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the limited nature of society's resources
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| the property of society getting the most it can from its scarce resources |
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| the study of how society manages its scare resources |
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| the property of distributing economic prosperity uniformly among the members of society |
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| an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services |
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| the ability of an individual to own and exercise control over scarce resouces |
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| a situation in which a market left on its own fails to allocate resources efficiently |
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| the impact of one person's actions on the wellbeing of a bystander |
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| the ability of a single economic actor to have a large influence on market prices |
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| fluctuations in economic activity, such as employment and production |
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| a visual model of the economy that shows how dollars flow through markets among households and firms |
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| production possibilities frontier |
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| a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology |
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| the study of economy wide phenomena including inflation, unemployment, and economic growth |
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| claims that attempt to describe the world as it is |
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| claims that attempt to prescribe how the world should be |
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| the ability to produce a good using fewer inputs that another producer |
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| the ability to produce a good at a lower opportunity cost than another produce. price for trade must lie between both opportunity costs |
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| a good for which, other things equal, an increase in income leads to an increase in demand |
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| a good for which an increase in income leads to a decrease in demand |
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| a measure of the responsiveness of quantity demanded or quantity supplied to one of it determinants |
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| cross-price elasticity of demand |
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| a measure of how much the quantity demanded of one good responses to a change in the price of another. computed by percentage changes |
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| benefits of international trade |
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| increased variety of goods, lower costs via economics of scale, increased competition, increase in flow of ideas |
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| arguments for restricting trade |
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| eliminates domestic jobs, national security, infant industry (needs time to build), unfair other countries cheat, |
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| income must be equal to expenditure |
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| the market value of all final goods and services produced within a country in a given period of time. |
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| consumption, investment, government purchases, net exports |
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| the production of good and services valued at current prices |
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| the production of goods and services valued at constant prices |
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a measure of the price level calculated as the ratio of nominal GDP to real GDP
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| a measure of the overall cost of the goods and services bought by a typical consumer |
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| fix the basket, find the prices, compute the basket's cost, chose a base year and compute the index, compute the inflation rate, |
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| the percentage change in the price index from the preceding period |
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| a measure of the cost of a basket of goods and services bought by firms |
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| the interest rate as usually reported without a correction for the effects of inflation |
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| the interest rate corrected for the effects of inflation |
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| How productivity is determined |
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| physical capital, human capital, natural resources, technological knowledge |
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| the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich |
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| financial institutions through which savers can directly provide funds to borrowers |
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| financial institutions through which savers can indirectly provide funds to borrowers |
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| an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds |
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| the total income in the economy that remains after paying for consumption and government purchases |
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| the income that household have remaining after consumption and taxes |
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| risk that affects only one firm |
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| the study of a company's accounting statements and future prospects to determine its value |
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| efficient market hypothesis |
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| the theory that asset prices reflect all publicly available information about the value of an asset |
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| the description of asset prices that rationally reflect all available information |
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| the path of variable whose changes are impossible to predict |
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| the total number of workers including both the employed and unemployed |
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| the percentage of the labor force that is unemployed |
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| labor force participation rate |
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| the percentage of the adult population that is in the labor force |
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| natural rate of unemployment |
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| the normal rate of unemployment around which the unemployment rate fluctuates |
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| the deviation of unemployment from its natural rate |
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| workers who like to work but have given up looking for a job |
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| unemployment that results because it takes time fro workers to search for the jobs that best suit their tastes and skills |
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| unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one |
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| higher wages paid by firms to raise productivity |
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| an item that buyers give to sellers when they want to purchase goods and services |
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| the yardstick people use to post prices and record debts |
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| an item that people can use to transfer purchasing power from the present to the future |
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| the ease that with which an asset can be converted into the economy's medium of exchange |
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| money that takes the form of a commodity with intrinsic value |
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| money without intrinsic value that is used as money because of government decree |
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| the central bank of the US |
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| an institution designed to oversee the banking system and regulate the quantity of money in the economy |
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| the setting of the money supply by policymakers in the central bank |
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| federal open market committe |
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| deposits that banks have received but have not loaned out |
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| the amount of money the banking system generates with each dollar of reserves |
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| the purchase and sales of US government bonds by the Fed |
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| the interest rate on the leans that the Fed makes to banks |
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| the interest rate at which banks make overnight loans to one another |
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| a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate |
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| in the long run the overall level of prices adjusts to the level at which the demand for money equals the supply |
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| variables measured in monetary units |
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| measured in physical units |
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| the theoretical separation of nominal and real variables |
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| the proposition that changes in the money supply do not affect real variables |
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| the rate at which money changes hands |
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| the revenue the government raises by creating money |
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| =nominal interest-inflation rate |
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| the one-for-one adjustment of the nominal interest rate to the inflation rate |
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| the long result is both a higher inflation rate and nominal interest rate |
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| the resources wasted when inflation encourages people to reduce their money holdings |
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| the cost of changing prices |
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| net exports/trade balance |
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| the value of a nation's exports minus the value of its imports |
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| the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners |
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| the rate at which a person can trade the currency of one country for the currency of another |
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| an increase in the value of a currency as measured by the amount of foreign currency it can buy |
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| a decrease in the value of a currency as measured by the amount of foreign currency it can buy |
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| the rate at which a person can trade the goods and services of one country for the goods and services of another |
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| a large and sudden reduction in the demand for assets located in a country |
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| a period of declining incomes and rising unemployment |
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| a curve that shows the quantity of goods and services that people want to buy. AD=C+I+G+NX any increase in one of these components shift the curve to the right. |
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| the production of goods and services that an economy achieves in the long run when unemployment is at its normal rate |
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| a period of falling output and rising prices |
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| theory of liquidity preference |
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| intrest rates adjusts to bring money supply and money demand into balance |
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| the setting of the level of government spending and taxation by government policy makers |
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| changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policy makers having to take any deliberate actions |
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| a curve that shows the short run tradeoff between inflation and unemployment |
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| the claim that unemployment eventually returns to it normal or natural rate regardless of inflation |
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| an event that directly alters a firms costs and prices shifting the economys aggregate supply curve and thus the Phillips Curve |
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| the number of percentage points of annual output lost in the process of reducing inflation by 1% |
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| the theory that people optimally use all the information, they have including information about government policies, when forecasting the future |
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| when the government runs a budget deficit, they supply of loanable funds curve shifts inwards the equilibrium interest rate rises and the quantity of private investment decreases |
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| most liquid to least liquid |
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| if the government runs a budget surplus what occurs |
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| private investment increase, supply of loanable funds decrease |
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| Responsibilities of the Fed |
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| regulate the banking system, acts as a lender of last resort, control the money supply |
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| the interest rate at which banks can make overnight loans |
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| A person who is not working, wants to work, is available to work, but is not looking for a job is classified by the Bureau of Labor Statistics as |
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| Unemployed, a discouraged worker |
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| Is the sum of the quantities demanded by all the buyers at each price of the good. |
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| examines facts that can be tested |
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| natural rate of unemployment |
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| Includes frictional and structural unemployment, but not cyclical unemployment. |
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| U.S. Bureau of Labor Statistics intended to represent the total number of paid U.S. workers of any business |
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| The total supply of goods and services produced at a given overall price level in a given time period. Shifts caused by changes in cost or Gvt subsidy/tax. Improvements in productivity and efficiency or an increase in the stock of capital and labour resources cause the LRAS curve to shift out. Slanted in SRAS as changes can be made depending on price level while LRAS vertical as it is inelastic to current price level. |
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| the amount of money in the economy set by the Fed. Vertical as the fed sets it and is therefore not responsive to price levels |
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| sloped curve because when there is less money in the economy it is worth more and when there is more money in the economy it is not worth as much |
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| pros and cons to active policy stabilization |
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| pros helps stop recessions and keep economy in control. sometime the feds actions are wrong and it hurts the economy |
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| LRPC vertical as in the long run there is just natural level of unemployment. Shift inwards if supplies increase or outwards if |
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| SRPC is downward sloping because as unemployment increases the value of money rises and inflation decreases. If aggregate demand or supply increases then inflation and unemp. will as well |
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| low interest rates for house subprime housing leases. Mortgages bundled into large MSB. Rates go up people cant afford houses try to sell. People worry about banks interest rates go up. Fiscal policy and buy outs occur |
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