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Macroeconomics Chapter 6
FIU Macroeconomics Key Terms Krugman Chapter 6
22
Economics
Undergraduate 1
02/11/2011

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Term
self-regulating economy
Definition
an economy in which problems such as unemployment are resolved without government intervention, through the working of the invisible hand, and in which government attempts to improve the economy’s performance would be ineffective at best, and would probably make things worse.
Term
Keynesian economics
Definition
a school of thought emerging out of the works of John Maynard Keynes; according to Keynesian economics, a depressed economy is the result of inadequate spending and government intervention can help a depressed economy through monetary policy and fiscal policy.
Term
monetary policy
Definition
changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending
Term
fiscal policy
Definition
changes in government spending and taxes designed to affect overall spending.
Term
recession
Definition
a period of economic downturn when output and unemployment are falling; also referred to as a contraction.
Term
expansion
Definition
period of economic upturn in which output and employment are rising; most economic numbers are following their normal upward trend; also referred to as a recovery
Term
business cycle
Definition
the short-run alternation between economic downturns, known as recessions, and economic upturns, known as expansions.
Term
business cycle peak
Definition
the point in time at which the economy shifts from expansion to recession
Term
business cycle trough
Definition
the point in time at which the economy shifts from recession to expansion
Term
long-run economic growth
Definition
the sustained rise in the quantity of goods and services the economy produces.
Term
inflation
Definition
a rise in the overall level of prices. falls when economy is depressed and jobs are hard to find, rises when economy is booming and jobs are easy to find. discourages people from holding cash bc it loses its value over time
Term
deflation
Definition
a fall in the overall level of prices. encourages people to hold cash bc prices go up, which may deepen a reccession
Term
price stability
Definition
a situation in which the overall cost of living is changing slowly or not at all.
Term
open economy
Definition
an economy that trades goods and services with other countries.
Term
trade deficit
Definition
when the value of the goods and services bought from foreigners is more than the value of the goods and services sold to consumers abroad. Countries with high investment spending relative to savings run trade deficits.
Term
trade surplus
Definition
when the value of goods and services bought from foreigners is less than the value of the goods and services sold to them. countries with low investment spending relative to savings run trade surpluses.
Term
paradox of thrift
Definition
when families and businesses are worried about the possibility of economic hard times, they prepare by cutting their spending. This reduction in spending depresses the economy as consumers spend less and businesses react by laying off workers. As a result, families and businesses may end up worse off than if they hadn’t tried to act responsibly by cutting their spending. This is a paradox because seemingly virtuous behavior—preparing for hard times by saving more—ends up harming everyone.
Term
policy
Definition
what the government can do to make macroeconomic performance better
Term
macroeconomics
Definition
focuses on the overall behavior of the economy.
Term
microeconomics
Definition
focuses on decision-making by individuals and firms and the consequences of the decisions made.
Term
long-run growth per capita
Definition
a sustained upward trend in output per person—is the key to higher wages and a rising standard of living.
Term
consumer price index
Definition
the most widely used measure of the cost of living,
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