Macroeconomics: Endgame

529 plan

A savings plan operated by a state or educational institution designed to help families set aside funds for future college costs

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

Assets

resources owned by a business

barter

Exchange goods without involving money.

Board of Governors of the Federal Reserve System

The seven-member board that supervises the banking system of the United States

Bonds

A certificate issued by a government or private company which promises to pay back with interest the money (principal) borrowed from the buyer of the certificate. Example- The city issued bonds to raise money for putting in new sewers.

budget

A plan for making and spending money

business cycle

Alternating periods of economic expansion and economic recession

business investment

investment spending by businesses that creates additional output and jobs, including new housing and increases in inventory

cap and trade

a method for managing pollution in which a limit is placed on emissions and businesses or countries can buy and sell emissions allowances

Certificate of Deposit (CD)

An interest-earning deposit that requires the funds to remain deposited for a fixed term. Withdrawal of the funds before the term expires results in a financial penalty.

checking account

an account at a bank against which checks can be drawn by the account depositor.

Closing

in real estate, a meeting of the seller, the buyer, and the lender of funds, or representatives of each party, to complete the transaction

collision insurance

This covers the car of the insured person and pays for repairs after an accident or cash compensation if the car can't be repaired. This type of coverage is usually optional

comparative advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

compound interest

interest earned on both the principal amount and any interest already earned

comprehensive insurance

covers your car for reasons other than a collision, such as theft, fire, vandalism

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer

consumption

spending by households on goods and services, with the exception of purchases of new housing

contractionary fiscal policy

Fiscal policy used to decrease aggregate demand or supply. Deliberate measures to decrease government expenditures, increase taxes, or both. Appropriate during periods of inflation.

Credit Report

a report on a person's creditworthiness that includes identifying information, credit cards, late payments, bankruptcies, and savings balances

Credit Score

a number assigned to a person that indicates to lenders their capacity to repay a loan. 300-900 (a higher score is better)

cyclical unemployment

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

Deductible

Amount you must pay before you begin receiving any benefits from your insurance company

Deflation

A situation in which prices are declining

diminishing marginal returns

a level of production in which the marginal product of labor decreases as the number of workers increases

Diversification

Spreading out investments to reduce risk

double coincidence of wants

the unlikely occurrence that two people each have a good the other wants

excess reserves

reserves that banks hold over and above the legal requirement

expansion

A period of economic growth as measured by a rise in real GDP

expansionary fiscal policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

Federal Reserve

the central bank of the United States

financial risk

uncertainty about future outcomes that involve financial losses and gains

fiscal policy

the use of government spending and revenue collection to influence the economy

FOMC (Federal Open Market Committee)

12 Member group that buys and sells US gov. securities to influence the money supply.

Foreclosure

The seizure of property from borrowers who are unable to repay their loans

frictional unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

full employment

the level of employment reached when there is no cyclical unemployment; around 4%

GDP formula

Y=C+I+G+NX

Government Spending

spending by all levels of government on final goods and services

Gross Domestic Product (GDP)

A measurement of the total goods and services produced within a country.

Growth Funds

mutual funds that focus on stocks that have potential for above-average growth

hyper inflation

Extremely rapid inflation. This was seen in post- Treaty of Versailles Europe, such as Germany. Countries printed money to pay off bills. This resulted in a massive wave of inflation. Over 50% per month.

Index Fund

A mutual fund that tries to match the performance of a particular index, like the S & P 500, by investing in the companies included in that index.

inflation rate

the percentage increase in the price level from one year to the next

inflation risk

The danger that money won't be worth as much in the future as it is today

Inflation

a general increase in prices and fall in the purchasing value of money.

inside lag

a delay between the onset of a problem and the implementation of a solution

insurance

protection against possible financial loss

Liabilities

what a company owes

liability insurance

insurance that provides protection from claims arising from injuries or damage to other people or property

marginal benefit

the extra benefit of adding one unit

marginal cost

the cost of producing one more unit of a good

Marginal Principle

you should continue an activity as long as the marginal benefit is greater than the marginal cost

market economy

economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets

market failure

a situation in which the free market, operating on its own, does not distribute resources efficiently

monetary policy

managing the economy by altering the supply of money and interest rates

money multiplier

the amount of money the banking system generates with each dollar of reserves

mortgage

a specific type of loan that is used to buy real estate

Mutual funds

An investment that holds a wide range of different investment instruments, providing diversification, including stocks and bonds

nominal value

the face value of an amount of money

open market operations

a tool used by the Federal Reserve to adjust the money supply by buying or selling U.S. government bonds in the financial market

open market purchase

The purchase of U.S. government bonds by the FED to increase the money supply

open market sale

the sale of US government bonds by the FED to reduce the money supply

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

outside lag

the time between a policy action and its influence on the economy

Outsourcing

A decision by a corporation to turn over much of the responsibility for production to independent suppliers.

Owner's Equity

the amount remaining after the value of all liabilities is subtracted from the value of all assets

peak

the height of an economic expansion, when real GDP stops rising

Premium

an amount to be paid for an insurance policy.

production possibilities curve

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.

public goods

Goods, such as clean air and clean water, that everyone must share.

Real GDP per capita

real GDP divided by the total population of a country

Real GDP

GDP adjusted for inflation

real value

the value of an amount of money in terms of what it can buy

Recession

A slowdown in a nation's economy

reserve ratio

the fraction of deposits that banks hold as reserves

Roth 401(k)

an account setup at work where you make contributions with after-tax dollars, which is invested in mutual funds, and qualified distributions at retirement are received income-tax free

Roth IRA

A personal savings plan; contributions are not tax-deductible; earnings are tax-free

Rule of 72

The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.

savings account

a bank account that earns interest

Stocks

shares of ownership in a company

structural unemployment

unemployment that occurs when workers' skills do not match the jobs that are available

Target Funds

mutual funds that automatically adjust the risk profile (from stocks to bonds) of the fund as the investor gets older

trade deficit

An excess of imports over exports

trade surplus

when a country exports more than it imports

transfer payments

Benefits given by the government directly to individuals. Transfer payments may be either cash transfers, such as Social Security payments and retirement payments to former government employees, or in-kind transfers, such as food stamps and low-interest loans for college education.

trough

the lowest point in an economic contraction, when real gross domestic product stops falling

two income trap

Cost of living has doubled since 1970s. Relied on both parents working to support families.

unemployment rate

the percentage of the labor force that is unemployed

voluntary exchange

the act of buyers and sellers freely and willingly engaging in market transactions