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short run in macroeconomics
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the period of time in which prices do not change or do not change very much
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aggregate demand curve
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a curve that shows the relationship between the level of prices and the quantity of real GDP demanded
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wealth effect
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the increase in spending that occurs because the real value of money increases when the price level falls
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multiplier
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the ratio of the total shift in aggregate demand to the initial shift in aggregate demand
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marginal propensity to consume
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the fraction of additional income that is spent
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aggregate supply curve
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a curve that shows the relationship between the level of prices and the quantity of output supplied
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long run aggregate supply curve
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a vertical aggregate supply curve that reflects the idea that in the long run, output is determined solely by the factors of production and technology
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short-run aggregate supply curve
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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
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supply shocks
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external events that shift the aggregate supply curve
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stagflation
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a decrease in real output with increasing prices
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expansionary policies
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government policy actions that lead to increases in aggregate demand
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contractionary policies
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government policy actions that lead to decreases in aggregate demand
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stabilization policies
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policy actions taken to move the economy closer to full employment or potential output
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discretionary spending
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the spending programs that Congress authorizes on an annual basis
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entitlement and mandatory spending
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spending that Congress has authorized by prior law, primarily providing support for individuals
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supply-side economics
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a school of thought that emphasizes the role that taxes play in the supply of output in the economy
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Laffer curve
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a relationship between the teas rates and tax revenues that illustrates that high taz rates could lead to lower tax revenues if economic activity is severely discouraged
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budget deficit
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the amount by which government spending exceeds revenues in a given year
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budget surplus
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the amount by which government revenues exceed government expenditures in a given year
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automatic stabilizers
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taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit action
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permanent income
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an estimate of a household's long-run average level of income
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equilibrium output
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the level of GDP at which planned expenditure equals the amount that is produced
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marginal propensity to consume
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the fraction of additional income that is spent
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savings function
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the relationship between the level of saving and the level of income
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nominal interest rate
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interest rate quoted in the market
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real interest rate
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the nominal interest rate minus the inflation rate
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reserves
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the portion of banks' deposits set aside in either vault cash or as deposits at the Federal Reserve
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required reserves
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the specific fraction of their deposits that banks are required by law to hold as reserves
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excess reserves
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any additional reserves that a bank holds above required reserves
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reserve ratio
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the ratio of reserves to deposits
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money multiplier
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the ratio of the increase in total checking account deposits to an initial cash deposit
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central bank
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a banker's bank: an official bank that controls the supply on money in a country
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lender of last resort
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a central bank is the lender of last resort, the last place, all other having failed, from which banks in emergency situations can obtain loans
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monetary policy
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the range of actions taken by the Federal Reserve to influence the level of GDP or inflation
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Federal Reserve Bank
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one of 12 regional banks that are an official part of the Federal Reserve System
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Board of Governors of the Federal Reserve
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the seven-person governing body of the Federal Reserve System in Washington, DC
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Federal Open Market Committee
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The group that decides on monetary policy: it consists of the 7 members of the Board of Governors plus 5 of 12 regional bank presidents on a rotating basis
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money market
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the market for money in which the amount supplied and the amount demanded meet to determine the nominal interest rate
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transaction demand for money
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the demand for money based on the desire to facilitate transactions
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open market operations
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the purchase e of sale of US government securities by the Fed
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open market purchases
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the Fed's purchase of government bonds from the private sector
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open market sales
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the Fed's sale of government bonds to the private sector
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federal funds market
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the market in which banks borrow and lend reserves to and from one another
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federal funds rate
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the interest rate on reserves that banks lend each other
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