Econ Lock in

scarcity	the economic problem of having human needs/wants exceed the availability of resources to satisfy their needs/wants antonym: abundance
economics	a study of how to allocate scarce resources
utility	the extent to which a good/service is useful for satisfying needs/wants and can create happiness when used/consumed
value	how much can be received in exchange for a good/service on the market
goods	objects used for consumption or production that are transferable
services	actions used for consumption or production that are not transferable
consumer good	a good used to directly provide utility (rather than to produce other goods that will then provide utility)
product	the output of the production process, a good/service produced by humans
natural resources	goods that exist in nature and are not produced by humans
durable good	a good that lasts more than one year when used for consumption or production
factor of production	an input into the production process
capital	products used to produce other products
physical capital	durable goods used to produce goods and services examples: factories, roads, work computers, commercial vehicles, office space, farm animals... synonym: capital goods note: does not include intangible goods such as intellectual property, but this course will use use 'physical capital' as shorthand for 'physical and intangible capital'
human capital	worker attributes that are useful in a production process examples: skills, knowledge, experience, education, physical strength/endurance...
financial capital	money invested in production
land	the territory & the natural resources on that territory
labor	the time and effort spent by humans on production
income from production	income received due to participation in the creation of new wealth synonym: factor income
income from transfer	income received due to redistributing existing wealth
opportunity cost	whatever must be given up to obtain an item (i.e. the highest-value foregone alternative)
total opportunity cost	opportunity cost of all units produced (cost of N units)
marginal opportunity cost	opportunity cost of producing one additional unit (cost of the Nth unit) illustrated by the slope of the PPC
production possibilities curve (PPC)	a curve that represents all possible and efficient combinations of two products that are produced using the same scarce input(s) the coordinates of each point on the curve represent one possible combination of the two products each axis represents the quantity produced of one of the two products synonym: production possibilities frontier
productive efficiency	using scarce factors of production such that it is impossible to increase the production of one good/service without sacrificing another
comparative advantage	an economic actor’s ability to produce a certain good with a lower opportunity cost than another actor
absolute advantage	an economic actor’s ability to produce a more of a certain good than another actor given the same resources
ceteris paribus	the assumption that all variables other than a given independent variable and a given dependent variable stay constant
curve	a graphical representation of a function showing the relationship between the two variables shown on the axes, ceteris paribus
movement along a curve	a change in the variable on one axis leading to the change in the variable on the other axis that is predicted by the curve, while every other variable is held constant under the ceteris paribus assumption
shift of a curve	the variable on one of the axes held constant while the variable on the other axis changes as a result of some third variable that is not represented on either axis
competitive market	a market in which there are many buyers and sellers of the same good/service, none of whom can influence the price at which the good/service is sold antonym: monopoly
quantity demanded	amount of good/service buyers (e.g. consumers) are willing and able to buy at a given price
law of demand	an inverse relationship between price and quantity demanded, leading to a downward-sloping demand curve
income effect	a decrease in the price of a good causing an increase in leftover income for the buyers causing an an increase in the quantity demanded of that good (and of other goods)
substitution effect	a decrease in the price of a good causing buyers to use the money they previously spent on other (substitute) goods to increase their quantity demanded of that good
demand shifters	- cause the demand curve to shift to the left/right - increase/decrease quantity demanded at a given price - number of consumers, expectations of future price, prices of complement/substitute goods, consumer income, consumer preferences
quantity supplied	amount of good/service suppliers (e.g. producers) are willing and able to sell at a given price
law of supply	a direct relationship between price and quantity supplied, leading to an upward-sloping supply curve
supply shifters	- cause the supply curve to shift to the left/right - increase/decrease quantity supplied at a given price - number of producers, expectations of future price, prices of complement/substitute goods, input costs (prices of factors of production + per-unit taxes/subsidies), technology
equilibrium	the price at which quantity demanded equals quantity supplied
surplus	quantity supplied of a good/service exceeding quantity demanded of that good/service at a given price
shortage	quantity demanded of a good/service exceeding quantity supplied of that good/service at a given price

macroeconomics	a branch of economics studying the economy as a whole
microeconomics	a branch of economics studying markets for particular goods/services
aggregate measure	a macroeconomic measure arrived at by combining all microeconomic measures in a particular category
gross	total amount before deductions
net	total amount after deductions synonym: balance
production	using factors of production to create products that have value
consumption	using consumer goods/services to obtain utility and/or reproduce human capital
depreciation	reduction in the value of a capital good during the production process (e.g. wear and tear)
household	an economic actor that organizes consumption
business	an economic actor that organizes production synonym: firm
final goods and services	new consumer goods/services and new capital goods
intermediate goods and services	services and non-durable products purchased by businesses and fully used up in the production process
used good	a good bought by a household, then resold to another household at reduced price
inventory	goods that have been produced but not yet sold
gross domestic product (GDP)	the total value of all final goods and services produced in the US
consumption (component of GDP)	spending by households on final goods/services (except new houses) + imputed rent of owner-occupied houses
investment (component of GDP)	spending by businesses on capital goods + net change in business inventory + spending by households on new houses
government purchases	spending by federal/state/local government on final goods and services
imports	goods and services produced abroad and sold domestically
exports	goods and services produced domestically and sold abroad
closed economy	an economy that does not trade with the rest of the world antonym: open economy
accounting identity	a relation between variables that is true by definition
labor force	people who have a job or are actively looking for a job, 16 or older, not in the military, not institutionalized
discouraged workers	people who want a job but are not actively looking
structural unemployment	unemployment caused by a mismatch between what employers need and what people in the labor force can offer (often due to technological change)
frictional unemployment	short-term unemployment caused by people being between jobs
seasonal unemployment	unemployment caused by certain kinds of jobs not needing workers during specific times of the year
cyclical unemployment	unemployment that is caused by a recession and that disappears once the economy recovers
natural rate of unemployment	= structural unemployment rate + frictional unemployment rate + seasonal unemployment rate synonym: full employment
price level	an aggregate of the prices of goods and services in the economy, as measured by a price index such as GDP deflator or CPI
relative prices	the ratios between the prices of different goods and services in the economy
purchasing power	the quantity of goods/services that can be bought with a unit of currency
inflation	increase in the price level, i.e. decrease in the purchasing power of money
deflation	decrease in the price level, i.e. increase in the purchasing power of money
disinflation	decrease in the rate of inflation
basket	a list of products a typical consumer buys in a year with a corresponding list of product quantities
substitution bias	the tendency of the CPI method to overestimate inflation by ignoring consumers using cheaper products as substitutes for products that get more expensive
real value	value measured relative to other goods/services, i.e. inflation-adjusted value
nominal value	value measured in terms of money

actual output	output the economy produces at the current rate of employment synonym: short-run equilibrium output
potential output	output the economy can produce given full employment, i.e. output given maximum sustainable utilization of current productive capacity synonyms: natural rate of output, long-run equilibrium output, potential GDP
expansion	a period of rising output
recession	a period of falling output
business cycle	the change in output through time
aggregate demand curve	a curve that shows the quantity of goods and services that households, businesses, the government, and other countries are willing to buy at each given price level, ceteris paribus
AD shifter	any factor - other than price level - that causes a change in aggregate expenditure, i.e. C, I, G, and NX
autonomous expenditure	spending which is independent on income
aggregate supply curve	a curve that shows the quantity of goods and services that businesses are willing to produce at each given price level, ceteris paribus
SRAS shifter	any factor - other than price level - which causes aggregate output to change, e.g. - input costs - expected price level - LRAS shifters (see supply-side fiscal policy)
stickiness	the extent to which a particular price lags behind the change in the general price level, e.g. if a wage is fixed by contract for a certain period of time synonym: nominal rigidity antonym: flexibility
short run	a period of time during which 1) wages lag behind the change in the general price level due to stickiness 2) productive capacity is fixed
long run	a period of time during which 1) wages can adjust to the change in the general price level 2) productive capacity can change
equilibrium	the point where AD intersects SRAS, i.e. expenditure equals output
recessionary gap	when the short-run equilibrium output is less than the natural rate of output
inflationary gap	when the short-run equilibrium output is greater than the natural rate of output
shock	an unexpected change in some variable other than the price level resulting in a shift of the aggregate demand or aggregate supply curve
demand-pull inflation	increase in the price level caused by a rightward shift of the AD curve (see inflationary gap)
cost-push inflation	increase in the price level caused by a leftward shift of the SRAS curve (see stagflation)
stagflation	a period of falling output and high inflation
fiscal policy	the use of government spending/taxes/transfers to influence macroeconomic conditions
fiscal stimulus	discretionary fiscal policy that aims to close the recessionary gap by shifting AD to the right through deficit spending (increasing the budget deficit)
automatic stabilizer	nondiscretionary fiscal policy that mitigates business cycles by increasing aggregate expenditure during recessions and decreasing aggregate expenditure during expansions
Phillips curve	a curve showing the relationship between inflation and unemployment
supply-side fiscal policy	government policy aiming to promote long-run growth of GDP per capita (shift LRAS to the right; shift PPC outward) - improving technology (innovation) - increasing capital stock (investment) - increasing human capital (education)

bond	an IOU that a government or a corporation sells an investor, which yields a set interest rate each year during the term of the bond and repays the principal to the investor as of the maturity date listed on the bond
liquidity	the ease with which an asset can be sold / converted to currency
speculation	purchase of an asset with the hope that it will become more valuable shortly
fixed interest rate	nominal interest rate that does not vary based on inflation, resulting a real interest rate that does vary based on inflation
variable interest rate	nominal interest rate that varies based on inflation in order to keep the real interest rate fixed
money	an asset that functions as a unit of account, a store of value, and a medium of exchange
fiat money	money that derives value from the government enforcing debts denominated in that kind of money and collecting taxes in that kind of money
commodity money	money that derives value from the utility it has to some people apart from its use as money
M0 (monetary base)	money created directly by the Fed: currency in circulation + currency in bank reserves
reserve requirement	minimum reserve ratio allowed by the central bank
checking account	a deposit that can be withdrawn from the bank at any time and can be directly used for payments
savings account	a deposit that can be withdrawn from the bank at any time but cannot be directly used for payments
certificate of deposit (CD)	a time deposit that can only be withdrawn from the bank after a fixed amount time
M1 (narrow money)	currency in circulation + demand deposits (e.g. checking accounts) + savings accounts
M2 (broad money)	M1 + small-denomination time deposits (e.g. CDs) + money market funds
fractional-reserve banking	a banking system in which banks only hold a fraction of deposits as reserves
reserves	deposits that banks have received but not loaned out
reserve ratio	the fraction of deposits that a bank holds on reserve
excess reserves	reserves held by the bank in excess of the reserve requirement
financial asset	a claim that entitles the buyer to future income from the seller (e.g. loans, bonds, stocks/equity, bank deposits)
liability	requirement to pay money in the future (reverse of financial asset)
commercial bank	a financial intermediary which accepts deposits from the public (unlike an investment bank) and uses that money to give out loans to the public
T-account	a balance sheet that lists an economic actor's assets on the left and liabilities on the right
loans	money that people borrow from banks (a loan is an asset for the bank and a liability for the person, and thus does not affect net wealth)
deposits	money that banks borrow from people (a deposit is an asset for the person and a liability for the bank, and thus does not affect net wealth)
rate of return	the ratio of the accounting profit generated by an investment to the cost of the investment
money market graph	a supply-and-demand graph (used in the limited reserves framework) showing the relationship between the quantity of M1 money and the nominal interest rate
liquidity preference	the preference for holding low-interest-rate liquid assets over higher-interest-rate assets that are less liquid synonym: demand for money
Federal Reserve	the central bank of the US, which sets monetary policy in pursuit of its dual mandate - full employment and price stability synonym: the Fed
monetary policy	the setting of interest rates by the central bank
expansionary policy	fiscal or monetary policy aimed at increasing the short-run equilibrium output (typically to close a recessionary gap) synonym: stimulus synonyms for expansionary monetary policy: loose money, soft money, monetary dove
contractionary policy	fiscal or monetary policy aimed at reducing the short-run equilibrium output (typically to close an inflationary gap) synonyms for contractionary monetary policy: tight money, hard money, monetary hawk
limited reserves framework	a banking system in which the reserve requirement is greater than zero and monetary policy works by changing the money supply
open-market operations	the Fed buying and selling assets such as US treasury bonds in order to change the money supply
discount rate	the interest rate on the loans the Fed makes to banks
policy rate	the interest rate at which banks make overnight loans to each other, which is indirectly set by the Fed synonym: target federal funds rate
monetary policy lags	the time it takes the Fed to detect a problem in the economy (recognition lag) and the time it takes for Fed action to affect the economy (impact lag)
ample reserves framework	a banking system in which the reserve requirement is zero and changing the money supply does not lead to a change in the nominal interest rate
reserve market model graph	a supply-and-demand graph (used in the ample reserves framework) showing the relationship between the quantity of reserves deposited at the Fed and the policy rate
interest on reserves	the interest rate banks earn on their reserves held at the Fed
administered interest rates	monetary policy tools under the ample reserves framework - the discount rate and the interest on reserves
loanable funds graph	a supply-and-demand graph showing the relationship between the quantity of loanable funds and the real interest rate
quantity theory of money	the theory that in the long run, changes in the money supply affect the price level rather than the velocity of money or the real GDP
velocity of money	the rate at which money changes hands
liquidity trap	a situation where nominal interest rates are near the zero lower bound, so an increase in the money supply would not translate to a decrease in the interest rates or an increase in the price level
crowding-out effect	when government deficit spending causes an increase in the interest rate, thereby causing a fall in private investment

balance of payments	an accounting system that records a country’s cross-border transactions for a particular time period and consists of the CA and the CFA
account credit	a transaction that causes an inflow of money to a country antonym: account debit
account surplus	an account (CA or CFA) having more credits than debits antonym: account deficit
current account	cross-border transactions that don't result in future income from abroad (hence "current")
balance of trade	transactions involving goods moving from one country to another or services performed by the resident of one country for the resident of another country synonym: net exports
net income from abroad	income earned by a country's factors of production being employed abroad, e.g. yields from foreign bonds, dividends from foreign stocks, rent from foreign real estate, wages from foreign employers
net unilateral transfers	money received from or sent abroad not in exchange for a good, service, or financial asset, e.g. governments providing foreign aid or migrant workers sending remittances back to their families
capital and financial account	transactions that result in the change in foreign ownership of domestic assets or vice versa, with the owners typically entitled to future income from abroad
financial capital outflow	financial capital leaving the country, due to - payment for foreign financial assets - payment for foreign physical assets (which remain physically in their country of origin) - financial capital transfers (e.g. debt forgiveness) synonyms: capital flight, CFA debit antonyms: financial capital inflow, CFA credit
net change in foreign reserves	change in foreign reserves of a country's currency or vice versa synonym: net currency outflow
exchange rate	the price of one currency in terms of another currency
currency appreciation	increase in exchange rate of a currency antonym: currency depreciation
ForEx market	the foreign exchange market in which different countries' currencies are exchanged for one another
flexible exchange rate	a monetary system that allows the exchange rate to be determined by supply and demand synonym: floating exchange rate antonym: fixed exchange rate
fixed exchange rate	a regime applied by a government or central bank that ties the country's official currency exchange rate to another country's currency
protectionism	economic policy of restricting imports through methods such as tariffs with the goal of protecting domestic industry and maintaining a positive balance of trade
relative prices	prices of domestic products compared to the prices of foreign products

scarcity: the economic problem of having human needs/wants exceed the availability of resources to satisfy their needs/wants (antonym: abundance)
economics: a study of how to allocate scarce resources
utility: the extent to which a good/service is useful for satisfying needs/wants and can create happiness when used/consumed
value: how much can be received in exchange for a good/service on the market
goods: objects used for consumption or production that are transferable
services: actions used for consumption or production that are not transferable
consumer good: a good used to directly provide utility (rather than to produce other goods that will then provide utility)
product: the output of the production process, a good/service produced by humans
natural resources: goods that exist in nature and are not produced by humans
durable good: a good that lasts more than one year when used for consumption or production
factor of production: an input into the production process
capital: products used to produce other products
physical capital: durable goods used to produce goods and services
- examples: factories, roads, work computers, commercial vehicles, office space, farm animals…
- synonym: capital goods
- note: does not include intangible goods such as intellectual property, but this course will use 'physical capital' as shorthand for 'physical and intangible capital'
human capital: worker attributes that are useful in a production process
- examples: skills, knowledge, experience, education, physical strength/endurance…
financial capital: money invested in production
land: the territory & the natural resources on that territory
labor: the time and effort spent by humans on production
income from production: income received due to participation in the creation of new wealth (synonym: factor income)
income from transfer: income received due to redistributing existing wealth
opportunity cost: whatever must be given up to obtain an item (i.e. the highest-value foregone alternative)
total opportunity cost: opportunity cost of all units produced (cost of N units)
marginal opportunity cost: opportunity cost of producing one additional unit (cost of the N^{th} unit), illustrated by the slope of the PPC
production possibilities curve (PPC): a curve that represents all possible and efficient combinations of two products that are produced using the same scarce input(s)
- the coordinates of each point on the curve represent one possible combination of the two products
- each axis represents the quantity produced of one of the two products
- synonym: production possibilities frontier
productive efficiency: using scarce factors of production such that it is impossible to increase the production of one good/service without sacrificing another
comparative advantage: an economic actor’s ability to produce a certain good with a lower opportunity cost than another actor
absolute advantage: an economic actor’s ability to produce more of a certain good than another actor given the same resources
ceteris paribus: the assumption that all variables other than a given independent variable and a given dependent variable stay constant
curve: a graphical representation of a function showing the relationship between the two variables shown on the axes, ceteris paribus
movement along a curve: a change in the variable on one axis leading to the change in the variable on the other axis that is predicted by the curve, while every other variable is held constant under the ceteris paribus assumption
shift of a curve: the variable on one of the axes held constant while the variable on the other axis changes as a result of some third variable that is not represented on either axis
competitive market: a market in which there are many buyers and sellers of the same good/service, none of whom can influence the price at which the good/service is sold (antonym: monopoly)
quantity demanded: amount of good/service buyers (e.g. consumers) are willing and able to buy at a given price
law of demand: an inverse relationship between price and quantity demanded, leading to a downward-sloping demand curve
income effect: a decrease in the price of a good causing an increase in leftover income for the buyers causing an increase in the quantity demanded of that good (and of other goods)
substitution effect: a decrease in the price of a good causing buyers to use the money they previously spent on other (substitute) goods to increase their quantity demanded of that good
demand shifters: cause the demand curve to shift to the left/right and increase/decrease quantity demanded at a given price; including number of consumers, expectations of future price, prices of complement/substitute goods, consumer income, and consumer preferences
quantity supplied: amount of good/service suppliers (e.g. producers) are willing and able to sell at a given price
law of supply: a direct relationship between price and quantity supplied, leading to an upward-sloping supply curve
supply shifters: cause the supply curve to shift to the left/right and increase/decrease quantity supplied at a given price; including number of producers, expectations of future price, prices of complement/substitute goods, input costs (prices of factors of production + per-unit taxes/subsidies), and technology
equilibrium: the price at which quantity demanded equals quantity supplied
surplus: quantity supplied of a good/service exceeding quantity demanded of that good/service at a given price
shortage: quantity demanded of a good/service exceeding quantity supplied of that good/service at a given price

Macroeconomics Fundamentals

macroeconomics: a branch of economics studying the economy as a whole
microeconomics: a branch of economics studying markets for particular goods/services
aggregate measure: a macroeconomic measure arrived at by combining all microeconomic measures in a particular category
gross: total amount before deductions
net: total amount after deductions (synonym: balance)
production: using factors of production to create products that have value
consumption: using consumer goods/services to obtain utility and/or reproduce human capital
depreciation: reduction in the value of a capital good during the production process (e.g. wear and tear)
household: an economic actor that organizes consumption
business: an economic actor that organizes production (synonym: firm)
final goods and services: new consumer goods/services and new capital goods
intermediate goods and services: services and non-durable products purchased by businesses and fully used up in the production process
used good: a good bought by a household, then resold to another household at reduced price
inventory: goods that have been produced but not yet sold
gross domestic product (GDP): the total value of all final goods and services produced in the US
consumption (component of GDP): spending by households on final goods/services (except new houses) + imputed rent of owner-occupied houses
investment (component of GDP): spending by businesses on capital goods + net change in business inventory + spending by households on new houses
government purchases: spending by federal/state/local government on final goods and services
imports: goods and services produced abroad and sold domestically
exports: goods and services produced domestically and sold abroad
closed economy: an economy that does not trade with the rest of the world (antonym: open economy)
accounting identity: a relation between variables that is true by definition
labor force: people who have a job or are actively looking for a job, 16 or older, not in the military, not institutionalized
discouraged workers: people who want a job but are not actively looking
structural unemployment: unemployment caused by a mismatch between what employers need and what people in the labor force can offer (often due to technological change)
frictional unemployment: short-term unemployment caused by people being between jobs
seasonal unemployment: unemployment caused by certain kinds of jobs not needing workers during specific times of the year
cyclical unemployment: unemployment that is caused by a recession and that disappears once the economy recovers
natural rate of unemployment: = structural unemployment rate + frictional unemployment rate + seasonal unemployment rate (synonym: full employment)
price level: an aggregate of the prices of goods and services in the economy, as measured by a price index such as GDP deflator or CPI
relative prices: the ratios between the prices of different goods and services in the economy
purchasing power: the quantity of goods/services that can be bought with a unit of currency
inflation: increase in the price level, i.e. decrease in the purchasing power of money
deflation: decrease in the price level, i.e. increase in the purchasing power of money
disinflation: decrease in the rate of inflation
basket: a list of products a typical consumer buys in a year with a corresponding list of product quantities
substitution bias: the tendency of the CPI method to overestimate inflation by ignoring consumers using cheaper products as substitutes for products that get more expensive
real value: value measured relative to other goods/services, i.e. inflation-adjusted value
nominal value: value measured in terms of money

Aggregate Demand, Supply, and Output

actual output: output the economy produces at the current rate of employment (synonym: short-run equilibrium output)
potential output: output the economy can produce given full employment, i.e. output given maximum sustainable utilization of current productive capacity (synonyms: natural rate of output, long-run equilibrium output, potential GDP)
expansion: a period of rising output
recession: a period of falling output
business cycle: the change in output through time
aggregate demand curve: a curve that shows the quantity of goods and services that households, businesses, the government, and other countries are willing to buy at each given price level, ceteris paribus
AD shifter: any factor - other than price level - that causes a change in aggregate expenditure, i.e. C, I, G, NX
autonomous expenditure: spending which is independent on income
aggregate supply curve: a curve that shows the quantity of goods and services that businesses are willing to produce at each given price level, ceteris paribus
SRAS shifter: any factor - other than price level - which causes aggregate output to change, e.g. input costs, expected price level, or LRAS shifters
stickiness: the extent to which a particular price lags behind the change in the general price level (synonym: nominal rigidity, antonym: flexibility)
short run: a period of time during which wages lag behind the change in the general price level due to stickiness and productive capacity is fixed
long run: a period of time during which wages can adjust to the change in the general price level and productive capacity can change
equilibrium (AD/SRAS): the point where AD intersects SRAS, i.e. expenditure equals output
recessionary gap: when the short-run equilibrium output is less than the natural rate of output
inflationary gap: when the short-run equilibrium output is greater than the natural rate of output
shock: an unexpected change in some variable other than the price level resulting in a shift of the aggregate demand or aggregate supply curve
demand-pull inflation: increase in the price level caused by a rightward shift of the AD curve
cost-push inflation: increase in the price level caused by a leftward shift of the SRAS curve
stagflation: a period of falling output and high inflation
fiscal policy: the use of government spending/taxes/transfers to influence macroeconomic conditions
fiscal stimulus: discretionary fiscal policy that aims to close the recessionary gap by shifting AD to the right through deficit spending (increasing the budget deficit)
automatic stabilizer: nondiscretionary fiscal policy that mitigates business cycles by increasing aggregate expenditure during recessions and decreasing aggregate expenditure during expansions
Phillips curve: a curve showing the relationship between inflation and unemployment
supply-side fiscal policy: government policy aiming to promote long-run growth of GDP per capita (shift LRAS to the right; shift PPC outward) by improving technology, increasing capital stock, or increasing human capital

Money and Financial Markets

bond: an IOU that a government or a corporation sells an investor, which yields a set interest rate each year during the term of the bond and repays the principal to the investor
liquidity: the ease with which an asset can be sold / converted to currency
speculation: purchase of an asset with the hope that it will become more valuable shortly
fixed interest rate: nominal interest rate that does not vary based on inflation, resulting in a real interest rate that does vary based on inflation
variable interest rate: nominal interest rate that varies based on inflation in order to keep the real interest rate fixed
money: an asset that functions as a unit of account, a store of value, and a medium of exchange
fiat money: money that derives value from the government enforcing debts denominated in it and collecting taxes in it
commodity money: money that derives value from the utility it has to some people apart from its use as money
M0 (monetary base): money created directly by the Fed: currency in circulation + currency in bank reserves
reserve requirement: minimum reserve ratio allowed by the central bank
checking account: a deposit that can be withdrawn from the bank at any time and can be directly used for payments
savings account: a deposit that can be withdrawn from the bank at any time but cannot be directly used for payments
certificate of deposit (CD): a time deposit that can only be withdrawn from the bank after a fixed amount time
M1 (narrow money): currency in circulation + demand deposits (e.g. checking accounts) + savings accounts
M2 (broad money): M1 + small-denomination time deposits (e.g. CDs) + money market funds
fractional-reserve banking: a banking system in which banks only hold a fraction of deposits as reserves
reserves: deposits that banks have received but not loaned out
reserve ratio: the fraction of deposits that a bank holds on reserve
excess reserves: reserves held by the bank in excess of the reserve requirement
financial asset: a claim that entitles the buyer to future income from the seller (e.g. loans, bonds, stocks/equity, bank deposits)
liability: requirement to pay money in the future (reverse of financial asset)
commercial bank: a financial intermediary which accepts deposits from the public and uses that money to give out loans to the public
T-account: a balance sheet that lists an economic actor's assets on the left and liabilities on the right
loans: money that people borrow from banks (asset for the bank, liability for the person)
deposits: money that banks borrow from people (asset for the person, liability for the bank)
rate of return: the ratio of the accounting profit generated by an investment to the cost of the investment
money market graph: a supply-and-demand graph used in the limited reserves framework showing the relationship between M1 money and the nominal interest rate
liquidity preference: the preference for holding low-interest-rate liquid assets over higher-interest-rate assets (synonym: demand for money)
Federal Reserve: the central bank of the US setting monetary policy for full employment and price stability (synonym: the Fed)
monetary policy: the setting of interest rates by the central bank
expansionary policy: fiscal or monetary policy aimed at increasing short-run equilibrium output (synonyms: stimulus, loose money, soft money, monetary dove)
contractionary policy: fiscal or monetary policy aimed at reducing short-run equilibrium output (synonyms: tight money, hard money, monetary hawk)
limited reserves framework: a banking system in which the reserve requirement is greater than zero and monetary policy works by changing the money supply
open-market operations: the Fed buying and selling assets such as US treasury bonds in order to change the money supply
discount rate: the interest rate on the loans the Fed makes to banks
policy rate: the interest rate at which banks make overnight loans to each other, indirectly set by the Fed
monetary policy lags: include recognition lag (detecting the problem) and impact lag (action affecting the economy)
ample reserves framework: a banking system in which the reserve requirement is zero and changing the money supply does not lead to a change in the nominal interest rate
reserve market model graph: a supply-and-demand graph used in the ample reserves framework showing the relationship between reserves and the policy rate
interest on reserves: the interest rate banks earn on their reserves held at the Fed
administered interest rates: monetary policy tools under the ample reserves framework - the discount rate and the interest on reserves
loanable funds graph: a supply-and-demand graph showing the relationship between the quantity of loanable funds and the real interest rate
quantity theory of money: the theory that in the long run, changes in the money supply affect the price level rather than velocity or real GDP
velocity of money: the rate at which money changes hands
liquidity trap: a situation where nominal interest rates are near the zero lower bound, so increasing the money supply does not decrease interest rates or increase the price level
crowding-out effect: when government deficit spending causes an increase in the interest rate, thereby causing a fall in private investment

International Trade and Exchange Rates

balance of payments: an accounting system recording cross-border transactions consisting of the CA and the CFA
account credit: a transaction that causes an inflow of money to a country (antonym: account debit)
account surplus: an account (CA or CFA) having more credits than debits (antonym: account deficit)
current account (CA): cross-border transactions that don’t result in future income from abroad
balance of trade: transactions involving goods moving from one country to another or services performed by the resident of one country for another (synonym: net exports)
net income from abroad: income earned by a country’s factors of production employed abroad (e.g. yields, dividends, rent, wages)
net unilateral transfers: money received from or sent abroad not in exchange for a good, service, or asset (e.g. aid, remittances)
capital and financial account (CFA): transactions resulting in the change in foreign ownership of domestic assets or vice versa
financial capital outflow: financial capital leaving the country due to payments for foreign assets or capital transfers (synonyms: capital flight, CFA debit; antonyms: inflow, CFA credit)
net change in foreign reserves: change in foreign reserves of a country's currency or vice versa (synonym: net currency outflow)
exchange rate: the price of one currency in terms of another currency
currency appreciation: increase in exchange rate of a currency (antonym: depreciation)
ForEx market: the foreign exchange market where currencies are exchanged
flexible exchange rate: a monetary system where the exchange rate is determined by supply and demand (synonym: floating exchange rate; antonym: fixed exchange rate)
fixed exchange rate: a regime where a government/central bank ties the official exchange rate to another currency
protectionism: economic policy of restricting imports (e.g. tariffs) to protect domestic industry and maintain a positive balance of trade
relative prices (international): prices of domestic products compared to the prices of foreign products