Ceteris paribus - Latin phrase meaning holding all else constant

3 characteristics of money - Is a benchmark for price comparisons, Stores value for future purchases, A widely accepted form of payment

M2's part of the money supply is not the most "liquid" portion of the money supply

M1’s part of the money supply is the most “liquid” portion of the money supply

Speculative Demand - The type of demand for money used for investment opportunities.

The demand for money tells us it is not always in our best interest to hold as much money as possible

A financial system connects savers and borrowers in an economy

Financial systems connect unused funds to people willing to pay to have access to them

Spending on finished goods/services directly causes inflation

Monetary Policy - When a country uses credit controls and changes to the money supply to influence the economy

The minimum amount of reserves banks in the U.S. are required to have and not lend out to borrows is not set by law, but there is an industry standard

Excess Reserves - Reserves held by banks above what they are required to hold

Bond - a certificate of debt issued by governments and businesses

Leakages to the circular flow model - paying taxes, saving for retirement, and importing from abroad

components of GDP - Investment Spending, Net Exports (X-M), Government Spending (excluding transfer payments), Consumption Spending

Fiscal Policy - when a country uses changes to taxes and spending to influence the macroeconomy

Demand pull inflation - something a country risks from a government continuing to pursue expansionary fiscal policy once full-employment has been reached

The deficit - occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets in a particular year

Fiscal Restraint - can reduce the amount a country owes

Full-employment GDP - how much total market output corresponds with "price stability" in the economy

examples of automatic stabilizers - one-time tax cuts or refunds, government investment spending, or direct government subsidy payments to businesses or households, Personal and Corporate Income Taxes, Unemployment Insurance

Crowding out - One reason governments attempt to reduce spending automatically when an economy approaches full employment

The full-employment rate of output in an economy is also known as the long-run level of aggregate supply because that is where the factors of production are being fully utilized.

Structural Unemployment - When the unemployed in a town are trained to do one job but can't be hired at local jobs because they require different skills

Cyclical Unemployment - When a worker loses their job due to a decrease in demand in the economy

Frictional Unemployment - When someone quits one job to find another job

People or businesses earning commission or with other variable incomes are most harmed by deflation ceteris paribus

equilibrium price - Where the market supply curve intersects the market demand curve.

Production in the modern economy does not require a business to produce everything required for the end product. Producers buy intermediate goods, capital, and labor from others to help in production

Examples of Macroeconomic topics - Growth of production and levels of exports and imports, The level of inflation or price levels within an economy, Government deficits and spending, The number of employed/unemployed people

Both businesses and governments purchase factors of production

If an economy goes through a recession and is now producing at a point INSIDE the production possibilities frontier (PPF), this is inefficient production because more production is possible

a car factory can increase its PPF by buying more machines, Purchasing more steel and tires, Hiring more workers

The market mechanism - how prices and sales signal desired output

full employment - when virtually all who are able and willing to work are employed

discouraged worker - someone who is unemployed for a long period of time and stops looking for work

jobless DOES NOT EQUAL unemployed

people who are not a part of the labor force - People under the age of 16, Persons in prison or the military, Persons not looking for work but old enough to

Structural Unemployment - Someone who has certain skills and is a hard worker but the jobs available require other skills

Frictional Unemployment - The time someone is unemployed while they transition to a new position at a different company or when their new job hasn't started yet

Structural Unemployment - Someone who wants to work but doesn't live where jobs are located and is unable to move there.

money illusion - When someone uses nominal dollars rather than real dollars to estimate their current wealth

Price Stability - when the average price level doesn't go up or down too quickly in an economy

Average prices increase AND decrease in an economy.

Increased spending directly causes an increase in amount of inflation within an economy

the core inflation excludes price of energy and food in its calculation

People with debt benefit from unpredicted inflation, ceteris paribus

People or businesses earning commission or with other variable incomes are most likely to be harmed by deflation, ceteris paribus

components of a country's Aggregate Demand - Investment Spending, Government Spending, Consumption Spending, Net Exports

Full-employment GDP - the value of total market output (stuff being made in the economy) that corresponds with price stability in the economy

If an economy isn't producing enough to be at the full-employment rate of output (x-axis), we have higher unemployment because we don't need as much labor when we produce less stuff

The business cycle - alternating periods of economic growth and contraction

The level of long-run aggregate supply is equal to the full-employment rate of output in an economy.

The aggregate supply and demand model can help us model inflation in an economy

natural rate of unemployment - the long term rate of unemployment