Econ FINAL Key Terms Notes

shadow banks

Non traditional lenders not regulated like banks

Rating agencies

companies that rate how safe it is to lend money to someone

Federal Reserve

US central bank. controls money and interest rates

compound interest

Earning interest on both your initial money and the interest already earned

Unemployment

people who want a job but cant find one

Labor Force

all people who have jobs or are looking for jobs

Labor force participation rate

percentage of working age people in labor force

fiat money

money that has value because the government says it does

volcker shock

higher interest rates set to stop inflation in the late 1970s (high interest rates and high unemployment)

inflation

when prices go up money buys less

deflation

when prices go down

disinflation

inflation slowing down, but prices still rising

fordism

mass production of same product

post fordism

more variety and custom products

required reserve ratio

amount of money banks must keep and not lend out

federal funds rate

interest rat efor banks lending money to each other

open market operations

fed buying and selling government bonds to control money supply

discount rate

interest rate for banks borrowing from the fed

monopoly

one company controls everything

oligopoly

a few companies share control

perfect market

many sellers and buyers, no control

cartel

companies that work together to set prices

Marginal Propensity to Consume

part of extra income people spens

Marginal Propensity to Save

part of extra income that people save.

Nominal GDP

Total market value of all goods and services produced by a country in a specific period, measured using current prices, not adjusted for inflation

Real GDP

same as nominal, just adjusted for inflation

Earned Income Tax Credit

subsidizes low-to-moderate income working family’s with refundable tax credit

Quintile

dividing a group into 5 equal parts

Principal Diagonal

diagonal line in a matrix where each value shows how a sectors output is used by itself

Budget Deficit

government spends more money than it earned in revenue

Budget Surplus

government earns more money that it spends in revenue

Public Debt

total amount of money a government owes, usually from borrowing

Marginal tax rate

change in tax payment/change in income

Effective tax rate

what share of your annual income you pay in taxes. total tax payment/total income

Consumption

use of goods and services by household to meet their needs

Investment

investing money for profit

Government spending

total money government uses to fund its activities and functions

Net Exports

difference between a country’s exports and imports