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Government & Economy


Private Goods Good consumed by a single person or household
Public Goods Good available for everyone to consume, regardless of ability to pay
Deadweight Loss from Taxation Difference between total burden of a tax and amount of revenue collected by the government
Median Voter Rule Rule suggesting choices made by the government will reflect preferences of median vote
Benefits-Received Principle A few people share the benefit of a project and a large number of people share the cost, the government is more likely to approve inefficient projects
Free-Ride Problem Each person will try to get the benefit of a public good without paying for it, trying to get a free ride at the expense of others who do pay
Total Burden of Tax Loss in consumer surplus resulting from a tax
Excess Burden of Tax Deadweight loss
Taxable Income Total Income - Certain Deductions and Exemptions
Regressive Tax Taxpayers pay the same amount. Lower income taxpayers pay higher rate. Punishes you for being poor.
Progressive Tax Taxpayers pay different amounts. Higher income taxpayers pay a higher rate. Punishes you for being rich.
Proportional Tax Taxpayers pay different amounts. All taxpayers pay the same rate. Treats rich and poor equally.
Equilibrium Output Level of GDP at which the amount of demand for output equals the amount that is produced
Consumption Function Relationship between the level of income and consumption spending
Autonomous Consumption Part of consumption that does not depend on income
Marginal Propensity to Consume Fraction of additional income that is spent
Marginal Propensity to Save Fraction of additional income that is saved
Keynesian Fiscal Policy Use of taxes and government spending to affect the level of GDP in the short run
Disposable Personal Income Income that flows back into households, taking into account transfers and taxes
Expansionary Fiscal Policy Government policy actions that lead to increases in output; this stimulates the economy
Contractionary Fiscal Policy Government policy actions that lead to decreases in output; this fights inflation
Budget Deficit Difference between the spending of a government and the revenues of the government from taxation
Automatic Stabilizers Taxes and transfer payments that stabilize GDP without requiring policy makers to take explicit actions
Multiplier Ratio of changes in output to changes in spending; measures the degree to which changes in spending are "multiplied" into changes in output
Savings Function Relationship between the level of income and the level of savings
Permanent Income An estimate of the long-run average level of income of a household
Marginal Propensity to Import The fraction of additional income that is spent on imports
Money Anything regularly used in exchange
Barter Trading goods directly for goods
Medium of Exchange Property of money that exchanges are made through the use of money
Standard Value (Unit of Account) Property of money that prices are quoted
Store of Value Property of money that it preserves value until used in exchange
M1 Sum of currency in the hands of the public + the demand deposits + other checkable deposits
M2 M1 + other assets including deposits in savings, loans, money market, and mutual funds
Net Worth Difference between assets and liabilities
Monetary Policy Range of actions taken by the Federal Reserve to influence the level of GDP or the rate of inflation
Federal Reserve System Organization with the ability to increase/decrease the total amount of reserves in the banking system through open market operations
Open Market Purchases Federal Reserve's Purchase of government loans, which increases the money supply
Open Market Sales Federal Reserve's Sales of the government bonds to the public, which decreases the money supply
Money Multiplier Initial deposit leads to a multiple expansion of deposits (Increase in deposits = (Initial Deposit) * (1/Reserve Ratio)
Reserve Ratio Ratio of Reserves to deposits
Excess Reserves Any additional reserves that a bank holds above its required reserves
Required Reserves Fraction of the deposits banks are required to hold in their vaults or as deposits at the Federal Reserve
Reserves Fraction of the deposits banks set aside in either vault cash or as deposits at the Federal Reserve
Assets Uses of funds of a bank, including loans and reserves
Liabilities Sources of funds for a bank, including deposits
Balance Sheet Account for a bank whoch shows the sources of its funds (liabilities) as well as the uses for its funds (assets)
Created by: bmaze



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