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EC 202: EXAM 2
Fiscal policy |
Decisions by the president and the congress regarding government spending and taxes with the objective of moving to full employment
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output / population |
How standard of living is measured
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Positive statement |
involves testable assertions addressing the consequences of a particular event or policy
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aggregation |
the adding up of individual economic variables to obtain economy-wide totals
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normative statement |
involves values as to whether something should happen
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macroeconomic policies |
government actions designed to affect the performance of the economy as a whole
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structural policies |
government policies designed to change the underlying institutions of the nations economy
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Population / # employed people (output per person) |
average labor productivity
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a trough |
what a recession ends at
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unemployment rate |
the fraction of the labor force that is unemployed
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trade imbalance |
when exports are not equal to imports
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inflation rate |
the growth rate of prices
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budget deficit |
government spends more than what is collected in taxes
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national saving |
output of an economy that is not purchased by households and government.
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participation rate |
the fraction of the working-age population in the labor force
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net exports |
exports minus imports
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Real GDP |
a measure of GDP designed to measure physical output and purchasing power changes in which the quantities produced are valued at base year prices.
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duration |
the length of an unemployment spell
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final goods / services |
goods or services purchased by the ultimate user
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the labor force |
the total number of employed and unemployed people in the economy
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value added |
value of a firm's output minus the value of intermediate goods it purchases from other firms and uses up in the production process.
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discouraged workers |
people who say they would like to have a job but have not made an effort to find one in the previous 4 weeks
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nominal GDP |
a measure of GDP in which the quantities produced are valued at current-year market prices
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investment |
spending by firms on machinery, plant and equipment, change in business inventories, and spending on newly manufactured housing.
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unemployment spell |
a period during which an individual is continuously unemployed
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consumption |
spending by households on goods and services, such as food, clothing, and entertainment
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Capital good |
a long-lived good, which is itself produced and used to produce other goods and services
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GNP |
the market value of the final goods and services produced by home residents anywhere in the world
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unemployment rate |
the number of unemployed people divided by the labor force
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intermediate goods |
goods or services used up in the production of final goods and services therefore not counted directly as part of GDP
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leakages |
incomes earned by households that do not come back to buy the output of firms
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flow variable |
a rate measure of a process that takes place over time needing an interval time measurement to be meaningful
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government purchases |
purchases by government of final goods and services
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real wage |
the wage paid to workers measured in terms of purchasing power
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GDP deflator |
nominal GDP divided by real GDP multiplied by 100
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nominal wage |
the wage paid to workers measured in terms of current dollar values
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deflation |
a situation in which the inflation rate is negative
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indexing |
the practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index over that period
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real measure |
a measure that is calculated in base-year prices; that is in physical terms since all such measures over time use the same prices.
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nominal interest rate |
the percentage increase over a time period in the nominal (money) value of a financial asset
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hyperinflation |
prices rise at a rate of 50% per month or more
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CPI Consumer Price Index |
for any period, measures the cost in that period of a standard basket of goods and services relative to the cost of the same basket of goods in a base year
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inflation rate |
the percentage rate of change in the price level as measured, for example, by using the CPI
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nominal value |
a quantity that is valued at current prices
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deflating |
the process of dividing a nominal quantity by a price index (such as the CPI) and multiplying by its base-year price (usually 100) to express the quantity in real terms (base year prices)
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real interest rate |
the percentage increase over a time period in the purchasing power of a financial asset
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disinflation |
a situation in which prices are rising, but not as rapidly as they had been rising.
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relative price |
the price of a specific good or service in comparison to the prices of other goods & services
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shoe-leather cost |
more frequent trips to the bank as a result of inflation
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unit of account |
money's use as a measure of value including, for example, the measurement of profit, debt, price, revenue, and of the value or cost of goods, services or assets in general
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money |
any asset that can be used to purchase most or all goods and services
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bank reserve-deposit ratio |
bank reserves divided by deposits
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M1 |
currency in the hands of the public, travelers checks, checking account balances and other checkable deposits, and balances in credit unions
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100 percent reserves banking |
a situation in which banks reserves equal 100 percent of their deposits
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bank reserves |
cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments
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medium of exchange |
money serves as this when it is used to purchase goods & services
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store of value |
money serves as this when it is used as a means of holding wealth
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M2 |
all the assets in M1 plus other harder to transact with assets including savings deposits and money market deposit accounts, small deposits, and balances in retail money market funds
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barter |
the direct trade of goods or services for other goods or services
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board of governors |
the leadership of the fed, consisting of seven governors appointed by the president to staggered 14-year terms
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fractional-reserve banking |
a banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100 percent
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federal open market committee |
a 12-member committee which sets credit and market interest rate policies for the federal reserve
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federal reserve system |
the central bank of the united states
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open-market operations |
purchases and sales of debt securities in the public market by the federal reserve
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discount window lending |
the lending of reserves by the federal reserve to commercial banks
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deposit insurance |
a system under which the government guarantees that depositors will not lose any money even if their bank goes bankrupt
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banking panic |
an episode in which depositors, spurred by news or rumors of bankruptcy rush to withdraw their deposits from the bank...many banks suffer bank runs at the same time.
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discount rate |
the interest rate the fed charges commercial banks to borrow reserves from the fed
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reserve requirements |
the minimum permitted values, set by the fed, of commercial bank reserve-deposit ratios
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financial intermediaries |
firms that determine to whom to extend credit using funds raised from savers
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dividend |
a regular payment received by stockholders for each share that they own
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bond |
a legal promise to pay specified amounts of money on specified dates typically including both regular coupon (interest) payments and the maturity value. (usually the face amount)
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diversification |
the practice of spreading of ones wealth over a variety of different financial investments to reduce overall risk
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mutual fund |
a financial intermediary that sells shares in itself to the public, then uses the funds raised to buy a wide variety of financial assets
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principal amount |
the amount originally let
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stock |
a certificate of partial ownership and claim to the profits that a firm makes
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coupon rate |
the typically fixed interest rate legally promised when a bond is issued
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risk premium |
the rate of return that financial investors require to hold risky assets minus the rate of return on safe assets
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coupon rate |
regular interest payments made to the bondholder
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financial markets |
the collections of households, firms, governments, banks, and other financial institutions that lend and borrow
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default or credit risk |
risk that borrower will not repay the loan
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maturity |
the date at which bondholders are scheduled to be paid, typically, the face value and the last interest payment
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term of bond |
length of time before the debt is fully repaid
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short-term securities |
promises by large firms and government to pay an agreed sum no longer than one year in the future
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high yield "junk" bonds |
debt of higher credit risk firms
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