| absolute adavantage |
the ability to produce a good using fewer inputs than another producer |
| aggregate-demand curve |
a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level |
| aggregate-supply curve |
a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level |
| appreciation |
an increase in the value of a currency as measured by the amount of foreign currency it can buy |
| automatic stabilizers |
changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession but that occur without policymakers having to take any deliberate action |
| balanced trade |
a situation in which exports equal imports |
| bank capital |
the resources a bank’s owners have put into the institution |
| bond |
a certificate of indebtedness |
| budget deficit |
a shortfall of tax revenue from government spending |
| budget surplus |
an excess of tax revenue over government spending |
| capital flight |
a large and sudden reduction in the demand for assets located in a country |
| capital requirement |
a government regulation specifying a minimum amount of bank capital |
| central bank |
an institution designed to oversee the banking system and regulate the quantity of money in the economy |
| classical dichotomy |
the theoretical separation of nominal variables and real variables |
| closed economy |
an economy that does not interact with other economies in the world |
| collective bargaining |
the process by which unions and firms agree on the terms of employment |
| commodity money |
money that takes the form of a commodity with intrinsic value |
| comparative advantage |
the ability to produce a good at a lower opportunity cost than another producer |
| compensating differential |
a difference in wages that arises to offset the nonmonetary characteristics of different jobs |
| confounding variable |
an omitted variable that can mislead the researcher because it is related to the variables of interest |
| consumer price index (CPI) |
a measure of the overall cost of the goods and services bought by a typical consumer |
| consumption |
spending by households on goods and services, with the exception of purchases of new housing |
| core CPI |
a measure of the overall cost of consumer goods and services excluding food and energy |
| cross-sectional data |
data that present information about multiple subjects (such as people, firms, or nations) at a given time |
| crowding out |
a decrease in investment that results from government borrowing |
| crowding-out effect |
the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending |
| currency |
the paper bills and coins in the hands of the public |
| cyclical unemployment |
the deviation of unemployment from its natural rate |
| data |
factual information, often quantitative, that provides the basis for reasoning and discussion |
| demand deposits |
balances in bank accounts that depositors can access on demand by writing a check |
| depreciation |
a decrease in the value of a currency as measured by the amount of foreign currency it can buy |
| depression |
a severe recession |
| discount rate |
the interest rate on the loans that the Fed makes to banks |
| discouraged workers |
individuals who would like to work but have given up looking for a job |
| discrimination |
the offering of different opportunities to similar individuals who differ only by race, ethnicity, gender, age, religion, sexual orientation, or other personal characteristics |
| econometrics |
the subfield of economics that develops tools to analyze data |
| efficiency wages |
above-equilibrium wages paid by firms to increase worker productivity |
| efficiency wages |
above-equilibrium wages paid by firms to increase worker productivity |
| experimental data |
data that come from a researcher running a randomized controlled trial |
| exports |
goods produced domestically and sold abroad |
| exports |
goods produced domestically and sold abroad |
| federal funds rate |
the interest rate at which banks make overnight loans to one another |
| Federal Reserve |
the central bank of the United States |
| fiat money |
money without intrinsic value that is used as money by government decree |
| financial intermediaries |
financial institutions through which savers can indirectly provide funds to borrowers |
| financial markets |
financial institutions through which savers can directly provide funds to borrowers |
| financial system |
the group of institutions in the economy that help to match one person’s saving with another person’s investment |
| fiscal policy |
the setting of the levels of government spending and taxation by government policymakers |
| Fisher effect |
the one-for-one adjustment of the nominal interest rate to the inflation rate |
| fractional-reserve banking |
a banking system in which banks hold only a fraction of deposits as reserves |
| frictional unemployment |
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills |
| GDP deflator |
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100 |
| government purchases |
spending on goods and services by local, state, and federal governments |
| gross domestic product (GDP) |
the market value of all final goods and services produced within a country in a given period |
| human capital |
the knowledge and skills that workers acquire through education, training, and experience |
| imports |
goods produced abroad and sold domestically |
| imports |
goods produced abroad and sold domestically |
| indexed |
the automatic correction by law or contract of a dollar amount for the effects of inflation |
| inflation rate |
the percentage change in the price index from the preceding period |
| inflation tax |
the revenue the government raises by creating money |
| interest on reserves |
the interest rate paid to banks on the reserves held in deposit at the Fed |
| investment |
spending on business capital, residential capital, and inventories |
| job search |
the process by which workers find appropriate jobs given their tastes and skills |
| labor force |
the total number of workers, including both the employed and unemployed |
| labor-force participation rate |
the percentage of the adult population that is in the labor force |
| leverage |
the use of borrowed money to supplement existing funds for investment purposes |
| leverage ratio |
the ratio of assets to bank capital |
| linear regression |
a statistical model in which the dependent variable is linearly related to one or more independent variables plus a random residual |
| liquidity |
the ease with which an asset can be converted into the economy’s medium of exchange |
| macroeconomics |
the study of economy-wide phenomena, including inflation, unemployment, and economic growth |
| market for loanable funds |
the market in which those who want to save supply funds and those who want to borrow to invest demand funds |
| medium of exchange |
an item that buyers give to sellers when they want to purchase goods and services |
| menu costs |
the costs of changing prices |
| microeconomics |
the study of how households and firms make decisions and how they interact in markets |
| model of aggregate demand and aggregate supply |
the model that most economists use to explain shortrun fluctuations in economic activity around its long-run trend |
| monetary neutrality |
the proposition that changes in the money supply do not affect real variables |
| monetary policy |
the setting of the money supply by policymakers in the central bank |
| money |
the set of assets in an economy that people regularly use to buy goods and services |
| money multiplier |
the amount of money that results from each dollar of reserves |
| money supply |
the quantity of money available in the economy |
| monopsony |
a market that has only one buyer |
| multiple regression |
a linear regression model with more than one independent variable |
| multiplier effect |
the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending |
| mutual fund |
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds |
| national saving (saving) |
the total income in the economy that remains after paying for consumption and government purchases |
| natural experiment |
a chance event that causes variation in the data similar to that generated by a randomized controlled trial |
| natural level of output |
the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate |
| natural rate of unemployment |
the normal rate of unemployment around which the unemployment rate fluctuates |
| natural-rate hypothesis |
the claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation |
| net capital outflow |
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners |
| net exports |
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports) |
| net exports |
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports) |
| nominal exchange rate |
the rate at which a person can trade the currency of one country for the currency of another |
| nominal GDP |
the production of goods and services valued at current prices |
| nominal interest rate |
the interest rate as usually reported without a correction for the effects of inflation |
| nominal variables |
variables measured in monetary units |
| observational data |
data that come from a researcher observing the world as it presents itself |
| open economy |
an economy that interacts freely with other economies around the world |
| open-market operations |
the purchase and sale of U.S. government bonds by the Fed |
| opportunity cost |
whatever must be given up to obtain some item |
| ordinary least squares |
a statistical method for estimating parameter values by minimizing the sum of squared residuals |
| panel data |
data that present information about multiple subjects (such as people, firms, or nations) at various times |
| parameters |
the numerical values that govern the strength of the relationships among variables in a model |
| Phillips curve |
a curve that shows the short-run trade-off between inflation and unemployment |
| private saving |
the income that households have left after paying for taxes and consumption |
| producer price index |
a measure of the cost of a basket of goods and services sold by domestic firms |
| public saving |
the tax revenue that the government has left after paying for its spending |
| purchasing-power parity |
a theory of exchange rates that says a unit of any given currency should be able to buy the same quantity of goods in all countries |
| quantity equation |
the equation M × V = P × Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy’s output of goods and services |
| quantity theory of money |
a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate |
| randomized controlled trial |
an experiment in which a researcher randomly divides subjects into groups, treats the groups differently, and compares their outcomes |
| rational expectations |
the theory that people optimally use all the information they have, including information about government policies, when forecasting the future |
| real exchange rate |
the rate at which a person can trade the goods and services of one country for the goods and services of another |
| real GDP |
the production of goods and services valued at constant prices |
| real interest rate |
the interest rate corrected for the effects of inflation |
| real variables |
variables measured in physical units |
| recession |
a period of declining real incomes and rising unemployment |
| reserve ratio |
the fraction of deposits that banks hold as reserves |
| reserve requirements |
regulations on the minimum amount of reserves that banks must hold against deposits |
| reserves |
deposits that banks have received but have not loaned out |
| reverse causality |
a situation in which a researcher confuses the direction of influence between two variables |
| sacrifice ratio |
the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point |
| shoeleather cost |
the resources wasted when inflation encourages people to reduce their money holdings |
| stagflation |
a period of falling output and rising prices |
| standard error |
a measure of the uncertainty associated with a parameter estimate that results from sampling variation |
| statistical discrimination |
discrimination that arises because an irrelevant but observable personal characteristic is correlated with a relevant but unobservable attribute |
| stock |
a claim to partial ownership in a firm |
| store of value |
an item that people can use to transfer purchasing power from the present to the future |
| strike |
the organized withdrawal of labor from a firm by a union |
| strike |
the organized withdrawal of labor from a firm by a union |
| structural unemployment |
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one |
| supply shock |
an event that directly alters firms’ costs and prices, shifting the economy’s aggregate-supply curve and thus the Phillips curve |
| tariff |
a tax on goods produced abroad and sold domestically |
| theory of liquidity preference |
Keynes’s theory that the interest rate adjusts to bring money supply and money demand into balance |
| time-series data |
data that present information about a single subject (such as a person, firm, or nation) at various times |
| trade balance |
the value of a nation’s exports minus the value of its imports; also called net exports |
| trade deficit |
an excess of imports over exports |
| trade policy |
government policy that directly influences the quantity of goods and services that a country imports or exports |
| trade surplus |
an excess of exports over imports |
| unemployment insurance |
a government program that partially protects the incomes of workers who become unemployed |
| unemployment rate |
the percentage of the labor force that is unemployed |
| union |
a worker association that bargains with employers over wages, benefits, and working conditions |
| union |
a worker association that bargains with employers over wages and working conditions |
| unit of account |
the yardstick people use to post prices and record debts |
| velocity of money |
the rate at which money changes hands |
| world price |
the price of a good that prevails in the world market for that good |
| |
|