finalsss

• Macroeconomic policy strives to achieve rapid and reasonably stable growth while keeping both unemployment and inflation low
• When GDP is below its potential

  Unemployment is above full employment
• High unemployment exacts heavy financial and psychological costs from those who are its victims, costs that are borne quite unevenly by different groups in the population
• Frictional unemployment


  Arises when people are between jobs for normal reasons, thus most frictional unemployment is desirable
• Structural unemployment


  Due to shifts in the pattern of demand or to technological change that makes certain skills obsolete
• Cyclical unemployment


  The portion of unemployment that rises when real GDP grows more slowly than potential GDP and falls when the opposite is true
• Production function


  Tells us how much output the economy can produce from the available supplies of labor and capital, given the state of technology
• Growth rate of potential GDP

  The sum of the growth rate of the labor force plus the growth rate of labor productivity

  
• Real rate of interest


  The percentage increase in purchasing power that the borrower pays to the lender for the privilege of borrowing, indicating the increased ability to purchase goods and services that the lender earns
• Nominal rate of interest

  The percentage by which the money the borrower pays back exceeds the money that was borrowed, making no adjustment for any decline in the purchasing power of this money that results from inflation
• Capital gain


  The difference between the price at which an asset is sold and the price at which it was bought
• Fiscal policy


  The government's plan for managing aggregate demand through its spending and taxing programs which is made jointly by the president and Congress
• Active stabilization policy


  Can be carried out either by means that tend to expand the size of government or by means that reduce the size of government
• Expansionary fiscal policy


  Can mitigate recessions, but it also raises the budget deficit, and also normally exacts a cost in terms of higher inflation
• Supply-side tax cuts


  Aim to push the economy's aggregate supply curve inward to the left, and when successful, can expand the economy and reduce inflation at the same time - a highly desirable outcome

  
• Money


  The standard object used in exchanging goods and services, the medium of exchange
• It is more efficient to exchange goods and services by using money as a medium of exchange than by bartering them directly, and in addition to being the medium of exchange, whatever serves as money is likely to become the standard unit of account and a popular store of value
• Bank managers are generally conservative in their investment strategies as they also keep a prudent level of reserves, and even so, the government keeps a watchful eye over banking practices
• Monetary policy


  Actions that the central bank takes to change interest rates and the money supply, aimed at affecting the economy
• Conventional monetary policy works by: Raising the supply of bank reserves leads to lower interest rates; lower interest rates stimulate investment spending; and investment stimulus, via the multiplier, raises aggregate demand
• "Money" and "income," though related to each other, have different concepts
• Central bank independence


  The central bank's ability to make decisions with political interference
• Budget deficit


  The amount by which the government's expenditures exceed its revenue receipts, during a specified period of time, usually a year

  
• National debt


  The government's total indebtedness at a moment in time, as the result of previous budget deficits
• Inflation


  Can be caused either by rapid growth of aggregate demand or by sluggish growth of aggregate supply
• Demand-side inflation


  A rise in the price level caused by rapid growth of aggregate demand
• Supply-side inflation


  A rise in the price level caused by slow growth (or decline) of aggregate supply
• Natural rate of unemployment

  The economy's self-correcting mechanism which always tends to push the unemployment rate back toward a specific rate of unemployment
• Vertical long-run Phillips curve


  Shows the menu of inflation and unemployment choices available to society in the long run as a vertical straight line at the natural rate of unemployment
• Phillips curve


  A graph depicting the rate of unemployment on the horizontal (X) axis and either the rate of inflation or the rate of change of money wages on the vertical (Y) axis
• Phillips curves are normally downward sloping, indicating that higher inflation rates are associated with lower unemployment rates
• Rational expectations


  Forecasts that, although not necessarily correct, are the best that can be made given the available data
• Specialization


  A country devotes its energies and resources to only a small proportion of the world's productive activities
• Trade is a Win-Win Situation that Both parties, the seller and the buyer must expect to gain from any voluntary exchange
• Comparative advantage


  A producer (individual, firm or country) has a comparative advantage over another producer in the production of some good if they have a lower opportunity cost of producing that good than the other producer
• Exchange rate


  States the price, in terms of one currency, at which another currency can be bought
• Currency appreciation


  When exchange rates change so that a unit of its currency can buy more units of foreign currency
• Currency depreciation


  When exchange rates change so that a unit of its currency can buy fewer units of foreign currency
• Devaluation


  A reduction in the official value of a currency
• Revaluation


  An increase in the official value of a currency