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31 Cards in this Set
- Front
- Back
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Economics
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The study of how people allocate their limited resources to satisfy their unlimited wants.
The study of how people make choices |
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Self- interest
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The pursuit of one’s goals. Not always for wealth
Prestige, friendship, or love |
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Macroeconomics
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The study of the behavior of the economy as a whole
Deals with economy wide phenomena Nationals unemployment rate The rate of growth in the money supply The national government’s budget deficit |
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Macroeconomics deals with ______ or totals such as total output in an economy
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Aggregates
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Opportunity cost
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The highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want
Another way to say it is the best benefit you gave up when you made an alternative choice |
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Opportunity cost graphically
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The production possibilities curve (PPC) represents all possible maximum combinations of total outputs that could be produced
Along the PPC there is a fixed quantity of productive resources of a given quality being used efficiently |
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PPC is used to demonstrate related concepts of?
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Scarcity, choice, and trade-offs
At the individual level and societal level |
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Production possibility assumptions
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Resources are fully employed
Production takes place over a specific time period Resources are fixed for the time period Technology does not change over the time period |
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Efficiency
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The case in which a given level of inputs is used to produce the maximum outputs possible
Alternatively the situation in which a given output is produced at maximum cost |
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Economic growth
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Increases the production possibilities
Occurs over a period of time Is illustrated by an outward shift of the production possibilities curve |
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Specialization
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Organization of economic activity among different individuals and regions
Leads to greater productivity |
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____ individuals choose their comparative advantage and ______
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Rational, specialize
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Why getting more units of one good requires giving up more and more of another
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Resources are specialized
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There is a trade-off between consumption goods and capital goods
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As more resources are devoted to the production of capital goods, we can expect the rate of economic growth to increase
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Absolute versus comparative advantages
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One finds one’s absolute advantage by producing more of a specific good than someone else who uses the same amount of resource
One finds one’s comparative advantage by looking at the activity that has the lowest opportunity cost |
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Demand
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A schedule showing how much of a good or service people will purchase at any price during a specific time period, other things being constant.
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The functions of money
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Medium of exchange
Unit of accounting Store of value (purchasing power) |
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Medium of Exchange
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Any item that sellers will accept as payment
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Unit of Accounting
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A measure by which prices are expressed
The common denominator of the price system A central property of money |
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Store of Value
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The ability to hold value over time
A necessary property of money Money allows you to transfer value (wealth) into the future |
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Liquidity
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The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value and with small transaction costs
Money is the most liquid asset. |
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Financial Intermediation
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The process by which financial institutions accept savings from businesses, households, and governments and lend the savings to other businesses, households, and governments
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Financial intermediaries
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Institutions than transfer funds between ultimate lenders (savers) and ultimate borrowers
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Fractional Reserve Banking
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A system in which depository institutions hold reserves that are less than the amount of deposits
Originated when goldsmiths issued notes that exceeded the value of gold and silver on hand |
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Required Reserves
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The value of reserves that a depository institution must hold in the form of vault cash or deposits with the Fed
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Required Reserve Ratio
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The percentage of total transactions deposits that the Fed requires depository institutions to hold in the form of vault cash or deposits with the Fed
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Excess Reserves
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The difference between actual reserves and required reserves
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Open Market Operations
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The purchase and sale of existing U.S. government securities (such as bonds) in the open private market by the Federal Reserve System
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Money Multiplier
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A number that, when multiplied by a change in reserves in the banking system, yields the resulting change in the money supply.
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Ways in Which the Federal Reserve Changes the Money Supply
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Open market operations
Reserve requirement Discount rate |
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Discount Rate
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The interest rate that the Federal Reserve charges for reserves it lends to depository institutions
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