ECON 2020 Practice Final Exam

Flashcards from Economics lecture notes.

Aggregate Demand

The total demand for goods and services in an economy at a given time.

Short-Run Aggregate Supply

The total quantity of goods and services that firms are willing and able to supply at different price levels in the short run.

Nominal Growth Rate

The growth rate of GDP without adjusting for inflation.

Inflation

A general increase in prices and fall in the purchasing value of money.

Real GDP per capita

A measure of the average economic output per person, adjusted for inflation.

Federal Reserve

The central banking system of the United States.

Required Reserve Ratio

The fraction of deposits banks are required to keep in reserve at the Fed.

Money Supply

The total amount of money in circulation in an economy.

Aggregate Demand

The total demand for goods and services in an economy at a given time.

Unemployment Rate

The percentage of the labor force that is unemployed.

Labor Force

The total number of workers, including both employed and unemployed.

Returns to Scale

The rate at which output increases in response to proportional increases in all inputs.

Aggregate Production Function

A mathematical function that shows the relationship between inputs and output in an economy.

Closed Economy

An economy that does not trade with the rest of the world.

GDP

The total value of goods and services produced within a country's borders in a specific time period.

Consumption Spending

Household spending on goods and services.

National Savings

The total savings in an economy, equal to private savings plus public savings.

Private Savings

The savings of households and businesses.

Long-Run Equilibrium

A state in which the economy is producing at its potential output level and the price level is stable.

Real Box Office Earnings

Box office earnings adjusted for inflation.

Free Trade

International trade free of government interference.

Tariffs

Taxes on imported goods.

Consumer Surplus

The difference between what consumers are willing to pay for a good and what they actually pay.

Producer Surplus

The difference between the price producers receive for a good and the cost of producing it.

Stagflation

A situation of both high inflation and high unemployment.

Open Market Operations

The buying and selling of government securities by the Federal Reserve to influence the money supply.

Real Exchange Rate

The rate at which the goods and services of one country can be exchanged for the goods and services of another country.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than another producer.

Investment Spending

Spending on new capital goods.

Government Spending

Spending by the government on goods and services.

Exports

Goods and services produced domestically and sold abroad.

Imports

Goods and services produced abroad and sold domestically.

Short-Run Phillips Curve

A curve that shows the short-run trade-off between inflation and unemployment.

Long-Run Phillips Curve

A vertical line at the natural rate of unemployment.

Natural Rate of Unemployment

The normal rate of unemployment around which the unemployment rate fluctuates.

Expected Price Level

The price level that people expect to prevail in the future.

Potential GDP

The level of GDP that an economy can produce when all resources are fully employed.

Excess Reserves

Reserves held by banks above the required amount.

Velocity of Money

The rate at which money changes hands in the economy.

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months.

Marginal Propensity to Consume

The fraction of extra income that households consume rather than save.

Deflation

A decrease in the general price level.

Sticky Prices

Prices that do not adjust quickly to changes in demand or supply.

Infant Industry Argument

The argument that new industries should be protected from foreign competition until they are large enough to compete effectively.

Labor Force Participation Rate

The percentage of the adult population that is in the labor force.

Human Capital

The knowledge and skills that workers acquire through education, training, and experience.

Net Exports

The value of a nation's exports minus the value of its imports; also called the trade balance.

Investment Tax Credit

A tax credit given for new investments.

Open Immigration Policies

Government policies that allow relatively free movement of people into and out of the country.

Discount Rate

The interest rate on the loans that the Fed makes to banks

Nominal Interest Rate

The interest rate as usually reported without a correction for the effects of inflation

Consumer Price Index

A measure of the overall cost of the goods and services bought by a typical consumer

Real Interest Rate

The interest rate corrected for the effects of inflation

Cyclical Unemployment

The deviation of unemployment from its natural rate

Loanable Funds

All income that people have chosen to save and lend out, rather than use for their own consumption

Purchasing Power Parity (PPP)

A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries

Liquidity Trap

A situation in which monetary policy is ineffective because nominal interest rates have reached zero

Speculation

The investment in stocks, property, etc., in the hope of gain but with the risk of loss