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24 Cards in this Set
- Front
- Back
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Fiscal Policy
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The use of government taxation and expenditure policies for the purpose of achieving macroeconomic goals
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Monetary Policy
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The deliberate control of the money supply, and, in some cases, credit conditions, for the purpose of achieving macroeconomic goals
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Money Supply
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The supply of currency, checking account funds, and traveler's checks. These items are counted as money because they are used as the means of payment for purchases
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Resource Market
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A highly aggregated market encompassing all resources (labor, physical capital, land, and entrepreneurship) contributing to the production of current output. The labor market is the largest component of this market
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Goods and Services Market
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A highly aggregated market encompassing the flow of all final-user goods and services. The market counts all items that enter into GDP. Thus, real output in this market is equal to real GDP
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Loanable Funds Market
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A general term used to describe the market that coordinates the borrowing and lending decisions of business firms and households. Commercial banks, savings and loan associations, the stock and bond markets, and insurance companies are important financial institutions in this market.
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Saving
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The portion of after-tax income that is not spent on consumption. Saving is a 'flow' concept
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Foreign exchange market
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The market in which the currencies of different countries are bought and sold
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Exchange rate
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The price of one unit of foreign currency in terms of the domestic currency. For example, if it takes $1.50 to purchase an English pound, the dollar-pound exchange rate is 1.50
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Aggregate Demand Curve
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A downward-sloping curve showing the relationship between the price level and the quantity of domestically produced goods and services all households, business firms, governments, and foreigners (net exports) are willing to purchase
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Aggregate Supply Curve
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The curve showing the relationship between a nation's price level and the quantity of goods supplied by its producers. In the short run, it is an upward-sloping curve, but in the long run the aggregate supply curve is vertical
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SRAS
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Short-Run Aggregate Supply Curve, shows various quantities of goods and services domestic firms will supply in response to changing demand conditions that alter the level of prices in the goods and services market
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Why does a lower price level increase the quantity demanded of domestically produced goods and services?
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A lower price level will
(1) increase the purchasing power of money (2) Lower interest rates (3) Reduce the price of domestically produced goods relative to goods produced abroad |
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What are the four key markets?
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Resource Market, Loanable Funds Market, Foreign Exchange Market, and Goods and Services Market
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LRAS
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Long-Run Aggregate Supply Curve, shows relationship between the price level and quantity of output after decision-makers have had time to adjust their prior commitments, or take steps to counterbalance them, when the price level changes
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Equilibrium
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A balance of forces permitting the simultaneous fulfillment of plans by buyers and sellers
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Money interest Rate
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The percentage of the amount borrowed that must be paid to the lender in addition to the repayment of the principal. The money interest rate overstates the real cost of borrowing during an inflationary period. When inflation is anticipated, an inflationary premium will be incorporated into this rate. The money interest rate is often called the nominal interest rate.
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Real interest Rate
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The interest rate adjusted for expected inflation: It indicates the real cost to the borrower (and yield to the lender) in terms of goods and services
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inflationary Premium
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A component of the money interest rate that reflects compensation to the lender for the expected decrease, due to inflation, in the purchasing power of the principal and interest during the course of the loan. It is determined by the expected rate of future inflation
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Appreciation
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An increase in teh value of a currency relative to foreign currencies. An Appreciation increases the purchasing power of the currency over foreign goods
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Depreciation
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A reduction in the value of a currency relative to foreign currencies. A depreciation reduces the purchasing power of the currency over foreign goods
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Trade deficit
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The situation when a country's imports of goods and services are greater than its exports
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Trade Surplus
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The situation when a country's exports of goods and services are greater than its imports
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Market forces determine the exchange rate
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Trade deficits will be closely linked with an inflow of capital. in contrast, trade surpluses will be closely linked with an outflow of capital
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