AP Gov Econ Vocab updated

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Portability

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118 Terms

1

Portability

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

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2

Durability

Refers to how money is reasonably, physically, durable. Ex: Coins and paper money (ish).

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3

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.

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4

Scarcity

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

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5

Federal Reserve System

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

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6

Central Bank

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

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7

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.

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8

Bank Holiday

Brief period where every bank in the country is required to close. APUSH. FDR made it on March 5th, 1933.

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9

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.

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10

Credit Union

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

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11

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.

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12

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.

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13

“Loaned Out”

When a bank is unable to make any more loans.

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14

Savings

Dollars that become available when people abstain from consumption. Businesses borrow savings to produce new goods or services.

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15

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.

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16

Circular Flow (of money)

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

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17

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.

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18

Borrowers

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

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19

Financial Systems

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

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20

Capital Formation (Deepening)

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

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21

Fiscal Policy

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

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22

Keynesian Economics

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

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23

Multiplier

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

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24

Accelerator

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

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25

“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.

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26

Automatic Stabilizers

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

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27

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.

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28

Entitlements

Broad social programs that use established eligibility requirements to provide income supplements. Functions as Automatic Stabilizers

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29

Recognition Lag

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

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30

Legislative Lag

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

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31

Implementation Lag

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

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32

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.

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33

Constituents

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

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34

Supply-Side Policies

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

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35

Laffer Curve

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

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36

Deregulation

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

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37

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.

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38

Macroeconomics

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

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39

Equilibrium Price

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

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40

Aggregate Supply

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

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41

Aggregate Supply Curve

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

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42

Aggregate Demand

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

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43

Aggregate Demand Curve

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

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44

Macroeconomic Equilibrium

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

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45

Member Banks

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

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46

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.

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47

Federal Reserve District Banks

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

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48

Currency

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

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49

Bureau of the Mint

Produces coins.

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50

Consumer Financial Protection Bureau

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

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51

Fractional Reserve System

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

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52

Legal Reserves

Coins and currency that banks hold in their vaults.

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53

Excess Reserve

Legal reserves beyond the reserve requirement.

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54

Monetary Policy

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

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55

Interest Rate

Price of credit to a borrower

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56

Easy Money Policy

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

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57

Tight Money Policy

Fed restricts the size of the money supply.

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58

Open market Operations

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

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59

Discount Rate

Interest the Fed charges on loans to financial institutions.

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60

Prime Rate

Lowest rate of interest commercial banks charge their best customers.

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61

Federal Funds Rate

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

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62

Monetarism

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

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63

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.

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64

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.

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65

Market Structure

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

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66

Pure Competition

Theoretical market structure with 3 necessary conditions Very Large NumbersFreedom of Entry and ExitIdentical Products

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67

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.

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68

Monopolistic Competition

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

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69

Product Differentiations

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

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70

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’.

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71

Oligopoly

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

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72

Collusion

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

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73

Monopoly

Market structure with only one seller of a particular product.

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74

Laissez-Faire (economics)

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

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75

Natural Monopoly

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

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76

Geographic Monopoly

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

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77

Technological Monopoly

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

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78

Government Monopoly

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

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79

Market Failure

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

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80

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.

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81

Spillover Effects (Externalities)

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

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82

Negative Spillover / Externality

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

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83

Positive Spillover / Externality

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

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84

Sin Tax

Relatively high tax designed to raise revenue while reducing consumption of a socially undesirable productEx: Liquor / Alcohol

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85

Distribution of Income

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

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86

Incidence of a Tax

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

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87

Tax Loopholes

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

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88

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.

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89

Individual Income Tax

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

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90

Internal Revenue Service (IRS)

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

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91

Tax Return

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

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92

Ability-to-Pay

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

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93

Proportional Tax

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

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94

Average Tax Rate

Total tax paid, divided by the total taxable income.

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95

Medicare

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

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96

Progressive Tax

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

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97

Marginal Tax Rate

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

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98

Regressive Tax

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

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99

Flat Tax

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

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100

Value-Added Tax (VAT)

Tax placed on value that manufacturers add at each state of production. The US does not have this tax.

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