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105 Cards in this Set

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M1
The most liquid measure of money supply, including cash, checking deposits, and traveler's checks.
M2
M1 plus savings deposits, small time deposits, and money market and mutual funds balances.
M3
M2 plus large time deposits.
macroeconomics long run
A period of time long enough for input prices to have fully adjusted to market forces, all input and output markets are in equilibrium and the economy is operating at full employment.
macroeconomics short run
A period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets
marginal
The next unit, or increment of, an action.
marginal analysis
Making decisions based upon weighing the marginal benefits and costs of that action. The rational decision-maker chooses an action if the MB is greater or equal to MC
marginal benefit (MB)
The additional benefit received from the consumption of the next unit of a good or service
marginal cost (MC)
the additional cost of producing one more unit of output
marginal propensity to consume (MPC)
the change in consumption caused by a change in disposable income. The slope of the consumption function.
marginal propensity to save (MPS)
the change in saving caused by a change in disposable income. The slope of the saving function.
money demand
the negative relationship between the real interest rate and the quantity of money demanded as an asset plus the quantity of money demanded for transactions
marginal productivity theory
the theory that a citizen's share of economic resources is proportional to the marginal revenue product of his or her labor
money market
the interaction of money demand and money supply determines the "price" of money, the real interest rate.
money multiplier
equal to one over the reserve ratio, this measures the maximum amount of new checking deposits that can be created by a single dollar of excess reserves
money supply
the fixed quantity of money in circulation at a given point in time as measured by the central bank
multiplier effect
the idea that a change in any component of aggregate demand creates a larger change in GDP
national debt
the accumulation of all annual budget deficits
natural rate of unemployment
the unemployment rate associated with full employment, somewhere between 4-5% in the US
necessity
a good for which the proportional increase is less than the proportional increase in income
net exports
the value of a nation's total exports minus total imports
net export effect
the process of how expansionary fiscal policy decreases net exports due to rising interest rates. Another form of crowding out.
nominal GDP
the value of current production a the current prices
official reserves account
the Fed's adjustment of a deficit or surplus in the current and capital account by the addition or subtraction of foreign currencies so that the balance of payments is zero
open market operation (OMO)
a tool of monetary policy , it involves the Fed's buying or selling of treasury bonds from or to commercial banks and the general public
opportunity cost
the value of the sacrifice made to pursue a course of action
peak
the top of the business cycle where an expansion has ended and is about to turn down
price index
a measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference or base year
production function
the mechanism for combining production resources, with existing technology, into finished goods and services
production possibilities
the different quantities of goods that an economy can produce with a given amount of scarce resources
production possibilities frontier (PPF)
the graphical device used to show the production possibilities of two goods
production possibility curve
a graphical device that shows the combination of two goods that a nation can efficiently produce with available resources and technology
productivity
the quantity of output that can be produced per worker in a given amount of time
progressive tax
a tax where the proportion of income paid in taxes rises as income rises
proportional tax
a tax where the proportion of income paid in taxes is constant no matter the level of income
protective tariff
an excise tax levied on an imported good that is produced in the domestic market so that it may be protected from foreign competition
public goods
goods that are both nonrival and nonexcludable
quantity theory of money
the theory that an increase in the money supply will not affect real output and will only result in higher prices
quota
a maximum amount of a good that can be imported into the domestic market
real GDP
the value of current production, but using prices from a fixed point in time
real rate of interest (i)
the cost of borrowing to fund an investment and equal to the nominal interest rate minus the expected rate of inflation
recession
two or more consecutive quarters of falling real GDP
recessionary gap
the amount by which full employment GDP exceeds equilibrium real GDP
regressive tax
a tax where the proportion of income paid in taxes decrease as income rises
relative prices
the price of one unit of good X measured not in currency, but in the number of units of good Y that must be sacrificed to acquire good X
renewable resources
natural resources that can replenish themselves if they are not overharvested
required reserves
the minimum amount of deposits that must be held at the bank for withdrawals
reserve ratio
the fraction of total deposits that must be kept on reserve
resources
also called factors of production, these are commonly grouped into the four categories of labor, physical capital, land or natural resources and entrepreneurial ability
revenue tariff
an excise tax levied on goods that are not produced in the domestic market
saving function
a positive relationship between disposable income and saving
scarcity
the imbalance between limited productive resources and unlimited human wants
secondhand sales
final goods and services that are resold
shortage
a situation in which, at the going market price, the quantity demanded exceeds the quantity supplied
short run
a period of time too short to change the size of the plant, but many other, more variable, resources can be adjusted to meet demand
specialization
production of goods, or performance of tasks, based upon comparative advantage
spending multiplier
the amount by which real GDP changes due to a change in spending
spillover benefits
additional benefits to society, not captured by the market demand curve from the production of a good
spillover costs
additional costs to society, not captured by the market supply curve from the production of a good
stagflation
a situation seen in the macroeconomy when inflation and the unemployment rate are both increasing. also called cost-push inflation
sticky prices
the case when price levels do not change, especially downward, with changes in AD.
stock
a certificate that represents a claim to, or share of, the ownership of a firm
subsidy
a government transfer, either to consumers or producers, on the consumption or production of a good
substitute goods
two goods are substitutes if they provide essentially the same utility to the consumer
substitution effect
the change in quantity demanded resulting from a change in the price of one good relative to the price of other goods
supply curve
shows the quantity of a good supplied at all prices
supply schedule
a table showing quantity supplied for a good at various prices
supply shock
an economy-wide phenomenon that affects the costs of firms and results in a shifting AS curve
supply-side fiscal policy
fiscal policy centered on incentives to save and invest to prompt economic growth with very little inflation
surplus
a situation in which, at the going market price, the quantity supplied exceeds the quantity demanded
tax bracket
a range of income on which a given marginal tax rate is applied
tax multiplier
the magnitude of the effect that a change in lump sum taxes has on real GDP
technology
a nation's knowledge of how to produce goods in the best possible way
theory of liquidity preference
Keynes' theory that the interest rate adjusts to bring the money market into equilibrium
total cost (TC)
the sum of total fixed and total variable costs at any level of output
total fixed costs (TFC)
production costs that do not vary with the level of output
total product of labor
the total quantity of output produced for a given quantity of labor employed
total revenue
the price of a good multiplied by the quantity of that good sold
total utility
the total happiness received from consumption of a number of units of a good
total variable costs (TVC)
production costs that change with the level of output
total welfare
the sum of consumer surplus and producer surplus
tradeoffs
the reality of scarce resources implies that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs
transaction demand
the amount of money held in order to make transactions
trough
the bottom of the cycle where a contraction has stopped and is about to turn up
underground economy
the unreported or illegal activity, bartering or informal exchange of cash for goods or services that are not reported in official tabulations of GDP
utility
happiness, or benefit, or satisfaction, or enjoyment gained from consumption of goods and services
utility maximizing rule
the consumer chooses amounts of goods X and Y, with their limited income, so that the marginal utility per dollar spent is equal for both goods
utils
a hypothetical unit of measurement often used to quantify utility, aka happy points
velocity of money
the average number of times that a dollar is spent in a year
world price
the global equilibrium price of a good when nations engage in trade
marginal tax rate
the rate paid on the last dollar earned, calculated by taking the ratio of the change in taxes divided by the change in income
marginal utility
the change in an individual's total utility from the consumption of an additional unit of a good or service
market
a group with buyers and sellers of a good or service
market basket
a collection of goods and services used to represent what is consumed in the economy
market economy
an economic system in which resources are allocated through the decentralized decisions of firms and consumers
market equilibrium
exists at the only price where the quantity supplied equals the quantity demanded. or, the only quantity where the price consumers are willing to pay is exactly the price producers are willing to accept
market failure
the inability of the free market to allocate resources efficiently
market power
the ability to set a price above the perfectly competitive level
nonmarket transactions
household work or do-it-yourself jobs that are missed by GDP accounting
non-renewable resources
natural resources that cannot replenish themselves
normal goods
a good for which demand increases with an increase in consumer income
normal profit
the opportunity cost of the entrepreneur's talents. another way of saying the firm is earning zero economic profit
producer surplus
the difference between the price received and the marginal cost of producing the good
productive efficiency
production of maximum output for a given level of technology and resources
private goods
goods that are both rival and excludable