Economics Unit 4: Macroeconomics Vocabulary Review

Part 1 Anything that serves as a medium of exchange, a unit of account, and a store of value money

Coins and paper bills used as money currency

An institution for receiving, keeping, and lending money bank

The nation’s central banking system Federal Reserve System

The national currency we use today in the United States Federal Reserve Note

A bank charted, or licensed, by the national government National bank

Objects that have value in themselves and that are also used as money Commodity money

Objects that have value because the holder can exchange them for something else of value Representative money

Money that has value because the government has ordered that it is an acceptable means to pay debts Fiat money

money that a government has required to be accepted in settlement of debts; another word for fiat money Legal tender

Ch. 16 Part 1 Board of Governors Monetary policy Federal Reserve Districts Federal Advisory Council Federal Open Market Committee Discount rate Federal funds rate Required reserve ratio (RRR) Prime rate

7 members that oversee the Federal Reserve System Board of Governors

Actions the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy Monetary policy

The 12 banking districts created by the Federal Reserve Federal Reserve Districts

The research arm of the Federal Reserve Federal Advisory Council

Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply Federal Open Market Committee

The rate the Federal Reserve charges for loans to commercial banks Discount rate

Interest rates banks charge each other for loans Federal funds rate

Ratio of reserves to deposits required of banks by the Federal Reserve Required reserve ratio

Rate of interest banks charge on short term loans to their best customers. Prime rate

Ch. 12 total value of all goods and services produced in a particular economy; also the dollar value of all final goods and services produced within a country’s borders in a given year Gross domestic product (GDP)

the amount of goods and services in the economy that will be purchased at all possible price levels Aggregate demand

a prolonged economic contraction recession

goods that last for a relatively long time such as refrigerators, cars, etc. Durable goods

a decline in real GDP combined with a rise in the price level stagflation

the study of behavior and decision-making of entire economies macroeconomics

the total amount of goods and services in the economy available at all possible price levels Aggregate supply

a period of macroeconomic expansion followed by a period of contraction Business cycle

a recession that is especially long and severe depression

goods that last a short period of time such as food, light bulbs, shoes, etc. Non-durable goods

Stead, long-term increase in a nation’s real GDP that tends to raise living standards Economic growth

Ch. 13 unemployment that occurs when workers’ skills do not match the jobs that are available Structural unemployment

unemployment that occurs when people take time to find a job Frictional unemployment

a price index determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of a typical urban consumer Consumer Price Index (CPI)

the percentage rate of change in price level over time Inflation rate

the percentage of people who live in households with income below the official poverty line Poverty rate

unemployment that rises during economic downturns and falls when the economy improves Cyclical unemployment

a general increase in prices inflation

the percentage of the nation’s labor force that is unemployed Unemployment rate

inflation that is out of control or extremely high inflation hyperinflation

how the nation’s total income is distributed among its population Income distribution

Ch. 14 a tax for which the percentage of income paid in taxes increases as income increases Progressive tax

a tax for which the percentage of income paid in taxes decreases as income increases Regressive tax

income on which tax must be paid; total income minus exemptions and deductions Taxable income

taking tax payments out of an employee’s pay before he or she receives it withholding

spending about which government planners can make choices Discretionary spending

social welfare program that people are “entitled” to if they meet certain eligibility requirements entitlement

budget for major capital, or investment, expenditures Capital budget

budget in which revenues are equal to spending Balanced budget

tax for which the percentage of income paid in taxes remains the same for all income levels Proportional tax

spending on certain programs that is required by law Mandatory spending

budget for day-to-day expenses Operating budget

not subject to taxes Tax exempt

Ch. 15 the use of government spending and revenue collection to influence the economy; also a year’s period that can begin at any date. fiscal

government bond that is repaid within three months to a year. Treasury bill

government bond that is repaid within 2 to 10 years. Treasury note

government bond that can be issued for as long as 30 years Treasury bond

the idea that government spending and tax cuts help an economy by raising demand Demand-side economics

school of economics that believes tax cuts can help an economy by raising supply Supply-side economics

form of demand side economics the encourages government action in increase or decrease demand and output Keynesian Economics

when the government takes in more than it spends Budget surplus

when the government spends more than it takes in Budget deficit

government office that manages the federal budget Office of Management and Budget (OMB)

government agency that provides economic data to Congress Congressional Budget Office

bill that sets money aside for a specific purpose Appropriations bill

fiscal policies like higher spending and tax cuts that encourage economic growth Expansionary policies

fiscal policies like lower spending and higher taxes that reduce economic growth Contractionary policies

the idea that free markets can regulate themselves Classical economics