AP Gov Econ Vocab updated

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118 Terms

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Portability
Refers to how currency is lightweight, convenient, and easily transferred from one person to another.
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Durability
Refers to how money is reasonably, physically, durable. Ex: Coins and paper money (ish).
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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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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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Federal Reserve System
AKA The “Fed.” Created in 1913 by Congress as the nation’s national bank.
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Central Bank
A banker’s bank. Can lend to other banks in times of need.
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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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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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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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Credit Union
A bank or depository institution, similar to businesses in that its products are all services.
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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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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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“Loaned Out”
When a bank is unable to make any more loans.
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Savings
Dollars that become available when people abstain from consumption. Businesses borrow savings to produce new goods or services.
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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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Circular Flow (of money)
Savings —> Financial Intermediates —> Borrowers —> Financial Assets
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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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Borrowers
Those who use the funds from financial intermediaries for various purposes.
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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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Capital Formation (Deepening)
Depends on saving and borrowing. Borrowing leads to investments that flow through the system.
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Fiscal Policy
Federal government’s attempt to influence or stabilize the economy through taxing and government spending.
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Keynesian Economics
Approach designed to lower unemployment and raise output by stimulating aggregate demand.
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Multiplier
Change in investment spending that will have a magnified effect on total spending.
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Accelerator
The change in investment spending caused by a change in total spending.
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“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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Automatic Stabilizers
Programs that automatically trigger government spending on certain benefits when economic growth slows down.
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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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Entitlements
Broad social programs that use established eligibility requirements to provide income supplements. Functions as Automatic Stabilizers
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Recognition Lag
Delayed spending caused by the many months it takes to collect reliable data on economy.
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Legislative Lag
Delayed spending caused by the time it takes to pass spending programs in Congress.
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Implementation Lag
Delayed spending due to the time it takes to actually pump money and jobs from an approved plan.
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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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Constituents
Members of a body of citizens entitled to elect a representative.
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Supply-Side Policies
Policies that target producers who are also suppliers, to stimulate their output, and therefore provide jobs.
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Laffer Curve
A possible relationship between federal income tax rates and tax revenues.
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Deregulation
Relaxing or removing government regulations that restrict the activities of firms in certain industries.
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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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Macroeconomics
Focuses on economy as a whole and decision making by large units.
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Equilibrium Price
The state that occurs when forces of market supply and market demand are balanced, resulting in stable prices.
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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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Aggregate Supply Curve
Shows the amount of real GDP that would be produced at various price levels.
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Aggregate Demand
Measure of total demand, found from adding everyone’s demand for every good and service in the economy.
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Aggregate Demand Curve
Represents the sum of all consumer, business, government, and net foreign demand at various price levels.
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Macroeconomic Equilibrium
Intersection of the aggregate supply and aggregate demand curves. Represents specific situation at a particular point in time.
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Member Banks
Commercial bank that is a member of, and holds shares of stock in, the Fed.
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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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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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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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Bureau of the Mint
Produces coins.
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Consumer Financial Protection Bureau
In Department of Treasury. Involved in Fed’s consumer protection activities.
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Fractional Reserve System
System where banks are required to keep a portion of their total deposits on hand.
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Legal Reserves
Coins and currency that banks hold in their vaults.
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Excess Reserve
Legal reserves beyond the reserve requirement.
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Monetary Policy
Changes in the money supply that affect the availability and cost of credit.
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Interest Rate
Price of credit to a borrower
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Easy Money Policy
Policy where Fed expands the size of the money supply, causing interest rates to fall.
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Tight Money Policy
Fed restricts the size of the money supply.
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Open market Operations
Buying and selling of government securities in financial markets. Most popular tool for Feds.
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Discount Rate
Interest the Fed charges on loans to financial institutions.
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Prime Rate
Lowest rate of interest commercial banks charge their best customers.
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Federal Funds Rate
Interest rate banks charge each other for short-term loans (usually overnight).
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Monetarism
Philosophy that places primary importance on the role of money in the economy.
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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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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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Market Structure
Classification that describes the nature and degree of competition among firms in the same industry.
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Pure Competition
Theoretical market structure with 3 necessary conditions Very Large NumbersFreedom of Entry and ExitIdentical Products
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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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Monopolistic Competition
Market structure with all the conditions of pure competition except identical products.
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Product Differentiations
Real or perceived differences between competing products in the same industry.
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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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Oligopoly
Market structure in which few very large sellers dominate the industry.
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Collusion
Formal agreement to set specific prices or to otherwise behave in a cooperative manner.
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Monopoly
Market structure with only one seller of a particular product.
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Laissez-Faire (economics)
Government plays little role in controlling development. Monopolies might be more common.
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Natural Monopoly
A single firm can produce a product more cheaply than any number of competing firms could.
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Geographic Monopoly
Monopoly based on the absence of other sellers in a certain geographic area.
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Technological Monopoly
Based on ownership or control of a manufacturing method, process, or other scientific method.
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Government Monopoly
Monopoly owned and operated by the government. Usually provides products or services that private industries cannot adequately supply.
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Market Failure
Occurs whenever a flaw in the market system prevents an efficient allocation of resources.
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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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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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Negative Spillover / Externality
Uncompensated harm, cost, or inconvenience suffered by a third party because of other’s actions.
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Positive Spillover / Externality
Unreimbursed benefit received by someone who was not involved in the activity that generated the benefit.
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Sin Tax
Relatively high tax designed to raise revenue while reducing consumption of a socially undesirable productEx: Liquor / Alcohol
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Distribution of Income
The way in which income is allocated among families, individuals, or other groups.
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Incidence of a Tax
Final burden of a tax. The matter of who actually pays the tax.
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Tax Loopholes
Exceptions or oversights in the tax law that allow some people/businesses to avoid paying taxes.
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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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Individual Income Tax
Federal tax on people’s earning. Example of a complex tax.
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Internal Revenue Service (IRS)
The branch of the US. Treasury Department in charge of collecting taxes.
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Tax Return
Annual report to the IRS summarizing total income, deductions, and taxes withheld.
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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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Proportional Tax
Imposes same percentage rate of taxation on everyone, regardless of income.
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Average Tax Rate
Total tax paid, divided by the total taxable income.
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Medicare
Federal health-care program available to all senior citizens (moreno? orlando? toscano?)
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Progressive Tax
Imposes higher percentage rate of taxation on higher incomes than on lower ones.
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Marginal Tax Rate
Tax rate that applies to the next dollar of taxable income.
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Regressive Tax
Imposes higher percentage rate of taxation on low incomes than on high incomes.
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Flat Tax
Proportional tax on individual income after a specified threshold has been reached.
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Value-Added Tax (VAT)
Tax placed on value that manufacturers add at each state of production. The US does not have this tax.