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| is the problem of infinite human needs and wants, in a world of finite resources. |
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| The opportunity cost of an activity is the value of the next-best alternative that must be forgone in order to undertake the activity. |
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| the study of how people make choices under conditions of scarcity and of the results of those choices for society. |
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| the scientific study of human society and social relationships. (Economics and politics.) |
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| Land, Labor, Human Capital, Capital, Entrepreneurship |
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| Spending on capital equipment, inventories, and structures, including household’s purchases of new housing. |
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| (no-free-lunch principle) Although we have boundless needs and wants, the resources available to us are limited. So having more of one good thing usually means having less of another. |
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| An individual (firm or society) should take an action if and only if the extra benefits from taking the action are at least as great as the extra cost. |
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| A person (or a firm or a society) is more likely to take an action if its benefit rises, and less likely to take it if it cost rises. |
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Gross Domestic Product. – Measures how much an economy produces in a given period
o Allows comparison over time. Good summary. |
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| the increase in the amount of the goods and services produced by an economy over time. |
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| Sources of Economic Growth |
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Definition
o Policies to increase human capital: Providing free public education
o Policies that promote savings and investment: Public investment- bridges, airports, dams, etc.
o Policies that support research and development |
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| Symptoms of Inefficiency (Business Cycle, Unemployment) |
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o Business Cycle: fluctuation in production or economic activity over several months or years, around a long-term growth trend.
o Unemployment: the state of being unemployed. |
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| Macroeconomic Policy Objectives |
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o Full Employment
o Price Stability
o High and sustainable rate of economic growth |
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| The # of Unemployed/ Labor Force |
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| A type of employment rampant during a recession. |
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| GLOBALIZATION. Horse and Buggy Industry after the car was invented. |
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| People in the midst of transitioning between jobs, searching for a new one. |
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| Santa Clause during Christmas. |
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| Caused by government Policies such as minimum wage. |
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| the condition in which virtually all who are able and willing to work are employed. |
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| A general increase in prices and a fall in the purchasing power of money. |
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| The rate of increase of all prices except energy and food. |
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| Consumer Price Index. Measures the cost of a standard basket of goods relative to the cost of the same goods in a fixed year, called the base year. |
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| Income that has not been adjusted for inflation and decreasing Purchasing power. |
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| Income that has been adjusted for inflation and decreasing purchasing power. |
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| Real Interest Rate + Inflation = Nominal Interest Rate |
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| If we efficiently utilize all of our resources in our economy. |
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| Recessionary Output Graph |
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Definition
Price Level goes Up
GDP goes Down |
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| Expansionary Output Graph |
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Definition
Price Level - Goes Down
GDP - Goes Up |
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| The belief that some prices adjust slowly in response to market shortages and surpluses. |
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| A cycle or Series of Cycles in economic expansion and contraction. |
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| Marginal Propensity Calculator. The amount by which consumption rises when disposable income rises by $1 |
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| Keynesian Spending Multiplier |
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Definition
| Look up and know how to calculate and explain it. |
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| Money Supply. (All currency in circulation + traveler's checks + checking accounts) |
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Money Supply.
o Currency held by individuals/firms
o Banks reserves kept within a bank or on deposit @ the central bank |
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| Purchasing Power of Money |
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| The number of goods and services that can be purchased with a unit of currency. |
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o Medium of Exchange
o Store of Value
o Unit of Account |
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| Features of a Useful Medium of Exchange |
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Definition
o Portable
o Durable
o Divisible
o Recognizable |
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| Functions of the Federal Reserve |
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Definition
o Manage the Money Supply & Conduct Monetary Policy
o Serve as a Lender of Last Resort
o Insure the stability of the banking system. |
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Definition
o Open Market Operations: Buy or sell government Bonds
o Discount Rate: Interest Rate banks pay when they borrow money from the FED
o Reserve Requirements
o Moral Suasion: Idea that the FED can tell banks to loan more/less money. |
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This is so they can pursue anti-inflation policy when it is necessary, even if it leads to a temporary recession. Elected officials would constantly face reelection so they would do what is in their best interest rather than that of economy.
-Officials are appointed every 14 years. Must be approved by the Senate. (7 Members) |
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| Fractional Reserve Banking System |
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Definition
| the banking pracice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder. |
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| Open Market Operations (OMO) |
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Definition
o The sale and purchase of Treasury Bills
o Fed controls this |
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| A banking regulation that sets the minimum reserves each bank must hold to customer deposits and notes. Would normally be in the form of fiat currency stored in a bank vault or with a central bank. |
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| Potential Money Multiplier |
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| The reserve requirement affects the potential of the banking system to create money. |
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| When a bank holds more in reserves that is required by them by the central bank (FED) |
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| Money being held as currency rather than being deposited into some financial institution. |
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| Interest Rate banks pay when they borrow money from the FED. |
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| Interest Rate banks charge one another when they borrow from each other. (Overnight Transactions) |
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The process by which the government or the central bank controls:
o Supply of money
o Availability of money
o Cost of money or rate of interest |
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The use of government spending and revenue collection to influence the economy.
o Changes in spending effect
• AD and the level of economic activity
• Pattern of resource allocation
• Distribution of income |
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| When the government spends more money than they make from taxes. |
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| Government spending that displaces Private Investment. |
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| 1 / 1 - MPC X Changed in G |
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