macroeconomics (ecn 211) final vocabulary

Federal Deposit Insurance Corporation (FDIC)

A United States government corporation providing deposit insurance of up to $250,000 to depositors in US banks.

Balanced budget

A budget such that revenues equal expenditures. Sometimes can be used with a budget surplus as well.

Recession

A business cycle contraction which results in a general slowdown in economic activity.

Bar chart

A chart or graph that presents grouped or unordered data with rectangular bars with lengths proportional to the values that they represent. The bars can be plotted vertically or horizontally.

Human capital

A collection of traits - all the knowledge, talents, skills, abilities, experience, intelligence, training, judgment, and wisdom possessed individually and collectively by individuals in a population. These resources are the total capacity of the people that represents a form of wealth which can be directed to accomplish the goals of the nation or state or a portion thereof.

Free entry

A condition in which firms can freely enter the market for an economic good by establishing production and beginning to sell the product.

Fiat money

A currency established as money by government regulation or law.

Quota

A direct restriction on the total quantity of a good or service that may be imported during a specified period.

Bank

A financial institution that accepts deposits from the public and creates credit.

Expenditure

A flow of money to another person or group to pay for an item or service, or for a category of costs.

Friction

A force that slows down, or brings to a halt, the adjustment of the market to its efficient outcome.

Structural unemployment

A form of unemployment caused by a mismatch between the skills that workers in the economy can offer.

Excludability

A good or service for which it is possible to prevent people (consumers) who have not paid for it from having access to it.

Rivalry

A good or service for which its consumption by one consumer prevents simultaneous consumption by other consumers.

Private good

A good or service that yields positive benefits to people that is excludable, i.e. its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits; and rivalrous, i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce, which can cause competition for it.

Public good

A good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.

Price ceiling

A government- or group-imposed price control or limit on how high a price is charged for a product.

Price floor

A government- or group-imposed price control or limit on how low a price can be charged for a product.

Indifference curve

A graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer.

Laffer Curve

A graphical representation of the relationship between rates of taxation and the resulting levels of government revenue. Tax rates of 0% would result in no government revenue, and it is assumed that with 100% tax rates, no one would work so there would also be zero revenue. Since there is positive revenue between 0% and 100% tax rates, there must be some rate which maximizes revenue.

Theory

A group of linked ideas intended to explain something. It provides a framework for explaining observations. The explanations are based on assumptions. From the assumptions follows a number of possible hypotheses which can be tested to provide support for, or challenge, it.

Money supply

A group of safe assets that households and businesses can use to make payments or to hold as short-term investments.

Portfolio investment

A grouping of assets such as stocks, bonds, and cash equivalents. In the context of the foriegn sector, it is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country's stock and bond markets, sometimes for speculation.

Mortgage

A loan used to purchase real estate such as houses.

Supply-side economics

A macroeconomic theory that argues economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services (such as cutting taxes).

Monopsony

A market structure in which only one buyer interacts with many would-be sellers of a particular product. This is often referred to in the context of a labor market where there is one large employer whose labor demand decisions affect the wage.

Liquidity

A market's ability to purchase or sell an asset without causing drastic change in the asset's price. How easy it is to convert an asset.

Utility

A measure of how beneficial household choices are. Economists' term for happiness.

Velocity of money

A measure of how fast money passes from one holder to the next.

Wealth

A measure of the value of all of the assets of worth owned by a person, community, company or country.

Gross Domestic Product (GDP)

A monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly).

Infant industry

A new domestic industry with potential (increasing) economies of scale.

Unit of account

A nominal monetary unit of measure or currency used to represent the real value (or cost) of any economic item.

Stabilization policy

A package or set of measures introduced to stabilize a financial system or economy. The term can refer to policies in two distinct sets of circumstances: business cycle stabilization and crisis stabilization.

Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

Crowding out

A phenomenon that occurs when increased government involvement in a sector of the market economy substantially affects the remainder of the market, either on the supply or demand side of the market. Typically it refers to the unintended effect of affecting interest rates.

Producer price index

A price index that measures the average changes in prices received by domestic producers for their output.

Core Personal Consumption Expenditures Price Index (core PCE or CPCE)

A price index which represents consumption but excludes more volatile goods like food and energy.

Capital gain

A profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price.

Transfer Payment

A redistribution of income in the market system. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output.

Quit

A separation of an employee from an establishment that is initiated by the employee; a voluntary separation; a resignation from a job or position.

Layoff

A separation of an employee from an establishment that is initiated by the employer; an involuntary separation; a period of forced unemployment

Time series

A series of data points indexed (or listed or graphed) in time order.

Stylized fact

A simplified presentation of an empirical finding. Often a broad generalization that summarizes some complicated statistical calculations, which although essentially true may have inaccuracies in the detail.

Economic efficiency

A situation in which nothing can be improved without something else being hurt. Depending on the context, it is usually one of the following two related concepts: Allocative or Pareto efficiency: any changes made to assist one person would harm another. Productive efficiency: no additional output can be obtained without increasing the amount of inputs, and production proceeds at the lowest possible average total cost.

Market Failure

A situation in which the allocation of goods and services in the market is not efficient.

Stagflation

A situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.

Capital Deepening

A situation where the capital per worker (or person) is increasing in the economy. This is also referred to as increase in capital intensity.

Tragedy of the Commons

A situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting or spoiling that resource through their collective action.

Tobin tax

A small tax on financial transactions, especially on international capital flows.

Job Opening / Vacancy

A specific position of employment to be filled at an establishment; conditions include the following: there is work available for that position and the employer is actively recruiting for the position. (work could start in 30 days)

Equilibrium

A state where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change.

Stock and flow

A stock variable is measured at one specific time, and represents a quantity existing at that point in time, which may have accumulated in the past. A flow variable is measured over an interval of time. Therefore a flow would be measured per unit of time (say a year). It is roughly analogous to rate or speed in this sense.

Sudden stop

A sudden slowdown in private capital inflows into (emerging market) economies, and a corresponding sharp reversal from large current account deficits into smaller deficits or small surpluses.

Phillips curve

A supposed inverse relationship between the level of unemployment and the rate of inflation. Named after Alban W. H. Phillips.

Market

A system whereby parties engage in exchange. Markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society. Markets allow any trade-able item to be evaluated and priced.

Regressive tax

A tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. The rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate. It imposes a greater burden (relative to resources) on the poor than on the rich.

Proportional tax

A tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation.

Progressive tax

A tax in which the tax rate increases as the taxable amount increases. As a result, a taxpayer's average tax rate is less than the person's marginal tax rate.

Tax

A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund various public expenditures.

Pigouvian tax

A tax levied on any market activity that generates negative externalities (costs not internalized in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities.

Tariff

A tax on imported goods and services.

Club good

A type of good or service in economics that is excludable but non-rivalrous, at least until reaching a point where congestion occurs. These goods are often provided by a natural monopoly and are artificially scarce.

Nominal

A value that is measured in dollars (or other currency) in current prices. It is not adjusted for inflation.

Real

A value that is relative to other commodities or goods. It is adjusted for inflation, enabling comparison of quantities as if prices had not changed.

Countercyclical

A variable that moves in opposite direction to the overall state of the economy. For example, unemployment that goes down when output growth is strong and spikes during recessions.

Procyclical

A variable that moves together with the overall state of the economy. For example, employment that goes up when output growth is strong and declines during recessions.

Total factor productivity

A variable which accounts for effects in total output growth relative to the growth in the inputs of labor and capital.

Research and development (R&D)

Activities in connection with corporate or governmental innovation; the first stage of a potential new service or product.

Labor Income

All compensation for work effort, including for example wages, benefits, and bonuses.

Labor Force

All persons classified as employed or unemployed.

Budget set

All possible consumption bundles that someone can afford given the prices of goods and the person's income level. This set is bounded above by the budget line. Graphically speaking, all the consumption bundles that lie inside the budget constraint and on the budget constraint are in this set.

Capital good

Already-produced durable tangible or intangible goods or non-financial assets that are used in production of goods or services.

Balance sheet

Also known as a statement of financial position is a summary of the financial balances of an individual or organization

Principal balance

Amount due and owing to satisfy the payoff of the underlying obligation, less interest or other charges.

Interest rate

Amount of interest due per period, as a proportion of the amount lent, deposited or borrowed.

Open market operations

An activity by a central bank (such as the Fed) to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds in the open market, and as a result can affect the equilibrium interest rate in the market.

Renting

An agreement where a payment is made for the temporary use of a good, service or property owned by another.

Productivity

An average measure of the efficiency of production. It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input.

Ricardian equivalence proposition

An economic hypothesis holding that consumers are forward looking and so internalize the government's budget constraint when making their consumption decisions. This leads to the result that, for a given pattern of government spending, the method of financing that spending does not affect agents' consumption decisions, and thus, it does not change aggregate demand.

Comparative advantage

An economic theory about the work gains from trade for individuals, firms, or nations that arise from differences in their abilities. We describe an individual this way if they can produce a good at a lower relative opportunity cost or autarky price than others.

Barter

An exchange of goods and services for other goods and services without the use of money.

Soft (or crawling) peg

An exchange rate policy in which the government usually allows the exchange rate to be set by the market, but in some cases, especially if the exchange rate seems to be moving rapidly in one direction, the central bank will intervene.

Financial institution

An institution that provides financial services for its clients or members. One of the most important financial services provided by a financial institution is acting as a financial intermediary.

Discount window

An instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions. This is how the Federal Reserve becomes a "lender of last resort".

Medium of exchange

An intermediary used in trade to avoid the inconveniences of a pure barter system.

Debt

An obligation (usual money) owed by one party, the borrower or debtor, to a second party, the lender or creditor.

Labor union

An organization of workers who have come together to achieve common goals such as protecting the integrity of its trade, improving safety standards, achieving higher pay and benefits such as health care and retirement, increasing the number of employees an employer assigns to complete the work, and better working conditions.

Quantitative easing

An unconventional monetary policy in which a central bank creates reserves in order to buy government bonds or other financial assets to stimulate the economy, particularly when interest rates are already near zero.

Hire

Any addition to an establishment's payroll, including newly hired and rehired employees.

Distortion

Any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve in case of an efficient market outcome.

Money

Any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context, or is easily converted to such a form.

Commodity-based money

Any medium of exchange that represents something of value, but has little or no value of its own.

Asset

Anything tangible or intangible that can be owned or controlled to produce value and that is held to have positive economic value.

Store of value

Anything that retains purchasing power into the future.

Balance of payments

Balance between spending flowing into a country and spending flowing out of it

Walras Law

Because spending equals income in the macroeconomy, if all but one markets are in equilibrium then the last one is as well.

Technology

Collection of techniques, skills, methods and processes used in the production of goods or services.

Federal Open Market Committee (FOMC)

Committee within the Federal Reserve System (the Fed), that is charged under the United States law with overseeing the nation's open market operations (i.e., the Fed's buying and selling of United States Treasury securities). This committee makes key decisions about interest rates and the growth of the United States money supply.

Zero-profit condition

Condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry. In this situation, many people tend to join the industry, seeing the opportunity to make money, until there is no more money to make. The resulting large amount of competition limits each person's share of the market, as well as their ability to pursue a large profit margin.

Perfect competition

Conditions under which a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price and in which this equilibrium is efficient.

Rental price

Cost per unit of capital of renting capital inputs or other goods.

Barrier to entry

Cost that must be incurred by a new entrant into a market that incumbents (those who are already in the market) do not have or have not had to incur.

Intellectual property

Creations of the intellect (ideas,discoveries,designs,etc.) for which a monopoly is assigned to designated owners by law.

Capital Stock

Cumulative amount of capital goods that are used in production. These include equipment, structures, and intangibles.

Information asymmetry

Decisions and transactions where one party has more or better information than the other.

Circular flow diagram

Diagram that pictures the economy as consisting of four main sectors that interact with each other through different markets and in which financial institutions help to facilitate (some of) the interactions.

Keynesian Cross

Diagram that shows relationship between output/income (remember, that output equals income in circular flow diagram), on the horizontal axis, and spending (sometimes referred to as aggregate demand), on the vertical axis.

Seigniorage

Difference between the value of money and the cost to produce and distribute it.

Federal Funds Market

Enables depository institutions with reserve balances in excess of reserve requirements to lend reserves to institutions with reserve deficiencies. These loans are usually made for one day only, that is, "overnight". The interest rate at which these loans are made is the Federal Funds Rate.

General equilibrium

Equilibrium in which demand equals supply in all markets at the same time.

Call report

Every National Bank, State Member Bank and insured Nonmember Bank is required by the Federal Financial Institutions Examination Council (FFIEC) to file this as of the close of business on the last day of each calendar quarter.

Patent

Exclusive monopoly rights granted to an inventor or assignee for a limited period of time in exchange for detailed public disclosure of an invention.

Automatic stabilizer

Feature of the structure of modern government budgets, particularly unemployment and welfare benefits, that act to dampen business cycle fluctuations.

Subsidy

Financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy.

Income statement

Financial statement that reports the revenues (income) and expenses of a person/corporation/sector over a given time period. For firms this is sometimes referred to as a profit and loss statement.

Price taker

Firm that makes up only a small part of the market and therefore has to take the prevailing price in the market as given. Its production decisions do not affect the overall market and therefore the prevailing price level.

Wage taker

Firm that only hires a small fraction of workers in the labor market. Therefore its labor demand decision has no effect on the prevailing wage. For this reason, the firm takes the prevailing wage as given when it makes its decisions.

Personal Consumption Expenditures Price Index (PCE or PCEPI)

Fisher Ideal Price Index that measures the percentage change in the cost of the personal consumption expenditures component of GDP.

International capital flows

Flow of financial capital across national boundaries either as portfolio investment or direct investment.

Labor supply curve

For given preferences, interest rate, inflation, and wealth levels, this curve depicts how the amount that households would like to work depends on the real wage.

Consumption curve

For given preferences, wages, price level, and wealth levels, this curve depicts how the level of consumption by households depends on the real interest rate.

Labor demand curve

For given technology (productivity, returns to scale, and depreciation rate), interest rate, this curve depicts how the number of hours that firms would like to hire workers for depends on the real wage.

Investment curve

For given technology, wages, and price level, this curve depicts how the level of investment by firms depends on the real interest rate.

Voluntary export restriction

Form of trade barrier by which foreign firms agree to limit the quantity of goods exported to a particular country.

Profit functional

Functional relationship that describes how the level of profits a firm makes depends on the level of its input choices.

Liability

Future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events. In short, it is the value of future payments the entity owes to others due to past transactions.

Great Recession

Global economic downturn that started in 2008.

Intermediate Good

Goods, such as partly finished goods, used as inputs in the production of other goods.

Treasury security

Government debt instruments issued by the United States Department of the Treasury to finance the national debt of the United States.

Production Possibility Frontier

Graphical representation of possible combinations of two goods that can be produced with constant resources and technology, such that more of one good could be produced only by diverting resources from the other good, resulting in less production of it.

Outlay

In the context of this course: the goods, services, and payments the government spends its money on. In general, these are costs to the government.

Civilian Noninstitutional Population

Included are persons 16 years of age and older residing in the 50 states and the District of Columbia who do not live in institutions (for example, correctional facilities, long-term care hospitals, and nursing homes) and who are not on active duty in the Armed Forces.

Factor income

Income derived from selling the services of factors of production.

Proprietors' income

Income earned by individuals who are self-employed, part of a partnership, or a cooperative.

Revenue

Income that a business has from the sale of the goods and services it produces to its customers. Sometimes also referred to as sales or turnover. In the context of government, it is the money the government brings in through taxation.

Central bank

Institution that manages a state's currency, money supply, and interest rates. It usually also oversees the commercial banking system of its country.

Health insurance

Insurance against the risk of incurring medical expenses among individuals.

Separation

Labor turnover on an establishment's payroll. A worker getting removed from payroll, either voluntarily, involuntarily, or other.

Consumer Price Index (CPI)

Laspeyres price index that measures the percent increase in the cost of living for households as captured by their out-of-pocket spending on goods and services.

Loan

Lending of money from one individual or organization to another. The lender gives up the opportunity to spend the money now in return for an interest payment on the amount lent. The borrower buys the opportunity to spend the money now at the cost of paying interest later.

M2

M1 plus savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares.

Marginal Analysis/Cost

Marginal analysis is the decision-making tool that compares the additional benefits of an activity with the additional costs of that activity.

Money market

Market for highly liquid short-term financial assets. This includes cash as well as financial instruments that are close substitutes for cash.

Natural monopoly

Market in which increasing returns to scale lead to a competitive advantage for the largest supplier, naturally leading to this supplier taking over the whole market

Elasticity

Measure of cross-sensitivity across economic variables. Elasticities are measured in terms of percentage changes in one variable in response to a percentage change in another. Sometimes, instead of percentage changes, they are expressed in terms of percentage point changes. Elasticities are measured this way such that their magnitude does not depend on the units of measurement of the variables.

Intertemporal elasticity of substitution

Measure of responsiveness of consumption to changes in the real interest rate.

Labor supply elasticity

Measure of sensitivity of households' willingness to work with respect to changes in the (real) wage. In particular, it is measured as the percentage change in the labor supply in response to a one percent change in the (real) wage.

GDP deflator

Measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Marginal propensity to consume (MPC)

Metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers).

Wage

Monetary compensation paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done.

Saving

Money not spent or, alternatively, deferred consumption.

Deposit

Money placed with some other entity. It is a credit for the party who placed it, and it may be taken back (withdrawn), transferred to some other party, or used for a purchase. It is often used with respect to banks, where this is usually their main source of funding.

Commodity money

Money whose value comes from a commodity of which it is made. It consists of objects that have value in themselves as well as value in their use as money.

Protectionism

Movement to limit the quantities of goods and services imported from foreign countries.

Bank run

Occurs when, in a (fractional-reserve) banking system (where banks normally only keep a small proportion of their assets as cash), a large number of customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent.

Preferences

Ordering of alternatives based on their relative utility, a process which results in an optimal "choice" (whether real or theoretical). The character of the individual preferences is determined purely by taste factors, independent of considerations of prices, income, or availability of goods.

Price index

Over time: measure of price at a particular point in time, t, relative to that in a base period, b, i.e. Pt/Pb. It is an index because it does not measure the price level but instead the cumulative growth in the price level between t and b. Across regions/countries Instead of comparing a period with a baseperiod, a bilateral price index across regions or countries measures the price in a country or region relative to the price in a base country.

Stock

Ownership of a company divided into shares, a single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares.

Inflation

Percentage change in, or growth rate of, the overall price level. When this change is negative, this is sometimes also referred to as deflation.

Employed

Persons who (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.

Not in the labor force

Persons who are neither employed nor unemployed. These are people who are not working and not looking for a job either.

Strategic trade policy

Policy aimed at promoting the development of key industries that may increase a country's domestic well-being through trade with the rest of the world.

Monetary policy

Process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency. Further goals of a monetary policy are usually to contribute to economic growth and stability, to lower unemployment, and to maintain predictable exchange rates with other currencies.

Production

Process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output).

Output

Quantity of goods or services produced in a given time period, by a firm, industry, or country, whether consumed or used for further production.

Production function

Relationship that describes how the level of physical output of a production process depends on the levels of physical inputs, or factors of production, that are being used.

Time preference

Relative valuation placed on a good at an earlier date compared with its valuation at a later date.

Earnings

Remuneration (pay, wages) of a worker or group of workers for services performed during a specific period of time.

Rigidity

Resistance to change of prices paid and charged and quantities bought and sold in the market. In terms of prices, this is called a nominal rigidity. In terms of quantities, this is called a real rigidity.

Natural resource

Resources that exist without actions of humankind. This includes all valued characteristics such as magnetic, gravitational, and electrical properties and forces. On earth it includes: sunlight, atmosphere, water, land (includes all minerals) along with all vegetation and animal life that naturally subsists upon or within the heretofore identified characteristics and substances.

Factors of production

Resources, or inputs are what is used in the production process to produce output.

Dumping

Selling a good or service below production cost. Most often considered when related to international trade.

Great Depression

Severe worldwide economic downturn that took place during the 1930s.

Search friction

Situation in which buyers or sellers cannot instantly find a trading partner in a market. They must therefore search for a partner prior to transacting. This is often considered in the context of the labor market.

Supplier-induced demand

Situation in which suppliers have superior information that they use to encourage individuals to demand a greater quantity of the good or service they supply than they would if they would be fully informed.

Adverse selection

Situation when market collapses because of asymmetric information means that high-quality goods can not be distinguished from low-quality ones. This means that high-quality goods are paid a low price and are not supplied. This dropping out of higher quality goods continues until market disappears.

Entrepreneur

Someone who starts and/or runs a business.

Incentive

Something that motivates an individual to perform an action.

Government purchase

Spending by government on final goods and services it uses as inputs in the production of government goods and services.

Capital account

Statement of spending flows into and out of the country during a particular period for purchases of assets.

Current account

Statement that includes all spending flows across a nation's border except those that represent purchases of assets.

Positive statement

Statement which describes the world as it is. It is verifiable.

Normative statement

Statement which describes the world as it should be. It is an expression of judgment and not verifiable.

Public finance

Study of the role of the government in the economy.

Intertemporal substitution

Substitution is the willingness to switch between different beneficial alternative choices of which the benefits occur at different points in time. Intertemporal means "between" points in time in Latin.

Single-payer healthcare

System in which the state, rather than private insurers, pays for all healthcare costs.

Arbitrage

Taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.

Income Tax

Tax imposed on individuals or entities (taxpayers) that varies with the income or profits (taxable income) of the taxpayer.

Payroll Tax

Taxes imposed on employers or employees calculated as a percentage of the salaries that employers pay their staff. These taxes generally fall into two categories: deductions from an employee's wages, and taxes paid by the employer based on the employee's wages.

Financial crisis

Term applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many of these situations were associated with banking panics, and many recessions coincided with these panics.

Market power

The ability of a firm to profitably raise the market price of a good or service over marginal cost.

Absolute advantage

The ability of a party to produce a more of a good, product, or service than competitors, using the same amount of resources.

Standard of deferred payment

The accepted way to settle a debt.

Marginal revenue product

The additional revenue generated from using one more unit of a particular input.

Budget deficit

The amount by which expenditures exceed revenues in a budget.

Budget surplus

The amount by which revenues exceed expenditures in a budget.

Required reserves

The amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Depository institutions must hold reserves in the form of vault cash or deposits with Federal Reserve Banks.

Demand

The amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are willing to buy at the given price in the marketplace.

Supply

The amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are willing to provide to the marketplace.

Investment

The amount purchased per unit time of goods which are not consumed at the present time. Additions to a stock of durable goods.

Budget constraint

The boundary of the budget set that reflects all combinations of consumption and leisure at which spending equals the sum of labor income and wealth.

International economics

The branch of economics that is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration.

Federal Reserve (the Fed)

The central bank of the United States tasked with implementing the country's monetary policy.

Marginal product

The change in output resulting from employing one more unit of a particular input (for instance, the change in output when a firm's labor is increased from five to six units), assuming that the quantities of other inputs are kept constant.

Wealth effect

The change in spending that accompanies a change in (perceived) wealth.

Rationing

The controlled distribution of scarce resources, goods, or services, or an artificial restriction of demand.

Economies of scale

The cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Externality

The cost or benefit that affects a party who did not choose to incur that cost or benefit.

Money demand

The desired holding of financial assets in the form of money, rather than in the form of investments.

Statistical discrepancy

The difference between Gross Domestic Product (GDP) and Gross Domestic Income (GDI).

Net exports

The difference between the monetary value of a nation's exports and imports over a certain period.

Trade balance

The difference between the monetary value of a nation's exports and imports over a certain period. See also "net exports". When this is negative it is called a trade deficit and when positive a trade surplus.

Profit

The difference between the revenue received from the sale output and the cost of the inputs used in production.

Business cycle

The downward and upward movement of Gross Domestic Product (GDP) around its long-term growth trend.

Liquidity crisis

The drying up of liquidity in the financial market. People in need of cash find it hard to locate potential trading partners to sell their assets. This may result because of a decrease in cash held by financial market participants.

Consumption smoothing

The economic concept used to express the desire of people to have a stable path of consumption. In the data, this is reflected by fluctuations in consumption growth being less than those in income growth.

International trade

The exchange of capital, goods, and services across international borders or territories.

Purchasing power parity (PPP)

The exchange rate that equalizes the prices of internationally traded goods across countries.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Opportunity cost

The gain from alternative choices sacrificed when a current choice is decided upon.

Inventory

The goods and materials that a business holds for the ultimate purpose of resale (or repair).

Personal consumption expenditures

The goods and services purchased by persons.

Depreciation

The gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question.

Demand curve

The graph depicting the relationship between the price of a certain good or service and the amount of it that consumers are willing and able to purchase at any given price.

Supply curve

The graph depicting the relationship between the price of a certain good or service and the amount of it that producers are willing and able to supply at any given price.

Potential output

The highest level of real output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints.

Classical Dichotomy

The idea that real economic variables are not affected by the monetary side of the economy.

Invisible Hand

The idea that the joint pursuit of self-interest and the allocation of resources using markets leads to (relatively) efficient economic outcomes.

National accounts

The implementation of complete and consistent accounting techniques for measuring the economic activity of a nation.

Animal spirits

The instincts, proclivities, and emotions that ostensibly influence and guide human behavior.

Labor Force Participation Rate (LFPR)

The labor force as a percent of the civilian noninstitutional population.

Zero lower bound (ZLB)

The limitation that (many) central banks cannot set a short-term nominal interest rate below zero. This limits the amount of monetary stimulus they can provide.

Minimum wage

The lowest remuneration that employers must legally pay their workers. Equivalently, it is the price floor below which workers may not sell their labor.

Capital market

The market in which households supply their savings and firms demand loans to finance their investment. The price they pay for these loans is the real interest rate.

Foreign exchange market

The market in which people use one currency to buy another currency.

Product Market

The marketplace in which final goods or services are offered for purchase by consumers, businesses, and the public sector. Focusing on the sale of finished goods, it does not include trading in raw or other intermediate materials.

Labor Market

The marketplace in which households supply their time for compensation to employers.

User cost of capital

The net cost of using a capital good and financing it through a loan to buy it and then resell the capital good after usage. This cost turns out to be approximately equal to the purchasing price of the capital good times a combination of three things: the real interest rate, the depreciation rate, and the minus of the capital gain (i.e. increase in price of capital good)

Capital Demand

The number of capital goods that a firm uses in production and how it depends on the various exogenous (externally determined) variables the firm is faced with.

Labor demand

The number of hours of hiring that an employer is willing to do based on the various exogenous (externally determined) variables it is faced with, such as the wage rate, the unit cost of capital, the market-determined selling price of its output, etc.

Job Openings Rate / Vacancy Rate

The number of job openings divided by the sum of the number of employees and the number of job openings.

Unemployment rate

The number unemployed as a percent of the labor force.

Liquidity effect / Liquidity crisis

The observation that nominal intererest rates tend to temporarily fall in response to an increase in the money supply.

Microeconomics

The part of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources.

Macroeconomics

The part of economics that studies the outcomes and decision making as it relates to the economy as a whole.

Cyclical unemployment

The part of movments in unemployment due to the business cycle fluctuations.

Labor share

The percent of the value of output paid to workers in the form of compensation.

Unemployment

The person who would like to work, is actively searching for a job, but has not found one.

Monetary transmission mechanism

The process by which general economic conditions are affected as a result of monetary policy decisions.

International arbitrage

The process of buying a good and selling goods across borders to take advantage of international price differences.

Globalization

The process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture.

Tax rate

The proportion of income, spending or asset value that is paid in taxes, expressed as a percentage.

Welfare

The provision of a minimal level of well-being and social support for all citizens,

Consumption

The purchase and use of goods and services by economic agents, in particular by households.

Autarky

The quality of being self-sufficient. In the context of this course, it means to produce for oneself without trading.

Price

The quantity of payment or compensation given by one party to another in return for goods or services. In modern economies, prices are generally expressed in units of some form of currency.

Marginal rate of substitution (MRS)

The rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.

Exchange rate

The rate at which one currency will be exchanged for another, regarded as the value of one country's currency in relation to another currency.

Returns to scale

The rate of increase in output (production) relative to the associated increase in the inputs (the factors of production). If output increases at the same rate as inputs then there are constant returns to scale (CRS). If output increases at a lower rate than inputs, there are decreasing returns to scale (DRS). If output increases at a higher rate than in inputs, there are increasing returns to scale (IRS).

Natural rate of unemployment

The rate of unemployment arising from all sources except business cycle fluctuations.

Slope

The ratio of the "vertical change" to the "horizontal change" between (any) two distinct points on a line.

Spending (or fiscal) multiplier

The ratio of the change in GDP to a change in government spending. Increased government spending becomes income for people within the economy, who then spend it again to continue the cycle.

(Average) Labor Productivity (ALP)

The relationship between output and the labor time used in generating that output. It is the ratio of output per hour.

Fisher equation

The result that the real interest is approximately equal to the nominal interest rate minus the inflation rate. This approximation is reliable for small values of the nominal interest and inflation rates.

Real interest rate

The return to investing/saving measured in terms of units of consumption. It is the nominal interest rate corrected for inflation.

Competition

The rivalry among sellers trying to maximize profits. This rivalry if often defined in terms of the sensitivity of the demand these suppliers face to the decisions of the others.

Insolvency

The state of being unable to pay the money owed, by a person or company, on time.

Economics

The study of how humans make decisions in the face of scarcity.

Production theory

The study of production, or the economic process of converting inputs into outputs.

National debt

The sum of all past federal deficits, minus any surpluses.

M1

The sum of currency held by the public and transaction deposits at depository institutions (which are financial institutions that obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions).

Monetary base

The sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve)

Leisure

The time people spend not being compensated for work performed when they actively engaged in the production of goods and services. Thus, this is the time people spent off the job on activities such as relaxing, working around the house (without compensation), recreational activities, and vacation.

Labor supply

The total hours (adjusted for intensity of effort) that workers wish to work at a given real wage rate.

Government spending

The total of all government consumption, investment, and transfer payments.

Industrial Revolution

The transition to new manufacturing processes in the period from about 1760 to sometime between 1820 and 1840. This transition included going from hand production methods to machines, new chemical manufacturing and iron production processes, improved efficiency of water power, the increasing use of steam power, the development of machine tools and the rise of the factory system.

Credit

The trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead promises either to repay or return those resources (or other materials of equal value) at a later date.

Fiscal policy

The use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy.

Marginal utility of consumption (MUC)

The utility gain from an increase, or utility loss from a decrease, in consumption.

Marginal utility of leisure (MUL)

The utility gain from an increase, or utility loss from a decrease, in leisure.

Cost

The value of money that has been used up to produce something and, hence, is not available for use anymore.

Net interest

The value of payments of interest by governments at all levels on money borrowed, less interest earned on saving.

Tax base

The value of the financial streams or assets on which tax can be imposed.

Property right

Theoretical socially-enforced constructs for determining how a resource or economic good is used and owned. Resources can be owned by (and hence be the property of) individuals, associations or governments. This consists of four attributes: (1) The right to use a good, (2) the right to earn income from a good, (3) the right to transfer a good to others, (4) the right to enforce these rights.

Buy

To obtain property right in exchange for payment.

Borrow

To receive (money) from somebody temporarily, expecting to return it (often with interest).

Net worth

Total assets minus total outside liabilities of an individual or a company.

Gross Domestic Income (GDI)

Total income received by all sectors of an economy within a state. It includes the sum of all wages, profits, and taxes, minus subsidies.

Disposable Personal Income (DPI)

Total personal income minus personal current taxes. A measure of how much households can spend on personal consumption without having to tap into their savings.

Labor-leisure tradeoff

Tradeoff faced by individuals between the amount of time spent engaged in productive work for which they earn a wage and leisure activities that generate utility.

Import

Transaction in goods and services to a resident of a jurisdiction (such as a nation) from non-residents.

Export

Transaction that involves shipping in the goods and services out of the jurisdiction of a country.

Common-pool resource

Type of good consisting of a natural or human-made resource system (e.g. an irrigation system or fishing grounds), whose size or characteristics makes it costly, but not impossible, to exclude potential beneficiaries from obtaining benefits from its use.

Scatter plot

Type of plot or mathematical diagram using Cartesian coordinates to display values for typically two variables for a set of data.

First Welfare Theorem

Under certain circumstances the market outcome is economically efficient.

Hedge

Using a financial transaction as protection against risk.

Aggregate

Verb: To add together, Noun: Sum of different items, Adjective: Formed by adding together.

Real wage

Wage measured in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages. Because it has been adjusted to account for changes in the prices of goods and services, real wages provide a clearer representation of an individual's wages in terms of what they can afford to buy with those wages - specifically, in terms of the amount of goods and services that can be bought.

Compensation

Wages and benefits, both current and deferred, that employees receive in return for their work. It is the cost of employing workers for the employer/firm.

Foreign direct investment (FDI)

When a business or individual purchases more than ten percent of a firm or starts a new enterprise in another country.

Fixed exchange rate (Hard peg)

When a country follows an exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate .

Floating exchange rate

When a country lets the value of its currency be determined in the exchange rate market.

Dollarize

When a country that is not the United States uses the U.S. dollar as its currency.

Depreciation (of currency)

When a currency is worth less in terms of other currencies; also called "weakening".

Appreciation (of currency)

When a currency is worth more in terms of other currencies; also called "strengthening".

Monopoly

When a specific person or enterprise is the only supplier of a particular good or service.

Data revision

When economic statistics change because they get updated to reflect the inclusion of new information (or sometimes a change in definition or measurement methodology).