Terms : Hide Images
| 65386878 | Aggregate Demand & Why it is down sloping | The total demand for goods and services over varying prices within the economy, including componenting such as household consumption, business investment, government spending & net exports. It is down sloping because more goods and services can be and are demanded at lower price levels. |  |
| 65386879 | Average Propensity to Consume (APC) | Fraction (or percentage) of disposable income that households plan to spend for consumer goods and services; consumption divided by disposable income. |  |
| 65386880 | Average Propensity to Save (APS) | Fraction (or percentage) of disposable income that households save; saving divided by disposable income. |  |
| 65386881 | Changes in Aggregate Demand | Shifts in the Aggregate Demand Curve occur due to the Real-Balances Effect (Higher price level erodes purchasing power), Interest-Rate Effect (Higher interest rates reduce spending), and Foreign-Purchases Effect (Higher price level reduces exports and raises imports) |  |
| 65386882 | Classical Economic Theory | The theory that the market system would ensure full employment of an economy's resources. Abnormal circumstances such as wars, political upheavals, droughts, speculative crises, and gold rushes would occur, deflecting the economy from full-employment status. |  |
| 65386883 | Classical Theory Assumptions | Say's Law: Output creates its own demand. Markets would automatically adjust to full employment levels. No possibility for not enough spending. |  |
| 65386884 | Comparative Advantage | A situation in which a person or country can produce a specific product at a lower opportunity cost than some other person or country; the basis for specialization and trade. |  |
| 65386885 | Consumer Price Index (CPI) | An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer. |  |
| 65386886 | Crowding Out | A rise in interest rates and a resulting decrease in planned investment caused by the Federal government's increased borrowing to finance budget deficits and refinance debt. |  |
| 65386887 | Demand Graph | The schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels. |  |
| 65386888 | Exchange Rates | The rate of exchange of one nation's currency for another nation's currency. |  |
| 65386889 | Expansionary Fiscal Policy | An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output. | |
| 65386890 | Expansionary Monetary Policy | Federal Reserve Actions to increase the money supply, lower interest rates, and expand real GDP, an easy money policy. | |
| 65386891 | Factors of Economic Growth | Strong Property Rights, Patents and Copyrights, Efficient Financial Institutions, Literacy and Widespread Education, Free Trade, A Competitive Market System promote growth. Supply Factors are: increase in quantity and quality of natural resources, increase in quantity and quality of human resources, increases in supply of capital goods, improvements in technology. Demand factor: increases in output must be purchased (increase in demand). Efficiency factor: An economy must realize economy efficiency as well as full employment. | |
| 65386892 | Federal Reserve | The U.S. central bank, consisting of the Board of Governors of the Federal Reserve and the 12 Federal Reserve Banks, which controls the lending activity of the nation's banks and thrifts and thus the money supply; commonly referred to as the "Fed." |  |
| 65386893 | Fiscal Policy (taxes) | Changes in government spending and tax collection designed to achieve a full-employment and non-inflationary domestic output. |  |
| 65386894 | GDP- real vs. nominal | Real: Gross Domestic Product adjusted for inflation. Nominal: Not adjusted for inflation. |  |
| 65386895 | GDP: Limitations on Measure | The GDP measures final goods and services. It ignores intermediate goods, those needed to produce other goods, to avoid multiple counting. It ignores non-production transactions: financial transactions (public/private transfer payments, stock market transactions) and secondhand sales. |  |
| 65386896 | Budget Deficit on Interest Rates | The crowding out effect raises interest rates as the government creates a budget deficit. This makes it difficult for households and businesses to invest and consume. |  |
| 65386897 | Impact of Fiscal and Monetary Policy on Economic Growth | Fiscal Policy and Monetary Policy can be used to direct the economy in the right direction. Monetary Policy is widely agreed to be a better month-to-month tool to aid the economy, keeping interest rates low or high as needed. |  |
| 65386898 | Interest rates -> Demand for investment -> Impact on Dollar | As interest rates rise, the cost of money rises as well. This makes investment more expensive and less attractive to businesses. If they fall, the cost of money falls in turn. Businesses would then want to spend more. |  |
| 65386899 | Keynes Interpretation of Monetary Policy | Monetary policy is more effective for "normal" times, but less effective than fiscal policy at handling large recessions or inflationary problems. |  |
| 65386900 | M1 (money supply) | The most narrowly defined money supply, equal to currency in the hands of the public and the checkable deposits of commercial banks and thrift institutions. |  |
| 65386901 | Marginal Benefit-Marginal Cost | The additional benefit of consuming 1 more unit of some good or service - The additional cost of producing 1 more unit of output. | |
| 65386902 | Marginal Propensity to Consume (MPC) | The fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income. |  |
| 65386903 | Marginal Propensity to Save (MPS) | The fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income. |  |
| 65386904 | Monetarism | The macroeconomic view that the main cause of changes in aggregate output and price level is fluctuations in the money supply; espoused by advocates of the monetary rule. (Money supply should be increased by the same rate as the potential GDP growth) |  |
| 65386905 | Monetarists | Those economists who subscribe to the theory of monetarism. |  |
| 65386906 | Monetary Policy | A central bank's changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth. |  |
| 65386907 | Multiple expansion of money-and money multiplier | Money supply is expanded through the fractional reserve system. Each dollar that is deposited can have a certain amount loaned out (excess reserves) which is new money, which can go on to create more excess reserves and money - The multiple of its excess reserves by which the banking system can expand checkable deposits and thus the money supply by making new loans; equal to 1 divided by the reserve requirement. |  |
| 65386908 | Phillips Curve | A curve showing the relationship between the unemployment rate (x-axis) and the annual rate of increase in the price level (inflation on the y-axis) |  |
| 65386909 | Production Possibilities Curve | A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed. |  |
| 65386910 | Simple Multiplier (effect on exports) | The multiplier in any economy in which government collects no net taxes, there are no imports, and investment is independent of the level of income; equal to 1 divided by marginal propensity to save. |  |
| 65386911 | SRAS determinants | Input Prices (Domestic Resource Prices, Prices of Imported Resources), Productivity, Legal-Institutional Environment (Business Taxes and Subsidies, Government Regulation) |  |
| 65386912 | Stagflation | Inflation accompanied by stagnation in the rate of growth of output and an increase in unemployment in the economy; simultaneous increases in the inflation rate and the unemployment rate. |  |
| 65386913 | Supply and Demand: Complements and Substitutes | Complementary goods and resources are those for which increases in price decrease demand for related goods and resources. (Price of paint drops, demand for brushes rise) Substitute goods and resources are those for which an increase in price would see an increase in demand in goods and resources they could be substituted for or by. |  |
| 65386914 | Supply Graph | The schedule showing the possible output produced at different price levels. |  |
| 65386915 | Types of unemployment | Frictional (Fired/Quit), Structural (Jobs Move Overseas), Cyclical (Recession Layoffs), Seasonal (Census Workers, Holiday Workers) |  |
| 65386916 | Unemployment Rate | The percentage of the labor forces unemployed at any time. |  |
| 65386917 | Why the multiplier occurs | As workers earn their salary, they have more disposable income to spend. As they purchase the output, those who have produced that will receive an increase in salary for their goods or services, and this cycle moves through the economy until fractions of the money have all been saved. |  |
| 65400657 | Allocative Efficiency | The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers; the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized. |  |
| 65400658 | Consumer surplus | The difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price. |  |
| 65400659 | Deadweight loss | Reductions in combined consumer and producer surplus caused by an under-allocation or over-allocation of resources to the production of a good or service. |  |
| 65400660 | Demand Graph | The schedule showing how much of a given good or service a consumer will demand at different price levels. |  |
| 65400661 | Economies of scale | Reductions in the average total cost of production a product as the firm expands the size of its plant (its output) in the long run; the economies of mass production. |  |
| 65400662 | Elasticity | The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in price; a measure of the responsiveness of buyers to a change in the price of a product or resource. |  |
| 65400663 | Externalities | A cost or benefit from production or consumption, accruing without compensation to someone other than the buyers and sellers of the product. (Neg. Ex: A Manufacturer dumps chemicals into river, killing fish sought by sports fishers) |  |
| 65400664 | Game Theory | A means of analyzing the business behavior of oligopolists that uses the theory of strategy associated with games such as chess and bridge. |  |
| 65400665 | Income Effect | A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price. |  |
| 65400666 | Inelastic | Product or resource demand for which the elasticity coefficient for price is less than 1. This means the resulting percentage change in quantity demanded is less than the percentage change in price. |  |
| 65400667 | Inferior goods | A good or service whose consumption declines as income rises, prices held constant. (Store brand items) |  |
| 65400668 | Law of diminishing returns | The principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease. |  |
| 65400669 | Lump sum tax | A tax that is a constant amount (the tax revenue of government is the same) at all levels of GDP. |  |
| 65400670 | Marginal Cost (MC) | The additional cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by output) |  |
| 65400671 | Marginal Revenue (MR) | The change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided b the change in the quantity of the product sold. |  |
| 65400672 | Market Power | The ability of a firm to set prices. Purely competitive firms have no market power, and are "price takers". Monopolists have absolute market power, and are "price makers". |  |
| 65400673 | Monopolistic Competition | A market structure in which many firms sell a differentiated product, into which entry is relatively easy, in which the firm has some control over its product price, and in which there is considerable non-price competition. (ex. Cereals, restaurants) |  |
| 65400674 | Monopoly Model | The graph showing how a monopoly decides what price will yield the greatest profit. Includes Demand, Marginal Cost, Marginal Benefit, and Average Total Cost. |  |
| 65400675 | MB = MC rule (MR=MC Rule) | The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost. |  |
| 65400676 | MRP=MRC rule | The principle that to maximize profit (or minimize losses), a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC), the latter being wage rate in a purely competitive market. |  |
| 65400677 | Normal goods | A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant. (Luxury Cars) |  |
| 65400678 | Oligopoly | A market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically non-price competition. |  |
| 65400679 | Perfect Competition (Pure Competition) | A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no non-price competition; a market characterized by a very large number of buyers and sellers. |  |
| 65400680 | Price Ceilings/Floors | A legally established limit for a good or service. Price floors are limits set over the equilibrium price so that sellers are able to make a living. |  |
| 65400681 | Price Discrimination | The selling of a product to different buyers at different prices when the price differences are not justified by differences in cost. (Coupons) |  |
| 65400682 | Producer surplus | The difference between the actual price a producer receives (or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price. |  |
| 65400683 | Substitution Effect | A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price; the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output. |  |
| 65400684 | Supply Graph (Micro) | The schedule showing the levels of output of a firm or industry that will be offered at different price levels. |  |
| 65400685 | Tax incidence | The person or group that ends up paying a tax. Example: if a tax of $1 is levied on apples, the tax could be passed onto consumers, or it could fall on the farmers. |  |
| 65400686 | TR test for Price Elasticity | Observing the change in total revenue as price changes. If, after the price increases, the TR increases as well, then the elasticity coefficient is greater than 1 (inelastic). If TR decreases in that situation, demand is elastic. If TR remains the same, demand is unit elastic. |  |
