funds are loaned and borrowed through a financial intermediary
M1
currency held outside banks plus checkable deposits plus traveler’s checks
Recessionary Gap
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 natural unemployment rate
Balanced Budget
gov’t expenditures equal to tax revenues
Incomplete Crowding Out
the decrease in one or more components of private spending that only partially offsets the increase in gov’t spending
Marginal Propensity to Save (MPS)
the ratio of the change in saving to the change in disposable income
Moral Hazard
a condition that exists when one party to a transaction changes his/her behavior in a way that is hidden from and costly to the other party
Cash Leakage
occurs when funds are held as currency instead of deposited into a checking account
Federal Funds Rate
the interest rate in the federal funds market; the interest rate banks charge one another to borrow reserves
Laffer Curve
the curve that shows 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)
