econ

store of value

something that keeps its value if it is stored rather than used

asset

Anything of value that is owned

liquidity

the ease with which an asset can be converted into cash

wealth

The total value of money and other assets

commodity money

objects that have value in themselves and that are also used as money (gold, ramen)

fiat money

money that has value because the government has ordered that it is an acceptable means to pay debts

M1 money

the most immediate form of money. It includes currency, all checkable deposits, and savings deposits.

M2 money

M1 plus small time deposits and money market mutual funds

demand deposits

balances in bank accounts that depositors can access on demand by writing a check

currency

a system of money in general use in a particular country.

The Fed

acts as the nation's central banking organization, regulating fiat money and adminstering the commerical bank system

central bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy

money supply

the quantity of money available in the economy

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

reserves

deposits that banks have received but have not loaned out

reserve ratio

the fraction of deposits that banks hold as reserves

money multiplier

the amount of money the banking system generates with each dollar of reserves

reserve requirements

regulations on the minimum amount of reserves that banks must hold against deposits

open-market operation

a purchase or sale of government debt (bonds) by the Fed

discount rate

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

nominal interest rates

the interest rates actually observed in financial markets

real interest rates

Interest rates that have been adjusted for inflation.

nominal variables

variables measured in monetary units

real variables

measured in physical units

deflation

a decrease in the general level of prices

money neutrality

changes in the money supply do not affect real variables or the ability to produce goods/services, and is neutral in the long run

shoeleather costs

the resources wasted by having to go to the bank during inflation (time, gas)

menu costs

the costs to firms of changing prices due to inflation

relative prices/misallocation of resources

the belief that because the price of one thing rises, all things will increase in price, leading to reduced consumer spending

general confusion

incorrect perception of firms earnings/expenses

demand-push inflation

inflation driven by changes in goods/services by consumers, excess demand for finite amount of products

cost-pull inflation

inflation caused by a decrease in supply

supply shocks

unexpected events that affect aggregate supply, sometimes only temporarily

medium of exchange

anything that is used to determine value during the exchange of goods and services

unit of account

a means for comparing the values of goods and services (pricing)

inflation

increase in overall price levels

GNP

measures productivity of citizens regardless of location

GDP

the market value of all final goods and sercices produced with a country in a given period of time

NNP (net national product)

GDP or GNP minus the losses from depreciation

real GDP

the production of goods and services valued at constant prices

nominal GDP

GDP measured in current prices (not accounting for inflation)

consumption

money spent on consumer goods and services (largest component of GDP)

investment

spending on capital equipment, inventories, and structures, including household purchases of new housing

government expenditures

Federal, state, and local government outlays for goods and services NOT including transfer payments like social security or welfare

net exports

exports minus imports (imports not counted in GDP)

GDP deflator

Nominal GDP/Real GDP x 100

CPI

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

Inflation rate

the percentage increase in the price level from one year to the next

Producer Price Index (PPI)

An index that measures prices at the wholesale level.

Natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

structural unemployment

unemployment that results due to changes in economic structure, like technology, deindustrialization, demographics, etc

labor force

employed + unemployed

unemployment rate

the percentage of the labor force that is unemployed

labor force participation rate

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

discouraged workers

individuals who would like to work but have given up looking for a job

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity

job search

the process by which workers find appropriate jobs given their tastes and skills

closed economy

An economy where there is no foreign trade.

open economy

an economy that interacts freely with other economies around the world

imports

goods produced abroad and sold domestically

exports

goods produced domestically and sold abroad

trade balance

the value of a nation's exports minus the value of its imports; also called net exports

net foreign investment

investment by US abroad - investment in US

appreciation

An increase in the value of a currency

depreciation

A decrease or loss in value

Purchasing Power Parity

A monetary measurement of development that takes into account what money buys in different countries.

trade surplus

when a country exports more than it imports

trade deficit

when a country imports more than it exports

balanced trade

exports = imports

PI (personal income)

income of households and non-corporate businesses before taxes

DPI (disposable personal income)

income of households available for spending and saving after taxes are deducted

Substitution bias

consumers often buy cheaper alternatives when a good is expensive

Introduction of new goods/services

the introduction of new products or services in the market can increase consumer choice and alter purchasing patterns, affecting the cost of living calculations.

Unmeasured quality changes

changes in the quality of goods that are not measured by prices

Cyclical unemployment

year to year fluctuations in unemployment rates

Employed

spent some part of the previous week at a paid job

Unemployed

laid off, waiting to start a new job, or looking for a job

Not in the labor force (NILF)

those who are not actively seeking employment, including retirees, students, and those unable to work.

Classical dichotomy

the idea that real and nominal variables in the economy can be analyzed separately, meaning that changes in the money supply primarily affect nominal variables but not real variables

Union

an organized group of workers

Collective bargaining

The process through which unions negotiate with employers to establish wages, benefits, and working conditions for their members.

direct investment

active involvement in the asset

portfolio investment

passive role, simply investing money with no active involvement