Macroeconomics Exam 1 Definitions
Terms
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- Big Tradeoff
- A tradeoff between equity and efficiency
- Capital
- The tools, equipment, buildings and other constructions that businesses now use to produce goods and services
- Ceteris Paribus
- Other things being equal, all other relevant things remaining the same.
- Economic Model
- A description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand.
- Economics
- The social science that studies the choices that individuals, businesses, governments and entire societies make and how they cope with scarcity and the incentives that influence and reconcile those choices
- Economic Theory
- A generalization that summarizes what we think we understand about the economic choices that people make and the performance of industries and entire economies
- Entrepreneurship
- The human resource that organizes labor, land and capital. Entrepreneurs come up with new ideas about what and how to produce, make business decisions, and bear the risks that arise from their decisions.
- Factors of Production
- the productive resources that businesses use to produce goods and services
- Goods and Services
- the objects taht people value and produce to satisfy their own wants
- Human Capital
- The knowledge and skill that people obtain from education, on-the-job training and experience.
- Incentive
- A reward that encourages or a penalty that discourages an action
- Interest
- The income that capital earns.
- Labor
- The work time and work effort that people devote to producting goods and services
- Land
- The gifts of nature that we use to produce goods and services
- Macroeconomics
- The study of the performance of the national economy and the global economy
- Margin
- When a choice is changed by a small amount or by a little at a time the choice is made at the margin.
- Marginal Benefit
- The benefit that a person receives from consuming one more unit of a good/service. It is measured as the maximum amount that a person is willing to pay for one more unit of the good/service.
- Marginal Cost
- The opportunity cost of producing one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.
- Microeconomics
- The study of the choices that individuals and businesses make, the way those choices interact and the influence governments exert on them.
- Opportunity Cost
- The highest-valued alternative that we give up to something.
- Profit
- The income earned by entrepreneurship
- Rent
- The income that land earns
- Scarcity
- Our inability to satisfy all our wants
- Self-Interest
- The choices that you think are the best for you
- Social Interest
- Choices that are the best for society as a whole.
- Tradeoff
- An exchange. Giving up one thing to get something else.
- Wages
- The income that labor earns
- Cross-Section Graph
- A graph that shows the values of an economic variable for different groups in a population at a point in time
- Direct Relationship
- A relationship between two variables that move in the same direction
- Inverse Relationship
- A relationship between variables that move in opposite directions
- Linear Relationship
- A relationship between two variables that is illustrated by a straight line
- Negative Relationship
- A relationship between variables that move in opposite directions
- Positive Relationship
- A relationship between two variables that move in the same direction
- Scatter Diagram
- A diagram that plots the value of one economic variable against the value of another
- Slope
- The change in the value of the variable measured on the y-axis divided bythe change in value of the variable measured on the x-axis
- Time-Series Graph
- A graph that measures time on the x-axis and the variable(s) in which we are interested in on the y-axis
- Trend
- The general tendency for a variable to move in one direction
- Absolute Advantage
- A person has an absolute advantage if that person/country can produce more of goods with a given amount of resources than another person/country can.
- Allocative Efficiency
- A situation in which we cannot produce more of any good without giving up some of another good that we value more highly
- Capital Accumulation
- The growth of capital resources
- Comparative Advantage
- A person or country has a comparative advantage in an activity if that person/country can perform the activity at a lower opportunity cost than any other person/country.
- Dynamic Comparative Advantage
- A comparative advantage that a person/country possesses as a result of having specialized in a particular activity and then, as a result of learning-by-doing, having become the producer with the lowest opportunity cost
- Economic Growth
- The expansion of production possibilities that results from capital accumulation and technological change.
- Firm
- An economic unit tha thires factors of production and organizes those factors to produce and sell goods and services
- Learning-By-Doing
- People became more productive in an activity just by repeatedly producing a particular good or service.
- Marginal Benefit Curve
- A curve that shows the relationship between the marginal benefit of a good and the quantity of that good consumed.
- Market
- Any arrangement that enables buyers and sellers to get information and to do business with each other.
- Preferences
- A description of a person's likes and dislikes
- Production Efficiency
- A situation in which the economy cannot produce more of one good without producing less of some other good
- Production Possibilities Frontier
- The boundary between combinations of goods and services that can be produced and the combinations that cannot
- Property Rights
- Social arrangements that govern the ownership, use and disposal of resources or factors of production, goods and services are enforceable in the courts
- Technological Change
- The development of new goods and better ways of producing goods and services
- Change in Demand
- A change in buyers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the demand curve
- Change in Supply
- A change in sellers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of a the supply curve
- Change in the Quantity Demanded
- A change in buyers' plans that occurs when the price of a good changes. It is illustrated by a shift of the demand curve.
- Change in the Quantity Supplied
- A change in sellers' plans that occurs when the price of a good changes but all other influences on sellers' plans remain unchanged. it is illustrated by a movmenet along the supply curve
- Competitive Market
- A market that has many buyers and many sellers, so no single buyer or seller can influence the price
- Complement
- A good that is used in conjunction with another good
- Demand Curve
- A curve that shows the relationship between the quantity demanded of a god and its price when all other influences on consumers' planned purchases remain the same.
- Equilibrium Price
- The price at which the quantity demanded equals the quantity supplied
- Equilibrium quantity
- The quantity bought and sold at the equilibrium price
- Inferior Good
- A good for which demand decreases as income increases
- Law of Demand
- Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded of that good
- Law of Supply
- Other things remaing the same, the higher the price of a good, the greater is the quantity supplied of it.
- Money Price
- The number of dollars that must be given up in exchange for a good or service
- Normal Good
- A good for which demand increases as income increases
- Quantity Supplied
- The amount of a good or service that producers plan to sell during a given time period at a particular price
- Relative Price
- The ratio of the price of one good or service to the price of another good or service. A relative price is an opportunity cost.
- Substitute
- A good that can be used in place of another good
- Supply
- The relationship between the quantity of a good that producers plan to sell and the price of the good when all other influences on sellers' plans remain the same. It is described by a supply schedule and illustrated by a supply curve.
- Supply Curve
- A curve that shows the relationship between the quantity supplied and the price of a good when all other influences on producers' planned sales remain the same.
- Business Cycle
- The periodic but irregular up-and-down movement in production
- Current Account
- A record of the payments for imports of goods and services, receipts from exports of goods and services, the interest income and net transfers
- Deflation
- A process in which the price level falls-a negative inflation.
- Expansion
- A business cycle phase between a trough and a peak. A phase in which real GDP increases.
- Fiscal Policy
- The government's attempt to achieve macroeconomic objectives such as full employment, sustained economic growth and price level stability by settling and changing taxes, making transfer payments and purchasing goods and services
- Government Budget Deficit
- The deficit that arises when federal government spends more than it collects in taxes
- Government Budget Surplus
- The surplus that arises when the federal government collects more in taxes than it spends
- Great Depression
- A decade of high unemployment and stagnant production throughout the world economy. (1929-1939)
- Inflation
- A process in which demand decreases as income increases.
- Lucas Wedge
- The accumulated loss of output that results from a slowdown in the growth rate of real GDP per person.
- Monetary Policy
- The Fed conducts the nation's monetary policy by changing in interest rates and adjusting the quantity of money
- Okun Gap
- The gap between real GDP and potential GDP. AKA: output gap.
- Potential GDP
- The quantity of real GDP at full employment.
- Price Level
- The average level of prices as measured by a price index
- Productivity Growth Slowdown
- A slowdown in the growth rate of output per person
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Real Gross Domestic Product
(Real GDP) - The value of final goods and services roduced in a given year when valued at constant prices
- Recession
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1: A business cycle phase in which real GDP decreases for at least two successive quarters.
2: A significant decline in activity spread across the economy, lasting for more than a few months, visible in industrial production, employment, real income and wholesale-retail trade. - Unemployment Rate
- The percentage of people in the labor force who are unemployed.