Term
|
Definition
| Use of money and credit controls to influence macro outcomes, some economists argue it is more effective than fiscal policy |
|
|
Term
|
Definition
| where price of money is determined |
|
|
Term
|
Definition
| price paid for use of money |
|
|
Term
|
Definition
| currency held by public, plus balances in transactions accounts |
|
|
Term
|
Definition
| M1 plus balances in most savings accounts and money market mutual funds |
|
|
Term
|
Definition
| quantities of money people are willing and able to hold at alternative interest rates, ceteris paribus |
|
|
Term
|
Definition
| choice of how (where) to hold idle funds |
|
|
Term
| transactions demand for money |
|
Definition
| money held for making everyday market purchases |
|
|
Term
| precautionary demand for money |
|
Definition
| money held for unexpected market transactions or for emergencies |
|
|
Term
| speculative demand for money |
|
Definition
| money held for speculative purposes, for later financial opportunities |
|
|
Term
| what happens when interest rates fall? |
|
Definition
| the quantity of money people are willing/able to hold increases |
|
|
Term
|
Definition
|
|
Term
| equilibrium rate of interest |
|
Definition
| interest rate at which quantity of money demanded in a given time period equals the quantity of money supplied |
|
|
Term
| How can the federal reserve alter the money supply? |
|
Definition
| through changes in reserve requirements, the discount rate, or through open market operations- which changes the equilibrium rate of interest |
|
|
Term
|
Definition
| interest rate for interbank reserve loans; most directly affected when the Fed injects or withdraws reserves from the banking system |
|
|
Term
| who do changes in interest rates affect? |
|
Definition
| consumer, investor, government, and net export spending |
|
|
Term
| stimulating economy achieved through |
|
Definition
| increase in money supply, reduction in interest rates, increase in aggregate demand |
|
|
Term
| monetary restraint achieved through |
|
Definition
| decrease in the money supply, increase in interest rates, decrease in AD |
|
|
Term
| what can policy constraints do? |
|
Definition
| limit fed's ability to alter money supply, interest rates, or AD |
|
|
Term
|
Definition
| portion of the money demand curve that is horizontal: people are willing to hold unlimited amounts of money at some (low) interest rate |
|
|
Term
|
Definition
| optimistic consumers and investors may continue borrowing even though interest rates are higher |
|
|
Term
|
Definition
| US borrowers might tap global sources of money or local non-bank lenders not regulated by the fed |
|
|
Term
|
Definition
| believe changes in money supply affect macro outcomes primarily through changes in interest rates; monetary policy wouldn't be effective at ending a deep recession;anti inflation policy is to shrink money supply to drive up interest rates to slow spending |
|
|
Term
|
Definition
| believe monetary policy cannot effectively fight short-run business cycle but is a powerful tool for managing inflation; |
|
|
Term
|
Definition
| used by monetarists to express the potential of monetary policy; money supply (M) times velocity of circulation (v) equals level of aggregate spending (p*q); MV=PQ |
|
|
Term
| income velocity of money (V) |
|
Definition
| number of times per year, on average, a dollar is used to purchase final goods or services; how often a dollar changes hands; V=PQ/M |
|
|
Term
| natural rate of unemployment |
|
Definition
| long-term rate of unemployment determined by structural forces in labor and product markets |
|
|
Term
|
Definition
| =nominal interest rate- anticipated inflation rate |
|
|
Term
| Monetarists think what is the principle macroeconomic policy lever? |
|
Definition
|
|
Term
| Keynesians think what is the principle macroeconomic policy lever? |
|
Definition
| velocity (V), as tax and expenditure policies have no direct impact on money supply |
|
|
Term
|
Definition
| use of an inflation ceiling ("target") to signal need for monetary policy adjustments |
|
|
Term
|
Definition
| the simultaneous occurrence of substantial unemployment and inflation |
|
|
Term
|
Definition
| total quantity of output that producers are willing and able to supply at alternative price levels in a given time period, ceteris paribus |
|
|
Term
|
Definition
| little risk of inflation during recession; producers increase output, not prices, when AD picks up; inflation becomes a problem only if demand increases beyond capacity |
|
|
Term
|
Definition
| changes in money supply affect prices but not output; rising prices don't entice producers to increase output because costs rise just as fast; AS is vertical and located at full employment |
|
|
Term
|
Definition
| at low rates of output AS is horizontal, at high rats of output AS is nearly vertical; in between, AS is gently upward sloping; closer economy is to capacity, greater the risk that fiscal or monetary stimulus will cause inflation |
|
|
Term
|
Definition
| a historical (inverse) relationship between the rate of unemployment and the rate of inflation; commonly expresses a tradeoff between the two |
|
|
Term
|
Definition
| rate of output at which inflationary pressures intensify; point of inflection on AS curve |
|
|
Term
| policy options to shift AS rightward include |
|
Definition
| tax incentives for saving, investment, and work, human capital investment, deregulation, trade liberalization, infrastructure development |
|
|
Term
| supply side theory for getting economy moving |
|
Definition
| 1. cut tax rates to boost incentives to work and invest, 2. firms invest more and try new ventures; jobs created; people work harder; AS increases,3. new investment and labor bring increased output,4. employment rises, new plants go up, whole econ expands |
|
|
Term
| keynesian theory for getting the economy moving |
|
Definition
| 1.cut tax rates to put more disposable income in peoples' hands, 2. people use increased income to buy more g/s:AD increases,#. to meet new demand, companies expand output,4. employment rises, new plants go up, whole economy expands |
|
|
Term
|
Definition
| tax rate imposed on last (marginal) dollar of income |
|
|
Term
|
Definition
| lump-sum refund of taxes paid |
|
|
Term
|
Definition
| =%change in quantity supplied/%change in tax rate |
|
|
Term
|
Definition
| the transportation, communications, education, judicial and other institutional systems that facilitate market exchanges |
|
|
Term
|
Definition
| short-run changes in capacity utilization (involve increased use of existing productive resources, moving us closer to econ's production possibilities curve), long-run changes in capacity (involve expansion of productive capacity-a shifting out of the PPC) |
|
|
Term
|
Definition
| value of final output produced in given period, adjusted for changing prices |
|
|
Term
|
Definition
| percent change in real output from one period to another; calculated as the change in real output between two periods divided by total output in the first period |
|
|
Term
|
Definition
output per unit of input
=total output/total labor hours |
|
|
Term
| future growth depends on: |
|
Definition
| growth rate of labor force and productivity |
|
|
Term
|
Definition
| increase in labor skills, source of productivity gain |
|
|
Term
|
Definition
| increase in ratio of capital to labor, source of productivity gain |
|
|
Term
|
Definition
| development and use of better capital equipment and products, source of productivity gain |
|
|
Term
|
Definition
| better use of available resources in production process, source of productivity gain |
|
|
Term
|
Definition
| gross investment less depreciation |
|
|
Term
|
Definition
| old emphasized importance of saving and investing in new plant and equipment, new emphasizes importance of investing in knowledge and ideas |
|
|
Term
| fiscal policy instruments |
|
Definition
| use of government taxes and spending to alter macro outcomes; tax cuts and increases, changes in government spending, |
|
|
Term
|
Definition
| federal revenues at full employment minus expenditures at full employment under prevailing fiscal policy |
|
|
Term
|
Definition
| tax cuts or spending hikes intended to increase (shift) AD |
|
|
Term
|
Definition
| tax hikes or spending cuts intended to reduce (shift) AD |
|
|
Term
| monetary policy instruments |
|
Definition
| use of money and credit controls to influence macro outcomes; open market operations, reserve requirements, dsicount rate changes |
|
|
Term
| who makes monetary policy? |
|
Definition
| federal reserve's board of governors |
|
|
Term
| supply-side policy instruments |
|
Definition
| use of tax incentives, (de)regulation and other mechanisms to increase ability and willingness to produce g/s; tax incentives for investment and saving, deregulation, human capital investment, infrastructure development, free trade, immigration |
|
|
Term
|
Definition
| adjustments in economic policy designed to counteract small changes in economic outcomes; continuous responses to changing economic conditions |
|
|
Term
| 4 obstacles to policy success |
|
Definition
| goal conflict, measurement problems, design problems, implementation problems |
|
|
Term
|
Definition
| mathematical summaries of econ's performance |
|
|
Term
|
Definition
| goods and services purchased from foreign sources: US imported $2.5 trillion in 2008 |
|
|
Term
|
Definition
| goods and services sold to foreign buyers; US exported $1.3 trillion goods and $544 billion in services |
|
|
Term
|
Definition
| the difference between the value of exports and imports |
|
|
Term
|
Definition
| the amount by which the value of imports exceeds the value of exports in a given time period |
|
|
Term
|
Definition
| the amount by which the value of exports exceeds the value of imports in a given time period |
|
|
Term
|
Definition
| a nation that doesn't engage in international trade |
|
|
Term
|
Definition
| trade allows nations to specialize which increases total output |
|
|
Term
| consumption possibilities |
|
Definition
| the alternative combinations of goods and services that a country could consume in a given time period |
|
|
Term
|
Definition
| ability of a country to produce a specific good at a lower opportunity cost of producing particular goods |
|
|
Term
|
Definition
| the ability of a country to produce a specific good with fewer resources (per unit of output) than other countries |
|
|
Term
|
Definition
| rate at which goods are exchanged; the amount of good A given up for good B in trade |
|
|
Term
|
Definition
| sale of goods in export markets at prices below domestic goods |
|
|
Term
|
Definition
| a prohibition on exports or imports |
|
|
Term
|
Definition
| tax (duty) imposed on imported goods; makes imported goods more expensive to domestic consumers and less competitive with domestically priced goods |
|
|
Term
|
Definition
| limit on the quantity of a good that may be imported in a given time period |
|
|
Term
| voluntary restraint agreement (VRA) |
|
Definition
| an agreement to reduce the volume of trade in a specific good; a voluntary quota |
|
|
Term
| other non tariff barriers that restrict trade |
|
Definition
| standards, licensing restrictions, restrictive procurement practices |
|
|
Term
|
Definition
| price of one country's currency expressed in terms of another's; the domestic price of a foreign currency |
|
|
Term
| market demand for us dollars originates in |
|
Definition
| foreign demand for american exports, foreign demand for american investment, and speculation |
|
|
Term
| supply of dollars originates in |
|
Definition
| american demand for imports, american investment in foreign countries, speculation |
|
|
Term
| when does the quantity of dollars supplied rise? |
|
Definition
| when the value of the dollar increases |
|
|
Term
|
Definition
| price at which the quantity of a good demanded in a given time period equals the quantity supplied |
|
|
Term
|
Definition
| a summary record of a country's international economic transactions in a given period of time |
|
|
Term
|
Definition
| trade balance + unilateral transfers |
|
|
Term
|
Definition
| foreign purchases of US assets-US purchases of foreign assets |
|
|
Term
|
Definition
| a fall in price of one currency relative to another |
|
|
Term
|
Definition
| a rise in price of one currency relative to another |
|
|
Term
|
Definition
| places where foreign exchange currencies are bought and sold |
|
|
Term
| important reasons that foreign-exchange market supply or demand may shift |
|
Definition
| relative income changes, relative price changes, changes in product availability, relative interest-rate changes, speculation |
|
|
Term
|
Definition
| an agreement by countries to fix the price of their currencies in terms of gold; mechanism for fixing exchange rates |
|
|
Term
| excess demand for a foreign currency implies |
|
Definition
| a balance-of-payments deficit for the domestic nation and a balance-of-payments surplus for the foreign nation |
|
|
Term
| balance-of-payments deficit |
|
Definition
| an excess demand for foreign currency at current exchange rates |
|
|
Term
| balance-of-payments surplus |
|
Definition
| an excess demand for domestic currency at current exchange rates |
|
|
Term
| 2 ways to deal with balance-of-payments problems when there are fixed exchange rates: |
|
Definition
| allow exchange rates to change, or alter market supply or demand so that they intersect at the established exchange rate |
|
|
Term
| foreign-exchange reserves |
|
Definition
| holdings of foreign exchange by official government agencies, usually the central bank or treasury |
|
|
Term
|
Definition
| system in which exchange rates are permitted to vary with market supply and demand conditions; floating exchange rates |
|
|
Term
|
Definition
| system in which governments intervene in foreign exchange markets to limit but not eliminate exchange rate fluctuations |
|
|
Term
|
Definition
| annual income of <$22,000 for family of 4 |
|
|
Term
|
Definition
| % of population counted as poor, 12.5% in US, 38 million US households |
|
|
Term
|
Definition
| direct transfers of goods and services, rather than cash, e.g.:food stamps, medicaid benefits, and housing subsidies |
|
|
Term
| many of americas "poor" families have |
|
Definition
| homes, motor vehicles, phones, TVs, and major appliances; american poverty isn't synonymous with homelessness, malnutrition, chronic illness, or social isolation |
|
|
Term
| how much of the worlds population live in low-income or low-middle-income nations |
|
Definition
|
|
Term
| average income in poor nations |
|
Definition
| $4000/yr; less than 1/10 of US per capita GDP |
|
|
Term
|
Definition
| world bank standards <$1/day/person (inflation adjusted); currently 1 billion people |
|
|
Term
|
Definition
| world bank standard <$2/day/person (inflation adjusted); currently 3 billion people |
|
|
Term
|
Definition
| UN goal of reducing global rate of extreme poverty to 15% by 2015 |
|
|
Term
| 2 general approaches to reducing global poverty |
|
Definition
| redistribution of income within and across nations, or economic growth that raises average incomes |
|
|
Term
|
Definition
| UN goal of raising foreign aid levels to 0.7% of donor-country GDP |
|
|
Term
|
Definition
| increase in output (real GDP); an expansion of production possibilities; key to ending global poverty |
|
|
Term
|
Definition
| the knowledge and skills possessed by the workforce |
|
|
Term
|
Definition
| institutional barrier that impedes human and physical capital investment, particularly by the poorest segments of society |
|
|
Term
| Rostow's 5 stages of development |
|
Definition
stage 1: traditional society-rigid institutions, low productivity, little infrastructure, dependence on subsistence agriculture
stage 2: preconditions for takeoff-improve institution structure, increased agricultural productivity, emergence of an entrepreneurial class
stage 3:takeoff into sustained growth-increased saving and investment, rapid industrialization, growth-enhancing policies
stage 4: drive to maturity-spread of growth process to lagging industrial sectors
stage 5: high mass consumption-high per capita GDP attained and accessible to most of population |
|
|
Term
|
Definition
| % of total output (GDP) allocated to the production of new plant equipment and structures |
|
|
Term
|
Definition
| granting of small (micro), unsecured loans to small businesses and entrepreneurs |
|
|
Term
|
Definition
| the ability of a country to produce a specific good at a lower opportunity cost than its trading partners |
|
|
