Macroeconomics Final Exam Definitions

Flashcards with terms and definitions from macroeconomics.

ECONOMICS

The study of how we can use our limited resources to attempt to satisfy our unlimited wants.

PRODUCTION POSSIBILITIES FRONTIER (PPF)

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

COMPARITIVE ADVANTAGE

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than a competitor.

QUANTITY DEMANDED

The amount of a good or service that a consumer is willing and able to purchase at a given price.

QUANTITY SUPPLIED

The amount of a good or service that a firm is willing and able to supply at a given price.

CONSUMER SURPLUS

The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.

PRODUCER SURPLUS

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.

TARIFFS

Taxes imposed by a government on goods imported into the country.

QUOTAS

A numerical limit a government imposes on the quantity of a good that can be imported into a country.

GDP = GROSS DOMESTIC PRODUCT

The market value of all final goods and services produced in a country during a period of time, typically one year.

INFLATION RATE

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

UNEMPLOYMENT

Someone who is not currently at work but who is available for work and who has actively looked for work during the previous month.

POTENTIAL GDP

The level of real GDP attained when all firms are producing at capacity.

BALANCED BUDGET

The government spends the same amount that it collects in taxes.

ECONOMIC GROWTH MODEL

A model that explains growth rates in real GDP per capita over the long-run.

AGGREGATE EXPENDITURE MODEL

A macroeconomic model that focuses on the short-run relationship between total spending and real GDP, assuming that the price level is constant.

CONSUMPTION FUNCTION

The relationship between consumption and disposable income.

AGGREGATE DEMAND and AGGREGATE SUPPLY MODEL

A model that explains short-run fluctuations in real GDP and the price level.

MONEY

ASSETS that people are generally willing to accept in exchange for goods and services or for payment of debts.

REQUIRED RESERVE RATIO (RR)

The minimum fraction of deposits banks are required by law to keep as reserves. RR = 10%.

MONETARY POLICY

The actions the Federal Reserve takes to manage the money supply and interest rates to achieve macroeconomic policy goals.

FISCAL POLICY

Changes in federal taxes and purchases that are intended to achieve macroeconomic policy goals.

COUNTERCYCLICAL

Stimulate the economy during a recession and slow down the economy during an inflationary period.