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McConnell 18th edition Macro Economics
Chapter 29,30,31,32,33 definitions_OCC McRitchie class
42
Economics
Undergraduate 1
10/29/2013

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Term
Aggregate Demand
Definition

 is a schedule or curve that shows the

amounts of real output (real GDP) that buyers collectively

desire to purchase at each possible price level

Term
Real-balances Effect
Definition
A change in aggregate expenditures on real production made by the household, business, government, and foreign sectors that results because a change in the price level alters the purchasing power of money.
Term
Interest-rate Effect
Definition

The impact of a rise in the cost of borrowing on production costs due to price inflation within an economy. The interest rate effect reflects the fact that most consumers and business finance managers will cut back on their borrowing activities when interest rates increase.

 

 

Term
Foreign purchases effect
Definition
When domestic price levels rise relatively to foreign products, foreigners buy fewer U.S. goods, and Americans buy more foreign goods.
Term
Aggregate Supply
Definition

is a schedule or curve showing the relationship

between the price level and the amount of real

domestic output that firms in the economy produce

Term
Productivity
Definition

 which is a measure of the relationship between

a nation’s level of real output and the amount of resources

used to produce that output

 

Total Output

Total Input

Term
Determinants of Aggregate Supply
Definition

Input prices

Productivity

Legal-Institutional Envirionment

 

Term
Determinants of Aggregate Demand
Definition

Consumer Spending

Investment

Government spending

Net Exports

Term
Fiscal Policy 
Definition

consists of

deliberate changes in government spending and tax collections designed to achieve full employment,

control inflation, and encourage economic growth

Term
Council of Economic Advisers (CEA)
Definition

 a group of three economists

appointed by the president to provide expertise and

assistance on economic matters.

Term
Budget Deficit
Definition

government

spending in excess of tax revenues

Term
Expansionary Fiscal Policy
Definition

A macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation (price increases) by

1) tax cuts

2)Government Spending

3) or both

 

Term
Contractionary Fiscal Policy
Definition
A type of policy that is used as a macroeconomic tool by the country's central bank or finance ministry to slow down an economy. Contractionary policies are enacted by a government to reduce the money supply and ultimately the spending in a country. 

This is done primarily through:
1. Increasing interest rates
2. Increasing reserve requirements
3. Reducing the money supply, directly or indirectly
Term
Budget Surplus
Definition

budget tax revenues in excess of government

spending.

Term
Built-In Stabilizer 
Definition

 is anything that increases the government’s

budget deficit (or reduces its budget surplus)

during a recession and increases its budget surplus (or

reduces its budget deficit) during an expansion without requiring

explicit action by policymakers.

Term
Standardized Budget
Definition

 (also called the full-employment budget) to adjust actual Federal budget deficits

and surpluses to account for the changes in tax revenues

that happen automatically whenever GDP changes

Term
Political buisiness Cycle
Definition
A business cycle that results primarily from the manipulation of policy tools (fiscal policy, monetary policy) by incumbent politicians hoping to stimulate the economy just prior to an election and thereby greatly improve their own and their party's reelection chances
Term
Crowding-out Effect
Definition

An expansionary fiscal policy (deficit

spending) may increase the interest rate and reduce investment

spending, thereby weakening or canceling the

stimulus of the expansionary policy.

Term
Public Debt 
Definition

is essentially the total accumulation

of the deficits (minus the surpluses) the

Federal government has incurred through time

Term
External Public Debt
Definition
Debt owed to creditorsoutside the U.S.
Term
Unit of Account
Definition
standard monetary unit of measurement of value/cost of goods, services, or assets
Term
Store of Value
Definition
Term
Liquidity
Definition

is the ease with which it can be

converted quickly into the most widely accepted and easily

spent form of money, cash, with little or no loss of purchasing

power

Term
M 1
Definition

 It consists of:

• Currency (coins and paper money) in the hands of

the public.

• All checkable deposits (all deposits in commercial

banks and “thrift” or savings institutions on which

checks of any size can be drawn).

Term
Federal Reserve Notes
Definition
United States dollars (paper currency)
Term
Checkable Deposit
Definition

Funds held at a bank or any other financial institution as a means for people to quickly access their accounts by writing checks or drafts. These accounts are highly liquid in nature and thus, transferable from one person to another. Checking, savings and money market accounts are examples of a checkable deposit account.

 

Term
Commercial banks
Definition
financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit
Term
M 2
Definition
A category within the money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds
Term
Time Deposits
Definition
A savings account or certificate of deposit (CD) held for a fixed-term, with the understanding that the depositor can make a withdrawal only by giving notice.
Term
Federal Reserve System
Definition
also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States
Term
Board of Governors
Definition
is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement monetary policy of the United States. Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms.
Term
Federal Reserve Banks
Definition

12 banks which blend private and

public control, collectively serve as the nation’s “central

bank.” Its a bank to the bank.

Term
Federal Open Market Committee (FOMC)
Definition

 is made up of 12 individuals:

• The seven members of the Board of Governors.

• The president of the New York Federal Reserve Bank.

• Four of the remaining presidents of Federal Reserve

Banks on a 1-year rotating basis.

The FOMC meets regularly to direct the purchase and

sale of government securities (bills, notes, bonds) in the

open market in which such securities are bought and sold

on a daily basis.

Term
Fractional Reserve Banking System
Definition

 in which only a portion

(fraction) of checkable deposits are backed up by cash

in bank vaults or deposits at the central bank

Term
Vault Cash
Definition
Cash held by a bank
Term
Required reserves
Definition

 are an amount of funds equal to a

specified percentage of the bank’s own deposit liabilities.

Term
Reserve Ratio
Definition

the ratio of the required

reserves the commercial bank must keep to the bank’s own

outstanding checkable-deposit liabilities

Term
Excess reserves
Definition
 = actual reserves - required reserves
Term
Actual Reserves 
Definition
is the amount computed by a bank by summing its holdings of vault cash with its holdings of reserve deposits at the Federal Reserve over a 2-week reserve maintenance period.
Term
Federal funds rate.
Definition
is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis.
Term
Monetary Multiplier
Definition

 in a fractional-reserve banking system, the total amount of loans that commercial banks are allowed to extend (the commercial bank money that they can legally create) is a multiple of reserves; this multiple is the reciprocal of the reserve ratio, and it is an economic multiplier.

 

_________1_________

required reserve ratio

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