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Changes in government taxes and spending that affect the level of GDP.
The range of actions taken by the Federal Reserve to influence the level of GDP or inflation.
A vertical aggregate supply curve that represents the idea that in the long run, output is determined solely by the factors of production.
Any items that are regularly used in economic transactions or exchanges and accepted by buyers and sellers.
The sum of currency in the hands of the public, demand deposits, other checkable deposits, and traveler’s checks.
M1 plus other assets, including deposits in savings and loans accounts and money market mutual funds.
The purchase or sale of U.S.government securities by the Fed
helps us understand why economies grow and understand economic fluctuations.
helps us understand how markets work.
Negative inflation or falling prices of goods and services.
An inflation rate exceeding 50 percent per month.
The percentage rate of change in the price level.
Goods used in the production process that are not final goods and services.
R E A L - N O M I N A L P R I N C I P L E
What matters to people is the real value of money or income— its purchasing power—not the face value of money or income.
Reduction in the value of capital goods over a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance.
A measure of GDP that controls for changes in prices.
Gross domestic product per person adjusted for changes in prices. It is the usual measure of living standards across time and between countries.
The total income earned by a nation’s residents both domestically and abroad in the production of goods and services.
the insights from economics for a real-world problems.
The principle of opportunity cost states that....
the opportunity cost of something is what you sacrifice to get it. Opportunity costs in production are generally increasing, and thus, the production possibilities curve is bowed outward.
The marginal principle states that....
any activity should be increased as long as the marginal benefits of the additional activity exceed the marginal costs.
The principle of voluntary exchange states that....
a voluntary exchange between two people makes both people better off.
The principle of diminishing returns states that...
in the short run, if use of one input is increased while all others are held constant, production will eventually increase at a decreasing rate.
The real-nominal principle states that....
what matters to people is the real value or purchasing power of money or income, not its face or nominal value.
Price changes move what?
quantity demanded or supplied up or down along the related curves.
Market equilibrium is achieved when...
quantity demanded equals quantity supplied at a given price and there is no shortage or surplus.
Shifts in the demand curve or the supply curve change what?
Demand shifts cause price and quantity to change in what direction?
supply shifts cause price and quantity to move in what direction?
real world price or quantity movements. For example, lower prices associated with lower quantities must be the result of a demand decrease, not a supply increase.
The value of GDP in current dollars.
Sustained increases in the real GDP of an economy over a long period of time.
Purchases of newly produced goods and services by households.
Purchases of newly produced goods and services by firms.
Total new investment expenditures.
Purchases of newly produced goods and services by local, state, and federal governments.
Payments from governments to individuals that do not correspond to the production of goods and services. Not included in GDP.
A good or service produced in a foreign country and purchased by residents of the home country (for example, the United States).
A good or service produced in the home country (for example, the United States) and sold in another country.
Exports minus imports.
The excess of imports over exports.
Y = C + I + G + NX
Personal income that households retain after paying income taxes.
An index that measures how the prices of goods and services included in GDP change over time.
A method for calculating changes in prices that uses an average of base years from neighboring years.
The date at which output stops falling in a recession.
Individuals who do not currently have a job but are actively looking for work.
The percentage of the population over 16 years of age that is in the labor force.
The component of unemployment attributed to seasonal factors.
Unemployment that occurs during fluctuations in real GDP.
Unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified employees.
Unemployment that occurs when there is a mismatch of skills and jobs.
The level of unemployment that occurs when the unemployment rate is at the natural rate.
Payments unemployed people receive from the government.
The costs associated with changing prices and printing new price lists when there is inflation.
Costs of inflation that arise from trying to reduce holdings of cash.
Increases in the stock of capital per worker.
More efficient ways of organizing economic affairs that allow an economy to increase output without increasing inputs.
The percentage rate of change of a variable from one period to another.
A rule of thumb that says output will double in 70/x years, where x is the percentage rate of growth.
The process by which poorer countries close the gap with richer countries in terms of real GDP per capita.
Income that is not consumed.
A method to determine the contribution to economic growth from increased capital, labor, and technological progress.
The view that a firm will try to come up with new products and more efficient ways to produce products to earn monopoly profits.
Modern theories of growth that try to explain the origins of technological progress.
The period of time in which prices do not change or do not change very much.
A curve that shows the relationship between the level of prices and the quantity of real GDP demanded.
The ratio of the total shift in aggregate demand to the initial shift in aggregate demand.
The part of consumption spending that does not depend on income.
A relatively flat aggregate supply curve that represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand.
A decrease in real output with increasing prices.
Policy actions taken to move the economy closer to full employment or potential output.
The spending programs that Congress authorizes on an annual basis.
Spending that Congress has authorized by prior law, primarily providing support for individuals.
A federal government program to provide retirement support and a host of other benefits.
A federal government health program for the elderly.
A federal and state government health program for the poor.
A school of thought that emphasizes the role that taxes play in the supply of output in the economy.
A relationship between the tax rates and tax revenues that illustrates that high tax rates could lead to lower tax revenues if economic activity is severely discouraged.
The amount by which government spending exceeds revenues in a given year.
The amount by which government revenues exceed government expenditures in a given year.
An estimate of a household’s long-run average level of income.
Any item that buyers give to sellers when they purchase goods and services.
The exchange of one good or service for another.
The problem in a system of barter that one person may not have what the other desires.
The property of money that holds that money preserves value until it is used in an exchange.
A monetary system in which gold backs up paper money.
A monetary system in which money has no intrinsic value but is backed by the government.
The sources of funds for a bank, including deposits and owners’ equity.
The uses of the funds of a bank, including loans and reserves.
The specific fraction of their deposits that banks are required by law to hold as reserves.
Any additional reserves that a bank holds above required reserves.
The ratio of the increase in total checking account deposits to an initial cash deposit.
A banker’s bank: an official bank that controls the supply of money in a country.
A central bank is the lender of last resort, the last place, all others having failed, from which banks in emergency situations can obtain loans.
One of 12 regional banks that are an official part of the Federal Reserve System.
The group that decides on monetary policy: It consists of the seven members of the Board of Governors plus 5 of 12 regional bank presidents on a rotating basis.
The market for money in which the
amount supplied and the amount
demanded meet to determine the
nominal interest rate.
The demand for money based on
the desire to facilitate transactions.
P R I N C I P L E O F O P P O RT U N I T Y C O S T
The opportunity cost of something is what you sacrifice to get it.
The demand for money that represents the needs and desires individuals and firms have to make transactions on short notice without incurring excessive costs.
The demand for money that arises because holding money over short periods is less risky than holding
stocks or bonds.
The Fed’s purchase of government
bonds from the private sector.
The Fed’s sale of government bonds to the private sector.
CHANGING RESERVE REQUIREMENTS
If the Fed wishes to increase the supply of money, it can reduce banks’ reserve requirements so they have more money to loan out.
The market in which banks borrow and lend reserves to and from one another.
The rate at which currencies trade for one another in the market.
A decrease in the value of a currency.
An increase in the value of a currency.
shows how production of goods and services generates income for households and how households purchase goods and services produced by firms
Households - ultimate owners of firms, provide them capital
Firms - transform resources into products, supply gods an services that households demand in product markets
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