Macroeconomics Ch.1, 2, 3, 6, 7 Krugman & Wells

Front 1

Economics is the study of....

Back 1

production, distribution, and consumption of goods and services.

Front 2

Macroeconomics is the study of....

Back 2

the overall ups and downs in the economy.

Front 3

Microeconomics is the study of....

Back 3

how people make decisions and how those decisions interact.

Front 4

The economy is....

Back 4

a system for coordinating society's productive activities.

Front 5

Decision Making

Back 5

The choice that is made when faced with two or more options.

Front 6

Incentives

Back 6

Anything that offers rewards to people who change their behavior.

Front 7

Benefits

Back 7

Something quantifiable in terms of money, such as revenue, net cash flow, and net income.

Front 8

Scarcity

Back 8

When a resource is in short supply.

Front 9

Tradeoffs

Back 9

A comparison of costs and benefits of doing something.

Front 10

Opportunity costs

Back 10

The real cost of an item: what you must give up in order to get it.

Front 11

Law of increasing opportunity costs

Back 11

A principle that states that once all factors of production (land, labor, capital) are at maximum output and efficiency, producing more will cost more than average. As production increases, the opportunity cost does as well.

Front 12

Law of diminishing marginal returns

Back 12

Law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.

Front 13

Trade

Back 13

The practice, in a market economy, in which individuals provide goods and services to others and receive goods and services in return.

Front 14

Resources

Back 14

Labor, land, capital, and entrepreneurship.

Front 15

Products

Back 15

Goods & Services.

Front 16

Consumers

Back 16

An individual that acquires goods or services for direct use or ownership rather than for resale or use in production and manufacturing.

Front 17

Producers

Back 17

A person who creates economic value, or produces goods and services.

Front 18

Y+TR = TA+C+S

Back 18

Income (wages, interest, rent, profit) + transfer payments = taxes + consumption + savings

Front 19

Disposable income

Back 19

Income after taxes.

Front 20

Consumption expenditures of goods and services

Back 20

Expenditures that consist of the actual and imputed expenditures that consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, non-durables and services.

Front 21

Determinants of consumption

Back 21

1.) Both real disposable income and the cost and availability of credit are key determinants of consumer spending.

2.) Most short-term fluctuations in consumption are related to changes in credit rather than income.

3.) Temporary changes in tax rates do not affect consumption very much.

Front 22

Investment in capital goods & services

Back 22

This is called investment spending, and it takes place when money is spent on productive physical capital and on changes to inventory.

Front 23

Government purchases of goods and services

Back 23

Total purchases by federal, state, and local governments on goods and services.

Front 24

Determinants of government purchases

Back 24

1.)The amount of consumer spending that has taken place.

2.) The amount of tax revenue obtained.

3.) The approval of spending by board members.

Front 25

GDP =

Back 25

C+I+G+NX

Front 26

Unemployment

Back 26

The total number of people who work part time because they cannot find full-time jobs.

Front 27

G + TR = TA + borrowing

Back 27

G+ transfer payments = the budget = taxes + government borrowing.

Front 28

The Federal Government

Back 28

Body of individuals at the federal level that sets and administers public policy, exercises executive and political power through customs, institutions, and laws within a country.

Front 29

The Federal Reserve

Back 29

A central bank, and institution that oversees and regulates the banking system and controls the monetary base.

Front 30

Fiscal Policy

Back 30

Changes in government spending and taxes designed to affect overall spending.

Front 31

Monetary Policy

Back 31

Changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending.

Front 32

Majority of consumer spending is spent on....

Back 32

Services

Front 33

4 parts of the business cycle

Back 33

Expansion, Peak, Contraction, Trough/Recession

Front 34

4 types of earned interest

Back 34

?

Front 35

Demand

Back 35

An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

Front 36

Determinants of demand

Back 36

1.) The unit price of commodity.

2.) The tastes and prefreences of the individual or household.

3.) The prices and nature of substitute goods, i.e. goods whose consumption can replace the consumption of the given good.

Front 37

The law of demand

Back 37

The principle that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service.

Front 38

A change in supply vs. a change in quantity demanded.

Back 38

A change in supply is caused by factors other than the price of the product. Graphically, it involves a shift of the supply cure, which implies greater/smaller quantities supplied than before at the original prices .

Front 39

Product Markets

Back 39

A market where goods and services produced by businesses are sold to households. The households use the income they receive from the sale of resources to purchase the products.

Front 40

Resource Markets

Back 40

A market for the exchange of labor, financial capital or raw materials. Many personnel managers need to tap into the job resource market rater than promoting from within the company in order to obtain qualified employees during times of substantial business expansion.

Front 41

Financial markets

Back 41

A market where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives.

Front 42

Prices

Back 42

The amount of cost associated with obtaining a good or service.

Front 43

Revenues

Back 43

The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise.

Front 44

Costs

Back 44

The lowest price at which a seller is willing to sell a good or service.

Front 45

Profits

Back 45

The amount of revenue gained after all expenses and revenues have been accounted for.

Front 46

Circular- flow diagram

Back 46

a diagram that represents the transactions in an economy by two kinds of flows around a circle. Flows of physical things such as goods or labor in one direction and flows of money to pay for these physical things in the opposite direction.

Front 47

Production possibilities frontier

Back 47

a model that illlustrates the trade-offs facing an economy that prouces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other.

Front 48

Specialization

Back 48

The situation in which each person specializes in the task that he or she is good at performing

Front 49

Comparative advantage

Back 49

The advantage conferred on an individual or country in producing a good or service if the opportunity cost of producing the good or service is lower for that individual or the country then for other producers

Front 50

Income

Back 50

Wages, interest, rent, profit

Front 51

Products

Back 51

Goods and services

Front 52

Nominal GDP

Back 52

The value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced

Front 53

Real GDP

Back 53

The total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year

Front 54

Budget deficit

Back 54

The difference between tax revenue and government spending when tax revenue exceeds government spending; saving by the government in the form of a budget surplus is a positive contribution to national savings

Front 55

Public deficit

Back 55

Government debt held by individuals and institutions outside the government

Front 56

FDIC

Back 56

Federal Deposit Insurance Corporation: provides deposit insurance, which guarantees the safety of deposits in member banks

Front 57

The Board of Governors

Back 57

Federal government agency with seven members, appointed by the President and confirmed by the Senate, along with 1,800 staff, they govern the Federal Reserve

Front 58

FOMC

Back 58

The Federal Open Market Committee: the monetary policy making body of the Federal Reserve System

Front 59

The federal funds rate

Back 59

The interest rate at which funds are borrowed and lent in the federal funds market

Front 60

Prime rate

Back 60

The interest rate banks charge to large corporations for short-term loans

Front 61

LIBOR

Back 61

Rate that banks charge each other for short term loans

Front 62

The money supply

Back 62

The total value of financial assets in the economy that are considered money

Front 63

The money multiplier

Back 63

The ratio of the money supply to the monetary base

Front 64

Reserve requirement

Back 64

Rules set by the Federal Reserve that set the minimum reserve ratio for banks

Front 65

The discount rate

Back 65

The rate of interest the Federal Reserve charges on loans to banks that fall short of the reserve requirements

Front 66

Open market operations

Back 66

A purchase or sale of US Treasury bills by the Federal Reserve, normally through a transaction with a commercial bank

Front 67

Quantitative easing

Back 67

A type of monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective

Front 68

OPEC

Back 68

The Organization of Petroleum Exporting Countries: coordinate the petroleum policies of its members, and provides member states with technical and economic aid

Front 69

WTO

Back 69

World Trade Organization: an international organization dealing with the global rules of trade between nations

Front 70

Trade deficit

Back 70

When the value of the goods and services bought from foreigners is more than the value of goods and services sold to consumers abroad

Front 71

Trade surpluses

Back 71

When the value of goods and services bought from foreigners is less than the value of goods and services sold to them

Front 72

Exchange rates

Back 72

The price at which currencies trade, determined by the foreign exchange market

Front 73

The balance of payments

Back 73

A summary of the country's transactions with other countries

Front 74

MPC

Back 74

Marginal propensity to consume: a measurement that quantifies induced consumption, the consumption that the increase in personal consumer spending occurs with an increase in disposable income

Front 75

MPS

Back 75

Marginal propensity to save: the proportion of each additional dollar of household income that is used for saving

Front 76

Determinants of supply

Back 76

Production cost, technology, number of sellers, expectation for future prices

Front 77

The law of supply

Back 77

As the price of a good or service increases the quantity of goods or services suppliers offer will increase

Front 78

A change in supply versus a change in quantity supplied

Back 78

A change in quantity supplied is caused by a change in price, and is represented by movement along the supply curve. A change in supply is caused by one of the other factors affecting supply, and is represented by a shift to a new supply curve

Front 79

Aggregate expenditure

Back 79

The current value of all finished goods and services in the economy

Front 80

The inflation rate

Back 80

(Index year 2- index year 1/ index year 1)*100

Front 81

CPI

Back 81

measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.