Term
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Definition
| the principle of tax fairness by which those with greater ability to pay a tax should pay more tax |
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Term
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Definition
| the advantage conferred by the ability to produce a good more efficiently - at lower cost of resources - than other producers |
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Term
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Definition
| the value of a number without regard to a plus or minus sign |
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Term
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Definition
| the proposition that a higher rate of growth in real GDP leaders to higher planned investment spending, because high growth in real GDP is indicative of high growth in sales, which encourages firms to invest |
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Term
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Definition
| revenue minus explicit costs and depreciation |
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Term
| actual investment spending |
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Definition
| the sum of planned investment spending and unplanned inventory investment |
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Term
| administrative costs (of a tax) |
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Definition
| the resources used (which is a cost) both to collect the tax and to pay it |
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Term
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Definition
| occurs when an individual knows more about the way things are than other people do. Adverse selection problems can lead to market problems: private information leads buyers to expect hidden problems in items offered for sale, which leads to low prices, which leads to the best items being kept off the market |
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Term
| aggregate consumption function |
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Definition
| an equation relating aggregate current disposable income and aggregate consumer spending for the economy as a whole. A common form for the aggregate consumption function is C = A + MPC + YD |
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Term
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Definition
| a graphical representation of the relationship between aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world. The aggregate demand curve has a negative slope due to the wealth effect of a change in the aggregate price level and the interest rate effect of a change in the aggregate price level |
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Term
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Definition
| the economy's total production of final goods and services fro a given time period, usually a year. Real GDP is the numerical measure of aggregate output typically used by economists |
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Term
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Definition
| the overall price level for final goods and services in the economy |
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Term
| aggregate production function |
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Definition
| a hypothetical function that describes how productivity (real GDP per worker) depends on the quantities of physical capital per worker and human capital per worker as well as the state of technology. It has the general form Y/L = f( K/L, H/L, T) |
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Term
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Definition
| the sum of consumer spending, investment spending, government purchases, and exports minus imports. It is the total spending on domestically produced final goods and services in the economy |
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Term
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Definition
| a graphical representation of the relationship between aggregate price level and the quantity of aggregate output supplied |
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Term
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Definition
| legislative and regulatory efforts of the government to prevent industries from becoming or behaving like monopolies |
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Term
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Definition
| a rise in the value of one currency in terms of other currencies |
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Term
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Definition
| a good that is excludable but nonrival in consumption |
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Term
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Definition
| the basic model used to understand fluctuations in aggregate output and the aggregate price level. It uses the aggregate supply curve and the aggregate demand curve together to analyze the behavior of the economy in response to shocks or government policy |
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Term
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Definition
| occurs when a country cannot trade with other countries |
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Term
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Definition
| government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands. Taxes that depend on disposable income are the most important example of automatic stabilizers |
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Term
| autonomous change in aggregate spending |
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Definition
| a change in the desired level of spending by firms, house-holds, or government at a constant level of GDP |
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Term
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Definition
| an alternative term for average total costs; the total cost divided by the total quantity of output |
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Term
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Definition
| the fixed cost per unit of output |
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Term
| average tax rate on income |
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Definition
| the ratio of income taxes paid to income |
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Term
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Definition
| total cost divided by the total quantity of output |
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Term
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Definition
| the variable cost per unit of output |
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Term
| backward-bending individual labor supply curve |
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Definition
| an individual labor supply curve that is upward sloping when the substitution effect predominates (usually at low to moderate wage rates) and downward sloping when the income effect predominates (at very high wage rates) |
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Term
| balance of payments accounts |
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Definition
| a summary of a country's transactions with other countries, including two main elements: the balance of payments on current account and the balance of payments on financial account |
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Term
| balance of payments on current account (current account) |
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Definition
| a country's balance of payments on goods and services plus net international transfer payments on financial account |
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Term
| balance of payments on financial account (financial account) |
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Definition
| the difference between a country's sales of assets to foreigners and its purchases of assets from foreigners during a given period |
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Term
| balance of payments on goods and services |
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Definition
| the different between a country's exports of goods and services and its imports of goods and services during a given period |
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Term
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Definition
| a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those fund to finance the illiquid investments or investment spending needs of borrowers |
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Term
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Definition
| a claim on a bank that obliges the bank to give the depositor his or her cash when demanded |
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Term
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Definition
| currency held by the bank in their vaults plus their deposits in the Federal Reserve |
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Term
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Definition
| a phenomenon in which many of the bank's depositors try to withdraw their funds due to fears of a bank failure |
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Term
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Definition
| a graph that uses bars of varying height or length to show the comparative sizes of different observations of a variable |
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Term
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Definition
| something that prevents other firms from entering an industry. Crucial in protecting the profits of a monopolist. There are four types of barriers to entry: control over scarce resources or inputs, economies of scale, technological superiority, and government-created barriers such as licenses |
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Term
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Definition
| the direct exchange of goods or services without the use of money |
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Term
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Definition
| a market in which goods or services are bought and sold illegally, either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling |
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Term
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Definition
| the principle of tax fairness by which those who benefit from public spending should bear the burden of the tax that pays for that spending |
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Term
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Definition
| a legal document issued by a corporation or government promising the repayment of a loan, usually with interest |
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Term
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Definition
| a name owned by a particular firm that distinguishes its products from those of other firms |
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Term
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Definition
| the market price at which a firm earns zero profits |
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Term
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Definition
| the difference between net tax revenue and government spending. A positive budget balance is referred to as a budget surplus; a negative budget balance is referred to as a budget deficit |
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Term
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Definition
| the cost of a consumer's consumption bundle cannot exceed the consumer's total income |
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Term
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Definition
| the difference between net tax revenie and government spending when government spending exceeds tax revenue; dissaving by the government in the form of a budget deficit is a negative contribution to national savings |
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Term
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Definition
| all the consumption bundles available to a consumer, assuming all income is spent |
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Term
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Definition
| the difference between net tax revenue and government spending when tax revenue exceeds government spending; saving by the government in the form of a budget surplus is a positive contribution to national savings |
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Term
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Definition
| the short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions |
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Term
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Definition
| the short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions |
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Term
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Definition
| the combined value of assets; includes equipment, buildings, tools, inventory, and financial assets |
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Term
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Definition
| funds that an insurer places at risk when agreeing to provide insurance |
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Term
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Definition
| international movements of financial assets |
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Term
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Definition
| the net inflow of funds into a country; the difference between the total inflow of foreign funds to the home country and the total outflow of domestic funds to other countries. A positive net capital inflow represents funds borrowed from foreigners to finance domestic investment; a negative net capital inflow represents funds lent to foreigners to finance foreign investment |
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Term
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Definition
| an agreement among several producers setting production quotas for each, thereby leading to oligopoly profits |
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Term
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Definition
| the relationship between two variables in which the value taken by one variable directly influences or determines the value taken by the other variable |
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Term
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Definition
| an institution that oversees and regulates the banking system and controls the monetary base |
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Term
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Definition
| bank accounts on which people can write checks |
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Term
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Definition
| a model that represents the transactions in an economy by two kinds of flows; a flow of physical things such as goods or labor and the flow of money to pay for these physical things |
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Term
| classical model of the price level |
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Definition
| a model of the price level in which the real quantity of money is always at its long-run equilibrium level. This model ignores the distinction between the short run and the long run but is useful for analyzing the case of high inflation |
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Term
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Definition
| an economy that does not trade goods, services, or assets with other countries |
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Term
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Definition
| the proposition that even in the presence of externalities an economy can always reach an efficient solution as long as transaction costs are sufficiently low |
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Term
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Definition
| cooperation among producers to limit production and raise prices so as to raise on another's profits |
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Term
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Definition
| output of different producers regarded by consumers as all the same good; also referred to as a standardized product |
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Term
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Definition
| a good that is used as a medium of exchange but also has intrinsic worth because it has other uses. Gold or silver coins are commodity money |
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Term
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Definition
| a medium of exchange that has no intrinsic value but is guaranteed by a promise that it can be converted into valuable goods. Paper money that can be exchanged freely for good or silver coins is commodity-backed money |
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Term
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Definition
| a resource that is nonexcludable and rival in consumption |
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Term
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Definition
| a resource that is nonexcludable and rival in consumption |
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Term
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Definition
| the advantage conferred on an individual or nation if it can produce a good at a lower opportunity cost than another producer |
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Term
| compensating differentials |
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Definition
| wage differences across jobs that reflect the fact that some jobs are less pleasant or more dangerous than others |
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Term
| competitive market economy |
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Definition
| an economy in which all markets, for goods and for factors, are perfectly competitive. All market participants are price-takers |
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Term
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Definition
| a market in which all market participants are price-takers |
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Term
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Definition
| pairs of goos for which a fall in the price of one good results in greater demand for the other |
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Term
| constant returns to scale |
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Definition
| a range of production in which long-run average total cost is constant as output increases |
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Term
| consumer price index (CPI) |
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Definition
| a measure of the costs of a market basket intended to represent the consumption of a typical urban American family of four. It is the most commonly used measure of prices in the United States |
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Term
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Definition
| household spending on goods and services produced by domestic and foreign firms |
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Term
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Definition
| a term often used to refer both to individual consumer surplus and to total consumer surplus |
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Term
| consumption bundle (of an individual) |
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Definition
| the collection of all the goods and services consumed by a given individual |
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Term
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Definition
| an equation showing how an individual household's consumer spending varies with current disposable income. Generally, consumption is positively related to disposable income. Generally, consumption is positively related to disposable income. A common and simple version of a consumption function that captures this relationship is linear: c= a + MPC x yd |
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Term
| consumption possibilities |
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Definition
| the set of all consumption bundles available to a consumer, given that consumer's income and prevailing prices |
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Term
| contractionary fiscal policy |
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Definition
| fiscal policy that reduces aggregate demand by increasing taxes, decreasing transfers, or decreasing government purchases |
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Term
| contractionary monetary policy |
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Definition
| monetary policy that, through the raising of the interest rate, reduces aggregate demand and therefore output |
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Term
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Definition
| a theory of economic growth that holds that international differences in real GDP per capita tend to narrow over time because countries with low GDP per capita generally have higher growth rates |
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Term
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Definition
| the exclusive legal right of the creator of a literary or artistic work to profit from that work like a patent, it is a temporary monopoly |
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Term
| cost (of potential seller) |
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Definition
| the lowest price at which a seller is willing to sell a good |
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Term
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Definition
| an estimate of the costs and benefits of providing a good. When governments use cost-benefit analysis, they estimate the social costs and social benefits of providing a public good |
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Term
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Definition
| the size at which a net-work suddenly begins to grow rapidly |
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Term
| cross-price elasticity of demand |
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Definition
| the ratio of the percent change in the quantity demanded of one good to the percent change int he price of another good; a measure of the effect of the change in the price of one good on the quantity demanded of another |
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Term
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Definition
| the negative effect of budget deficits on private investment, which occurs because government borrowing drive up interest rates |
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Term
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Definition
| cash, in either paper or coin form, held by the public |
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Term
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Definition
| a line on a graph, which may be curved or straight, that depicts a relationship between two variables |
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Term
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Definition
| unemployment resulting from the business cycle; equivalently, the difference between the actual rate of unemployment and the natural rate of unemployment |
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Term
| cyclically adjusted budget balance |
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Definition
| an estimate of what the budget balance would be if real GDP were exactly equal to potential output |
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Term
| dead weight loss (from a tax) |
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Definition
| the extra costs in the form of inefficiency that results because a tax discourages mutually beneficial transactions; also referred to as excess burden |
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Term
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Definition
| the reduction in aggregate demand arising from the increase in the real burden outstanding debt caused by deflation' occurs because borrowers, whose real debt rises as a result of deflation, are likely to cut spending sharply, and lenders, whose real assets are now more valuable, are less likely to increase spending |
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Term
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Definition
| government debt as a percentage of GDP, frequently used as a measure of government's ability to pay its debts |
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Term
| decreasing marginal benefit |
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Definition
| marginal benefit that decreases with each additional unit of the activity |
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Term
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Definition
| a sum specified in an insurance policy that the insured must pay before being compensated for a loss; deductibles reduce moral hazard |
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Term
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Definition
| a falling aggregate price level |
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Term
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Definition
| a graphical representation of the demand schedule, showing how much of a good or service consumers would buy at a given price |
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Term
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Definition
| the price of a given quantity at which consumers will demand that quantity |
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Term
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Definition
| a list or table showing the relationship between price and the quantity of a good consumers would buy |
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Term
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Definition
| any event that shifts the aggregate demand curve. A positive demand shock is associated with higher demand for aggregate output at any price level and shifts the curve to the right. A negative demand shock is associated with lower demand for aggregate output at any price level and shifts the curve to the left |
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Term
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Definition
| the determined variable in a casual relationship |
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Term
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Definition
| the determined variable in a casual relationship |
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Term
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Definition
| a guarantee that a bank's depositors will be paid even if the bank can't come up with the funds, up to maximum amount per account |
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Term
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Definition
| a fall in the value of one currency in terms of other currencies |
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Term
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Definition
| a very deep and prolonged downturn |
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Term
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Definition
| a reduction in the value of a currency that is set under a fixed exchange rate regime |
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Term
| diminishing marginal rate of substitution |
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Definition
| the principle that the more of one good that is consumed in proportion to another, the less of the second good the consumer is willing to substitute for another unit of the first good |
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Term
| diminishing returns to an input |
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Definition
| the effect observed when an increase int eh quantity of an input, while holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input |
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Term
| diminishing returns to physical capital |
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Definition
| property of an aggregate production function whereby each successive increase in the amount of physical capital, holding the amount of human capital and the state of technology fixed, leads to a smaller increase in productivity |
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Term
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Definition
| the rate of interest the Federal Reserve charges on loans to banks that fall short of reserve requirements |
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Term
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Definition
| nonworking people who are capable of working but have given up looking for a job because they believe no jobs are available |
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Term
| discretionary fiscal policy |
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Definition
| fiscal policy that is the result of deliberate actions by policy makers rather than rules |
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Term
| discretionary monetary policy |
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Definition
| policy actions, either changed in interest rates or changes in the money supply, undertaken by the central bank based on its assessment of the state of the economy |
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Term
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Definition
| a range of production in which long-run average total cost increases as output increases |
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Term
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Definition
| the process of lowering inflation that has become embedded in expectations by keeping the unemployment rate above the natural rate for an extended period of time |
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Term
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Definition
| income plus government transfers minus taxes; the total amount of household income available to use for consumption and saving |
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Term
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Definition
| investment in several different assets with unrelated risks, so that the possible losses are independent events |
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Term
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Definition
| a demand curve for domestic consumers |
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Term
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Definition
| a supply curve for domestic producers |
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Term
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Definition
| in game theory, an action that is a player's best action regardless of the action taken by the other player |
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Term
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Definition
| one of the two firms in a duopoly |
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Term
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Definition
| an oligopoly consisting of only two firms |
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Term
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Definition
| an economic measure that summarizes data across different markets for goods, services, workers, and assets |
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Term
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Definition
| a long-run trend toward the production of more goods and services |
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Term
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Definition
| revenue minus the opportunity cost of resources; often less than accounting profit |
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Term
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Definition
| any piece of information that helps people make better economic decisions |
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Term
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Definition
| the study of economies, at the level of individuals and of society as a whole |
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Term
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Definition
| a range of production in which long-run average total cost declines as output increases |
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Term
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Definition
| a system for coordinating a society's productive activities |
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Term
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Definition
| wages that employers set above the equilibrium wage rate as an incentive for better performance |
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Term
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Definition
| a model in which some employers pay an above equilibrium wage as an incentive to better performance |
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Term
| efficient allocation of resources |
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Definition
| the case in which there is no way for an economy to reallocate factors of production among producers to produce more of some goods without producing less of others |
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Term
| efficient allocation of risk |
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Definition
| the case in which those most willing to bear risk are those who bear it |
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Term
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Definition
| description of an economy in which there is no way to redistribute goods that makes some consumers better off without making other worse off |
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Term
| efficient in output levels |
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Definition
| description of an economy in which no different mix of output would makes some consumers better off without making others worse off |
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Term
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Definition
| description of an economy in which there is no way to produce more of some goods without producing less of others |
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Term
| efficient markets hypothesis |
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Definition
| a theory of asset price determination that holds that asset prices embody all publicly available information.The theory implies that stock prices should be unpredictable, or follow a random walk, since changes should occur only in response to new information about fundamentals |
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Term
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Definition
| description of a market or economy that uses its resources in such a way as to exploit all opportunities to makes some individuals better off without making other worse off |
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Term
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Definition
| when the price elasticity of demand is greater than 1. A percentage increase in price will cause a correspondingly greater percentage decrease in quantity demanded, and vice versa |
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