- Aggregate Demand
- The quantity demanded of all goods and services (real GDP) at different price levels, ceteris paribus.
- Aggregate Demand Curve
- A curve that shows the quantity demanded of all goods and services (real GDP) at different price levels, ceteris paribus.
- Aggregate Supply
- The quantity supplied of all goods and services (real GDP) at different price levels, ceteris paribus.
- Appreciation
- An increase in the value of one currency relative to other currencies.
- Automatic Fiscal Policy
- Changes in government expenditures and/or taxes that occur automatically without additional congressional action.
- Balanced Budget
- Government expenditures equal to tax revenues.
- Barter
- Exchanging goods and service for other goods and services without the use of money.
- Base Year
- The year chosen as a point of reference or basis of comparison for prices in other years: a benchmark year.
- Board of Governors
- The governing body of the Federal Reserve System.
- Budget Deficit
- Government expenditures greater than tax revenues.
- Budget Surplus
- Tax revenues greater than government expenditures.
- Cash Leakage
- Occurs when funds are held as currency instead of being deposited into a checking account.
- Chackable Deposits
- Deposits on which checks can be written.
- Complete Crowding Out
- A decrease in one or more components of private spending completely offsets the increase in government spending.
- Consumer Price Index
- A widely cited index number for the price level; the weighted average of prices of a specific set of goods and services purchased by a typical household.
- Contractionary Fiscal Policy
- Decreases in government expenditures and/or increases in taxes to achieve particular economic goals.
- Crowding Out
- The decrease in private expenditures that occurs as a consequence of increased government spending or the financing needs of a budget deficit.
- Currency
- Cash and paper money.
- Cyclical Deficit
- The part of the budget deficit that is a result of a downturn in economic activity.
- Cyclical Unemployment
- The difference between between the unemployment rate and the natural unemployment rate.
- Depreciation
- An decrease in the value of one currency relative to other currencies.
- Discount Rate
- The interest rate the Fed charges depository institutions that borrow reserves from it.
- Discretionary Fiscal Policy
- Deliberate changes of government expenditures and/or taxes to achieve particular economic goals.
- Double Coincidence of Wants
- In a barter economy, a requirement that must be met before a trade can be met. It specifies that a trader must find another trader who is willing to trade what the first trader wants and at the same time wants what the first trader has.
- Employment Rate
- The percentage of the civilian noninstitutional population that is employed: Employment rate = numerber of employed persons/Civilian noninstitutional population.
- Excess Reserves
- Any reserves held beyond the required amount. The difference between (total) reserves and required reserves.
- Exchange Rate
- The price of one currency in terms of another currency.
- Expansionary Fiscal Policy
- Increases in government expenditures and/or decreases in taxes to achieve particular economic goals.
- Federal Funds Market
- A market where banks lend reserves to one another, usually for short periods.
- Federal Open Market Committee (FOMC)
- The twelve member policymaking group within the Fed. The committee has the authority to conduct open market operations.
- Federal Reserve Notes
- Paper money issued by the Fed.
- Federal Reserve System (the Fed)
- The central bank of the United States.
- Fiscal Policy
- Changes in government expenditures and/or taxes to achieve particular economic goals, such as low unemployment, stable prices, and economic growth.
- Fractional Reserve Banking
- A banking arrangment that allows banks to hold reserves equal to only a fraction of their deposit liabilities.
- Frictional Unemployment
- Unemployment due to the natural frictions of the economy, which is caused by changing market conditions and is represented by qualified individuals with transferable skills who change jobs.
- Full Employment
- The condition that exists when the unemployment rate is equal to the natural unemployment rate.
- Incomplete Crowding Out
- The decrease in one or more components of private spending only partially offsets the increase in government spending.
- Inflation
- An increase in the price level.
- Interest Rate Effect
- The changes in household and business buying as the interest rate changes (which, in turn, is a reflection of a change in the demand for or supply of credit brought on by price level changes).
- International Trade Effect
- The change in foreign sector spending as the price level changes.
- Labor Force Participation Rate
- The percentage of the civilian noninstitutional population that is in the civilian labor force. Labor force participation rate = Civilian labor force/Civilian noninstitutional population.
- Laffer Curve
- The curve, named after Arthur Laffer, that shows the relationship between tax rates and tax revenues. According to the Laffer curve, tax rates rise from zero, tax revenues rise, reach a maximum at some point, and then fall with further increases in tax ra
- Long-Run Aggregate Supply Curve
- The LRAS is a vertical line at the level of natural real GDP. It represents the output the economy produces when wages and prices have adjusted to their (final) equilibrium levels and neither producers nor workers have any relevant misperceptions.
- Long-Run Equilibrium
- The condition that exists in the economy when wages and prices have adjusted to their (final) equilibrium levels and neither producers nor workers have any relevant misperceptions. Graphically, long-run equilibrium occurs at the intersection of the AD and
- M1
- Includes currency held outside banks + checkable deposits + traveler's checks.
- M2
- Includes M1 + savings deposits (including money marker deposit accounts) + small-denomination time deposits + money market mutual funds (noninstitutional).
- Marginal (Income) Tax Rate
- The change in a person's tax payment divided by the change in the person's taxable income.
- Medium of Exchange
- Anything that is generally acceptable in exchange for goods and services. A function of money.
- Menu Costs
- The costs of changing prices.
- Monetary Policy
- Changes in the money supply, or in the rate of change of the money supply, to achieve particular macroeconomic goals.
- Monetary Wealth
- The value of a person's monetary assets.
- Money
- Any good that is widely accepted for purposes of exchange and in the repayment of debt.
- Money Market Deposit Account
- An interest earning account at a bank or thrift institution. Usually a minimum balance is required for an MMDA. Most MMDAs offer limited check-writing privileges.
- Money Market Mutual Fund
- An interest earning account at a mutual fund company. Usually a minimum balance is required for an MMMF account. Most MMMF accounts offer limited check-writing privileges. Only noninstitutional MMMFs are part of M2.
- Natural Real GDP
- The real GDP that is produced at the natural unemployment rate. The real GDP that is produced when the economy is in long-run equilibrium.
- Natural Unemploymen
- Unemployment caused by frictional and structural factors in the economy. Natural unemployment rate = Frictional unemployment rate + Structural unemployment rate.
- Nominal Income
- The current-dollar amount of a person's income.
- Open Market Operations
- The buying and selling of government securities by the Fed.
- Open Market Purchase
- The buying of government securities by the Fed.
- Open Market Sale
- The selling of government securities by the Fed.
- Price Index
- A measure of the price level.
- Price Level
- A weighted average of the prices of all goods and services.
- Progressive Income Tax
- An income tax system in which one's tax rate rises as one's taxable income rises (up to some point).
- Proportional Income Tax
- An income tax system in which one's tax rate is the same no matter what one's taxable income is.
- Public Debt
- The total amount the federal government owes its creditors.
- Purchasing Power
- The quantity of good that can be purchased with a unit of money. Purchasing power and the price level are inversely related: As the price level goes up (down), purchasing power goes down (up).
- Real Balance Effect
- The change in the purchasing power of dollar-denominated assets that result that results from a change in the price level.
- Real Income
- Income adjusted for price changes. A person has more (less) real income as the price of the good falls (rises), ceteris paribus.
- Regressive Income Tax
- An income tax system in which one's tax rate declines as one's taxable income rises.
- Required Reserve Ratio (r)
- A percentage of each dollar deposited that must be held on reserve (at the Fed or in the bank's vault).
- Required Reserves
- The minimum amount of reserves a bank must hold against its checkable deposits as mandated by the Fed.
- Reserve Requirement
- The rule that specifies the amount of reserves a bank must hold to back up deposits.
- Reserves
- The sum of bank deposits at the Fed and vault cash.
- Savings Deposit
- An interest earning account at a commercial back or thrift institution. Normally, checks cannot be written on savings deposits and the in a savings deposit can be withdrawn (at anytime) without a payment penalty.
- Short-Run Aggregate Supply Curve
- A curve that shows the quantity supplied of all goods and services (real GDP) at different price levels, ceteris paribus.
- Short-Run Equilibrium
- The condition that exists in the economy when the quantity demanded or real GDP equals the (short-run) quantity supplied of real GDP. This condition is met where the short-run aggregate demand curve intersects the short-run aggregate supply curve.
- Simple Deposit Multiplier
- The reciprocal of the required reserve ration, 1/r.
- Store of Value
- The ability of an item to hold value over time. A function of money.
- Structural Deficit
- The part of the budget deficit that would exist even if the economy were operating at full employment.
- Structural Unemployment
- Unemployment due to structural changes in the economy that eliminate some jobs and create others for which the unemployed are unqualified.
- T-Account
- A simplified balance sheet that shows the changes in a bank's assets and liabilities.
- Tax Base
- When referring to income taxes, the total amount of taxable income. Tax revenue = tax base x (average) tax rate.
- Time Deposit
- An interest earning deposit with a specified maturity date. Time deposits are subject to penalties for early withdrawal. Small-denomination time deposits are deposits of less than $100,000.
- U.S. Treasury Securities
- Bonds and bond-like securities issued by the U.S. Treasury when it borrows.
- Unemployment Rate
- The percentage of the civilian force that is unemployed: Unemployment rate = Number of unemployed persons/Civilian labor force.
- Unit of Account
- A common measure in which relative values are expressed. A function of money.
- Wealth
- The value of all assets owned, monetary and nonmonetary.
