AP Gov Econ vocab

mr moreno hates us

Portability

Portability

Refers to how currency is lightweight, convenient, and easily transferred from one person to another.

Durability

Refers to how money is reasonably, physically, durable.

• Ex: Coins and paper money (ish).

Divisibility

Refers to how money is made up in various units and is divisible. Think of the size of a penny, or how checks can be written for mucho dinero.

Scarcity

Refers to how money is in a limited supply. The Fed monitors the money supply size, keeping it from growing too fast.

Federal Reserve System

AKA The “Fed.” Created in 1913 by Congress as the nation’s national bank.

Central Bank

A banker’s bank. Can lend to other banks in times of need.

Bank Run

Refers to when account holders become worried about their bank and rush to withdraw money before it fails.

• Ex: 1929 Stock Market Crash and Great Depression.

Bank Holiday

Brief period where every bank in the country is required to close.

• APUSH. FDR made it on March 5th, 1933.

Federal Deposit Insurance Corp. (FDIC)

Made by the Banking Act of 1933. Insures customer deposits to a maximum of $2500. Today, the limit is 250k per customer per bank.

Credit Union

A bank or depository institution, similar to businesses in that its products are all services.

CDs

Certificates of deposits. A document showing that an interest-bearing loan has been made to a bank or other financial institution.

• Considered loans from a consumer to the bank.

Reserve Requirement

Money requirement for a bank to hold from a deposit. They cannot loan out this money.

Percentage of every deposit that must be set aside as legal reserves.

• Fed can change requirement for all checking, time, and savings accounts.

“Loaned Out”

When a bank is unable to make any more loans.

Savings

Dollars that become available when people abstain from consumption.

• Businesses borrow savings to produce new goods or services.

Financial Assets

Claims on the property and the income of the borrower.

• Ex: Bonds, CDs, and other documents that show borrowing has taken place and that there is a claim on the income and assets of the borrower.

Circular Flow (of money)

Savings —> Financial Intermediates —> Borrowers —> Financial Assets

Financial Intermediaries

Institutions like banks, credit unions, life insurance companies, pension funds, and finance companies.

• They collect the funds that savers provide so that they can be loaned to borrowers.

Borrowers

Those who use the funds from financial intermediaries for various purposes.

Financial Systems

Network of savers, investors, financial institutions, and financial assets that work together to transfer savings from savers to investors.

Capital Formation (Deepening)

Depends on saving and borrowing. Borrowing leads to investments that flow through the system.

Fiscal Policy

Federal government’s attempt to influence or stabilize the economy through taxing and government spending.

Keynesian Economics

Approach designed to lower unemployment and raise output by stimulating aggregate demand.

Multiplier

Change in investment spending that will have a magnified effect on total spending.

Accelerator

The change in investment spending caused by a change in total spending.

“Priming the Pump”

Term that suggests only a relatively small amount of government spending is needed to initiate a bigger round of spending in the economy. Used in 1960s.

Automatic Stabilizers

Programs that automatically trigger government spending on certain benefits when economic growth slows down.

Unemployment Insurance

Insurance that workers who lose their jobs through no fault of their own can collect from individual states for a limited amount of time.

Entitlements

Broad social programs that use established eligibility requirements to provide income supplements.

• Functions as Automatic Stabilizers

Recognition Lag

Delayed spending caused by the many months it takes to collect reliable data on economy.

Legislative Lag

Delayed spending caused by the time it takes to pass spending programs in Congress.

Implementation Lag

Delayed spending due to the time it takes to actually pump money and jobs from an approved plan.

Government Dependency

There is a possibility that people will become increasingly dependent on the government.

• Ex: Due to unemployment checks, people will stop relying on themselves.

Constituents

Members of a body of citizens entitled to elect a representative.

Supply-Side Policies

Policies that target producers who are also suppliers, to stimulate their output, and therefore provide jobs.

Laffer Curve

A possible relationship between federal income tax rates and tax revenues.

Deregulation

Relaxing or removing government regulations that restrict the activities of firms in certain industries.

Reaganomics

Popular term referring to economic policies of President Ronald Reagan (1981 - 89). Policies include widespread tax cuts, decreased social spending, increased military spending, and deregulation of domestic markets.

Macroeconomics

Focuses on economy as a whole and decision making by large units.

Equilibrium Price

The state that occurs when forces of market supply and market demand are balanced, resulting in stable prices.

Aggregate Supply

Total value of goods and services that all firms would produce, in a specific period of time, at various price levels.

Aggregate Supply Curve

Shows the amount of real GDP that would be produced at various price levels.

Aggregate Demand

Measure of total demand, found from adding everyone’s demand for every good and service in the economy.

Aggregate Demand Curve

Represents the sum of all consumer, business, government, and net foreign demand at various price levels.

Macroeconomic Equilibrium

Intersection of the aggregate supply and aggregate demand curves. Represents specific situation at a particular point in time.

Member Banks

Commercial bank that is a member of, and holds shares of stock in, the Fed.

Board of Governors

7-member board that leads the Fed. Appointed by the president and approved by the Senate to serve one 14 year, non-renewable term.

Federal Reserve District Banks

12 of them, located near institutions they serve. Mostly the same functions as banks that provide for us.

Currency

Paper and coin part of the money supply. Largely made of Federal Reserve notes printed by the US Bureau of Engraving and Printing.

Bureau of the Mint

Produces coins.

Consumer Financial Protection Bureau

In Department of Treasury. Involved in Fed’s consumer protection activities.

Fractional Reserve System

System where banks are required to keep a portion of their total deposits on hand.

Legal Reserves

Coins and currency that banks hold in their vaults.

Excess Reserve

Legal reserves beyond the reserve requirement.

Monetary Policy

Changes in the money supply that affect the availability and cost of credit.

Interest Rate

Price of credit to a borrower

Easy Money Policy

Policy where Fed expands the size of the money supply, causing interest rates to fall.

Tight Money Policy

Fed restricts the size of the money supply.

Open market Operations

Buying and selling of government securities in financial markets. Most popular tool for Feds.

Discount Rate

Interest the Fed charges on loans to financial institutions.

Prime Rate

Lowest rate of interest commercial banks charge their best customers.

Federal Funds Rate

Interest rate banks charge each other for short-term loans (usually overnight).

Monetarism

Philosophy that places primary importance on the role of money in the economy.

Quantity Theory of Money

If the money supply expands for a long period, we will have too many dollars chasing too few goods, resulting in demand-pull inflation.

Wage-Price Controls

Regulations that make it illegal for businesses to give workers raises or to raise prices without the explicit permission of the government.

Market Structure

Classification that describes the nature and degree of competition among firms in the same industry.

Pure Competition

Theoretical market structure with 3 necessary conditions

• Very Large Numbers

• Freedom of Entry and Exit

• Identical Products

Perfect Competition

No complications. Essentially Pure Competition with extra conditions.

• Perfect knowledge by all buyers and all sellers of all conditions in the market.

• Perfect mobility of resources.

Monopolistic Competition

Market structure with all the conditions of pure competition except identical products.

Product Differentiations

Real or perceived differences between competing products in the same industry.

Non-Price Competition

The use of advertising, giveaways, or other promotions designed to convince buyers that the product is somehow unique or fundamentally better than its competitors’.

Oligopoly

Market structure in which few very large sellers dominate the industry.

Collusion

Formal agreement to set specific prices or to otherwise behave in a cooperative manner.

Monopoly

Market structure with only one seller of a particular product.

Laissez-Faire (economics)

Government plays little role in controlling development. Monopolies might be more common.

Natural Monopoly

A single firm can produce a product more cheaply than any number of competing firms could.

Geographic Monopoly

Monopoly based on the absence of other sellers in a certain geographic area.

Technological Monopoly

Based on ownership or control of a manufacturing method, process, or other scientific method.

Government Monopoly

Monopoly owned and operated by the government. Usually provides products or services that private industries cannot adequately supply.

Market Failure

Occurs whenever a flaw in the market system prevents an efficient allocation of resources.

Public Good

Product that is collectively consumed by everyone, and whose use by one individual does not diminish the satisfaction or value available to others.

Spillover Effects (Externalities)

Uncompensated side effects that either benefit or harm a third party not involved in the activity causing it.

Negative Spillover / Externality

Uncompensated harm, cost, or inconvenience suffered by a third party because of other’s actions.

Positive Spillover / Externality

Unreimbursed benefit received by someone who was not involved in the activity that generated the benefit.

Sin Tax

Relatively high tax designed to raise revenue while reducing consumption of a socially undesirable product

• Ex: Liquor / Alcohol

Distribution of Income

The way in which income is allocated among families, individuals, or other groups.

Incidence of a Tax

Final burden of a tax. The matter of who actually pays the tax.

Tax Loopholes

Exceptions or oversights in the tax law that allow some people/businesses to avoid paying taxes.

Sales Tax

General tax levied on most consumer purchases. It’s paid at time of purchase, and the amount of tax is computed and collected by the merchant.

Individual Income Tax

Federal tax on people’s earning. Example of a complex tax.

Internal Revenue Service (IRS)

The branch of the US. Treasury Department in charge of collecting taxes.

Tax Return

Annual report to the IRS summarizing total income, deductions, and taxes withheld.

Ability-to-Pay

Principle based on belief that people should be taxed according to their ability to pay, regardless of the benefits they receive.

Proportional Tax

Imposes same percentage rate of taxation on everyone, regardless of income.

Average Tax Rate

Total tax paid, divided by the total taxable income.

Medicare

Federal health-care program available to all senior citizens (moreno? orlando? toscano?)

Progressive Tax

Imposes higher percentage rate of taxation on higher incomes than on lower ones.

Marginal Tax Rate

Tax rate that applies to the next dollar of taxable income.

Regressive Tax

Imposes higher percentage rate of taxation on low incomes than on high incomes.

Flat Tax

Proportional tax on individual income after a specified threshold has been reached.

Value-Added Tax (VAT)

Tax placed on value that manufacturers add at each state of production.

• The US does not have this tax.