All terms in this list:

absolute advantage: When one person (or nation) is more productive than another--needs fewer inputs or takes less time to produce a good or perform a production task.

aggregate demand: The relationship between the quantity of real GDP demanded and the price level hen all other influences on expidenture plans remain the same.

aggregate planned expenditure: Planned consumption expenditure pluss planned investment plus planned government expenditure plus planned exports minus planned imports.

aggregate supply: The relationship between the quantity of real GDP supplied and the price level when all other influences on production plans remain the same.

automatic fiscal policy: A fiscal policy action that is triggered by the state of the economy.

automatic stabilizers: Features of fiscal policy that stabilize real GDP without explicit action by the government.

balance of payments accounts: The accounts in which a nation records its international trading, borrowing, and lending.

balanced budget: The budget balance when tax revenues equal outlays.

balanced budget multiplier: The magnification effect on aggregate demand of simultaneous change in government expenditure and taxes that leaves the budget unchanged.

banking system: The Federal Reserve and the banks and other institutions that accept deposits and provide the services that enable people and businesses to make and receive payments.

barter: The direct exchange of goods and services for other goods and services, which requires a double coincidence of wants.

benefit: The benefit of something is the gain or pleasure that it brings.

bond: A promise to pay specified sums of money on specified dates.

budget deficit: The budget balance when outlays exceed tax revenues.

budget surplus: The budget balance when tax revenues exceed outlays.

business cycle: A periodic but irregular up-and-down movement of total production and other measures of economic activity.

capital: Tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services.

capital account: Record of foreign investment in the United States minus U.S. investment abroad.

capital goods: Goods that are bought by businesses to increase their productive resources.

central bank: A public authority that provides banking services to banks and regulates financial institutions and markets.

ceteris paribus: Other things remaining the same (often abbreviated as cet. par.).

chained-dollar real GDP: The measure of real GDP calculated by the Bureau of Economic Analysis.

change in demand: A change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes.

change in the quantity demanded: A change in the quantity of a good that people plan to by that results from a change in the price of the good.

change in the quantity supplied: A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.

change in supply: A change in the quantity of a good that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

circular flow model: A model of the economy that shows the circular flow of expenditures and incomes that result from the decision makers' choices interact to determine what, how, and for whom goods and services are produced.

classical growth theory: The theory that the clash between an exploding population and limited resources will eventually bring economic growth to an end.

classical macroeconomics: The view that the market economy works well, that aggregate fluctuations are a natural consequence of an expanding economy, and that government intervention cannot improve the efficiency of the market economy.

commercial bank: A firm that is chartered by the Comptroller of the Currency in the U.S. Treasury (or by a state agency) to accept deposits and make loans.

comparative advantage: The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.

complement: A good that is consumed with another good.

complement in production: A good that is produced along with another good.

consumer price index: A measure of the average of the prices paid by urban consumers for a fixed market basket of consumption goods and services.

consumption expenditure: The expenditure by households on consumption goods and services.

consumption function: The relationship between consumption expenditure and disposable income, other things remaining the same.

consumption goods and services: Goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person's standard of living.

core inflation rate: The annual percentage change in the PCE price index excluding the price of food and energy.

correlation: The tendency for the values of two variable to move in a predictable and related way.

cost-push inflation: An inflation that begins with an increase in cost.

cost of living index: A measure of changes in the amount of money that people would need to spend to achieve a given standard of living.

creditor nation: A country that during its entire history has invested more in the rest of the world than other countries have invested in it.

cross-section graph: A graph that shows the values of an economic variable for different groups in a population at a point in time.

crowding-out effect: The tendency for a government budget deficit to decrease investment.

currency: Notes (dollar bills) and coins.

currency appreciation: The rise in the value of one currency in terms of another currency.

currency depreciation: The fall in the value of one currency in terms of another currency.

current account: Record of international receipts and payments--current account balance equals exports minus imports, plus net interest and transfers received from abroad.

cyclical surplus or deficit: The budget balance that arises because tax revenues and outlays are not at at their full-employment levels.

cyclical unemployment: The fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion.

debtor nation: A country that during its entire history has borrowed more from the rest of the world than it has lent to it.

deflation: A situation in which the price level is falling and the inflation rate is negative.

demand: The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same.

demand curve: A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same.

demand for labor: The relationship between the quantity of labor demanded and the real age rate when all other influences on firms' hiring plans remain the same.

demand for loanable funds: The relationship between the quantity of loanable funds demanded and the real interest rate when all other influences on borrowing plans remain the same.

demand for money: The relationship between the quantity of money demanded and the nominal interest rate, when all other influences on the amount of money that people wish to hold remain the same.

demand-pull inflation: An inflation that starts because aggregate demand increases.

demand schedule: A list of the quantities demanded at each different price when all the other influences on buying plans remain the same.

depreciation: The decrease in the value of capital that results from its use and from obsolescence.

diminishing returns: The tendency for each additional hour of labor employed to produce a successively smaller additional amount of real GDP.

direct relationship: A relationship between two variables that move in the same direction.

discount rate: The interest rate at which the Fed stands ready to lend reserves to commercial banks.

discouraged worker: A marginally attached worker who has not made specific efforts to find a job within the past four weeks because previous unsuccessful attempts to find a job were discouraging.

discretionary fiscal policy: A fiscal policy action that is initiated by an act of Congress.

discretionary monetary policy: Monetary policy that is based on expert assessment of the current economic situation.

disposable personal income: Income received by households minus personal income taxes paid.

dumping: When a foreign firm sells its exports at a lower price than its cost of production.