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65 Cards in this Set
- Front
- Back
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stabilization properties |
attempts by the fed gov to keep the economy healthy, includes monetary and fiscal |
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unemployment rate |
percentage of civilian labor force unemployed but looking for work |
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full employment |
when unemployment rate is lower than a certain percentage |
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underground economy |
transactions by people who do not follow federal and state laws with respect to reporting earnings |
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demand-pull inflation |
theory that prices rise as the result of excessive business and consumer demand; demand increases faster than total supply, resulting in shortages that lead to higher prices |
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stagflation |
combination of inflation and stagnation (low economic activity) |
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cost-pull inflation |
theory that higher wages push up prices |
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2 problems the gov faces in measuring unemployment |
-cannot interview everyone -underground economy |
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4 types of unemployment |
-cyclical -structural -seasonal -functional |
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what causes demand-pull |
Fed causes money supply to grow too rapidly &increases in gov spending and in business investment |
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what causes cost push |
decreasing aggregate supply |
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fiscal policy |
fed gov use of taxation & spending policies to affect overall business activity |
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circular flow of income and output |
economic model that pictures income as flowing continuously between businesses and consumers |
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How can fed gov use fiscal policy to combat unemployment |
decrease taxes |
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what are leakages |
money deposited and gov taxes |
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what are injections |
maintaining parks and business investment |
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monetarism |
theory that the relationship between the amount of money the fed places in circulation and the level of activity in the economy |
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monetarists |
supporters associated with Milton Friedman |
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monetary rule |
monetarists belief that the Fed should allow the money supply to grow at a smooth, consistent rate per year and not use monetary policy to stimulate the econ |
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inflation targeting |
a possible central bank policy in which the head of the central bank is given a specified annual rate of inflation as a goal |
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time lags |
periods between the time fiscal policy is enacted and the time it becomes effective |
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why do monetarists criticize fiscal policy |
changes in money supply determine the direction of a nations economy -time lags and no implementation |
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absolute advantage |
ability of one country to produce more output per unit of input than can another country
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specialization |
concept that a nation should produce and export a limited assortment of goods for which it is particularly suited in order to use its resources most efficiently |
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comparative advantage |
ability of a country to produce a product at a lower opportunity cost than another |
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how important is international trade |
accounts for 15% of GDP in the U.S. -each nation differs in the type and amount of factors of production |
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exchange rate |
the price of one nation's currency in terms of another nations currency |
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foreign exchange markets |
markets dealing in buying and selling foreign currency for businesses that want to import goods from other countries |
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fixed rate of exchange |
system under which a national gov sets the value of its currency in relation to there currencies |
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International Monetary Fund (IMF) |
agency whose member governments once were obligated to keep they foreign exchange rates more or less fixed; today it offers monetary advice and provides loans to developing nations |
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devaluation |
lowering a currency's value in relation to other currencies by gov order |
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flexible exchange rate |
arrangement in which the forces of supply and demand are allowed to set the price of various currencies |
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depreciation |
fall in the price of a currency through the action of supply and demand |
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balance of trade |
difference between the value of a nation's exports and imports |
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tariff |
tax on imported products |
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import quota |
restriction imposed on the number of units of a particular good that can be brought into the country |
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embargo |
complete restriction on the import or export of a particular good or goods going to or coming from a specific country |
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protectionists |
people who argue for trade restrictions to protect domestic industries |
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World Trade Organization (WTO) |
worlds largest trade agreement, over 140 member nations |
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North American Free Trade Agreement (NAFTA) |
designed to reduce and gradually eliminate tariff borders between mexico, canada, and the us |
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Central American Free Trade Agreement (CAFTA) |
Costa Rics, El Salvador, Guatemala, Honduras, Nicaragua, Dominican Republic, and US |
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European Union (EU) |
European nations whose goal is to encourage econ integration as a singe market |
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for free trade |
-improved products -export industries -specialization and comparative advantage |
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against free trade |
-job security -national economic security -infant industries |
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developed nations |
relatively high standards of living and econs based more on industry |
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developing nations |
little industrial dev and relatively low standards of living |
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subsistence agriculture |
growing of just enough food by a family to take care of its own needs |
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5 characteristics of developing nations |
-low GDP per capita -agriculture -poor health conditions -low literacy rates -rapid population growth |
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confiscation |
taking over industries by gov without paying for them |
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foreign aid |
funds, goods, and services given by gov and private organizations to help other nations |
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foreign investors attracted to developing nations |
low wage rates, few regulations, abundant materials |
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3 reasons for nations giving foreign aid to developing nations |
-encourages national trade -enhances democracy -protect nations security |
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bureaucracies |
offices and agencies of the gov that each deal with a specific area |
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capital flight |
legal or illegal export of currency or money capital from a nation by that nations leaders |
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4 obstacles of growth |
-local traditions -rapid population growth -misuse of resources -trade restrictions |
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factors that caused Indo to lack a national identity |
-divided by nationality, religion, and politics -sukarno's economic policies |
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5 year plans |
centralized planning system that used to be the basis for China's economic system; eventually was transformed to a regional planning system leading to limited free enterprise |
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global integration |
interdependency among the countries of the world, esp within financial markets and telecommunications |
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telecommunications |
long-distance communication |
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what kinds of financial investments are traded in global markets |
U.S. securities foreign exchange stocks |
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direct foreign investment (DFI) |
purchase by foreigners of real estate and businesses in another country |
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concerns about foreign investment |
-influence over U.S. gov -foreign control -price of product -quality of product |
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multinationals |
firms that do business and have offices or factories in many countries |
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foreign affiliates |
branches of multinational firms |
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how many multinationals |
60,000 |
