hand; the remainder is available to lend.
Reserve Requirments
Regulations set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district bank.
Discount Rate
Interest rate that the Fed charges on loans to member banks.
Prime Rate
Rate of interest that banks charge on loans to their best business customers.
Federal Funds Rate
Interest Rate that banks charge each other on loans (usually overnight)
Open-Market Operations
Buying and selling of US securities by the FEd to affect the money supply.
Public-Works Projects
Publicly used facilities, such as schools and highways, built by federal, state, or local governments with public money.
Medicare
Government program that provides health care for the aged.
Public Goods
Goods or services that government supplies to its citizens; can be used by many individuals at the same time without reducing the benefit each person receives.
Merit Good
A good that is deemed socially derirable by government leaders such as museums, ballets, and classical concerts.
Demerit Goods
Goods that elected government officials have deemed socially undesirable, such as gambling and injurious drugs.
Income Redistribution
Government activity that takes income from some people through taxation and uses it to help citizens in need.
Social Insurance Programs
Government programs that pay benefits to retired and disabled workers, their families, and the unemployed.
Social Security
Federal program that provides monethly payments to people who are retired or unable to work.
Workers' Compensation
Government program that extends payments for medical care to workers injured on the job.
Public-Assistance Programs/Welfare
Government Programs that make payments to citizens based on need.
Supplemental Security Income
Federal programs that include food stamps and payments to the disabled and aged.
Temporary Assistance for Needy Families
State-run program that provides assistance and work opportunities to needy families.
Medicaid
State and federal public-assistance program that helps pay health care costs for low-income and disabled persons.
Externalities
Economic side effects or by-products that affect an uninvolved third party; can be positive or negative.
Fiscal Year
Year by which accounts are kept; for the federal government, October 1 to September 30 of the next year.
Budget Deficit
Situation when the amount of government spending exceeds its receipts during the fiscal year.
Deficit Financing
Government policy of spending more money that it is able to bring through revenues.
National Debt
Total amount of outstanding debt for the federal government.
Budget Surplus
Situation when the amount of government receipts in larger than its expenditures during the fiscal year.
Benefits-Received Principle
System of taxation in which those who use a particular government service support it with taxes in proportion to the benefit they receive. Those who do not use a service do not pay taxes for it.
Ability-to-Pay Principle
Principle of taxation in which those with higher incomes pay more taxes than those with lower incomes, regardless of the number of government services they use.
Proportional Tax
Tax that takes the same percentage of all incomes, as incomes rises, the amount of tax paid also rises.
Progressive Tax
Tax that takes a larger percentage of higher incomes than lower incomes; justified on the basis of the the ability-to-pay principle.
Regressive Tax
Tax that takes a larger percentage of lower incomes than of higher incomes.
Stabilization Policies
Attempts by the federal government to keep the economy healthy; includes monetary and fiscal policies.
Unemployment Rate
Percentage of the civilian labor force that is unemployed but is actively looking for work.
Full Employment
Condition of the economy when the unemployment rate is lower than a certain percentage established by economists' studies.
Underground Economy
Transactions by people who do not follow federal and state laws with respect to reporting earnings.
Demand-Pull Inflation
Theory that prices rise as the result of excessive business and consumer demand; demand increases faster than total supply, resulting in shortages that lead to higher prices.
Stagflation
Combination of inflation and low economic activity.
Cost-Push Inflation
Theory that higher wages and profits push up prices.
Fiscal Policy
Federal government's use of taxation and spending policies to affect overall business activity.
Circular Flow of Income
Economic model that pictures income as flowing continuously between businesses and consumers.
Monetarism
Theory that deals with the relationship between the amout of money the Fed places in circulation and the level of activity in the economy.
Monetarists
Supporters of the theory of monetarism; often linked with Milton Friedman.
Monetary Rule
Monetarists' beleif that the Fed should allow the money supply to grow at a consistent, smooth rate per year and not use monetary policy to stimulate or slow the economy.
Time Lags
Periods between the time fiscal policy is enacted and the time it becomes effective.
Imports
Goods bought from other countries for domestic use.
Exports
Goods sold to other countries.
Absolute Advantage
Ability of one country to produce a product more efficiently than can another country.
Specialization
Concept that a nation should produce and export a limited assortment of goods for which it is particularly suited in order to remain profitable.
Comparative Advantage
Ability of a country to produce a product at a lower opportunity cost than another country.
Exchange Rate
The price of one nation's currency in terms of another nation's currency.
Foreign Exchange Markets
Markets dealing in buying and selling foreign currency for businesses that want to import goods from other countries.
Fixed Rate of Exchange
System under which a national government sets the value of its currency in relation to a single standard.
International Monetary Fund (IMF)
AGency whose member governments once were obligated to keep their foreign exchange rates more or less fixed; today it offers monetary advice and provides loans to developing nations.
Devaluation
Lowering a currency's value in relation to other currencies by government order.
Flexible Exchange Rate
Arrangement in which the forces of supply and demand are allowed to set the price of various currencies.
Deprecitaion
Fall in the price of a currency through the action of supply and demand.
Balance of Trade
Difference between the value of a nation's exports and its imports.
Tariff
Tax placed on an imported product.
Revenue Tariff
Tax on imports used primarily to raise government revenue without restricting imports.
Protective Tariff
Tax on imports used to raise the cost of imported goods and thereby protect domestic producers.
Import Quota
Restriction imposed on the number of units of a particular good that can be brought into the country.
Embargo
Complete restriction on the import or export of a particular good.
Protectionists
People who argue for trade restrictions to protect domestic industries.
General Agreement on Tariffs and Trade (GATT)
Trade agreement under which countries met periodically to negotiate tariff reductions that were mutually advantageous to all members.
World Trade Organization (WTO)
World's largest trade agreement currently among 144 nations.
North American Free Trade Agreement (NAFTA)
Trade agreement designed to reduce and gradually eliminate tariff barriers among Mexico, Canada, and the US
European Union (EU)
Organization of European nations whose goal is to encourage economic integration as a single unit.
Developed Nations
Nations with relatively high standards of living and economics based more on industry than on agriculture.
Developing Nations
Nations with little industrial development and relatively low standards of living.
Subsistence Agriculture
Growing of just enough food by a familiy to take care of its own needs; no crops are available for export or to feed an industrial workforce.
Infant Mortality Rate
Death rate of infants who die during the first year of life.
Nationalization
Placement of industries under government ownership.
Foreign Aid
Money, goods, and services given by governments and private organizations to help other natons and their citizens.
Economic Assistance
Loans and outright grants of money or equipment to other nations.
Technical Assistance
Aid in the form of engineers, teachers, and technicians to teach skills to individuals in other nations.
Military Assistance
Aid given to a nation's armed forces.
Bureaucracies
Offices and agencies of the government that each deal with a specific area.
Capital Flight
The legal or illegal export of currency or money capital from a nation by that nation's leaders.
Vicious Cycle of Poverty
Situation in which a less developed country with low per capita incomes cannot save and invest enough to achieve acceptable rates of economic growth and thus is trapped.
Global Integration
Interdependency among the countries of the world, especially within financial markets and telecommunications.
Telecommunications
Long-distance communication, usually electronic, using communications satellites and fiber-optic cables.
Direct Foreign Investment
The purchase by foreigners of real estate and businesses in another country.
Multinationals
Firms that do business and have offices and factories in many countries.
Foreign Affiliates
Branches of multinational firms.