W- Macro (1102) Econ Final Vocab

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Aggregation

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means combining many individual markets into one overall market

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Cyclical unemployment

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is the portion of unemployment that is attributable to a decline in the economy’s total production. rises during recessions and falls as prosperity is restored.

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Final goods and services

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are those that are purchased by their ultimate users.

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Frictional unemployment

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is unemployment that is due to normal turnover in the labor market. It includes people who are temporarily between jobs because they are moving or changing occupations, or are unemployed for similar reasons.

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Gross domestic product (GDP

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is the sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year.

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Human capital

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is the amount of skill embodied in the workforce. It is most commonly measured by the amount of education and training.

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Inflation

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refers to a sustained increase in the general price level.

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Intermediate good

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is a good purchased for resale or for use in producing another good.

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Nominal GDP

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is calculated by valuing all outputs at current prices.

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Real GDP per capita

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is the ratio of real GDP divided by population.

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Purchasing power

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of a given sum of money is the volume of goods and services that it will buy.

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Real rate of interest

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the percentage increase in purchasing power that the borrower pays to the lender for the privilege of borrowing. It indicates the increased ability to purchase goods and services that the lender earns.

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Recession

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is a period of time during which the total output of the economy declines.

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Stagflation

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is inflation that occurs while the economy is growing slowly (“stagnating”) or in a recession.

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Asset

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is an item of value that the individual or firm owns of an individual or business

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Barter

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is a system of exchange in which people directly trade one good for another, without using money as an intermediate step.

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Budget deficit

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is the amount by which the government’s expenditures exceed its receipts during a specified period of time, usually a year.

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Central bank

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is a bank for banks. The United States’ central bank is the Federal Reserve System.

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Crowding out

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occurs when deficit spending by the government forces private investment spending to contract.

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Fiscal policy

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is its plan for spending and taxation. It is designed to steer aggregate demand in some desired direction.

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Indexing

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refers to provisions in a law or a contract whereby monetary payments are automatically adjusted whenever a specified price index changes. Wage rates, pensions, interest payments on bonds, income taxes, and many other things can be-----in this way, and have been. Sometimes such contractual provisions are called escalator clauses.

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Liquidity

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refers to the ease with which it can be converted into cash.

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M1

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The narrowly defined money supply, usually abbreviated , is the sum of all coins and paper money in circulation, plus certain checkable deposit balances at banks and savings institutions.3

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Monetary policy

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refers to actions that the Federal Reserve System takes to change interest rates and the money supply. It is aimed at affecting the economy.

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Money

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is the standard object used in exchanging goods and services. In short, is the medium of exchange.

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Moral hazard

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is the idea that people insured against the consequences of risk will engage in riskier behaviors.

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National debt

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is the federal government’s total indebtedness at a moment in time. It is the result of previous budget deficits.

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Net worth

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is the value of all assets minus the value of all liabilities.

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Open-market operations

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refer to the Fed’s purchase or sale of government securities through transactions in the open market.

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Phillips curve

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is a graph depicting the rate of unemployment on the horizontal axis and either the rate of inflation or the rate of change of money wages on the vertical axis. are normally downward sloping, indicating that higher inflation rates are associated with lower unemployment rates.

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Rational expectations

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are forecasts that, while not necessarily correct, are the best that can be made given the available data.

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Run on a bank

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occurs when many depositors withdraw cash from their accounts all at once.

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Structural budget deficit

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is the hypothetical deficit we would have under current fiscal policies if the economy were operating near full employment.

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Velocity

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indicates the number of times per year that an “average dollar” is spent on goods and services. It is the ratio of nominal gross domestic product (GDP) to the number of dollars in the money stock. That is:

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Absolute advantage

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if it can produce that good using smaller quantities of resources than can the other country.

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Comparative advantage

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it produces that good less inefficiently as compared with the other country.

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Dumping

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means selling goods in a foreign market at lower prices than those charged in the home market.

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Export subsidy

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is a payment by the government to exporters to permit them to reduce the selling prices of their goods so they can compete more effectively in foreign markets.

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Mercantilism

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is a doctrine that holds that exports are good for a country, whereas imports are harmful.

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Quota

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specifies the maximum amount of a good that is permitted into the country from abroad per unit of time.

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Specialization

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means that a country devotes its energies and resources to only a small proportion of the world’s productive activities.

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Tariff

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is a tax on imports.

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Trade adjustment assistance

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provides special unemployment benefits, loans, retraining programs, and other aid to workers and firms that are harmed by foreign competition.

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Appreciate

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when exchange rates change so that a unit of its currency can buy more units of foreign currency.

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Balance of payments deficit

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is the amount by which the quantity supplied of a country’s currency (per year) exceeds the quantity demanded. --------- arise whenever the exchange rate is pegged at an artificially high level.

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Balance of payments surplus

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is the amount by which the quantity demanded of a country’s currency (per year) exceeds the quantity supplied. -------------- arise whenever the exchange rate is pegged at an artificially low level.

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Capital account

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includes purchases and sales of financial assets to and from citizens and companies of other countries.

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Current account

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balance includes international purchases and sales of goods and services, cross-border interest and dividend payments, and cross-border gifts to and from both private individuals and governments. It is approximately the same as net exports.

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Depreciate

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when exchange rates change so that a unit of its currency can buy fewer units of foreign currency.

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Devaluation

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is a reduction in the official value of a currency.

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Exchange rate

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states the price, in terms of one currency, at which another currency can be bought.

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Fixed exchange rates

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are set by government decisions and maintained by government actions.

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Floating exchange rates

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are rates determined in free markets by the law of supply and demand.

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Gold standard

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is a way to fix exchange rates by defining each participating currency in terms of gold and allowing holders of each participating currency to convert that currency into gold.

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Revaluation

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is an increase in the official value of a currency.

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Closed economy

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is one that does not trade with other nations in either goods or assets.

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International capital flows

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are purchased and sales of financial assets across national borders.

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Trade deficit

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is the excess of its imports over its exports.

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Trade surplus

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If, instead, a country's exports exceed imports, the country has a