Econ 2002 Midterm 2

Front 1

business cycle

Back 1

pattern of expansion then contraction and back

Front 2

expansion

Back 2

sustained period where real GDP is rising (employment rises as well)

Front 3

recession

Back 3

sustained period where real GDP is falling (employment is falling as well)

Front 4

growth rate

Back 4

measures economic growth in relation to real GDP

Front 5

rule of 72

Back 5

a variable's approximate doubling time is 72/growth rate

Front 6

labor productivity

Back 6

(an increase in) the quantity of goods and services that can be produced by one worker or by one hour of work

Front 7

potential GDP

Back 7

level of real GDP attained when all firms are operating at normal capacity

Front 8

normal capacity

Back 8

what is capable of being produced with normal hours and normal workforce

Front 9

financial system

Back 9

system that covers financial transactions and the exchange of money between investors, lenders, and borrowers

Front 10

financial market

Back 10

where financial securities are bought and sold

Front 11

financial securities

Back 11

stocks and bonds

Front 12

financial intermediary

Back 12

firms such as banks, mutual funds, pension funds, and insurance companies that borrow funds from savers and lend them to borrowers

Front 13

relationship between savings and investment

Back 13

equal in a closed economy, S = I = Y - C - G

Front 14

public savings

Back 14

savings of government and measure of their spending, Spub = T - TR - G

Front 15

private savings

Back 15

savings made by private households after spending and taxes, Spriv = Y + TR - T - C

Front 16

budget deficit

Back 16

when the government spends more than it collects

Front 17

budget surplus

Back 17

when the government spends less than what it collects

Front 18

balanced budget

Back 18

when the government spends what it collects

Front 19

loanable funds market

Back 19

conceptual interaction of borrowers and lenders determining the market interest rate and the quantity of loanable funds exchanged (savings and investment)

Front 20

crowding out

Back 20

the decline in private expenditures as a result of increases in government purchases, government deficits lead to this

Front 21

peak

Back 21

the point of the business cycle at which an expansion ends and a recession begins

Front 22

trough

Back 22

the point of the business cycle where a recession ends and an expansion begins

Front 23

growth rate

Back 23

real GDP change from one year to another, 100 x [realGDP(T) - realGDP(T-1)] / realGDP(T-1)

Front 24

economic growth

Back 24

expansion of production possibilities, depends on firms expanding productive capacity through increase in capital, human capital, and technology

Front 25

human capital

Back 25

skills a worker has as a result of education, training, or experience that can be used in production

Front 26

foreign direct investment

Back 26

an investment in a business by an investor from another country for which whom has control over the company purchased

Front 27

aggregate demand

Back 27

the relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged

Front 28

downward slope of aggregate demand

Back 28

wealth effect, interest rate effect, international trade effect

Front 29

wealth effect

Back 29

tendency for a change in the price level to affect real wealth and thus alter consumption

Front 30

interest rate effect

Back 30

tendency for a change in the price level to affect the interest rate and thus to affect the quantity of investment demanded

Front 31

international trade effect

Back 31

tendency for a change in the price level to affect net exports

Front 32

supply shock

Back 32

an event that suddenly increases or decreases the supply of a commodity or service

Front 33

recessionary gap

Back 33

gap between level of real GDP and potential output, when real GDP is less than potential output

Front 34

inflationary gap

Back 34

gap between the level of real GDP and potential output, when real GDP is greater than potential output

Front 35

expansionary policy

Back 35

stabilization policy to increase real GDP

Front 36

contractionary policy

Back 36

stabilization policy designed to reduce real GDP

Front 37

stagflation

Back 37

economic cycle in which there is a high rate of both inflation and stagnation; inflation occurs when the general level of prices in an economy increases, stagnation occurs when the production of goods and services in an economy slows down or even starts to decline

Front 38

money

Back 38

anything that serves as a medium of exchange

Front 39

medium of exchange

Back 39

anything that is widely accepted as a means of payment, asset people are willing to accept in exchange of goods and services or payment in return

Front 40

asset

Back 40

anything of value

Front 41

unit of account

Back 41

a consistent means of measuring the value of things

Front 42

store of value

Back 42

an item that holds value over time

Front 43

commodity money

Back 43

money that has value apart from its use as money

Front 44

fiat money

Back 44

money that some authority, generally a government, has ordered to be accepted as a medium of exchange

Front 45

functions of money

Back 45

medium of exchange, unit of account, store of value, standard or deferred payment

Front 46

characteristics of money

Back 46

durable, divisible, homogeneous, uniform, standardized, portable, stable supply

Front 47

wealth

Back 47

money, houses, office buildings, land, works of art, and many other commodities

Front 48

barter economy

Back 48

occurs when goods are exchanged directly for other goods and/or services

Front 49

M1

Back 49

currency in circulation, checkable deposits, and traveler's checks (perfectly liquid)

Front 50

M2

Back 50

includes M1 and other deposits such as savings accounts

Front 51

reserve

Back 51

deposits banks keep, bank assets held as cash in vaults and in deposits with the Federal Reserve

Front 52

required reserves

Back 52

quantity of reserves banks are required to hold

Front 53

reserve ratio

Back 53

reserve requirement, specifies the ratio of reserves to checkable deposits a bank must maintain

Front 54

excess reserve

Back 54

reserves held in excess of the required level

Front 55

money multiplier

Back 55

tells the total change in checkable deposits that will result from a change in reserves, 1/RR

Front 56

fractional reserve banking system

Back 56

banks can operate only if their customers maintain their confidence in them, if they lose confidence then they are likely to withdraw their funds