Macroeconomics: Unemployment, Saving, Investment, and Monetary Policy Review

A comprehensive vocabulary review deck covering labor market categories, national saving and investment identities, the loanable funds market, banking and central bank monetary policy tools, money growth, inflation, and aggregate demand/supply.

Cyclical Unemployment Rate

The difference between the existing (actual) unemployment rate and the natural unemployment rate in an economy.

Labor Force

The total number of people employed plus the total number of people unemployed.

Marginally Attached Worker

A person who is currently out of work, would like a job, and has looked for work in the past, but is not currently looking.

Reentrant

A person who was previously employed, has not worked for some time, and is currently reentering the labor force.

Efficiency Wages

Above-equilibrium wages paid by firms to increase worker productivity, which simultaneously increase the level of unemployment.

Private Saving

The amount of income that households have left after paying for their taxes and consumption ($Y - T - C$).

National Saving

The total income in the economy that remains after paying for consumption and government purchases ($Y - C - G$), equal to the sum of private saving and public saving.

Budget Surplus

A financial state that occurs when government tax revenues exceed government expenditures.

Budget Deficit

A financial state where government spending exceeds tax revenues, causing the government to borrow more and public savings to fall.

Market for Loanable Funds

The financial market in which saving is the source of supply of loanable funds and investment is the source of demand for loanable funds.

Liquidity

The ease with which an asset can be converted into the economy's medium of exchange, ranking from most liquid (currency) to less liquid (bonds, cars).

Federal Funds Rate

The interest rate at which commercial banks lend reserves to each other overnight.

Discount Rate

The interest rate charged by the Federal Reserve to banks borrowing reserves; decreasing it causes banks to borrow more, lend more, and increase the money supply.

Open-Market Purchases

The buying of Treasury securities by the Federal Reserve, which injects reserves into the banking system and increases the money supply.

Simple Deposit Multiplier

The reciprocal of the required reserve ratio ($\frac{1}{R}$), representing the potential expansion of deposits generated from an initial reserve deposit.

M2

A monetary aggregate that encompasses all assets in M1 plus small time deposits, savings deposits, and money market funds.

Velocity of Money

The average number of times per year a dollar is spent in purchasing final goods and services.

Real Interest Rate

The interest rate corrected for the effects of inflation, calculated as the nominal interest rate minus the inflation rate ($r = i - \pi$).

Money Demand

The total amount of wealth that individuals and businesses choose to hold in liquid form.

Shoeleather Cost

The cost and waste of real resources associated with making more frequent trips to the bank to maintain lower average money holdings during high inflation.

Trade Deficit

A condition in which a country sells fewer goods and services abroad than it buys from other countries, resulting in negative net exports.

Aggregate Demand (AD)

The total quantity of goods and services that households, firms, the government, and customers abroad want to buy at each given price level.

Expenditure Multiplier

The factor by which an increase in autonomous spending alters total aggregate output, calculated as $\frac{1}{1 - MPC}$.

Federal Open Market Committee (FOMC)

The specific policymaking group within the Federal Reserve responsible for formulating and directing monetary policy.