Principles of Macroeconomics Vocabulary Part 2

question

adverse selection of wage cuts argument

answer

if employers reduce wages for all workers, the best will leave

question

cyclical unemployment

answer

unemployment closely tied to the business cycle, like higher unemployment during a recession

question

discouraged workers

answer

those who have stopped looking for employment due to the lack of suitable positions available

question

efficiency wage theory

answer

the theory that the productivity of workers, either individually or as a group, will increase if they are paid more

question

frictional unemployment

answer

unemployment that occurs as workers move between jobs

question

implicit contract

answer

an unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong

question

insider

answer

outsider model- those already working for the firm are "insiders" who know the procedures; the other workers are "outsiders" who are recent or prospective hires

question

labor force participation rate

answer

this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job

question

natural rate of unemployment

answer

the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

question

out of the labor force

answer

those who are not working and not looking for work, whether they want employment or not; also termed "not in the labor force"

question

relative wage coordination argument

answer

across the board wage cuts are hard for an economy to implement, and workers fight against them

question

structural unemployment

answer

unemployment that occurs because individuals lack skills valued by employers

question

underemployed

answer

individuals who are employed in a job that is below their skills

question

unemployment rate

answer

the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

question

adjustable rate mortgage (ARM)

answer

a loan used to purchase a home in which the interest rate varies with market interest rates

question

base year

answer

arbitrary year whose value as an index number is defined as 100; inflation from the base year to other years can easily be seen by comparing the index number in the other year to the index number in the base year (for example, 100; so, if the index number for a year is 105, then there has been exactly 5% inflation between that year and the base year)

question

basket of goods and services

answer

a hypothetical group of different items, with specified quantities of each one meant to represent a "typical" set of consumer purchases, used as a basis for calculating how the price level changes over time

question

Consumer Price Index (CPI)

answer

a measure of inflation calculated by U.S. government statisticians based on the price level from a fixed basket of goods and services that represents the purchases of the average consumer

question

core inflation index

answer

a measure of inflation typically calculated by taking the CPI and excluding volatile economic variables such as food and energy prices to better measure the underlying and persistent trend in long-term prices

question

cost of living adjustments (COLAs)

answer

a contractual provision that wage increases will keep up with inflation

question

deflation

answer

negative inflation; most prices in the economy are falling

question

Employment Cost Index

answer

a measure of inflation based on wages paid in the labor market

question

GDP deflator

answer

a measure of inflation based on the prices of all the components of GDP

question

Hyperinflation

answer

an outburst of high inflation that is often seen (although not exclusively) when economies shift from a controlled economy to a market-oriented economy

question

index number

answer

a unit-free number derived from the price level over a number of years, which makes computing inflation rates easier, since the index number has values around 100

question

indexed

answer

a price, wage, or interest rate is adjusted automatically for inflation

question

inflation

answer

a general and ongoing rise in the level of prices in an economy

question

International Price Index

answer

a measure of inflation based on the prices of merchandise that is exported or imported

question

Producer Price Index (PPI)

answer

a measure of inflation based on prices paid for supplies and inputs by producers of goods and services

question

quality/new goods bias

answer

inflation calculated using a fixed basket of goods over time tends to overstate the true rise in cost of living, because it does not take into account improvements in the quality of existing goods or the invention of new goods

question

substitution bias

answer

an inflation rate calculated using a fixed basket of goods over time tends to overstate the true rise in the cost of living, because it does not take into account that the person can substitute away from goods whose prices rise by a lot

question

balance of trade (trade balance)

answer

the gap, if any, between a nation's exports and imports

question

current account balance

answer

a broad measure of the balance of trade that includes trade in goods and services, as well as international flows of income and foreign aid

question

exports of goods and services as a percentage of GDP

answer

the dollar value of exports divided by the dollar value of a country's GDP

question

financial capital

answer

the international flows of money that facilitates trade and investment

question

merchandise trade balance

answer

the balance of trade looking only at goods

question

national savings and investment identity

answer

the total of private savings and public savings (a government budget surplus)

question

unilateral transfers

answer

"one-way payments" made by governments, private entities, or individuals that are sent abroad with nothing received in return

question

aggregate demand (AD)

answer

the amount of total spending on domestic goods and services in an economy

question

aggregate demand (AD) curve

answer

the total spending on domestic goods and services at each price level

question

aggregate demand/aggregate supply model

answer

a model that shows what determines total supply or total demand for the economy, and how total demand and total supply interact at the macroeconomic level

question

aggregate supply (AS)

answer

the total quantity of output (i.e. real GDP) firms will produce and sell

question

aggregate supply (AS) curve

answer

the total quantity of output (i.e. real GDP) that firms will produce and sell at each price level

question

full employment GDP

answer

another name for potential GDP, when the economy is producing at its potential and unemployment is at the natural rate of unemployment

question

intermediate zone

answer

portion of the SRAS curve where GDP is below potential but not so far below as in the Keynesian zone; the SRAS curve is upward sloping, but not vertical in the intermediate zone

question

Keynesian zone

answer

portion of the SRAS curve where GDP is far below potential and the SRAS curve is flat

question

Keynes' law

answer

"demand creates its own supply"

question

long run aggregate supply (LRAS) curve

answer

vertical line at potential GDP showing no relationship between the price level for output and real GDP in the long run

question

neoclassical economists

answer

economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the long run

question

neoclassical zone

answer

portion of the SRAS curve where GDP is at or near potential output where the SRAS curve is steep

question

potential GDP

answer

the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions

question

Say's law

answer

"supply creates its own demand"

question

short run aggregate supply (SRAS) curve

answer

positive short run relationship between the price level for output and real GDP, holding the prices of inputs fixed

question

stagflation

answer

an economy experiences stagnant growth and high inflation at the same time

question

contractionary fiscal policy

answer

tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures

question

coordination argument

answer

downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants

question

disposable income

answer

income after taxes

question

expansionary fiscal policy

answer

tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession

question

expenditure multiplier

answer

Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP

question

inflationary gap

answer

equilibrium at a level of output above potential GDP

question

macroeconomic externality

answer

occurs when what happens at the macro level is different from and inferior to what happens at the micro level; an example would be where upward sloping supply curves for firms become a flat aggregate supply curve, illustrating that the price level cannot fall to stimulate aggregate demand

question

menu costs

answer

costs firms face in changing prices

question

Phillips curve

answer

the tradeoff between unemployment and inflation

question

real GDP

answer

the amount of goods and services actually being sold in a nation

question

recessionary gap

answer

equilibrium at a level of output below potential GDP

question

sticky wages and prices

answer

a situation where wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand

question

adaptive expectations

answer

the theory that people look at past experience and gradually adapt their beliefs and behavior as circumstances change

question

expected inflation

answer

a future rate of inflation that consumers and firms build into current decision making

question

neoclassical perspective

answer

the philosophy that, in the long run, the business cycle will fluctuate around the potential, or full employment, level of output

question

physical capital per person

answer

the amount and kind of machinery and equipment available to help a person produce a good or service

question

rational expectations

answer

the theory that people form the most accurate possible expectations about the future that they can, using all information available to them

question

Asset

answer

item of value owned by a firm or an individual

question

asset-liability time mismatch

answer

a bank's liabilities can be withdrawn in the short term while its assets are repaid in the long term

question

balance sheet

answer

an accounting tool that lists assets and liabilities

question

bank capital

answer

a bank's net worth

question

barter

answer

literally, trading one good or service for another, without using money

question

coins and currency in circulation

answer

the coins and bills that circulate in an economy that are not held by the U.S Treasury, at the Federal Reserve Bank, or in bank vaults

question

commodity money

answer

an item that is used as money, but which also has value from its use as something other than money

question

commodity backed currencies

answer

are dollar bills or other currencies with values backed up by gold or another commodity

question

credit card

answer

immediately transfers money from the credit card company's checking account to the seller, and at the end of the month the user owes the money to the credit card company; a credit card is a short-term loan

question

debit card

answer

like a check, is an instruction to the user's bank to transfer money directly and immediately from your bank account to the seller

question

demand deposit

answer

checkable deposit in banks that is available by making a cash withdrawal or writing a check

question

depository institution

answer

institution that accepts money deposits and then uses these to make loans

question

diversify

answer

making loans or investments with a variety of firms, to reduce the risk of being adversely affected by events at one or a few firms

question

double coincidence of wants

answer

a situation in which two people each want some good or service that the other person can provide

question

fiat money

answer

has no intrinsic value, but is declared by a government to be the legal tender of a country

question

financial intermediary

answer

an institution that operates between a saver with financial assets to invest and an entity who will borrow those assets and pay a rate of return

question

liability

answer

any amount or debt owed by a firm or an individual

question

M1 money supply

answer

a narrow definition of the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler's checks.

question

M2 money supply

answer

a definition of the money supply that includes everything in M1, but also adds savings deposits, money market funds, and certificates of deposit

question

medium of exchange

answer

whatever is widely accepted as a method of payment

question

money

answer

whatever serves society in four functions: as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment.

question

money market fund

answer

the deposits of many investors are pooled together and invested in a safe way like short term government bonds

question

money multiplier formula

answer

total money in the economy divided by the original quantity of money, or change in the total money in the economy divided by a change in the original quantity of money

question

net worth

answer

the excess of the asset value over and above the amount of the liability; total assets minus total liabilities

question

payment system

answer

helps an economy exchange goods and services for money or other financial assets

question

reserves

answer

funds that a bank keeps on hand and that are not loaned out or invested in bonds

question

savings deposit

answer

bank account where you cannot withdraw money by writing a check, but can withdraw the money at a bank, or can transfer it easily to a checking account

question

smart card

answer

stores a certain value of money on a card and then the card can be used to make purchases

question

standard of deferred payment

answer

money must also be acceptable to make purchases today that will be paid in the future

question

store of value

answer

something that serves as a way of preserving economic value that can be spent or consumed in the future

question

T account

answer

a balance sheet with a two column format, with the T shape formed by the vertical line down the middle and the horizontal line under the column headings for "Assets" and "Liabilities"

question

time deposit

answer

account that the depositor has committed to leaving in the bank for a certain period of time, in exchange for a higher rate of interest; also called certificate of deposit

question

transaction costs

answer

the costs associated with finding a lender or a borrower for money

question

unit of account

answer

the common way in which market values are measured in an economy

1 of 105

question

adverse selection of wage cuts argument

answer

if employers reduce wages for all workers, the best will leave

question

cyclical unemployment

answer

unemployment closely tied to the business cycle, like higher unemployment during a recession

question

discouraged workers

answer

those who have stopped looking for employment due to the lack of suitable positions available

question

efficiency wage theory

answer

the theory that the productivity of workers, either individually or as a group, will increase if they are paid more

question

frictional unemployment

answer

unemployment that occurs as workers move between jobs

question

implicit contract

answer

question

insider

answer

outsider model- those already working for the firm are "insiders" who know the procedures; the other workers are "outsiders" who are recent or prospective hires

question

labor force participation rate

answer

this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job

question

natural rate of unemployment

answer

the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

question

out of the labor force

answer

those who are not working and not looking for work, whether they want employment or not; also termed "not in the labor force"

question

relative wage coordination argument

answer

across the board wage cuts are hard for an economy to implement, and workers fight against them

question

structural unemployment

answer

unemployment that occurs because individuals lack skills valued by employers

question

underemployed

answer

individuals who are employed in a job that is below their skills

question

unemployment rate

answer

the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

question

adjustable rate mortgage (ARM)

answer

a loan used to purchase a home in which the interest rate varies with market interest rates

question

base year

answer

question

basket of goods and services

answer

question

Consumer Price Index (CPI)

answer

a measure of inflation calculated by U.S. government statisticians based on the price level from a fixed basket of goods and services that represents the purchases of the average consumer

question

core inflation index

answer

question

cost of living adjustments (COLAs)

answer

a contractual provision that wage increases will keep up with inflation

question

deflation

answer

negative inflation; most prices in the economy are falling

question

Employment Cost Index

answer

a measure of inflation based on wages paid in the labor market

question

GDP deflator

answer

a measure of inflation based on the prices of all the components of GDP

question

Hyperinflation

answer

an outburst of high inflation that is often seen (although not exclusively) when economies shift from a controlled economy to a market-oriented economy

question

index number

answer

a unit-free number derived from the price level over a number of years, which makes computing inflation rates easier, since the index number has values around 100

question

indexed

answer

a price, wage, or interest rate is adjusted automatically for inflation

question

inflation

answer

a general and ongoing rise in the level of prices in an economy

question

International Price Index

answer

a measure of inflation based on the prices of merchandise that is exported or imported

question

Producer Price Index (PPI)

answer

a measure of inflation based on prices paid for supplies and inputs by producers of goods and services

question

quality/new goods bias

answer

question

substitution bias

answer

question

balance of trade (trade balance)

answer

the gap, if any, between a nation's exports and imports

question

current account balance

answer

a broad measure of the balance of trade that includes trade in goods and services, as well as international flows of income and foreign aid

question

exports of goods and services as a percentage of GDP

answer

the dollar value of exports divided by the dollar value of a country's GDP

question

financial capital

answer

the international flows of money that facilitates trade and investment

question

merchandise trade balance

answer

the balance of trade looking only at goods

question

national savings and investment identity

answer

the total of private savings and public savings (a government budget surplus)

question

unilateral transfers

answer

"one-way payments" made by governments, private entities, or individuals that are sent abroad with nothing received in return

question

aggregate demand (AD)

answer

the amount of total spending on domestic goods and services in an economy

question

aggregate demand (AD) curve

answer

the total spending on domestic goods and services at each price level

question

aggregate demand/aggregate supply model

answer

a model that shows what determines total supply or total demand for the economy, and how total demand and total supply interact at the macroeconomic level

question

aggregate supply (AS)

answer

the total quantity of output (i.e. real GDP) firms will produce and sell

question

aggregate supply (AS) curve

answer

the total quantity of output (i.e. real GDP) that firms will produce and sell at each price level

question

full employment GDP

answer

another name for potential GDP, when the economy is producing at its potential and unemployment is at the natural rate of unemployment

question

intermediate zone

answer

portion of the SRAS curve where GDP is below potential but not so far below as in the Keynesian zone; the SRAS curve is upward sloping, but not vertical in the intermediate zone

question

Keynesian zone

answer

portion of the SRAS curve where GDP is far below potential and the SRAS curve is flat

question

Keynes' law

answer

"demand creates its own supply"

question

long run aggregate supply (LRAS) curve

answer

vertical line at potential GDP showing no relationship between the price level for output and real GDP in the long run

question

neoclassical economists

answer

economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the long run

question

neoclassical zone

answer

portion of the SRAS curve where GDP is at or near potential output where the SRAS curve is steep

question

potential GDP

answer

the maximum quantity that an economy can produce given full employment of its existing levels of labor, physical capital, technology, and institutions

question

Say's law

answer

"supply creates its own demand"

question

short run aggregate supply (SRAS) curve

answer

positive short run relationship between the price level for output and real GDP, holding the prices of inputs fixed

question

stagflation

answer

an economy experiences stagnant growth and high inflation at the same time

question

contractionary fiscal policy

answer

tax increases or cuts in government spending designed to decrease aggregate demand and reduce inflationary pressures

question

coordination argument

answer

downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants

question

disposable income

answer

income after taxes

question

expansionary fiscal policy

answer

tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession

question

expenditure multiplier

answer

Keynesian concept that asserts that a change in autonomous spending causes a more than proportionate change in real GDP

question

inflationary gap

answer

equilibrium at a level of output above potential GDP

question

macroeconomic externality

answer

question

menu costs

answer

costs firms face in changing prices

question

Phillips curve

answer

the tradeoff between unemployment and inflation

question

real GDP

answer

the amount of goods and services actually being sold in a nation

question

recessionary gap

answer

equilibrium at a level of output below potential GDP

question

sticky wages and prices

answer

a situation where wages and prices do not fall in response to a decrease in demand, or do not rise in response to an increase in demand

question

adaptive expectations

answer

the theory that people look at past experience and gradually adapt their beliefs and behavior as circumstances change

question

expected inflation

answer

a future rate of inflation that consumers and firms build into current decision making

question

neoclassical perspective

answer

the philosophy that, in the long run, the business cycle will fluctuate around the potential, or full employment, level of output

question

physical capital per person

answer

the amount and kind of machinery and equipment available to help a person produce a good or service

question

rational expectations

answer

the theory that people form the most accurate possible expectations about the future that they can, using all information available to them

question

Asset

answer

item of value owned by a firm or an individual

question

asset-liability time mismatch

answer

a bank's liabilities can be withdrawn in the short term while its assets are repaid in the long term

question

balance sheet

answer

an accounting tool that lists assets and liabilities

question

bank capital

answer

a bank's net worth

question

barter

answer

literally, trading one good or service for another, without using money

question

coins and currency in circulation

answer

the coins and bills that circulate in an economy that are not held by the U.S Treasury, at the Federal Reserve Bank, or in bank vaults

question

commodity money

answer

an item that is used as money, but which also has value from its use as something other than money

question

commodity backed currencies

answer

are dollar bills or other currencies with values backed up by gold or another commodity

question

credit card

answer

question

debit card

answer

like a check, is an instruction to the user's bank to transfer money directly and immediately from your bank account to the seller

question

demand deposit

answer

checkable deposit in banks that is available by making a cash withdrawal or writing a check

question

depository institution

answer

institution that accepts money deposits and then uses these to make loans

question

diversify

answer

making loans or investments with a variety of firms, to reduce the risk of being adversely affected by events at one or a few firms

question

double coincidence of wants

answer

a situation in which two people each want some good or service that the other person can provide

question

fiat money

answer

has no intrinsic value, but is declared by a government to be the legal tender of a country

question

financial intermediary

answer

an institution that operates between a saver with financial assets to invest and an entity who will borrow those assets and pay a rate of return

question

liability

answer

any amount or debt owed by a firm or an individual

question

M1 money supply

answer

a narrow definition of the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler's checks.

question

M2 money supply

answer

a definition of the money supply that includes everything in M1, but also adds savings deposits, money market funds, and certificates of deposit

question

medium of exchange

answer

whatever is widely accepted as a method of payment

question

money

answer

whatever serves society in four functions: as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment.

question

money market fund

answer

the deposits of many investors are pooled together and invested in a safe way like short term government bonds

question

money multiplier formula

answer

total money in the economy divided by the original quantity of money, or change in the total money in the economy divided by a change in the original quantity of money

question

net worth

answer

the excess of the asset value over and above the amount of the liability; total assets minus total liabilities

question

payment system

answer

helps an economy exchange goods and services for money or other financial assets

question

reserves

answer

funds that a bank keeps on hand and that are not loaned out or invested in bonds

question

savings deposit

answer

bank account where you cannot withdraw money by writing a check, but can withdraw the money at a bank, or can transfer it easily to a checking account

question

smart card

answer

stores a certain value of money on a card and then the card can be used to make purchases

question

standard of deferred payment

answer

money must also be acceptable to make purchases today that will be paid in the future

question

store of value

answer

something that serves as a way of preserving economic value that can be spent or consumed in the future

question

T account

answer

a balance sheet with a two column format, with the T shape formed by the vertical line down the middle and the horizontal line under the column headings for "Assets" and "Liabilities"

question

time deposit

answer

account that the depositor has committed to leaving in the bank for a certain period of time, in exchange for a higher rate of interest; also called certificate of deposit

question

transaction costs

answer

the costs associated with finding a lender or a borrower for money

question

unit of account

answer

the common way in which market values are measured in an economy

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