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Ch 9 Classical Macroeconomics and the Self-Regulating Economy
Say’s LawDefinition: supply creates its own demand. Production creates enough to purchase all the goods and services produced. Term: Recessionary Definition: the condition in which the Real GDP that the economy is producing is less than the Natural Real GDP and the unemployment rate is greater than the unemployment rate Term: Inflationary Definition: the condition in which the Real GDP that the economy is producing is greater than the Natural Real GDP and the unemployment rate is less than the unemployment rate Term: -faireDefinition: a public policy of not with market activities in the economy Term: Wage ModelsDefinition: these models hold it is sometimes in the best interest of business firms to pay their employees higher-than-equilibrium wage Term: FunctionDefinition: the relationship between consumption and disposable income. In the consumption function used in this text, consumption is directly related to disposable income and is positive even at zero disposable Term: Propensity to Consume (MPC)Definition: the ratio of the change in consumption to the change in income Term: ConsumptionDefinition: the part of the consumption that is of disposable income Term: Propensity to Save (MPS)Definition: the ratio of the change in saving to the change in income Term: Definition: the # that is multiplied by the change in autonomous spending to obtain the overall change in spending; multiplier (m) = 1/(1-MPC) Term: Progressive Income Definition: an income tax in which one’s tax rate rises as taxable income rises (up to some point) Term: Proportional TaxDefinition: an income tax in which a person’s tax rate is the same regardless of taxable income Term: Regressive Income Definition: an income tax system in which a person’s tax rate as his or her taxable income rises Term: DeficitDefinition: expenditures greater than tax revenues Term: Budget Definition: tax revenues greater than expenditures Term: BudgetDefinition: expenditures equal to tax revenues Term: Cyclical Definition: the part of the budget deficit that is a result of a downturn in activity Term: Structural Definition: the part of the deficit that would exist even if the economy were operating at full employment Term: Public Definition: the total that the federal gov’t owes its creditors Term: Fiscal Definition: changes in gov’t expenditures and/or taxes to achieve economic goals, such as low unemployment, prices, and economic growth Term: Expansionary PolicyDefinition: increases in gov’t expenditures and/or in taxes to achieve particular economic goals Term: Contractionary PolicyDefinition: decreases in gov’t expenditures and/or increases in taxes to achieve economic Term: Discretionary PolicyDefinition: deliberate changes of gov’t and/or taxes to achieve economic goals Term: Automatic PolicyDefinition: changes in gov’t expenditures and/or taxes that occur automatically w/o (additional) action Term: Crowding Definition: the decrease in expenditures that occurs as a consequence of increased gov’t spending or the financing needs of a budget deficit Term: Complete OutDefinition: a decrease in one or more components of private spending that completely the increase in gov’t spending Term: Incomplete Crowding Definition: the decrease in one or more of private spending that only partially offsets the increase in gov’t spending Term: Marginal (Income) Tax Definition: the change in a person’s tax payment divided by the change in taxable Term: Laffer Definition: the curve that the relationship between tax rates and tax revenues; as tax rates rise from 0, tax revenues rise, reach a maximum at some point, and then fall w/ further increases in tax rates (dome curve) Term: Tax Definition: in terms of income , the total amount of taxable income Term: MoneyDefinition: any good that is widely accepted for purposes of and the repayment of debt Term: BarterDefinition: exchanging of goods and for other goods and services w/o the use of money Term: of ExchangeDefinition: anything that is generally acceptable in for goods and services; a function of money Term: Unit of Definition: a common measure in which relative values are ; a function of money Term: Store of Definition: the ability of an item to hold value over time; a of money Term: Double of WantsDefinition: in a barter economy, a requirement which must be met before a trade can be made; it specifies that a trader must find another trader who at the same time is willing to trade what the trader wants and wants what the first trader has Term: Definition: currency held outside banks plus checkable deposits plus checks Term: Definition: or paper money Term: Reserve NotesDefinition: paper money by the Federal Reserve Term: DepositsDefinition: on which checks can be written Term: M2Definition: M1 plus savings deposits (inc market deposit accounts) plus small-denomination time deposits plus money market mutual funds (retail) Term: Savings Definition: an -earning account at a commercial bank or thrift institution; normally, checks can’t be written on savings deposits, and the funds in a savings deposit can be withdrawn at any time w/o penalty payment Term: Time Definition: an interest-earning deposit w/ a specified maturity date; these deposits are subject to penalties for early withdrawal (withdrawal maturity date); small-denomination time deposits are less than $100,000 Term: Money Market Deposit (MMDA)Definition: an interest-earning account at a bank or institution, for which a minimum balance is usually required and most of which offer limited check-writing privileges Term: Money Market Fund (MMMF)Definition: an interest-earning account at a mutual fund company, for which a minimum is usually required and most of which offer limited check-writing privileges; only retail MMMF’s are part of M2 Term: Fractional Reserve Definition: a banking arrangement that allows to hold reserves equal to only a fraction of their deposit liabilities Term: Federal Reserve (the Fed)Definition: the bank of the United States Term: ReservesDefinition: the sum of bank deposits at the Fed and cash Term: Required Ratio (r)Definition: a %age of each deposited that must be held in reserve form (specifically, as bank deposits at the Fed or vault cash) Term: Required Definition: the minimum dollar amount of reserves a bank must hold against its deposits, as mandated by the Fed Term: RequirementDefinition: the Fed rule that specifies the amount of reserves a bank must hold to back up Term: ReservesDefinition: any held beyond the required amount; the difference between (total) reserves & required reserves Term: Direct Definition: borrowers & come together in a market setting, ie, the bond market Term: FinanceDefinition: funds are loaned and borrowed through a intermediary Term: IntermediaryDefinition: a financial intermediary funds from those who want to lend funds to those who want to borrow them Term: Asymmetric Definition: relates to an economic agent on one side of a transaction information that an economic agent on the other side of the transaction does not have Term: Adverse Definition: a phenomenon that occurs when the parties on one side of the , who have info not known to others, self-select in a way that adversely affects the parties on the other side of the market Term: Moral Definition: a condition that exists when one to a transaction changes his/her behavior in a way that is hidden from and costly to the other party Term: SheetDefinition: a record of the assets and of a bank Term: Definition: anything of that is owned or that one has claim to Term: Definition: anything that is owed to else Term: InsolvencyDefinition: a condition in which one’s liabilities are than one’s assets Term: of GovernorsDefinition: the governing body of the Reserve System Term: Federal Open Committee (FOMC)Definition: the 12-member policy-making group in the Fed; this has the authority to conduct open market operations Term: Open OperationsDefinition: the buying and of gov’t securities by the Fed Term: PolicyDefinition: changes in the money supply or in the rate of of the money supply, intended to achieve stated macroeconomic goals Term: S SecuritiesDefinition: bonds and bond-like securities issued by the US when it borrows Term: Open Market Definition: the buying of gov’t securities by the Term: Cash Definition: occurs when funds are held as currency instead of deposited into a checking Term: Deposit MultiplierDefinition: the reciprocal of the reserve ratio, 1/r Term: Open SaleDefinition: the selling of gov’t securities by the Term: Reserve /DeficientDefinition: the situation that exists when a bank holds fewer reserves than specified by the reserve ratio Term: Discount Definition: a loan the Fed to a commercial bank Term: Discount Definition: the interest rate the Fed charges institutions that borrow reserves from it; the interest rate charged on a discount loan Term: Funds RateDefinition: the interest rate in the federal market; the interest rate banks charge one another to borrow reserves Term: Funds MarketDefinition: a market where banks lend reserves to one another, usually for short Term: Federal Target RateDefinition: the interest rate that the Fed the federal funds market rate to be Term: Term Facility (TAF) ProgramDefinition: a program under which the Fed auctions funds to depository ; each TAF auction is for a fixed amount, with the TAF rate determined by the auction process (subject to a minimum bid rate) |
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