econ test ch 15-16, 18-19

Mr. Maj

full employment

no cyclical/low unemployment

underemployment

workers are overqualified for their jobs or work fewer hrs than they prefer

labor force

those in the adult pop who are either working or looking for work

unemployment rate formula

\# of ppl without jobs who are looking for work

__________________________________________________

# of ppl in the labor force

labor force participation rate formula

\# of ppl in labor force

________________________

the adult pop

unemployment benefits

cash transfers to unemployed workers who lost their jobs, actively seeking work, & meet other qualifications

inflation

increase in the economy’s price level

demand-pull inflation

• inflation resulting from a rightward shift of the aggregate demand curve

• greater demand pulls up price level

cost-push inflation

• inflation resulting from a leftward shift of the aggregate supply curve

• reduced supply pushes up price level

nominal interest rate

• interest rate expressed in current dollars as a % of the amt loaned

• interest rate on loan agreement

real interest rate

• interest rate expressed in dollars of constant purchasing power as a % of the amt loaned

• nominal interest rate minus inflation rate

laissez-faire

gov shouldnt intervene in a market economy beyond the minimum required to maintain peace and property rights

demand-side economics

macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and price stability

* Keynes - if gov spent money over budget then the gov will go into debt

stagflation

decline/stagnation of a nation’s output accompanied by a rise/inflation in price level

supply-side economics

macroeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts (or other changes that increase production incentives)

* Arthur Lawfuler - if reduce income tax, then gov spending would increase supply of goods

cycle of poverty

children in families that receive welfare may end up on welfare themselves when they grow up

welfare reform

a 1996 overhaul of the welfare system that imposed a lifetime welfare limit of 5 yrs per recipient and other conditions

benefits-received tax principle

those who receive more benefits from the gov program funded by a tax should pay more of that tax

ability-to-pay tax principle

those with a greater ability to pay (ppl with a higher income) should pay more of a tax

tax incidence

indicates who actually bears the burden of a tax

proportional taxation

• the tax takes the same percentage of income from all income groups

• also called a flat tax

progressive taxation

the tax as a % of income increases as income increases

regressive taxation

• the tax that takes a larger % of income from low-income groups than from high-income groups

• average tax burden decreases with income

marginal tax rate

the % of each additional dollar of income that goes to pay a tax

gov budget

a plan for gov spending and revenues for a specified period (usually a yr)

payroll taxes

taxes deducted from pay to support Social Security & Medicare programs

Frictional Unemployment

Time it takes to bring together labor suppliers and labor demanders

Structural Unemployment

When job seekers do not have the skills demanded by employers. Those unemployed may need to retrain to develop new skills.

Seasonal Unemployment

unemployment that occurs with seasonal jobs throughout the year (ex. lifeguards)

Cyclical Unemployment

An increase in unemployment caused by the recession phase of the business cycle. Increases during recessions and decreases during expansions.

disinflation

reduction in the rate of inflation

deflation

decrease in the price level (experienced during the Great Depression)

16th Amendment

Congress shall have power to lay and collect taxes on incomes

john maynard keynes

economist, decrease inflation, founder of modern macroeconomics

free-riders

ppl who use public goods but dont pay taxes

adam smith

invisible hand, no gov involvement

user fees

toll roads, national parks taxes

sin taxes

alcohol, tobacco and gambling taxes

medium of exchange

anything generally accepted by all parties in payment

inflation ___ since WW2

increasing

70’s

stagflation = unemployment & high inflation

90’s

trying to steady the debt

Reagan said to ___

cut personal income tax rates

consequence of welfare system

higher taxes

seigniorage

revenue earned from printing paper money

Federal Reserve System (the fed)

* central bank & monetary authority of US
* set interest rates, does transactions

the SEC

security exchange commissions

unit of account

standard on which to base all pricess

store of value

retains its purchasing power over time

* stock = amt measured
* flow = amt received

token money

money whos exchange value exceeds its cost of production

bank notes

pieces of paper promising the bearer a specific amt of gold/silver

bank loans

help banks/financal institutions “create money”

fiat money

money of no value

depository intuitons

accept deposits from the public and make loans from these

commercal banks

historically lent primarily to commercial ventures (businesses rather than household)

thrifts

savings and loan assosiactons

reserve bank

holds the reserves of other member banks, doesnt deal with public

charter

right to operate

networth

asset minus liabilities

required reserve ratio

min fraction of deposits the bank must kep in reserve

required reserves

total $ amt of the required reserves (reserves not loaned out)

excess reserves

reserves that a bank has on hand in excess of the required reserves

money multiplier

the multiple by which the money supply can increase as a result of an increase in excess reserves in the banking system