Economics 9 Weeks Exam Review

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macroeconomics

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the part of ecomonic theory dealing with the economy as a whole and decisionmaking by large units such as government and unions

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equilibrium wage

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wage rate leaving neither a surplus nor a shortage in the market

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Sin Tax

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relatively high tax designed to raise revenue and discourage consumption of a socially undesirable product

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Incidence of Tax

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the final burden of the tax

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Benefit principle of taxation

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those who benefit from government goods and services should pay in proportion to the amount of benefits they recieve

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Ability to pay principle of Taxaion

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the belief that ppl should be taxed according to their ability to pay, regardless of the benefits they recieve

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Proportional Tax

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imposes the same percentage rate of taxation on everyone, regardless of income

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Progressive Tax

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a tax that imposes a higher percentage rate of taxation on persons with higher incomes

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Regressive tax

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tax that imposes a higher percentage rate of taxation on low incomes than on high incomes

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Payroll Withholding Taxes

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a system that requires an employer to automatically deduct income taxes from an employers paycheck and send it directly to the goverment

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FICA Taxes

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the Federal Insurance contribution Act tax levied on both employers and employees to pay for social security and medicare

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Intergovernmental Revenue

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funds collected by 1 leel of gov for that are distributed to another level of government for expenditures

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Value Added Tax (VAT)

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a tax placed on the value that manufactureres add at each stage of production

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per capta

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per peson

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public sector

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the part of the economy made up of private individuals

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Private Sector

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the part of the economy made up of private individuals

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Transfer payment

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a payment in which the gov recieves neither goods nor services

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Grant-in-aid

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a tranfer payment level of government for another

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Mandatory Spending

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Spending autorized by law

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Discretionary Spending

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progrmas that recieve annual authorization

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Fiscal year

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9-12 month planning period

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Executive Formation

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The first step in the process to develop a a budget

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Federal Budget Deficit

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Expenditures are higher than revenues

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Federal Budget Surplus

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revenues are higher than surplus

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Crowding Out effect

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higher than normal interest rates occur b/c of gov spending

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Barter economy

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moneyless economy that relies on trade or barter

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Medium of exchange

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money or other substance genearly accepted in exchange

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Measure of value

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a common denominator that can be used to express worth in terms

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Store of value

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the property that allows purchasing power to be saved until needed

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Inconvertible Fiat Money Standard

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fiat money that cannot be exchanged for gold or silver

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Federal Reserve System

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Privately Owned publicaly contolled, central bank of US

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Board of govenors

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sets general policies for Federal Reserve and member banks to folloiw, regulates certain operations of state-chartered member banks and conducts some aspects of monetary policy

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Federal Open Market Commitee

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made up of 12 members: even members from Board of Governors, the president of NY district fed and 4 district Fed Reserve bank who serve one y ear rotating terms and they make decisions about the growth of $ supply and level of interest rates

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Monetary Policy

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actions by the Federal Reserve System to expand or contracct the money supply in order to affect the cost and availability of credit

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Fractional Reserve System

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System requiring financial institutions to set aside a fraction of their deposits in the form of reserves

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Legal reserves

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currency and deposits used to meet the reserve requirement

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Reserve Requirement

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formula used to compute the amount of a depository institution required reserves

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Excess Reserves

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financial institutions cash, currency, and reserves not needed to back existing loans; potential source of new loans

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Discount rate

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Interest rate that the Federal Reserve System charges on loas to th nations financial institutions

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Open market operations

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monetary policy in the form of US treasurey bills or bond sales and purchases or both

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savings

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the dollars that become available for investors to use when others save

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saving

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absence of spending that frees resources for use in other activities or investments

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capital formation

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when ppl save making money available to go back into the econ

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Gross domestic product

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dollar value of all final goods, services, and structures produced within a coutnrys nat'l borders during a 1 yr period

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Inflation

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rise in the general level of prices

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Price Index

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Statistical series used to measure changes in the price level overtime

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Market basket

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representative colleection of goods and services used to comple a price index

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Consumer Price Index

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Index used to measure price changes for a market basket of frequently used consumer items

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Producer Price Index

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index used to measure prices recieved by domestic producers

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Unemployed

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state of working for less than 1 hour per week for pay or profit in a non-family owned business while being available and having made an effort to find a job during the past month

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unemployment rate

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ratio of unemployed individuals divided by total # of persons in the civillian labor force, expressed as percentage.

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Frictional unemploymen

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unemployment caused by workers changing jobs or waiting to go to new ones

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Structural unemployment

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unemployment caused by a fundamental change in the economy that reduces the dmand for some workers

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Cyclical unemployment

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unemployment directly related to savings in the business cycle

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Seasonal unemployment

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unemployment caused by annual changes in the weather or other conditions that prevail at certaini times of the year

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technological unemployment

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unemployment caused by technological developments or automation that mkae some worker's skills obsolete

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Market structure

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market classification according to # and size of firms type of product, type of competition

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Perfect competition

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charactarized by a large # of well-informed independent buyers and sellers who exchange identical prouducts

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Imperfect competitior

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all conditions of pure competition arent met

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monopolistic competition

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has all conditions of perfect competition except for identical products form imperfect competition

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product differentiation

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real or imagined differences b/w competitng products in the same industry

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non price competition

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competition involving the advertising of products appearance quality or design rather than its price

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Oligopoly

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market sturcture in which a few large sellers dominate and have the ability to affect prices in the industry rom imperfect comp.

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Economics of scale

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increasingly efficent use of personnal plant and equp. as a frim becomes larger

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Market failure

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market where any of the reurements for a competitive market-adequate comp., knowledge of prices, and opportuniteies, mobility of resources or comp. profits are lacking

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externality

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economic side effect that affects an uninvilved 3rd party

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neg externality

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harmful side effect that affects uninvolved 3rd party

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pos. externaility

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beneficial side effect that affects univnolved 3rd party

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Public goods

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econ product that is consumed collectively highways, national defense, police and fire protection