Term
|
Definition
| Choices made by people faced with scarcity |
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Term
| Because resources are limited... |
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Definition
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Term
| Example of normal economic reasoning |
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Definition
| Should the college increase tuition to fund its athletic programs? |
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Term
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Definition
| simplified representation of an economic environment |
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Term
| Economic models are used to... |
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Definition
| explore decision making by individuals, firms or other organizations |
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Term
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Definition
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Term
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Definition
| "What is" or "What will be" |
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Term
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Definition
| all other variables are held fixed |
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Term
| Thinking at the margin means |
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Definition
| How a small change in one variable affects another variable |
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Term
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Definition
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Term
| economists assume that people are rational ad respond to incentives if |
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Definition
| people act in their own self-interest |
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Term
| principle of opportunity cost |
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Definition
| the cost of something is equal to what is sacraficed to get it |
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Term
| opportunity cost of going to college |
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Definition
| includes wages you lose by going to school and not working |
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Term
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Definition
| the extra benefit resulting from a small increase in activity |
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Term
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Definition
| individual will do best by producing and consuming goods where marginal benefit equals marginal cost |
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Term
| principle of voluntary exchange |
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Definition
| a voluntary exchange between two people makes both people better off |
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Term
| principle of diminishing returns |
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Definition
| as on input increases while the other inputs are held fixed, output increases at a decreasing rate |
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Term
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Definition
| the face value of money or income |
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Term
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Definition
| value of money or income in terms of the quantity of goods the money can buy (purchasing power) |
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Term
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Definition
| real salaries increase but nominal salaries do not |
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Term
| What does the government use in reporting changes in "real wages" in the economy? |
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Definition
| the buying power of wages |
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Term
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Definition
| the ability of one person or nation to produce a good at a lower opportunity cost than another |
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Term
| Having comparative advantage doesn't necessarily mean... |
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Definition
| it has absolute advantage in the good's production |
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Term
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Definition
| more times a worker performs a specific task, the more prficient the worker becomes |
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Term
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Definition
| exploit differences in productivity across workers and make everyone better off |
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Term
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Definition
| produced in a foreign country and purchased by residents of the home country |
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Term
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Definition
| produced in home country and sold in another |
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Term
| Why would a rich nation trade with a poor nation? |
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Definition
| Poor nation has the comparative advantage in a product |
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Term
| cost savings from outsourcing often lead to... |
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Definition
| lower prices for consumers and more output for the outsourcing company |
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Term
| How could jobs lost from outsourcing be partially offset? |
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Definition
| Jobs gained from increase output |
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Term
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Definition
| encourages firms to develop new products and production processes |
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Term
| In a market system, self-interest motivates people to... |
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Definition
| provide products for other people |
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Term
| centrally planned economy |
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Definition
| an economy in which government bureaucracy decided how much of a good to produce, how to produce the good, and who gets the good |
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Term
| Obvious clue to the relative scarcity of a product |
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Definition
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Term
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Definition
| engaging in trade and acting in their own self interest |
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Term
| change in the quantity demanded is the result of... |
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Definition
| a change in the price of the product |
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Term
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Definition
| relationship between the price of a good and the quantity of that good that consumers are willing to buy |
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Term
| quantity demanded increases as... |
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Definition
| the price of the product falls |
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Term
|
Definition
| all other variables remain unchanged |
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Term
| When prices fall demand... |
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Definition
|
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Term
|
Definition
| the price of the good and the quantity that the producers are willing to sell |
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Term
|
Definition
| there is a positive relationship between price and quantity supplied |
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Term
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Definition
| producers indicate to consumers what they are willing to sell, in what quantity, and at what price |
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Term
|
Definition
| government creates an excess demand for a product by setting a maximum price at which the product may be sold to consumers |
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Term
| When quantity supplied exceeds quantity demanded |
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Definition
| the price of cars will decrease |
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Term
|
Definition
| government creates an excess supply of a product by setting a minimum price at which the product may be sold to consumers |
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Term
|
Definition
| demand goes up for someone on something when income increases |
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Term
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Definition
| demand decreases when income increases |
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Term
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Definition
| price increases and quantity decreases |
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Term
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Definition
| studies the behavior of the economy as a whole |
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Term
|
Definition
| studies the behavior of the economy as a whole |
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Term
| GDP calculations count only final goods and services because... |
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Definition
| it would lead to double counting of many activities |
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Term
|
Definition
| real controls price change, while nominal gdp doesn't |
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Term
|
Definition
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Term
|
Definition
| what is left over from new private investment after depreciation |
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Term
| in GDP accounting, government purchases include |
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Definition
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Term
|
Definition
| its exports minus its imports |
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Term
| A trade surplus occurs when... |
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Definition
| a country sells more abroad than it purchases form abroad |
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Term
|
Definition
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Term
| Largest component of national income |
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Definition
| compensation of employees by firms |
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Term
| personal disposable income |
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Definition
| the amount of income that households keep after paying taxes |
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Term
|
Definition
| economy fails to grow for atleast six months |
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Term
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Definition
| used to describe fluctuations in the GDP |
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Term
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Definition
| ignores transactions that do not take place in organized markets |
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Term
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Definition
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Term
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Definition
| not currently working but are activley looking for work |
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Term
| not having a job and not looking for one |
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Definition
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Term
| working part time but want to be full time are... |
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Definition
| employed and in the labor force |
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Term
| Bureau of Labor Statistics |
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Definition
| government agency that monitors unemployment |
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Term
| stopped looking for work due to restrictions |
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Definition
| marginally attached workers |
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Term
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Definition
| rises during recessions and falls during booms |
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Term
|
Definition
| when people change jobs and move across the country |
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Term
| Closely associated with periods of falling GDP |
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Definition
|
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Term
| economy is at "full employment" when... |
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Definition
| cyclical unemployment rate is at zero |
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Term
| economic expansion leads to |
|
Definition
| a decrease in the unemployment rate, which increases wages |
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Term
| Typical percentage of a worker's prior salary that states pay out in unemployment insurance |
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Definition
|
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Term
| what does the CPI measure |
|
Definition
| the cost of living over time |
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Term
| social security payments are adjusted yearky bases on changes measured by... |
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Definition
|
|
Term
| downward sloping labor demand curve demonstrates that... |
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Definition
| real wage increases and the amount of labor supply decreases |
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Term
| when considering whether to hire additional labor firms consider... |
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Definition
|
|
Term
| quantity labor demanded is equal to quantity labor supplied at... |
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Definition
|
|
Term
| With a decrease in capital... |
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Definition
| demand for labor decreases, supply of labor remains the same, and the real wage decreases |
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Term
| an increase in demand for labor will... |
|
Definition
| increase wages and employment |
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Term
| a high influx of immigration would... |
|
Definition
| increase the amount of labor and decrease the real wages of workers |
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Term
| full-employment output is also known as... |
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Definition
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Term
| When cyclical unemployment is at 0 |
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Definition
|
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Term
| real business cycle theory |
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Definition
| emphasizes the role of technological change in causing economic fluctuations |
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Term
| when comparing the measure of goods and services of one country to another, economists compare... |
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Definition
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Term
| As economies grow and family incomes, child labor will tend to... |
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Definition
|
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Term
|
Definition
| closing the gap in real GDP per capita between poorer countries and richer countries |
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Term
| Who grows more quickly, a nation with lower level of income or one with higher level of income? |
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Definition
|
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Term
|
Definition
| increase in the demand for labor |
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Term
| in a simple economy where output can be purchased only by consumers or firms, saving equals... |
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Definition
|
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Term
| how do you determine the change in capital stock? |
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Definition
| the level of new investment must be adjusted for depreciation because some new investment merely replaces existing, but worn out capital |
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Term
|
Definition
| without government interference or foreign trade |
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Term
| tax revenues collected by the government which leads to increased capital deepening |
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Definition
|
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Term
|
Definition
| an event that allows the economy to operate more efficiently by producing more output without using any more inputs |
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Term
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Definition
| method used to identify the contribution of economic growth from increases capital, labor, and technological process |
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Term
|
Definition
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Term
|
Definition
| models of growth that account for technological progress |
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Term
| economic growth is severely impeded in economies |
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Definition
| with a lack of clear property rights |
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Term
| increasing the stock of capital while holding the labor force constant will... |
|
Definition
| increase output at a decreasing rate |
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Term
|
Definition
| economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations |
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Term
| Problems with the price system that can lead to fluctuations in output |
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Definition
| prices could be slow to adjust |
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Term
|
Definition
| prices that adjust on a nearly daily basis |
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Term
| Workers often have long-term contracts and so their wages are... |
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Definition
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Term
| short run in macro is when |
|
Definition
|
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Term
|
Definition
| the price level and the quantity of real GDP demanded |
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Term
|
Definition
| increase in spending that occurs because the real value of money increases when the price level falls |
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Term
|
Definition
| increase in spending that occurs because the demand for investment goods increases when the price level falls |
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Term
| international trade effect |
|
Definition
| the increase in spending that occurs because domestic goods become cheaper relative to foreign goods when the price level falls |
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Term
| does price level have any effect on the aggregate demand curve |
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Definition
|
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Term
| what would cause in increase in aggregate demand in the short run |
|
Definition
| an increase in the supply of money |
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Term
| which would cause an increase in aggregate demand in the short run |
|
Definition
| an increase in the money supply |
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Term
|
Definition
| relationship between the level of prices and the quantity of real GDP supplied |
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Term
| long run aggregate supply curve |
|
Definition
| a vertical line at potential output |
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Term
| in a long-run aggregate supply curve, an increase in the money supply would do what to the output and the price? |
|
Definition
| no change in output and an increae in i the price |
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Term
|
Definition
| where there is a shift the aggregate supply curve caused by factors external to a nations economy |
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Term
| the two tools of fiscal policy that the government can use to stabalize the economy |
|
Definition
| government spending and taxation |
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Term
|
Definition
| policies designed to reduce the level of real GDP |
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Term
|
Definition
| designed to increase the level of real GDP |
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Term
| a decrease in the personal tax rate... |
|
Definition
| increases disposable income which increases consumption |
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Term
|
Definition
| the final shift in aggregate demand is larger than the initial shift in the aggregate demand |
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Term
|
Definition
| takes time for the government to identify and recognize a problem |
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Term
| when the government conducts activist fiscal policy, what type of spending does it usually use? |
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Definition
|
|
Term
| largest single component of federal revenue |
|
Definition
|
|
Term
| the share of corporate tax in total federal revenues |
|
Definition
| has declined over the past few decades to a relatively low level |
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Term
| in supply side economics, a decrease in the tax rate tends to increase the labor supply and... |
|
Definition
| increase aggregate output |
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Term
| what does the laffer curve illustrate |
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Definition
| high tax rates could lead to lower tax revenues if economic activity is severely discourages |
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Term
| tax revenues fall while government transfer payments increase during a... |
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Definition
|
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Term
|
Definition
|
|
Term
| After inheriting a huge budget deficit, Big Bill institutes major tax increases that... |
|
Definition
| brought the budget into balance and eventually into surplus |
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Term
|
Definition
| the labor supply, saving, economic growth |
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Term
| Keynes believed the fundamental problem that led to the world depression was... |
|
Definition
| insufficient demand for goods and services |
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Term
|
Definition
| total demand for goods and services at a given price level |
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|
Term
| consumption function describes the relationship between |
|
Definition
| consumer spending and income |
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Term
|
Definition
| fraction of additional income that is spent |
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|
Term
| C=autonomous spending + MPCy |
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Definition
|
|
Term
| Marginal propensity to save (MPS) equation |
|
Definition
|
|
Term
| what causes autonomous consumption to decrease? |
|
Definition
| consumers becoming more thrifty |
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Term
| in the simple Keynesian cross model, the value of the multiplier is |
|
Definition
|
|
Term
| change in investment spending is on the ...axis |
|
Definition
|
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Term
|
Definition
|
|
Term
| why is the tax multiplier negative? |
|
Definition
| increase in taxes decreases disposable personal income and lead to a reduction in consumption spending |
|
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Term
| what happens to US GDP when other countries experience prosperity? |
|
Definition
| it increases because we can export more |
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Term
| the various price level and equliberium output combination are used to derive... |
|
Definition
| the aggregate demand curve |
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|
Term
| an upward shift of the planned expenditure curve corresponds to |
|
Definition
| a movement down along the aggregate demand curve |
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Term
| in an open economy, planned expenditure equals |
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Definition
|
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Term
|
Definition
| any action today that has costs today but provides expected benefits in the future |
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Term
|
Definition
| theory of investment that emphasizes the role of expected growth in real GDP on investment spending |
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Term
| If firms receive an economic forecast predicting future increases in the growth of real GDP... |
|
Definition
| they are likely to respond by increasing their level of investment spending to increase future production capacity |
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Term
| investment spending tends to be... |
|
Definition
|
|
Term
| investment is a much smaller component of GDP and is much more... |
|
Definition
|
|
Term
|
Definition
| the max. amount a person is willing to pay today to receive a payment in the future |
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|
Term
| if interest rates increase, the present value of a given payment in the future will... |
|
Definition
|
|
Term
| real interest rates are the |
|
Definition
| interest rates quoted in the market minus the inflation rate |
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|
Term
| the real nominal principle |
|
Definition
| what matters to people is the purchasing power of money or income |
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Term
|
Definition
| nominal interest rate minus real interest rate |
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|
Term
| As the real interest rate increases, the real investment spending... |
|
Definition
|
|
Term
| neoclassical theory of investment |
|
Definition
| the theory of investment that emphasizes the roles of real interest rates and taxes |
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Term
|
Definition
| the theory of investment that links investment spending to stock prices |
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Term
|
Definition
| when money is accepted as payment for a good or service |
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Term
|
Definition
| when money is used to express the value of goods and services |
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Term
|
Definition
| if money is used as a mechanism to hold purchasing power for a period of time |
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|
Term
| As inflation rates increase, money becomes less useful as a |
|
Definition
|
|
Term
|
Definition
| money that has no intrinsic value and is created by a government decree |
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Term
|
Definition
|
|
Term
| What is not included in M1? |
|
Definition
|
|
Term
| checking accounts that pay interest are included in |
|
Definition
| the "other checkable deposits" part of M1 |
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|
Term
| Before they can be used in regular exchanges, the assets that make up M2 must often |
|
Definition
| be converted to M1 assets |
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|
Term
|
Definition
|
|
Term
|
Definition
| the fraction of deposits that banks are required by law to hold and not lend out |
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|
Term
| the money multiplier is equal to |
|
Definition
|
|
Term
| the money multiplier tends to be greater when |
|
Definition
| individuals hold less cash |
|
|
Term
| the Federal Reserve System |
|
Definition
| serves as the central bank of the US |
|
|
Term
| How many federal reserve banks are there in the US? |
|
Definition
|
|
Term
| Federal Open Market Committee |
|
Definition
| the group responsible fr deciding on monetary policy |
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|
Term
| The voting members of the Federal Open Market Committee are... |
|
Definition
| all of the members of the Board of Governors and five of the presidents of the 12 Federal Reserve banks |
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|
Term
| The president of this Federal Reserve Bank is always a member of the FOMC |
|
Definition
|
|
Term
| Why do governers of the Federal Reserve serve fourteen year terms? |
|
Definition
| insulate the governors' policy decisions from the influence of presidential elections and politics |
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|
Term
| When the Federal Reserve lowers interest rates... |
|
Definition
| investment spending increases and GDP increases |
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|
Term
| the nominal interest rate is determined in the |
|
Definition
|
|
Term
| the transaction demand for money comes mostly from the fact that... |
|
Definition
| money is a medium of exchange |
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|
Term
|
Definition
| the quantity of money demanded is lower |
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|
Term
| An increases in the price level in the economy leads to |
|
Definition
| a rightword shift in the demand for money curve |
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|
Term
| An increase in the level of real GDP in the economy leads to |
|
Definition
| a rightward shift in the demand for money curve |
|
|
Term
| Do changes in the interest rate shift the demand curve for money? |
|
Definition
|
|
Term
| liquidity demand for money |
|
Definition
| the demand for money that arises so that individuals or firms can make purchases on quick notice |
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|
Term
| Speculative demand for money |
|
Definition
| the demand for money that arises because holding money over short periods is less risky than holding stocks or bonds |
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|
Term
| Increased investment spending in the economy would be a possible result of... |
|
Definition
| an open market purchase of bonds by the Fed |
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|
Term
| How can the Federal Reserve actually increase the money supply? |
|
Definition
| by purchasing more government bonds in the open market |
|
|
Term
| the most commonly used tool in monetary policy is |
|
Definition
|
|
Term
| t increase the money supply using the reserve requirements as a tool, what would the Fed typically do? |
|
Definition
| reduce the required reserve for banks |
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|
Term
| The Federal Reserve discourages banks from borrowing more reserves by... |
|
Definition
| raising the discount rate |
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|
Term
| A change in the reserve requirement is used infrequently by the Fed because |
|
Definition
| it is disruptive to the banking system |
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|
Term
|
Definition
| the interest rate that banks charge each other for borrowed money |
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|
Term
| Based on the model of the money market, when real GDP increases, the equilibrium interest rate should... |
|
Definition
|
|
Term
| As interest rates fall... |
|
Definition
|
|
Term
| As a rule of thmb, good news for the economy is generally bad news for the... |
|
Definition
|
|
Term
| an open market purchase by the Fed increases the money supply, which leads to...interest rates and increased GDP |
|
Definition
|
|
Term
|
Definition
| increases in the money supply increase GDP |
|
|
Term
| If GDP is below potential output, the economy is in a ... and prices and wages will tend to decrease. |
|
Definition
|
|
Term
| Suppose GDP exceeds the level of potential output. We would expect to see...unemployment, rising wages, and rising prices |
|
Definition
|
|
Term
| When GDP is below potential output, prices fall because |
|
Definition
| firms can easily find new workers and can offer lower wages, which decrease the costs of production |
|
|
Term
| A wage- price spiral occurs when |
|
Definition
| rising wages cause higher prices, which in turn cause higher wages |
|
|
Term
| in an aggregate supply and aggregate demand diagram, the short-run aggregate supply curve is represented by... |
|
Definition
| an upward sloping but relatively flat line |
|
|
Term
| At short run GdP equiliberium, is it above or below potential output |
|
Definition
|
|
Term
| "overheating the economy" |
|
Definition
| GDP is higher than potential output |
|
|
Term
| If the economy was operating below full employment, it could return to full employment... |
|
Definition
| through open market purchases, through increases in government spending or tax cuts, by itself, through falling wages and prices |
|
|
Term
| When an economy is experiencing a "liquidity trap," monetary policy to bring back full employment... |
|
Definition
|
|
Term
|
Definition
| a politician stimulates the economy before an election to improve the chances she is reelected |
|
|
Term
| the classical political business cycle would have a politician following |
|
Definition
| expansionary policies before and election, and contradictory policies after and election |
|
|
Term
| inflation in the U.S has been... |
|
Definition
|
|
Term
|
Definition
| when workers confuse real and nominal magnitudes |
|
|
Term
|
Definition
| nominal interest rate minus the expected inflation rate |
|
|
Term
| tight-money policy in the short run typically leads to... |
|
Definition
| slower money growth, higher interest rate, and lower output |
|
|
Term
| According to the expectations Phillips curve, unemployment varies with |
|
Definition
|
|
Term
| Assume that last years inflation rate is the same as the expectation of inflation for the next year. According to the expectations Phillips curve, if the inflation rate increases relative to the expected rate, the unemployment rate... |
|
Definition
|
|
Term
| rational expectations theory |
|
Definition
| the public, on average, anticipates the future correctly |
|
|
Term
| Borrowers are better off than lenders when... |
|
Definition
| the expected inflation rate is less than the actual inflation rate |
|
|
Term
| suppose the union leaders negotiate a significant increase in nominal wages. If the Federal Reserve holds the growth in the money supply constant, in the short run the aggregate supply curve will shift... |
|
Definition
| up, unemployment will increase, and prices will rise |
|
|
Term
|
Definition
| links money, velocity, prices, and real output |
|
|
Term
|
Definition
| an inflation rate greater than 50% per month |
|
|
Term
| What would happen to a government's total debt if it ran a budget deficit? |
|
Definition
| total debt would increase |
|
|
Term
| in the 1980's and most of the 1990's, the federal budget... |
|
Definition
|
|
Term
| If there was a federal budget surplus it would make it possible to... |
|
Definition
| decrease taxes in order to iprove the equity and efficiency of the tax system, reduce the national debt, increase spending on priorities |
|
|
Term
| What did Bush do in 2001 which reduced large surpluses |
|
Definition
| made substantial cuts in taxes |
|
|
Term
| social security places a burden on future generations because |
|
Definition
| future generations are paying for the current working generations retirement |
|
|
Term
| What will happen to the future expenditures from the federal budget as relates to social security and medicare because of an aging population? |
|
Definition
|
|
Term
| the government deficit is equal to... |
|
Definition
| new borrowing from the public plus new money created |
|
|
Term
|
Definition
| Federal Reserve purchases newly issued government bonds |
|
|
Term
|
Definition
| excessive creation of new money to finance a government budget deficit |
|
|
Term
| government debt "crowd out" private investment because |
|
Definition
| the government and private firms compete in the same market for savings |
|
|
Term
| Ricardian equivalence is the proposition that |
|
Definition
| it does not matter whether government expenditure is financed by taxes or debt |
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Term
| Taking some types of spending "off budget" means |
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Definition
| not counting that spending as part of the official budget |
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Term
| In its basic form, an IRA simply does what to taxes? |
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Definition
| defers their payment to a later time |
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