Macroeconomics Clep Vocabulary

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Shows the total quantity of goods and services consumed at different price and output levels.

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Aggregate Demand

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Uses aggregate demand and aggregate supply to determine and explain price level, real domestic output, disposable income and employment.

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Aggregate Demand/Aggregate Supply (AD/AS) model

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All spending for final goods and services in an economy: C+Ig+G+Xn=AE.

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Aggregate Expenditure

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Unexpected, large changes in resource cost that shift an economy’s aggregate supply curve.

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Aggregate Supply Shocks

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Distribution of resources among firms and industries to obtain production quantities of the products most wanted by society (consumers); where marginal cost equals marginal benefit.

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Allocative Efficiency

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An increase in the value of the dollar relative to the currency of another nation, so that a dollar buys more of the foreign currency and thus foreign goods become cheaper; critical to long run trade equilibrium

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Appreciation

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Items of monetary value owned by a firm or individual; opposite is liability.

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Asset

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Various amounts of money people want to hold as a store of value; the amount varies inversely with the interest rate; critical to monetary policy

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Asset Demand for Money

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Firm’s total fixed cost divided by output

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Average Fixed Cost (AFC)

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Total output produced per unit of a resource employed (total product divided by the quantity of input)

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Average Product

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Firm’s total cost divided by output, equal to average fixed cost plus average variable cost
(AFC+AVC=ATC)

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Average Total Cost (ATC)

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Firm’s total variable cost divided by output

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Average Variable Cost

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balance-budget multiplier

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Extent to which an equal change in gov’t spending and taxes changes equilibrium GDP; always has a value of 1, because it is equal to the amount of the equal changes in G and T (T is subject to MPS of consumers and spending is not)

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Balance Sheet

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Statement of the assets and liabilities that determines a firm’s net (solvency)

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Balance of Payments Account

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The summary of a nation’s current account and its financial account

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Balance of Trade

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A nation’s current account balance; net exports

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Artificial prevention of the entry of firms into an industry

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Barrier to Entry

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7 member group that supervises and controls the money and banking system; appointed by president to 14 year staggered terms; the Federal Reserve Board

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Board of Governors

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Financial instrument through which a borrower (corporate gov’t) is contracted to pay the principal at a specified interest rate at a specific date (maturity) in the future; promissory note.

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Bond

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Output at which a (competitive) firm’s total cost and total revenue are equal (TR=TC); an output at which a firm has neither an economic profit nor a loss; at which it earns only normal profit

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Break-Even Point

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Int’l monetary system developed after WWII where adjustable pegs were employed, the Int’l Monetary Fund helped stabilize foreign exchange rates and gold (gold standard set at $35 per ounce) and the dollar where used as int’l monetary reserves

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Bretton Woods Systems

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Amount by which the tax revenues of the (federal) government exceeds its spending in any year

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Budget Deficit

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Amount by which the tax revenues of the (federal) government exceeds its spending in any year.

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Budget Surplus

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Programs that react to changes in business cycle w/o add’l gov’t action, increasing government’s budget deficit (or reducing its surplus) during a recession and increasing government’s budget surplus (or reducing its deficit) during inflation. Ex.: Unemployment insurance

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Built-In (automatic) stabilizers

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Records the increases and decreases in the level of economic activity over periods of time. Consists of expansion (boom), peak recession (bust or contraction) trough (bottom) and recovery phases. GDP data is generally used to plot this cycle; a lagging indicator

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Business Cycle

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Resources (buildings, machinery, and equipment) used to produce goods and services; also called investment goods

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Capital

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Section of a nation’s international balance- of –payments balance sheet that records foreign purchases of US assets (money in) and US purchases (money out)

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Capital Account

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Reflects the net difference between foreign funds invested in the home country minus the domestic funds invested in the foreign country. A component of the balance of payments account

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Capital Account inflow (outflow)

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Free market economic system in which property is privately owned and the invisible forces of supply and demand set price and quantity

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Capitalism

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Overt agreement among firms (or countries) in an industry to fix the price of a product and establish output quotas

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Cartel

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Government agency whose chief function is the control of the nation’s money supply; the Federal Reserve

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Central Bank

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Change in the quantity demanded of a good or service at all prices; a shift of the demand curve to the left (decrease or right (increase)

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Change in Demand

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Flow of resource inputs from households to businesses and of g/s from businesses to households. A flow in the opposite direction of money-businesses to households for inputs and from households to businesses for g/s – occurs simultaneously

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Circular Flow Model

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School of macroeconomic generalization generalizations accepted by most economists prior to the depression of the 30s; a main feature was that the free market economy was self-regulating and would naturally return to full employment levels of output.

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Classical Economics

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When firms act together (collide) to fix prices, divide a market or otherwise restrict competition; illegal in the US

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Collusion

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Economic system in which property is publicly owned (means of production) and gov’t uses central economic planning to direct and coordinate economic activities; state planned economy in which price and quantity are set by gov’t (as in former USSR)

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Command System

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Determines specialization and exchange rate for trade between nations; based on the nation with the lower relative or comparative cost of production

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Comparative Advantage

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Adam Smith’s requirement for success of a free market, a market of independent buyers and sellers competing with one another; includes ease of access to and exit from the marketplace

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Competition

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Goods that are used together, so if a price of one falls, the demand for the other decrease as well and vice versa.

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Complementary Goods

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A simple method of determining a monopoly, which adds the percentage of the total sales of an industry made by the 4 largest sellers in the industry. If the sum is greater than 50% the industry is considered a shared monopoly.

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Concentration Ratio

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Merger of a firm in one industry with a firm in an unrelated industry

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Conglomerate Merger