Macroeconomics: Policies and Goals

The study of how people make choices when faced with limited resources to satisfy unlimited wants.

The value of the next best alternative that is forgone when a choice is made.

A situation where there are not enough resources to satisfy all the wants of the people. Scarce goods have value.

Resources required to produce goods and services. They are limited in quantity or skill.

The study of the economy as a whole, examining things like national output, unemployment, and inflation.

The study of individual economic units, such as consumers, firms, and markets.

The additional gain from an activity.

The additional cost incurred from an activity.

Statements that deal with issues that can be tested with research and data. They can be true or false.

Statements based on opinions that cannot be resolved with research. They involve value judgments and use words like "ought" and "should".

A relationship between two variables assuming all other factors remain constant. It's used to isolate the impact of one variable on another.

A measure of income inequality. A higher Gini coefficient indicates greater inequality.

A graph showing the maximum output combinations a society can produce with its available resources and technology. It highlights opportunity costs.

The principle that the opportunity cost of producing more of a good increases as you specialize in that good.

The ability of one producer to produce a good at a lower opportunity cost than another producer.

Consumers want a good and have the ability to pay for it.

The relationship between the price of a good and the quantity demanded: as price increases, quantity demanded decreases.

The change in demand for a good due to a change in the price of another good: substitutes are bought more when the price of a good rises, complements are bought less.

A good that is consumed less as income rises, indicating lower quality or necessity.

The responsiveness of quantity demanded to changes in price. Elastic demand means significant response, inelastic demand means limited response.

The ability of producers to supply goods based on demand for profit.

The price where the quantity demanded equals the quantity supplied. It represents a stable market condition.

A situation where the market price is not at equilibrium, leading to surpluses or shortages. Prices adjust over time to restore equilibrium.

The ratio of the current dollar value of a series, such as gross domestic product (GDP), to its corresponding chained dollar value, multiplied by 100.

A measure of the overall price level in the economy, calculated by dividing the nominal GDP by the real GDP and multiplying by 100.

The value of all goods and services produced within the border of a country during a period of time.

Goods and services that are expected to last for more than 3 years.

Goods and services that are used up within a short period of time.

The difference between the value of a bond's future cash flows and its current market price, caused by changes in market interest rates.

The central bank's practice of influencing interest rates and money supply to affect economic activity.

The rate at which commercial banks can borrow money from the Federal Reserve.

The process of changing the amount of money in circulation through the buying and selling of government securities.

The minimum amount of reserves that banks are required to hold against deposits.

A change in either an individual's perception of the return on saving or their perception of risk associated with that return.

Individuals save to spread their spending over their lifetime, to protect themselves from unexpected events, and to leave money for others.

Factors like changes in income, expectations of future earnings, wealth, and risk perception can all influence how much people save.

Other things being equal, individuals tend to save more when the real interest rate on their savings is higher.

Businesses save to fund future expansion, to protect themselves from financial risks, and to manage cash flow.

Governments save when their tax revenue exceeds their spending on interest payments, social programs, and government operations.

A firm is considered a demander in the saving market.

Firms invest in capital goods or housing when they believe the investment will generate future profits.

Firms compare the potential profit from an investment to the cost of the investment to determine if it is worthwhile.

The relationship between investment and the real interest rate is inverse. When the real interest rate increases, firms tend to invest less.

The government creates a stable environment for business, ensures fair competition, corrects market inefficiencies, stabilizes the economy, provides essential goods, addresses asymmetric information, and adjusts for undesirable market outcomes.

An externality is a cost or benefit experienced by someone who is not directly involved in the original transaction.

Excludable goods require payment or a trade for access.

Nonexcludable goods are available to everyone, even if they don't pay for them.

Asymmetric information occurs when one party in a transaction has more knowledge than the other.

The time it takes for the effects of a monetary policy change to be fully realized in the economy.

The situation where a reduction in interest rates doesn't lead to increased borrowing and investment because lenders are hesitant to lend or borrowers are unwilling to take on debt.

A policy that uses government spending and taxes to influence the economy.

The central banking system of the United States, which acts as the lender of last resort for commercial banks.

When government spending is greater than tax revenue, leading to a build-up of debt.

A decrease in the overall level of economic activity, often marked by job losses and reduced production.

The idea that a rise in the money supply leads to people reducing their money holdings, driving down interest rates and stimulating investment and consumption.

An increase in the general price level of goods and services in an economy.

The view that a rise in the money supply increases the demand for bonds, driving up prices and lowering interest rates.

The tendency of firms to increase production when prices rise in the short run because their profits increase, even if wage costs haven't risen.

The value of one currency compared to another.

A situation where a country can produce a good or service using fewer resources than another country.

The tendency of firms to decrease production when prices fall in the short run because their profits decrease, even if wage costs haven't fallen.

A type of inflation caused by rising costs of production (such as wages or raw materials), which can lead to a decrease in output and an increase in unemployment in the short term.

A policy that aims to stimulate economic growth by reducing taxes and regulations.

The practice of using government tools to counteract other economic forces.

The idea that demand-side policies, while potentially beneficial in the short term, can only create temporary increases in output and may lead to inflation in the long term.

A measure of the total value of goods and services produced in an economy.

A situation where the value of the currency is determined entirely by the forces of supply and demand in the market.

When a country's currency rises in value relative to another currency.

When a country's currency falls in value relative to another currency.

The official rate at which one currency is exchanged for another.

When a government intervenes in the currency market to maintain a fixed exchange rate.

The difference between a country's total earnings from exports and its total spending on imports.

The market value of all goods and services produced within a country's borders in a given time period.

The theory that exchange rates should adjust to equalize the prices of a basket of goods and services in different countries.

A measure of the responsiveness of the quantity demanded to a change in price.

A situation in which the central bank buys government securities, injecting money into the economy.

The increasing opportunity cost of producing more of a good as a country specializes in that good, leading to a decrease in efficiency.

The practice of selling a product for less than the cost of production, often used to gain market share or drive out competitors.

A trade barrier used to protect domestic industries by imposing a tax on imported goods.

A trade barrier that limits the quantity of a good that can be imported.

A trade barrier that uses administrative regulations to make it difficult for imported goods to enter the market.

A government program that provides financial assistance to domestic producers, often used to protect them from foreign competition.

A trade barrier that prevents the import of certain goods from specific countries.

A government policy that restricts the purchase and sale of foreign currencies.

A trade argument that suggests that new industries need protection from foreign competition during their early stages of development.

The sum of all economic transactions between residents of a country and the rest of the world.

The part of the balance of payments that records all transactions related to trade in goods and services, income flows, and current transfers.

The part of the balance of payments records all transactions related to investments and debt forgiveness.

The part of the balance of payments that records all transactions related to financial assets, including direct and portfolio investments.

Policies aimed at increasing the economy's productive capacity, focusing on boosting long-term economic growth by improving supply factors like labor, capital, and technology.

A reduction in government spending to encourage private sector investment and growth, based on the idea that less government intervention leads to greater efficiency.

Tax cuts designed to boost economic activity by increasing incentives for individuals and businesses to work, invest, and produce.

Policies aimed at weakening the bargaining power of labor unions to reduce wage pressures and increase business flexibility.

Cutting back on welfare programs to encourage people to join the workforce.

Policies encouraging more competition in markets to reduce monopolies, promote innovation, and improve efficiency.

Government actions aimed at directly influencing the economy's productive capacity, typically through investments and initiatives.

Government support for businesses through programs like mergers, business advice, and financial aid for research and development.

Government investments in infrastructure like roads, transportation, and communication networks to enhance productivity and economic growth.

Government-funded training and education programs designed to improve the skills of the workforce and make it more productive.

Government-sponsored programs to encourage unemployed individuals to find work, often through incentives and assistance.

The idea that higher taxes can stifle economic growth by reducing incentives for individuals and businesses to work and invest.

The potential benefits of economic growth, including poverty reduction, increased living standards, and more resources for public services.

The potential drawbacks of economic growth, including social inequality, environmental damage, and increased consumerism.

The relationship between inflation and unemployment, showing that as inflation rises, unemployment falls, and vice-versa.