The idea that taxes should be levied on a person according to how well that person can shoulder the burden.
The idea that taxes should be levied on a person according to how well that person can shoulder the burden.
The profit over and above normal profit.
In the balance of payments, the items in the current account are above the line that divides them from the items in the financial account, which appear below the line.
Exists where a producer can produce a good using fewer factor inputs than another.
A level of poverty where an individual does not have access to the basics of life — food, clothing and shelter.
Actual expenses plus depreciation charges for capital equipment.
Total revenue minus total explicit cost.
Return that an asset earns.
The realized or ex post outcome resulting from actions of households and firms..
Characterizing a situation in which an insurance premium is equal to the expected payout.
A tax levied as a percentage of the price of a good.
(1) A backward-looking method of forming expectations by adjusting for past mistakes. (2) A model which states that individuals and organizations base their expectations of inflation in the future on past actual inflation rates.
(1) Where a principal knows more about their situation than the agent, leading to the agent preferring not to do business with the principal. (2) Form of market failure resulting when products of different qualities are sold at a single price because of asymmetric information, so that too much of the low-quality product and too little of the high-quality product are sold.
Percentage change in quantity demanded resulting from a 1-percent increase in advertising expenditures.
Ratio of a firm's advertising expenditures to its sales.
A person who is performing an act for another person, called the principal.
A curve that shows the quantity of goods and services that households, firms and the government want to buy at each price level.
The total amount of output produced in the economy.
The sum of all nongovernment spending. Also called .
The relation between the quantity of aggregate output produced and the quantities of inputs used in production.
Risk that affects all economic actors at once.
A curve that shows the quantity of goods and services that firms choose to produce and sell at each price level.
A resource allocation where the value of the output by sellers matches the value placed on that output by buyers.
The fiscal stimulus program introduced in February 2009 by the US administration.
Policy of treating a onetime expenditure as an annual cost spread out over some number of years.
The difference between peak and trough and trend output.
Inflation expectations if they do not respond to actual inflation.
Tendency to rely heavily on one prior (suggested) piece of information when making a decision.
A term introduces by Keynes to refer to movements in consumption or investment that could not be explained by movements in currency variables.
A method of calculation GDP volume measures based on prices in the previous year.
Rules and regulations prohibiting actions that restrain, or are likely to restrain, competition.
An increase in the value of domestic currency in terms of foreign currency. Corresponds to an increase in the exchange rate .
The extend to which firms benefit from the results of their research and development efforts.
(1) Practice of buying at a low price at one location and selling at a higher price in another. (2) The proposition that the expected rates of return on two financial assets must be equal. Also called to distinguish it from riskless arbitrage, the proposition that the actual rates of return on two financial assets must be the same.
Price elasticity calculated over a range of prices.
Something that provides a flow of money or services to its owner.
A constant that measures the sensitivity of an asset's return to market movements and, therefore, the asset's nondiversifiable risk.
Situation in which a buyer and a seller possess different information about a transaction.
A situation where changes in aggregate demand and/or supply differ from one country to another.
Market in which products are bought and sold through formal bidding processes.
The fact that a decrease in output leads, under given tax and spending rules, to an increase in the budget deficit. This increase in the budget deficit in turn increases demand and thus stabilized output.
The component of the demand for goods that does not depend on the level of output/demand.
Price paid per unit of a good.
Supply curve representing the price per unit that a firm pays for a good.
Fixed costs divided by the quantity of output.
Output per unit of a particular input.
Total revenue divided by the quantity sold.
Total taxes paid divided by total income.
Total cost divided by the quantity of output.
Variable costs divided by the quantity of output.
A policy is backloaded if it is to be implemented in the future rather than in the present.
A set of accounts that summarize a country's transactions with the rest of the world.
Where the total sum of money received by a government in tax revenue and interest is equal to the amount if spends, including on any debt interest owing.
The situations in which output, capital, and effective labor all grow at the same rate.
A situation in which exports equal imports.
Upper and lower limits on exchange rate movements.
Positive network externality in which a consumer wishes to possess a good in part because others do.
Holdings of central bank money by banks. The difference between what banks receive from depositors and what they lend to firms or hold as bonds
Simultaneous attempts by depositors to withdraw their funds from a bank.
The relative strength of each side in a negotiation or a dispute.
An agreed outcome between two interested and competing economic agents.
Condition that impedes entry by new competitors.
Anything which prevents a firm from entering a market or industry.
The exchange of one good or service for another.
When constructing real GDP by evaluation quantities in different years using a given set of prices, the year to which this given set of prices corresponds.
International accords about the regulation of the banking sector.
A basis point is a hundredth of a percent. An increase of the interest rate by 100 basis points is a 1% increase in the is rate.
An equation that captures some aspect of behavior.
The idea that people should pay taxes based on the benefits they receive from government services.
Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all firms decide simultaneously what price to charge.
The real exchange rate between two countries.
Market with only one seller and one buyer.
The number of people born per thousand of the population.
Practice of charging different prices for different quantities or "blocks" of a good.
(1) A certificate of indebtedness. (2) Contract in which a borrower agrees to pay the bondholder (the lender) a stream of money. (3) A financial asset that promises a stream of known payments over some period of time.
The assessment of a bond based on its default risk.
The rate at which consumers or firms can borrow from a financial institution.
The idea that humans make decisions under the constraints of limited, and sometimes unreliable information.
The increase in the marginal tax rate faced by individuals as their nominal income goes up and tax brackets remain unchanged in nominal terms.
The emigration of many of the most highly educated workers to rich countries.
A strategy designed to deter entry to a market by producing a number of products within a product line as different brands.
The means by which a business creates an identity for itself and highlights the way in which it differs from its rivals.
An increase in the price of a good based not on the fundamentals of demand or value, but instead on a belief that the price will keep going up.
The limit on the consumption bundles that a consumer can afford.
Where government tax revenue is less than spending and the government has to borrow to finance spending.
All combinations of goods for which the total amount of money spent is equal to income.
Where government tax revenue is greater than spending because it receives more money than it spends.
Practice of selling two or more products as a package.
Fluctuation in economic activity such as employment and production.
The study of macroeconomic fluctuations.
The equipment and structures used to produce goods and services.
Net capital transfers to and from the rest of the world.
Increase in the capital stock.
Model in which the risk premium for a capital investment depends on the correlation of the investment's return with the return on the entire stock market.
Restrictions on the foreign assets domestic residents can hold and on the domestic assets foreigners can hold.
A large and sudden reduction in the demand for assets located in a country.
Ratio of the capital of a bank to its assets.
A system which relies on the private ownership of factors of production to produce goods and services which are exchanged through a price mechanism and where production is operated primarily for profit.
Utility function describing by how much one market basket is preferred to another.
Market in which some or all firms explicitly collude, coordinating prices and output levels to maximize joint profits.
The net flow of cash a firm is receiving.
The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.
A relation between cause and effect.
An institution designed to regulate the quantity of money in the economy.
Money issued by the central bank. Also know as the and money.
The reference value around which the exchange rate is allowed to move under a fixed exchange rate system. The center of the band.
A term used to describe analysis where one variable in the model is allowed to vary while others are held constant.
Cost-ofliving index that accounts for changes in quantities of goods and services.
In the national income and product accounts, the change in the volume of inventories held by businesses.
Deposits at banks and other financial institutions against which checks can be written.
The set of alternatives available to the consumer.
The concept that new goods make old goods obsolete, that new production techniques make older techniques and worker skills obsolete, and so on.
The theoretical separation of nominal and real variables.
Goods that are excludable but non-rival in consumption.
Principle that when parties can bargain without cost and to their mutual advantage, the resulting outcome will be efficient regardless of how property rights are specified.
Production function of the form q = AKαLβ, where q is the rate of output, K is the quantity of capital, and L is the quantity of labor, and where A, α, and β are constants.
Utility function U(X,Y) = XaY1 – a, where X and Y are two goods and a is a constant.
An indicator whose changes occur at the same time as changes in economic activity.
The asset pledged in order to get a loan. In case of default, the asset goes to the lender.
Security based of an underlying portfolio of assets.
The process by which unions and firms agree on the terms of employment.
An agreement among firms in a market about quantities in produce or prices to charge.
Money that takes the form of a commodity with intrinsic value.
The currency used in the countries that are members of a common currency area.
A geographical area throughout which a single currency circulates as the medium of exchange.
Resource to which anyone has free access.
Goods that are rival but not excludable.
Auction in which the item has the same value to all bidders, but bidders do not know that value precisely and their estimates of it vary.
Weighted average of the expected return on a company's stock and the interest rate that it pays for debt.
The comparison among producers of a good according to their opportunity costs. A producer is said to have a comparable advertising in the production of a good if the opportunity cost is lower than that of another producer.
The comparison on one initial static equilibrium with another.
A difference in wages that arises to offset the non-monetary characteristics of different jobs.
In the national income and product accounts, the sum of wages and salaries and of supplements to wages and salaries.
The advantages a firm has over rivals which are both distinctive and defensible.
A market in which there are many buyers and sellers so that each has a negligible impact on the market price.
Two goods for which an increase in the price of one leads to a decrease in the demand for the other.
Principle that consumers will buy a fixed quantity of a good regardless of its price.
The accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future.
The proportion of total market share accounted for by a particular number of firms.
A housing unit i.e. individually owned but provides access to common facilities that are paid for and controlled jointly by an association of owners.
When estimating the dynamic effect of one variable on another, the range of values where we can be confident the true dynamic effect lies.
An office of Congress in charge of constructing and publishing budget projections.
Industry whose long-run supply curve is horizontal.
(1) The proposition that a proportional increase (or decrease) of all inputs leads to the same proportional increase (or decrease) in output. (2) The property whereby long-run average total cost stays the same as the quantity of output changes.
A monetary policy framework which acknowledges a clear goal (or target) but allows policymakers the freedom to respond to economic, financial and political shocks using all the data available and their collective judgement.
A measure of the overall prices of the goods and services bought by a typical consumer/urban dweller.
Difference between what a consumer is willing to pay for a good and the amount actually paid.
Spending by households on goods and services, with the exception of purchases of new housing.
A function that relates consumption to its determinants.
Depreciation of capital.
A market in which entry and exit are free and costless.
Curve showing all efficient allocations of goods between two consumers, or of two inputs between two production functions.
When real output is lower than the previous time period.
An open market operation in which the central bank sells bonds to decrease the money supply.
The use of the policy rate as the main instrument to affect economic activity.
The tendency for countries with lower output per capita to grow faster, leading to convergence of output per capita across countries.
Association of businesses or people jointly owned and operated by members for mutual benefit.
Game in which participants can negotiate binding contracts that allow them to plan joint strategies.
The right of an individual or organization to own things they create in the same way as a physical object, to prevent others from copying or reproducing the creation.
Inflation rate excluding volatile prices, such as the prices of food and energy.
Situation in which the marginal rate of substitution of one good for another in a chosen market basket is not equal to the slope of the budget line.
A bond issued by a corporation.
In the national income and product accounts, firm's revenues minus costs (including interest payments) and minus depreciation.
A measure of the way two variables move together. A positive correlation indicates that the two variables tend to move in the same direction. A negative correlation indicates that the two variables tend to move in opposite directions. A correlation of zero indicates that there is not apparent relation between the two variables.
A monetary arrangement where the central bank sets two rates: a rate at which it lends to banks, and a lower rate at which banks can lend to the central bank.
The value of everything a seller must give up to produce a good.
Function relating cost of production to level of output and other variables that the firm can control.
How much money people need to maintain standards of living in terms of the goods and services they can afford to buy.
A study that compares the costs and benefits to society of providing a public good.
Ratio of the present cost of a typical bundle of consumer goods and services compared with the cost during a base period.
A short-run cause of accelerating inflation due to higher input costs of firms which are passed on a higher consumers prices.
A variable i.e. below trend when GDP is above trend.
A bond that promises multiple payments before maturity and one payment at maturity.
The payments before maturity on a coupon bond.
The ratio of the coupon payment to the face value of a coupon bond.
Equilibrium in the Cournot model, in which each firm correctly assumes how much its competitor will produce and sets its own production level accordingly.
Oligopoly model in which firms produce a homogeneous good, each firm treats the output of its competitors as fixed, and all firms decide simultaneously how much to produce.
An exchange rate mechanism in which the exchange rate is allowed to move over time according to a prespecified formula.
(1) The process where new technologies replace old ones and new skills are needed which render existing skills obsolete. (2) The proposition that growth simultaneously creates and destroys jobs.
The degree to which people and markets believe that a policy announcement will actually be implemented and followed through.
A means by which a bondholder can insure against the risk of default.
Monetary policy measures aimed at increasing the supply of credit by banks.
The risk a bank faces in defaults on loans.
A situation where the allocation of resources in the market is determined in part by political decision-making and favours rather than by economic forces.
A measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good.
A situation where a firm is willing to accept lower profits or losses on some products to deter competition where these lower profits or losses are subsidized by higher profits made on other products in that same market.
A decrease in investment that results from government borrowing.
The paper banknotes and coins in the hands of the public.
An exchange rate system in which (i) the central bank stands ready to buy or sell foreign currency at the official exchange rate, (ii) the central bank cannot engage in opne market operations, i.e., buy or sell government bonds.
In the balance of payments, the summary of a country's payments to and from the rest of the world.
The sum of net exports, net income, and net transfers from the rest of the world.
A negative current account balance.
A positive current account balance.
A large monthly survey of US households used, in particular, o compute the unemployment rate.
The ratio of the coupon payment to the price of a coupon bond.
A situation when government spending and income is disrupted by the deviations in the 'normal' economic cycle.
Industries in which sales tend to magnify cyclical changes in gross domestic product and national income.
The deviation of unemployment from its natural rate.
A measure of what the government deficit would be under existing tax and spending rules, if output were at its natural level. Also called a , , , or .
Goods that are over-consumed if left to the market mechanism and which generate both private and social costs which are not taken into account by the decision maker.
Labor used in the past to produce capital goods and raw materials used in the production of a good.
The fall in total surplus that results from a market distortion, such as a tax.
The number of deaths per thousand of the population.
Financing based on loans or the issurance of bonds.
The printing of money by the central bank to finance a deficit.
The rescheduling of interest payments of payment of principal, typically to decrease current payments.
A decrease in the value of a debt, through a decrease in the value of the principal, or a decrease in interest payments.
The ratio of debt to gross domestic product. Also called simply the .
The property that increases in capital lead to smaller and smaller increases in output as the level of capital increases.
The property that increases in labor lead to smaller and smaller increases in output as the level of labor increases.
Situation in which output less than doubles when all inputs are doubled. decreasing-cost industry Industry whose long-run supply curve is downward sloping.
The risk that debt will not be repaid in full.
A fall in the price level over a period occurring when the inflation rate is less than 0 percent.
A mechanism through which deflation increases the real interest rate, which in turn leads to lower activity, and leads to further deflation, a further increase in the real interest rate, and so on.
The situation of a country subject to a deflation spiral.
The difference between full employment output and expenditure when expenditure is less than full employment output.
Percentage of cost savings resulting when two or more products are produced jointly rather than individually.
The number of usable observations in a regression minus the number of parameters to be estimated.
Relationship between the quantity of a good that consumers are willing tobuy and the price of the good.
(1) A bank account that allows depositors to write checks or get cash on demand, up to an amount equal to the account balance. (2) Balances in bank accounts that depositors can access on demand by using a debit card.
The demand for domestic goods by people, firms, and governments, both domestic and foreign. Equal to the domestic demand for goods plus net exports.
A table that shows the relationship between the price of a good and the quantity demanded.
A variable whose value is determined by one or more other variables.
A decrease in the value of domestic currency in terms of a foreign currency. Corresponds to a decrease in the exchange rate.
A severe recession.
A situation where demand is determined by the supply in another market. Demand for an input that depends on, and is derived from, both the firm's level of output and the cost of inputs.
The value today of a dollar (or other national currency unit) at some time in the future.
Trends that are constant, positive or negative, independent of time for the series being analyzed.
A decrease in the exchange rate in a fixed exchange rate system.
Difference between expected payoff and actual payoff.
The property whereby the marginal product of an input declines as the quantity of the input increases.
The tendency for the additional satisfaction from consuming extra units of a good to fall.
Financing through markets, through the issuance of bonds or equities.
A tax levied on income and wealth.
A bond that promises a single payment at maturity.
(1) The interest rate used to discount a sequence of future payments. Equal to the nominal interest rate when discounting future nominal payments and to the real interest rate when discounting future real payments. (2) The international rate at which the Federal Reserve lends on a short-term basis to the US banking sector.
A person who has given up looking for employment.
The offering of different opportunities to similar individuals who differ only by race, ethnic group, gender, age or other personal characteristics.
The property whereby long-run average total cost rises as the quantity of output increases.
Situation in which joint output of a single firm is less than could be achieved by separate firms when each produces a single product.
The reduction in the rate of inflation.
The income that remains once consumers have received transfers from the government and paid their taxes.
Risk that can be eliminated either by investing in many projects or by holding the stocks of many companies.
Practice of reducing risk by allocating resources to a variety of activities whose outcomes are not closely related.
The portion of a corporation's profits that the firm pays out each period to its shareholders.
The proposition that, if inflation remains stable, this is a signal that output is equal to potential output.
The use of dollars in domestic transactions in a countr other than the United States.
The sum of consumption, investment, and government spending.
Firm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms.
A strategy i.e. best for a player in a game regardless of the strategies chosen by the other players.
A situation in exchange where two parties each have a good or service that the other wants and can thus enter into an exchange.
When each firm in a vertical chain marks up its price above its marginal cost, thereby increasing the price of the final product.
Alternative way of looking at the consumer's utility maximization decision: Rather than choosing the highest indifference curve, given a budget constraint, the consumer chooses the lowest budget line that touches a given indifference curve.
Market in which two firms compete with each other.
Commodities that can be stored and have an average life of at least three years.
The period of time during which a worker's unemployed.
Auction in which a seller begins by offering an item at a relatively high price, then reduces it by fixed amounts until the item is sold.
Movements of one or more economic variables over time.
The proposition that higher income in a country is not associated with higher levels of happiness.
Statistical methods applied to economics.
How much buying and selling goes on in the economy over a period of time.
An individual, firm or organization that has an impact in some way on an economy.
Cost to a firm of utilizing economic resources in production.
Maximization of aggregate consumer and producer surplus.
The increase in the amount of goods and services in an economy over a period of time.
The movement of people among income classes.
Total revenue minus total cost, including both explicit and implicit costs.
Amount that firms are willing to pay for an input less the minimum amount necessary to obtain it.
The way in which resources are organized and allocated to provide for the needs of an economy's citizens.
People who are not in employment or unemployed due to reasons such as being in full-time education, being full-time carers and raising families.
The study of how society manages its scarce resources.
The property whereby long-run average total cost falls as the quantity of output increases.
(1) Situation in which joint output of a single firm is greater than output that could be achieved by two different firms when each produces a single product. (2) A situation where a firm's average cost of production is reduced as a result of the production of a variety of products which can share factor inputs.
All the production and exchange activities that take place.
Diagram showing all possible allocations of either two goods between two people or of two inputs between two production processes.
The amount that people are not only willing to buy at different prices but what they can and do actually purchase.
The number of workers in an economy times the state of technology.
Percentage return that one receives by investing in a bond.
The property of a resource allocation.
Wage that a firm will pay to an employee as an incentive not to shirk.
Explanation for the presence of unemployment and wage discrimination which recognizes that labor productivity may be affected by the wage rate.
Above-equilibrium wages paid by firms in order to increase worker productivity of maximizing the total surplus received by all members of society.
The theory that asset prices reflect all publicly available information about the value of an asset.
The quantity of output that minimizes average total cost.
A measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.
Charge levied on each unit of a firm's emissions.
Legal limit on the amount of pollutants that a firm can emit.
The number of people employed.
The set of regulations determining the conditions under which a firm can lay off a worker.
The ratio of employment to the labor force.
A theory that the rate of economic growth in the long run, is determined by the rate of growth in total factor productivity and this total factor productivity is dependent on the rate at which technology progresses.
A variable that depends on other variables in a model and is thus explained within the model.
Tendency of individuals to value an item more when they own it than when they do not.
A line showing the relationship between demand and levels of income.
Auction in which a seller actively solicits progressively higher bids from a group of potential buyers.
A situation where a firm will keep prices lower than they could be in order to deter new entrants.
Principle that utility is maximized when the consumer has equalized the marginal utility per dollar of expenditure across all goods.
Equality between demand and supply (production).
Price that equates the quantity supplied to the quantity demanded.
The condition aht supply be equal to demand.
Outcome of a game in which each firm is doing the best it can regardless of what its competitors are doing.
The conditon that the supply of goods be equal to the demand for goods
The price where the quantity demanded is the same as the quantity supplied.
The quantity bought and sold at the equilibrium price.
The purchase of machines and software by firms.
The property of distributing economic prosperity fairly among the members of society.
Financing based of the issuance of shares.
Risk premium required by investors to hold stocks rather than short-term bonds.
A European currency that replaced national currencies in 11 countries in 2002 and is now used in 19 countries.
The set of countries that share the euro as a common currency.
The overall central bank of the 19 countries comprising the European Monetary Union.
The European currency union that has adopted the euro as its common currency.
A series of rules that implemented bands for bilateral exchange rates between member countries in Europe from 1979 to 1998.
A political and economic organization of 28 European nations. Formely called the European Community.
The system made up of the ECB plus the national central banks of each of the 19 countries comprising the European Monetary Union.
The price of the stock just after the dividend has been paid.
When the quantity demanded of a good exceeds the quantity supplied.
When the quantity supplied of a good exceeds the quantity demanded.
Market in which two or more consumers trade two goods among themselves.
The property of a good whereby a person can be prevented from using it when they do not pay for it.
A variable whose value is determined outside the model.
The hupothesis that financial investors are risk neutral, which implies that expected returns on all financial assets have to be equal.
A period of positive GDP growth.
Curve passing through points of tangency between a firm's isocost lines and its isoquants.
An open market operaton in which the central bank buys bonds to increase the money supply.
The value today of currenthe and expected future payments.
Return that an asset should earn on average.
Sum of the utilities associated with all possible outcomes, weighted by the probability that each outcome will occur.
The idea that preferences can and will be ranked by buyers.
Probability-weighted average of the payoffs associated with all possible outcomes.
Input costs that require an outlay of money by the firm.
Goods produced domestically and sold abroad leading to an inflow of funds into a country.
Agreements to extend the result of negotiations between a set of unions and firms to all firms in a given sector.
Representation of possible moves in a game in the form of a decision tree.
Boundaries of a market, both geographical and in terms of range of products produced and sold within it.
The advantages of large-scale production that arise through the growth and concentration of the industry.
Financing of firms through external funds (as opposed to retained earnings).
(1) Action by either a producer or a consumer which affects other producers or consumers, but is not accounted for in the market price. (2) The cost or benefit of one person's decision on the well-being of a bystander (a third party) which the decision maker does not take into account when making the decision.
The single payment at maturity promised by a discount bond.
Inputs into the production process (e.g., labor, capital, and materials).
A period of time during which, for reasons of fashion or overoptimism, financial investors are willing to pay more for a stock than its fundamental value.
The possibility of a theory being rejected as a result of the new observations or new data.
Insurance provided by the US government that protects each bank depositor up to $250,000 per account.
The market where banks that have excess reserves at the end of the day lend them to banks that have insufficient reserves.
The interest rate determined by equilibrium in the federal funds market. The interest rate affected most directly by changes in monetary policy.
The US central bank.
The degree to which spending on research and development translates into new ideas and new products.
A good i.e. used directly for consumption or investment (as opposed to intermediate goods, which are used in the process of production).
The account showing the financial transactions between a country and the rest of the world.
The difference between what a country borrows from the rest of the world and what it lends to the rest of the world.
A negative financial account balance.
A positive financial account balance. The country borrows more from the rest of the world than it lends to the rest of the world. A financial account surplus corresponds to a current account deficit.
That part of the economy associated with the buying and selling of assets on financial markets.
Financial institutions through which savers can indirectly provide funds to borrowers. Financial institutions which receives funds from people, firms, or other financial institutions and uses these funds to make loans or buy financial assets.
The purchase of financial assets.
Financial institutions through which savers can directly provide funds to borrowers.
The group of institutions in the economy that help to match one person's saving with another person's investment.
The value of all of one's financial assets minus all financial liabilities. Sometimes called wealth, for short.
A macroeconomic policy aimed at precisely hitting a given target, such as constant unemployment or constant output growth.
Very low asset prices, reflecting the need for sellers to sell, and the absence of sufficient buyers, because of liquidity constraints.
Practice of charging each customer her reservation price.
Auction in which the sales price is equal to the highest bid.
A reduction in public spending or an increase in taxes, aimed at reducing the budget deficit.
A policy aimed at reducing the budget deficit through a decrease in government spending or an increase in taxation. Also called fiscal consolidation.
A situation in which monetary policy becomes subordinated to fiscal policy, e.g. example, when the central bank issues money to finance the deficit.
An increase in government spending or a decrease in taxation, which leads to an increase in the budget deficit.
A fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries.
The size of the effect of government spending on output.
A government's choice of taxes and spending.
The one-for-one adjustment of the nominal international rate to the inflation rate.
Costs that are not determined by the quantity of output produced.
An exchange rate between the currencies of two or more countries i.e. fixed at some level and adjusted only infrequently.
Production factor that cannot be varied.
The purchase of equipment and structures (as opposed to inventory investment).
Production function with L-shaped isoquants, so that only one combination of labor and capital can be used to produce each level of output.
Cost-of-living index in which the quantities of goods and services remain unchanged.
Money without intrinsic value i.e. used as money because of government decree.
A way of conducting monetary policy to return inflation to target inflation over time.
The exchange rate is said to float when it is determined in the foreign exchange market, without central bank intervention.
A variable that can be expressed as a quantity per unit of time (such as income).
The large effects of sustained growth on the level of a variable.
(1) Capital investment i.e. owned and operated by a foreign entity. (2) The purchase of existing firms or assets, or the development of new firms by foreign investors.
Foreign assets held by the central bank.
Investment i.e. financed with foreign money but operated by domestic residents.
The four Asian economies of Singapore, Taiwan, Hong Kong, and South Korea.
Tendency to rely on the context in which a choice is described when making a decision.
The differing response to choices dependent on the way in which choices are presented.
Condition under which there are no special costs that make it difficult for a firm to enter (or exit) an industry.
Consumer or producer who does not pay for a nonexclusive good in the expectation that others will.
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills.
A point where those people who want to work at the going market wage level are able to find a job.
A retirement system in which the contributions of current workers are invested in financial assets, with the proceeds (principal and interest) given back to the workers when they retire.
The study of a company's accounting statements and future prospects to determine its value.
The present value of expected dividends.
The amount of money in the future that an amount of money today will yield, given prevailing interest rates.
The group of 20 countries, representing about 85% of world production, which met regularly during the crisis and served as a forum for coordination of economic policies.
Situation in which players (participants) make strategic decisions that take into account each other's actions and responses.
(1) The prediction of outcomes from games. (2) The study of how people behave in strategic situations.
Gross domestic product calculated using prices that existed at a particular base year which takes into account changes in inflation over time.
Gross domestic product calculated by multiplying the output of goods and services by the price of those goods and services in the reporting year.
The ratio of nominal GDP to real GDP. A measure of the overall price level. Gives the average price of the final goods produced in the economy.
The growth rate of real GDP in year t, equal to Yt – Yt – 1/Yt ‐ 1.
A theory where all markets in an economy are in equilibrium and the millions of individual decisions aggregate to balance supply and demand and result in an efficient allocation of resources.
Simultaneous determination of the prices and quantities in all relevant markets, taking feedback effects into account.
Technologies that have applications across many sectors.
The act of formulating general concepts or explanations by inferring from specific instances of an event or behaviour.
Where people are unable to take work because of the difficulties associated with moving to different regions.
A mathematical sequence in which the ratio of one term to the preceding term remains the same. A sequence of the form 1 + c + c2 + … cn.
(1) A good for which an increase in the price raises the quantity demanded. (2) Good whose demand curve slopes upward because the (negative) income effect is larger than the substitution effect.
A labor market in which workers have short-term, freelance or zero hours contracts with employers and where workers are more akin to being self-employed than employed.
A measure of the degree of inequality of income in a country. A Gini coefficient of zero corresponds to complete equality. A Gini coefficient of 1 corresponds to complete inequality (all the income going to one individual).
A system in which a country fixed the price of its currency in terms of gold and stood ready to exchange gold for currency at the stated parity.
The level of capital at which steady-state consumption is maximized.
A bond issued by a government or a government agency.
The budget constraint faced by the government. The constraint implies that an excess of spending over revenues must be financed by borrowing, and thus leads toan increase in debt.
A situation where a government spends more than it generates in tax revenue over a period.
A situation where political power and incentives distort decision-making so that decisions are made which conflict with economic efficiency.
In the national income and product accounts, the sum of the purchases of goods by the government plus compensation of government employees.
Spending on goods and services by local, state and national governments.
Payments made by the government to individuals that are not in exchange for goods or services (e.g., Social Security payments).
The financial crisis which led to a worldwide recession in 2008 and 2009.
The period from the mid-1980s to the mid-2000s when the volatility of output and the volatility of inflation both declined, characterized by relatively low inflation, high employment, low unemployment and stable and persistent growth.
The worldwide recession, triggered by the financial crisis, which started in 2008.
The value of the government's financial liabilities (as opposed to net debt, the value of the government's financial liabilities minus the value of the government's financial assets).
The market value of all final goods and services produced within a country in a given period of time. Gross national product measures value added by domestic factors of production.
The market value of all goods and services produced within a country in a given period of time divided by the population of a country to give a per capita figure.
A measure of aggregate output in the national income and product accounts. The market value of the goods and services produced by labor and property supplied by US residents.
In the national income and product accounts, the sum of nonresidential investment and residential investment.
The contribution of domestic producers, industries and sectors to an economy.
The steady increase in aggregate output over time.
A reduction in the nominal value of debt.
A fixed exchange rate regime, with a strong commitment of the central bank to maintain the exchange rate fixed.
An approach to calculating real GDP that treats goods as providing a collection of characteristics, each with an implicit price.
A term which represents an array of different schools of thought in economics that are outside what may be considered the mainstream or orthodox economics.
Short cuts or rules of thumb that people use in decision-making.
Alternative to the Slutsky equation for decomposing price changes without recourse to indifference curves.
Workers newly employed by firms.
The idea that taxpayers with similar abilities to pay taxes should pay the same amount.
Organizational form in which several plants produce the same or related products for a firm.
The value of the housing stock.
(1) The accumulation of investments in people, such as education and on-the-job training. (2) Knowledge, skills, and experience that make an individual more productive and thereby able to earn a higher income over a lifetime.
The labor-income component of wealth.
A period of extreme and accelerating increase in the price level.
An assumption, tentative prediction, explanation, or supposition for something.
A permanent effect of temporary shocks, e.g., the permanent effects of a recession on labor force participation.
Cost of attaining a given level of utility at current prices relative to the cost of attaining the same utility at base-year prices.
In econometrics, the problem of finding whether correlation between variables X and Y indicates a causal relation from X to Y, or from Y to X, or both. This problem is solved by finding exogenous variables, called instruments, that affect X and do not affect Y directly, or affect Y and do not affect X directly.
An equation that holds by definition, denoted by the K sign.
Risk that affects only a single economic actor.
Exists where firms are able to differentiate their product in some way and so can have some influence over price.
Input costs that do not require an outlay of money by the firm.
The decrease in imports due to a decrease in domestic demand.
A limit on the quantity of a good that can be produced abroad and sold domestically.
(1) Goods produced abroad and purchased for use in the domestic economy leading to an outflow of funds from a country. (2) The purchases of foreign goods and services by domestic consumers, firms, and the government.
Transfers to the poor given in the form of goods and services rather than cash.
Growth that benefits all.
The flow of revenue from work, rental income, interest, and dividends.
(1) Change in consumption that results when a price change moves the consumer to a higher or lower indifference curve. (2) Change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant.
Measure of how much quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income.
Curve tracing the utility-maximizing combinations of two goods as a consumer's income changes.
Situation in which output more than doubles when all inputs are doubled.
Industry whose long-run supply curve is upward sloping.
A central bank that makes decisions independently of the government.
A variable i.e. taken as given in a relation or in a model.
A number, such as the GDP deflator, that has no natural level and is thus set to equal some value (typically 1 or 100) in a given period.
The automatic correction of a money amount.
A bond that promises payments adjusted for inflation.
Curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction.
Graph containing a set of indifference curves showing the market baskets among which a consumer is indifferent.
Taxes on goods and services. In the United States, primarily sales taxes.
Curve relating the quantity of a good that a single consumer will buy to its price.
A conclusion or explanation derived from evidence and reasoning.
A good for which, ceteris paribus, an increase in income leads to a decrease in demand (and vice versa).
Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit.
An increase in the overall level of prices in the economy.
The rate at which the price level increases over time.
The conduct of monetary policy to achieve a given inflation rate over time.
The revenue the government raises by creating money.
The correct economic measure of the budget deficit: The sum of the primary deficit and real interest payments (as opposed to the official deficit, which is the sum of the primary deficit and nominal interest payments).
The difference between full employment output and actual expenditure when actual expenditure is greater than full employment output..
An assessment (e.g., of an investment opportunity) based in part on the actions of others, which in turn were based on the actions of others.
Reflecting all available information in a rational way.
The inability of a debtor, be it a firm, a person, or the government, to repay its debt.
The rules which govern the interaction of human beings in the economy characterized by regulations, legislation, social norms and other human-derived conventions that govern behaviour in markets.
In econometrics, methods of estimation that use instruments to estimate causal relations between different variables.
In econometrics, the exogenous variables that allow the identification problem to be solved.
In a linear relation between two variables, the value of the first variable when the second variable is equal to zero.
The responsiveness of the demand and supply of loanable funds to changes in the interest rate.
Rate at which one can borrow or lend money.
A monetary policy rule in which the interest rate is adjusted in response to output and to inflation.
A good used in the production of a final good.
The advantages of large-scale production that arise through the growth of the firm.
Financing of firms through internal funds (retained earnings).
Altering incentives so that people take account of the external effects of their actions.
The principal international economic organization, publishes the World Economic Outlook annually and the International Financial Statistics (IFS) monthly.
Where decisions made today can affect choices facing individuals in the future.
Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time.
The response of economic actors to changes in the interest rate by changing consumption and savings decisions.
Policies focused on improving the working of markets through investing in infrastructure, education and research and development.
The difference between production and sales.
Spending on capital equipment, inventories and structures, including household purchases of new housing.
An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.
Where people want work at going market wage rates but cannon find employment.
A downward-sloping curve relating output to the interest rate. The curve corresponding to the IS relation, the equilibrium condition for the goods market.
An equilibrium condition stating that the demand for goods must be equal to the supply of goods, or equivalently that investment must be equal to saving, the equilibrium condition for the goods market.
A model based on equilibrium in the goods and the financial markets in a closed economy.
Graph showing all possible combinations of labor and capital that can be purchased for a given total cost.
Demand curve with a constant price elasticity.
Curve showing all possible combinations of inputs that yield the same output.
Graph combining a number of isoquants, used to describe a production function.
A curve depicting the initial deterioration in the trade balance caused by a real depreciation, followed by an improvement in the trade balance.
The process by which workers find appropriate jobs given their tastes and skills.
Securities that are repaid after senior securities in case of insolvency.
A bond with a high risk of default.
Oligopoly model in which each firm faces a demand curve kinked at the currently prevailing price: at higher prices demand is very elastic, whereas at lower prices it is inelastic.
The number of people who are either working or looking for work.
The decision by firms to keep some excess workers in response to a decrease in sales.
Restrictions on firms' ability to adjust their level of employment.
Average product of labor for an entire industry or for the economy as a whole. The ratio of output to the number of workers.
The percentage of the adult population i.e. in the labor force.
The relationship between tax rates and tax revenue.
An indicator whose changes occur after changes in economic activity have occurred.
Function to be maximized or minimized, plus a variable (the Lagrange multiplier) multiplied by the constraint.
All the natural resources of the earth.
Amount of money at current year prices that an individual requires to purchase a bundle of goods and services chosen in a base year divided by the cost of purchasing the same bundle at base-year prices.
The claim that, other things equal (ceteris paribus) the quantity demanded of a good falls when the price of the good rises.
Principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease.
Tendency to overstate the probability that a certain event will occur when faced with relatively little information.
The claim that, ceteris paribus, the quantity supplied of a good rises when the price of a good rises.
The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
Workers who lose their jobs either temporarily or permanently.
An indicator which can be used to foretell future changes in economic activity.
Graph relating amount of inputs needed by a firm to produce each unit of output to its cumulative output.
Criterion of "best fit" used to choose values for regression parameters, usually by minimizing the sum of squared residuals between the actual values of the dependent variable and the fitted values.
If a solvent bank cannot finance itself, it can borrow from the central bank, which acts as a lender of last resort.
Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price.
Ratio of the assets of the bank to its capital (the inverse of the capital ratio).
Borrowing funds for investment in the expectation of a return.
The political philosophy according to which the government should choose policies deemed to be just, as evaluated by an impartial observer behind a 'veil of ignorance'.
The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income.
The length of time during which the bond pays interest, which ends with the repayment of principal.
The regular pattern of income variation over a person's life.
The theory of consumption, developed initially by Franco Modigliani, that emphasizes that the planning horizon of consumers is their lifetime.
Demand curve i.e. a straight line.
Model specifying a linear relationship between a dependent variable and several independent (or explanatory) variables and an error term.
A relation between two variables such that a one-unit increase in one variable always leads to an increase of n units in the other variable.
An asset is liquid if it can be sold quickly. A financial institution is liquid if it can sell its assets quickly.
The specific ways in which a central bank can lend to financial institutions.
The term introduced by Keynes to denote the demand for money.
The provision of liquidity to banks by the central bank.
The risk that a bank may not be able to fund demand for withdrawals.
The case where nominal interest rates are equal to zero, and monetary policy cannot, therefore, decrease them further.
Labor utilized in the production of the good itself.
An hourly rate set independently, based on an estimation of minimum household needs which provide an 'acceptable' standard of living in the UK.
An upward-sloping curve relating the interest rate to output, the curve corresponding to the LM relation, the equilibrium condition for financial markets.
An equilibrium condition stating that the demand for money must be equal to the supply of money.
The ratio of the loan that people can take as a proportion of the value of the house or apartment they buy.
A scale in which the same proportional increase is represented by the same distance on the scale, so that a variable that grows at a constant rate is represented by a straight line.
The agreement between politicians to exchange support on an issue.
(1) A period of time extending over decades. (2) The period of time in which all factors of production can be altered.
Curve relating average cost of production to output when all inputs, including capital, are variable.
All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded.
Curve showing the change in long-run total cost as output is increased incrementally by 1 unit.
The interest rate on long-term bonds.
The relationship between the cumulative percentage of households and the cumulative percentage of income.
Tendency for individuals to prefer avoiding losses over acquiring gains.
The proposition, put forth by Robert Lucas, that existing relations between economic variables may change when policy changes. An example is the apparent trade-off between inflation and unemployment, which may disappear if policymakers try to exploit it.
A tax i.e. the same amount for every person.
The sum of currency, traveler's checks, and checkable deposits—assets that can be used directly in transactions, also called narrow money.
A treaty signed in 1991 that defined the steps involved in the transition to a common currency for the European Union.
Branch of economics that deals with aggregate economic variables, such as the level and growth rate of national output, interest rates, unemployment, and inflation.
Policies designed to limit the risk across the financial sector by focusing on improving 'prudential' standards of operation that enhance stability and reduce risk.
The instruments used to regulate the financial system, such as loan-to-value ratios or capital ratio requirements.
The case of an economy where increases in productivity lead to a decrease in mortality and an increase in population, leaving income per person unchanged.
The cost expressed in terms of the last unit of pollution not emitted (abated).
Benefit from the consumption of one additional unit of a good.
Small incremental adjustments to a plan of action.
The increase in total cost that arises from an extra unit of production.
Additional cost of buying one more unit of a good.
Curve describing the additional cost of purchasing one additional unit of a good.
Increased benefit that accrues to other parties as a firm increases output by one unit.
Increase in cost imposed externally as one or more firms increase output by one unit.
The increase in output that arises from an additional unit of input.
The increase in the amount of output from an additional unit of labor.
The fraction of extra income that a household saves rather than consumes.
Maximum amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good.
The rate at which a consumer is willing to trade one good for another.
Amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant.
Amount of one good that must be given up to produce one additional unit of a second good.
Change in revenue resulting from a one-unit increase in output.
(1) Additional revenue resulting from the sale of output created by the use of one additional unit of an input. (2) The extra revenue a firm gets from hiring an additional unit of a factor of production.
Sum of the marginal private benefit plus the marginal external benefit.
Sum of the marginal cost of production and the marginal external cost.
The extra taxes paid on an additional unit of income.
Additional satisfaction obtained from consuming one additional unit of a good.
Additional benefit derived from purchasing one more unit of a good.
An accounting procedure which records the 'fair value' of an asset on financial institutions' balance sheets.
Collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products.
List with specific quantities of one or more goods.
Determination of the buyers, sellers, and range of products that should be included in a particular market.
Curve relating the quantity of a good that all consumers in a market will buy to its price.
An economy that addresses the three key questions of the economic problem by allocating resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.
(1) Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers. (2) Situation where scarce resources are not allocated to their most efficient use.
The market in which those who want to save supply funds, and those who want to borrow to invest demand funds.
Inequality of revenues before transfers and taxes (as opposed to disposable income inequality, inequality of revenues after transfers and taxes).
Tendency in a free market for price to change until the market clears.
Ability of a single economic agent (or small group of agents) to have a substantial influence on market prices or output.
Price prevailing in a competitive market.
The breaking down of customers into groups with similar buying habits or characteristics.
The proportion of total sales in a market accounted for by a particular firm.
Process by which sellers send signals to buyers conveying information about product quality.
Policies designed to free up markets to improve resource allocation through more effective price signals.
The ratio of the price to the cost of production.
The condition under which a real depreciation leads to an increase in net exports.
The length of time over which a financial asset (typically a bond) promises to make payments to the holder.
The claim that the government should aim to maximize the well-being of the worst-off person in society.
Strategy that maximizes the minimum gain that can be earned.
An item that buyers hive to sellers when they want to purchase goods and services.
The period of time between the short run and the long run. Roughly, what happens between three and thirty years.
The costs of changing prices.
Goods which can be provided by the market but may be under-consumed as a result of imperfect information about the benefits.
Technique to maximize or minimize a function subject to one or more constraints.
Branch of economics that deals with the behavior of individual economic units—consumers, firms, workers, and investors— as well as the markets that these units comprise.
The difference between the number of people entering a country from abroad and the number leaving.
The lowest price an employer may legally pay to a worker.
Selling two or more goods both as a package and individually.
Strategy in which a player makes a random choice among two or more possible actions, based on a set of chosen probabilities.
The model than many economists use to explain short-run fluctuations in economic activity around its long-run trend.
Models in which accumulation of physical and human capital can sustain growth even in the absence of technological progress.
The curve that plots the change in the inflation rate against the unemployment rate, also called accelerationist Phillips curve.
A group of economists in the 1960s, led by Milton Friedman, who argued that monetary policy had powerful effects on activity.
Money issued by the central bank (currency and central bank reserves).
A change in monetary policy that leads to an increase in the interest rate, also called monetary tightening.
A change in monetary policy that leads to a decrease in the interest rate.
The proposition that changes in the money supply do not affect real variables.
The set of actions taken by the central bank in order to affect the money supply.
The combination of monetary and fiscal policies in effect at a given time.
Financial assets (currency and checkable deposits) that can be used directly to buy goods.
Financing of the budget deficit through money creation.
The proposition that people make systematic mistakes in assessing nominal versus real changes in incomes and interest rates.
The market in which the commercial banks lend money to one another on a short-term basis.
Non-bank financial institutions that receive funds from people and use them to buy short-term bonds.
The quantity of money circulating in the economy.
The quantity of money available in the economy.
Market in which firms can enter freely, each producing its own brand or version of a differentiated product.
Firm i.e. the sole seller of a product without close substitutes.
Market in which there is a single (or dominant) buyer.
Buyer's ability to affect the price of a good.
(1) When a party whose actions are unobserved can affect the probability or magnitude of a payment associated with an event. (2) Tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behaviour.
Institutions that make housing loans to households.
Security based on an underlying portfolio of mortgages.
The real exchange rate between a country and its trading partners, computed as a weighted average of bilateral real exchange rates, also called the trade-weighted real exchange rate or effective real exchange rate.
Statistical procedure for quantifying economic relationships and testing hypotheses about them.
The ratio of the change in an endogenous variable to the change in an exogenous variable (e.g., the ratio of the change in output to a change in autonomous spending).
The additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.
A model of simultaneous equilibrium in both goods and financial markets for an open economy.
Organization that pools funds of individual investors to buy a large number of different stocks or other financial assets.
Restrictions on banks that would require them to hold only shortterm government bonds.
A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.
The accumulation of the total debt owed by a government.
In the United States, the income that originates in the production of goods and services supplied by residents of the United States.
The system of accounts used to describe the evolution of the sum, composition, and distribution of aggregate output.
The total income in the economy that remains after paying for consumption and government purchases.
Firm that can produce the entire output of the market at a cost lower than what it would be if there were several firms.
The claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation.
The rate of interest consistent with a level of demand for goods equal to potential output.
The output level in an economy when all existing factors of production (land, labor, capital and technology resources) are fully utilized and where unemployment is at its natural rate.
The unemployment rate at which price and wage decisions are consistent.
The inputs into the production of goods and services that are provided by nature, such as land, rivers and mineral deposits.
The costs imposed on a third party of a decision.
A tax system that collects revenue from high-income households and gives transfers to low-income households.
Variables having a tendency to move in opposite directions.
A consensus in macroeconomics, developed in the early 1950s, based on an integration of Keynes' ideas and the ideas of earlier economists. The idea that markets can be slow to adjust in the short run due to sticky prices and sticky wages but revert to long-run classical principles which could be aided by appropriate use of fiscal and monetary policies.
Capital flows from the rest of the world to the domestic economy, minus capital flows to the rest of the world from the domestic economy (also, financial account balance).
The purchase of foreign assets by domestic residents minus the purchase of domestic asserts by foreigners.
Value of government financial liabilities, minus the value of financial assets held by the government.
Spending on domestically produced goods and services by foreigners (exports) minus spending of foreign goods by domestic residents (imports), also called the trade balance. Or: In the national income and product accounts, the interest paid by firms minus the interest received by firms, plus interest received from the rest of the world minus interest paid to the rest of the world.
Gross national product minus capital depreciation.
Rule holding that one should invest if the present value of the expected future cash flow from an investment is larger than the cost of the investment.
In the current account, the net value of foreign aid received minus foreign aid given.
Situation in which each individual's demand depends on the purchases of other individuals.
A group of economists who interpret fluctuations as the effects of shocks in competitive markets with fully flexible prices and wages.
Developments in growth theory since the late 1980s that explore the determinants of technological progress and the role of increasing returns to scale in growth.
A group of economists who believe in the importance of nominal rigidities in fluctuations, and who are exploring the role of market imperfections in explaining fluctuations.
The price of domestic currency in terms of foreign currency. The number of units of foreign currency you can get for one unit of domestic currency.
The production of goods and services valued at current prices.
The interest rate as usually reported without a correction for the effects of inflation. How many currency units one has to repay in the future in exchange for borrowing one currency unit today.
Absolute price of a good, unadjusted for inflation.
The slow adjustment of nominal wages and prices to changes in economic activity.
Variables measured in monetary units.
The rate of unemployment in the long run, consistent with a stable rate of inflation.
Time-series data where the mean value can either rise or fall over time.
Game in which negotiation and enforcement of binding contracts are not possible.
Risk that cannot be eliminated by investing in many projects or by holding the stocks of many companies.
Commodities that can be stored but have an average life of less than three years.
Good that people cannot be excluded from consuming, so that it is difficult or impossible to charge for its use.
The financial and housing component of wealth.
The number of people potentially available for civilian employment.
The purchase of new capital goods by firms: structures and producer durable equipment.
Good for which the marginal cost of its provision to an additional consumer is zero.
A good for which, ceteris paribus, an increase in income leads to an increase in demand (and vice versa).
The minimum amount required to keep factors of production in their current use.
Analysis examining questions of what ought to be.
Claims that attempt to prescribe how the world should be.
An agreement signed by the United States, Canada, and Mexico in which the three countries agreed to establish all of North America as a free trade zone.
The number of people who are neither employed nor looking for employment.
Measures of the quality of life using specified indicators.
Where workers are unable to easily move from one occupation to another.
The difference between public spending, including nominal interest payments, and public revenues.
The effect of a change in the rate of growth of output on the change in the unemployment rate.
A 'law' which is based on observations that in order to keep the unemployment rate steady, real GDP needs to grow at or close to its potential.
Competition amongst the few ‐ a market structure in which only a few sellers offer similar or identical products and dominate the market, and entry by new firms is impeded.
Market with only a few buyers.
The purchase or sale of government bonds by the central bank from ant to the banking sector for the purpose of increasing or decreasing the money supply.
The opportunity for people to choose where to live and work, and for firms to invest at home or abroad.
The opportunity for financial investors to choose between domestic and foreign financial assets.
The opportunity for consumers and firms to choose between domestic and foreign goods.
Whatever must be given up to obtain some item. The value of the benefits foregone (sacrificed). Cost associated with opportunities forgone when a firm's resources are not put to their best alternative use.
Rate of return that one could earn by investing in an alternate project with similar risk.
The control of a system (a machine, a rocket, an economy) by means of mathematical methods.
The set of mathematical methods used for optimal control.
The properties of a common currency area needed for it to function smoothly.
Strategy that maximizes a player's expected payoff.
A group of countries for which it is optimal to adopt a common currency and form a currency union.
In the case of irreversible decisions, the option of waiting for uncertainty to be resolved so as to make a more informed decision.
Utility function that generates a ranking of market baskets in order of most to least preferred.
A statistical method to find the best-fitting relation between two or more variables.
An international organization that collects and studies economic data for many countries. Most of the world's rich countries belong to the OECD.
A set of petroleumproducing countries, which long acted as a production cartel.
A relation between the unemployment rate and the rate of inflation (as opposed to the accelerationist Phillips curve, a relation between the unemployment rate and the change in the rate of inflation).
People of working age not working (in the market economy) and not looking for a job.
Movements in output around its trend, also called business cycles.
The difference between actual output and potential output.
A country's gross domestic product divided by its population.
The outright sale or purchases of non-monetary assets to or from the banking sector by the central bank without a corresponding agreement to reverse the transaction at a later date.
An unrealistic belief that things will work out well.
An unrealistic belief that one can accurately predict outcomes.
Overestimating an individual's prospects or abilities.
Amount of money at current-year prices that an individual requires to purchase a current bundle of goods and services divided by the cost of purchasing the same bundle in a base year.
A dataset that gives the values of one or more variables for many individuals or many firms over some period of time.
The result that an attempt by people to save more may lead both to a decline in output and to either unchanged or even lower saving. Also called the paradox of thrift.
Form of implicit collusion in which one firm consistently follows actions of another.
A coefficient in a behavioral equation.
Allocation of goods in which no one can be made better off unless someone else is made worse off.
When an action makes at least one economic agent better off without harming another economic agent.
Determination of equilibrium prices and quantities in a market independent of effects from other markets.
The ratio of the labor force to the total population of working age.
The legal right granted to a person or firm to exclude anyone else from the production or use of a new product or technique for a certain period of time. Or: The right conferred on the owner to prevent anyone else making or using an invention on manufacturing process without permission.
A retirement system in which the contributions of current workers are used to pay benefits to current retirees.
A budget rule requiring any new spending to be financed by additional revenues.
In the United States, income received by foreign capital and foreign residents.
Value associated with a possible outcome.
A table showing the possible combination of outcomes (payoffs) depending on the strategy chosen by each player.
A point where related economic variables begin to decline.
Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.
The exchange rate to which a country commits under a fixed exchange rate system.
Two goods for which the MRS is zero or infinite. The indifference curves are shaped as right angles.
A situation in which the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price.
Two goods for which the marginal rate of substitution of one for the other is a constant.
Market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.
A person's normal income.
A theory which suggests that consumers will smooth consumption over their lifetime in relation to their anticipated long-term average income.
The theory of consumption, developed by Milton Friedman, that emphasizes that people make consumption decisions based not on current income but on their notion of permanent income.
Bond paying out a fixed amount of money each year, forever.
Spending on consumption goods and services by households.
The income available to consumers after they have received transfers and paid taxes.
The income actually received by persons.
A curve that shows the short-run trade-off between inflation and unemployment.
A tax enacted to correct the effects of a negative externality.
Economic activity organized by central planners who decided on the answers to the fundamental economic questions.
The desired or intended actions of households and firms.
The participants in a game. Depending on the context, players may be people, firms, governments, and so on.
Price elasticity at a particular point on the demand curve.
The joint design of macroeconomic policies to improve the economic situation in two countries.
The interest rate set by the central bank.
Fluctuations in economic activity caused by the manipulation of the economy for electoral gain.
A situation where individuals invest in a series of measures designed to gain them an advantage but which simply offset each other.
Purchases or decisions which alter the context of the evaluation by an individual of the positional good.
Analysis describing relationships of cause and effect.
The positive difference between the principal borrowed on a house and its value.
The benefits to a third party of a decision.
Claims that attempt to describe the world as it is.
Variables having a tendency to move in the same direction.
The level of output associated with the unemployment rate being equal to the natural unemployment rate.
An absolute level of income set by the government below which a family is deemed to be in poverty. In the UK and Europe this is measured by earnings less than 60 per cent of median income.
The percentage of the population whose family income falls below an absolute level called the poverty.
A hypothesis suggesting that the rate at which primary products exchange for manufactured goods declines over time meaning that countries specialising in primary good production become poor.
A situation where firms hold price below average cost for a period to try and force out competitors or prevent new firms from entering the market.
Practice of pricing to drive current competitors out of business and to discourage new entrants in a market so that a firm can enjoy higher future profits.
The current value of an expected future cash flow.
The amount of money today that would be needed to produce, using prevailing interest rates, a given future amount of money.
A legal maximum on the price at which a good can be sold.
The business practice of selling the same good at different prices to different customers.
Measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in price.
Measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price.
A legal minimum on the price at which a good can be sold.
Pattern of pricing in which one firm regularly announces price changes that other firms then match.
A snapshot of the prices of goods and services in an economy at a particular period of time.
Extra risk that an investor must incur to enjoy a higher expected return.
Characteristic of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change.
The risk that an asset price falls, leading to a loss for the holder.
Form of implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit.
Price set by government above free-market level and maintained by governmental purchases of excess supply.
Firm that has no influence over market price and thus takes the price as given.
A line showing the consumer optimum for goods as the price of one of the goods changes, assuming incomes and the price of the other goods are held constant.
The relation between the price chosen by firms, the nominal wage, and the markup.
Government spending, excluding interest payments on the debt, minus government revenues (the negative of the primary surplus).
Government revenues minus government spending, excluding interest payments on the debt.
Person for whom another person, called the agent, is performing some act.
Problem arising when agents (e.g., a firm's managers) pursue their own goals rather than the goals of principals (e.g., the firm's owners).
Game theory example in which two prisoners must decide separately whether to confess to a crime: If a prisoner confesses, he will receive a lighter sentence and his accomplice will receive a heavier one, but if neither confesses, sentences will be lighter than if both confess. The game illustrates why cooperation is difficult to maintain even when it is mutually beneficial.
Goods that are both excludable and rival.
The income that households and firms have left after paying for taxes and consumption.
That part of the economy where business activity is owned, financed and controlled by private individuals.
A reduction in the value of the debt held by the private sector in case of debt rescheduling or debt restructuring.
Auction in which each bidder knows his or her individual valuation of the object up for bid, with valuations differing from bidder to bidder.
The transfer of publicity owned assets to private sector ownership.
Likelihood that a given outcome will occur.
A variable i.e. above trend when GDP is above trend.
Measure of the aggregate price level for intermediate products and wholesale goods.
A measure of the prices of a basket of goods and services bought by firms.
(1) The amount a seller is paid for a good minus the seller's cost. (2) Sum over all units produced by a firm of differences between the market price of a good and the marginal cost of production.
Curve showing the various combinations of two different outputs (products) that can be produced with a given set of inputs.
(1) The relation between the quantity of output and the quantities of inputs used in production. (2) Function showing the highest output that a firm can produce for every specified combination of inputs.
A function representing all possible combinations of factor inputs that can be used to produce a given level of output.
Curve showing the combinations of two goods that can be produced with fixed quantities of inputs.
The quantity of goods and services produced from each hour of a worker or factor of production's time.
Difference between total revenue and total cost.
The expected present discounted value of profits.
A tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers.
The dynamic effects of a shock on output and its components.
The effect of an additional dollar of disposable income on consumption.
The effect of an additional dollar of disposable income on saving (equal to one minus the propensity to consume).
The exclusive right of an individual, group or organization to determine how a resource is used.
A tax for which high-income and low-income taxpayers pay the same fraction of income.
In the national income and product accounts, the income of sole proprietorships, partnerships, and tax-exempt cooperatives.
A theory that suggests people attach different values to gains and losses and do so in relation to some reference point.
The analysis of government behaviour, and the behaviour of individuals who interact with government.
Nonexclusive and nonrival good: the marginal cost of provision to an additional consumer is zero and people cannot be excluded from consuming it.
Making decisions based on a principle where the maximum benefit is gained by the largest number of people at minimum cost.
That part of the economy where business activity is owned, financed and controlled by the state, and goods and services are provided by the state on behalf of the population as a whole. Or: Saving by the government, equal to government revenues minus government spending, also called the budget surplus. (A budget deficit represents public dissaving.)
Income in terms of goods.
(1) A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries. (2) A method of adjustment used to allow for international comparisons of GDP.
Selling products only as a package.
Strategy in which a player makes a specific choice or takes a specific action.
The first, second, and third instances of unconventional monetary policy (quantitative easing) in the United States during the financial crisis.
Purchases of financial assets by the central bank at the zero lower bound, leading to an increase in the balance sheet of the central bank.
The amount of a good that buyers are willing and able to purchase at different prices.
The equation (M x V = P x Y), which relates the quantity of money, the velocity of money, and the currency value of the economy's output of goods and services.
Use of a sales quota or other incentives to make downstream firms sell as much as possible.
The amount of a good that asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the if rate.
Workers who leave their jobs for what they perceive as a better alternative.
Restrictions on the quantities of goods that can be imported.
A measure of fit, between zero and one, from a regression. An R2 of zero implies that there is no apparent relation between the variables under consideration. An R2 of one implies a perfect fit: all the residuals are equal to zero.
The path of a variable whose changes are impossible to predict.
The proposition that, if consumers are foresighted, changes in their consumption should be unpredictable.
Maximum price allowed by a regulatory agency is based on the (expected) rate of return that a firm will earn.
Firms that assess the creditworthiness of various debt securities and debt issuers.
The assumption that decision-makers can make consistent choices between alternatives.
(1) The formation of expectations based on rational forecasts, rather than on simple extrapolations of the past. (2) The theory according to which people optimally use all the information they have, including information about government policies, when forecasting the future.
The tendency of a voter to not seek out information to make an informed choice in elections.
An increase in asset prices based on the rational expectation of further increases in prices in the future.
Relationship between a firm's profit-maximizing output and the amount it thinks its competitor will produce.
An increase in the relative price of domestic goods in terms of foreign goods. An increase in the real exchange rate.
Economic models that assume that output is always at its natural level. Thus, all output fluctuations are movements of the natural level of output as opposed to movements away from the natural level of output.
A decrease in the relative price of domestic goods in terms of foreign goods. A decrease in the real exchange rate.
That part of the economy which is concerned with the production of goods and services.
The rate at which the goods and services of one country trade for the goods and services of another.
The sum of quantities produced in an economy times their price in a base year. Also known as GDP in terms of goods, GDP in constant dollars, or GDP adjusted for inflation. The current measure of real GDP in the United States is called GDP in (chained) 2012 dollars.
Ratio of real GDP to population.
The interest rate corrected for the effects of inflation. It tells us how many goods one has to repay in the future in exchange for borrowing the equivalent one good today.
What money can actually buy given the ration of the money supply to the price level M/P.
Price of a good relative to an aggregate measure of prices. Price adjusted for inflation.
Simple (or nominal) return on an asset, less the rate of inflation.
Variables measured in physical units.
The money wage adjusted for inflation, measured by the ratio of the wage rate to price W/P.
In the United States, income received from abroad by US capital or US residents.
A period of declining real incomes and rising unemployment. The technical definition gives recession occurring after two successive quarters of negative economic growth.
The point from which an individual makes a consumption decision.
The interest rate at which the European Central Bank lends on a short-term basis to the euro area banking sector.
The output of ordinary least squares, gives the equation corresponding to the estimated relation between variables, together with information about the degree of fit and the relative importance of the different variables.
The best-fitting line corresponding to the equation obtained by using ordinary least squares.
A tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers.
A situation where regulatory agencies become unduly influenced and dominated by the industries they are supposed to be regulating.
The idea that humans view their own position against a reference point which provides a means of comparison on feeling of well-being.
A situation where an individual is not able to access what would be considered acceptable standards of living in society.
Price expressed in terms of how much of one good has to be given up in purchasing another.
(1) Where individuals or groups take actions to redirect resources to generate income (rents) for themselves or the group. (2) Spending money in socially unproductive efforts to acquire, maintain, or exercise monopoly.
In the national income and product accounts, the income from the rental of real property, minus depreciation on this property.
Cost per year of renting one unit of capital.
Game in which actions are taken and payoffs received over and over again.
The interest rate at which the Bank of England lends on a short-term basis to the UK banking sector.
The sale of a non-monetary asset together with an agreement to repurchase it at a set price at a specified future date.
Activity aimed at discovering and developing new ideas and products.
Maximum price that a customer is willing to pay for a good.
The wage that would make a worker indifferent between working and being unemployed.
The ratio of bank reserves to checkable deposits.
The purchase of new houses or apartments by people.
The difference between the actual value of a variable and the value implied by the regression line. Small residuals indicate a good fit.
The core banking service of taking in deposits and making loans to households and business.
Total monetary flow of an asset as a fraction of its price.
Rate at which output increases as inputs are increased proportionately.
An increase in the exchange rate in a fixed exchange rate system.
The proposition that neither government deficits nor government debt have an effect on economic activity, also called the Ricardo-Barro proposition.
The probability of something happening which results in a loss or some degree of hazard or damage.
Condition of preferring a certain income to a risky income with the same expected value.
Condition of preferring a risky income to a certain income with the same expected value.
Condition of being indifferent between a certain income and an uncertain income with the same expected value.
(1) Maximum amount of money that a risk-averse individual will pay to avoid taking a risk. (2) The difference between the expected rate of return on a risky asset and the safe interest.
The additional interest rate a bond has to pay, reflecting the risk of default on the bond.
Asset that provides a flow of money or services i.e. known with certainty.
Asset that provides an uncertain flow of money or services to its owner.
The property of a good whereby one person's use diminishes other people's use.
The number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point.
A country i.e. considered safe by financial investors.
The perceived importance of a good or service.
Set of observations for study, drawn from a larger universe.
Those who make decisions based on securing a satisfactory rather than optimal outcome.
The sum of private and public saving
The ratio of saving to GDP.
An argument that production or supply is a source of demand, that supply creates its own demand.
The limited nature of society's resources.
Twenty-six countries, including Switzerland and Norway, who have agreed to allow free movement between their countries with no passport and border controls.
An action taken by an uninformed party to induce an informed party to reveal information.
Auction in which all bids are made simultaneously in sealed envelopes, the winning bidder being the individual who has submitted the highest bid.
Practice of charging different prices per unit for different quantities of the same good or service.
Auction in which the sales price is equal to the second-highest bid.
The issuance of securities, based on an underlying portfolio of assets, such as mortgages, or commercial paper.
The revenues from the creation of money.
Securities repaid before junior securities in case of insolvency.
Workers who are leaving or losing their jobs.
Game in which players move in turn, responding to each other's actions and reactions.
Games where players make decisions in sequence with some players able to observe the strategic choices of others.
Products that cannot be stored and must be consumed at the place and time of purchase.
(1) The set of nonbank financial institutions, from structured investment vehicles to hedge funds. (2) Financial intermediaries acting like banks but which are outside the scope of regulation.
A financial asset issued by a firm that promises to pay a sequence of payments, called dividends, in the future, also called stock.
Principle that workers still have an incentive to shirk if a firm pays them a market-clearing wage, because fired workers can be hired somewhere else for the same wage.
Movements in the factors that affect aggregate demand and/or aggregate supply.
(1) The resources wasted when inflation encourages people to reduce their money holdings. (2) The costs of going to the bank to take money out of a checking account.
(1) period of time in which some factors of production cannot be changed. (2) Period of time extending over a few years at most.
Curve relating average cost of production to output when level of capital is fixed.
The interest rate on a short-term bond (typically a year or less).
(1) Situation in which the quantity demanded exceeds the quantity supplied. (2) ituation in which quantity demanded is greater than quantity supplied at the going market price.
An action taken by an informed party to reveal private information to an uninformed party.
A (still not complete) EU-wide market throughout which labor, capital, goods and services can move freely.
The proposition that new machines and new methods of production require skilled workers to a greater degree than in the past.
In a linear relation between two variables, the amount by which the first variable increases when the second increases by one unit.
Formula for decomposing the effects of a price change into substitution and income effects.
Negative network externality in which a consumer wishes to own an exclusive or unique good.
Opportunity cost to society as a whole of receiving an economic benefit in the future rather than the present.
Government benefits that supplement the incomes of the needy.
The funds accumulated by the US Social Security system as a result of surpluses in the past.
The collective utility of society which is reflected by consumer and producer surplus.
The quantity of labor necessary under average conditions of labor productivity to produce a given commodity.
The excess of actual output growth over what can be accounted for by the growth in capital and labor.
The bonds issued by national governments to finance expenditure.
Where benefits to a minority special interest group are outweighed by the costs imposed on the majority.
A fixed rate tax levied on goods and services expressed as a sum per unit.
Demand driven not by the direct benefits one obtains from owning or consuming a good but instead by an expectation that the price of the good will increase.
Legislative limits on public spending.
(1) The difference between the interest rate on a risky bond and the interest rate on a safe bond. (2) The difference between the average interest banks earn on assets and the average interest rate paid on liabilities.
A set of rules governing public spending, deficits, and debt in the European Union.
Oligopoly model in which one firm sets its output before other firms do.
Period of falling output and rising prices. Combination of stagnation and inflation.
The fact that different wages are adjusted at different times, making it impossible to achieve a synchronized decrease in nominal wage inflation.
Square root of the weighted average of the squares of the deviations of the payoffs associated with each outcome from their expected values.
Estimate of the standard deviation of the regression error.
Refers to the amount of goods and services that can be purchased by the population of a country. Usually measured by the inflation-adjusted (real) income per head of the population. Real GDP per person.
The degree of technological development in a country or industry.
The formation of expectations, on the assumption that the future will be like the past.
Time-series data that has a constant mean value over time.
A difference between two numbers that should be equal, coming from differences in sources or methods of construction for the two numbers.
In an economy without technological progress, the state of the economy where output and capital per worker are no longer changing. In an economy with technological progress, the state of the economy where output and capital per effective worker are no longer changing.
The point in a growing economy where investment spending is the same as spending on depreciation and the capital-output ratio remains constant.
Where trend variables change by some random amount in each time period.
A variable that can be expressed as a quantity at a point in time (such as wealth), also a synonym for share. A claim to partial ownership and the future profits in a firm.
Accumulated result of action by a producer or consumer which, though not accounted for in the market price, affects other producers or consumers.
Total amount of capital available for use in production.
An alternative term for inventories, also, an alternative term for shares.
An item that people can use to transfer purchasing power from the present to the future.
An environment in which the actions of one player depend on and affect the actions of another player.
Rule or plan of action for playing a game.
The organized withdrawal of labor from a firm by a union.
A change in the economic structure of the economy, typically associated with growth.
A situation where a government's deficit is not dependent on movements in the economic cycle.
Unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.
Financial intermediaries set up by banks. SIVs borrow from investors, typically in the form of short-term debt, and invest in securities.
In the national income and product accounts: plants, factories, office buildings, and hotels.
Individuals not traditionally seen as being part of the financial markets because of their high credit risk.
The way in which people evaluate their own happiness.
Mortgages with a higher risk of default by the borrower.
Payment to buyers and sellers to supplement income or lower costs and which thus encourages consumption or provides an advantage to the recipient. Payment reducing the buyer's price below the seller's price, i.e., a negative tax.
Two goods for which an increase in the price of one leads to an increase in the demand for the other (and vice versa).
Change in consumption of a good associated with a change in its price, with the level of utility held constant.
A sudden decrease in the willingness of foreign investors to hold the debt of a particular country.
Expenditure that has been made and cannot be recovered.
Relationship between the quantity of a good that producers are willing to sell and the price of the good.
Table that shows the relationship between the price of a good and the quantity supplied.
Event that directly alters firm's costs and prices, shifting the economy's AS curve and thus the Phillips curve.
Group of economists in the 1980s who believed that tax cuts would increase activity by enough to increase tax revenues.
Situation in which the quantity supplied is greater than the quantity demanded at the going market price.
Where the perceived benefits of the combined operations of a merged organization are greater than those which would arise if the firms stayed separate.
The risk of failure across the whole of the financial sector.
A statistic associated with an estimated coefficient in a regression that indicates how confident one can be that the true coefficient differs from zero.
When firm behaviour results in a market outcome that appears to be anti-competitive but has arisen because firms acknowledge that they are interdependent.
Tax on goods produced abroad and sold domestically.
The manner in which the burden of a tax is shared among participants in a market.
The principle of keeping tax rates roughly constant, so that the government runs large deficits when government spending is exceptionally high and small surpluses the rest of the time.
A rule, suggested by John Taylor, telling a central bank how to adjust the nominal interest rate in response to deviations of inflation from its target and of the unemployment rate from the natural rate.
Condition under which firms combine inputs to produce a given output as inexpensively as possible.
Development of new technologies allowing factors of production to be used more effectively.
Society's understanding of the best ways to produce goods and services.
An improvement in the state of technology.
Unemployment brought about by technological progress.
The state of technological knowledge.
The difference between the interest rate on a long-term bond and the interest rate on a short-term bond.
Description of how consumers allocate incomes among different goods and services to maximize their wellbeing.
Keynes' theory that the interest rate adjusts to bring money supply and money demand into balance.
Explanation of how a firm makes cost-minimizing production decisions and how its cost varies with its output.
Practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group.
In game theory, the incentive for one player to deviate from a previously announced course of action once the other player has moved.
Observations on a variable over a time-period and which are ordered over time.
Repeated-game strategy in which a player responds in kind to an opponent's previous play, cooperating with cooperative opponents and retaliating against uncooperative ones.
The ratio of the value of the capital stock, computed by adding the stock market value of firms and the debt of firms and dividing the sum by the replacement cost of capital.
Total economic cost of production, consisting of fixed and variable costs.
The amount paid by buyers, computed as the price of the good times the quantity purchased.
The rate of technological progress.
The amount received by sellers of a good, computed as the price of the good times the quantity sold.
The total value to buyers of the goods, as measured by their willingness to pay, minus the cost to sellers of providing those goods.
The satisfaction gained from the consumption of a good.
The sum of human wealth and nonhuman wealth.
Nonperforming assets, from subprime mortgages to nonperforming loans.
Goods that compete with foreign goods in domestic or foreign markets.
The difference between exports and imports, also called net exports.
An excess of imports over exports.
A government policy that directly influences the quantity of goods and services that a country imports or exports.
A positive trade balance, i.e., exports exceed imports.
The loss of the benefits from a decision to forego or sacrifice one option, balanced against the benefits incurred from the choice made.
System of marketable permits, allocated among firms, specifying the maximum level of emissions that can be generated.
A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.
The forces that resist the decision-making of economic actors in interacting in markets.
The minimum payment required to keep a factor of production in its current use.
A payment for which no good or service is exchanged.
Internal prices at which parts and components from upstream divisions are "sold" to downstream divisions within a firm.
Unemployment, retirement, health, and other benefits paid by the state.
A US government bond with a maturity of up to one year.
A US government bond with a maturity of 10 years or more.
US government bonds that pay the real (rather than the nominal) interest rate.
A US government bond with a maturity of one to 10 years.
The underlying long-tern movement in a data series.
The program introduced in October 2008 by the US administration, aimed at buying toxic assets and, later, providing capital to banks and other financial institutions in trouble.
The point where related economic variables begin to rise.
The budget and trade deficits that characterized the United States in the 1980s.
Form of pricing in which consumers are charged both an entry and a usage fee.
Practice of requiring a customer to purchase one good in order to purchase another.
Monetary policy measures used to increase economic activity when the policy rate reached the zero lower bound.
An arbitrage relation stating that domestic and foreign bonds must have the same expected rate of return, expressed in terms of a common currency.
That part of a nation's economic activity i.e. not measured in official statistics, either because the activity is illegal or because people and firms are seeking to avoid paying taxes.
A loan is underwater if its value is higher than the value of the collateral it corresponds to. For example, a mortgage is underwater if its value exceeds the price of the corresponding house.
Number of people not working but looking for a job.
Unemployment benefits paid by the state to the unemployed.
The ratio of the number of people unemployed to the labor force.
A worker association that bargains with employers over wages and working conditions.
A measure of the proportion of the workforce i.e. unionized.
The yardstick people use to post prices and record debts.
An observation for which the values of all the variables under consideration are available for regression purposes.
The cost of using capital over a year, or a given period of time. The sum of the real interest rate and the depreciation rate, also called the rental cost of capital.
Opportunity cost of producing and selling a unit today and so making it unavailable for production and sale in the future.
The political philosophy according to which the government should policies to maximize the total utility of everyone in society.
Satisfaction derived from the consumption of a certain quantity of a product or a given market basket.
Formula that assigns a level of utility to individual market baskets.
Curve showing all efficient allocations of resources measured in terms of the utility levels of two individuals.
The worth to an individual of owning an item represented by the satisfaction derived from its consumption and their willingness to pay to own it.
The value a firm adds in the production process, equal to the value of its production minus the value of the intermediate inputs it uses in production.
Difference between the expected value of a choice when there is complete information and the expected value when information is incomplete.
The marginal product of an input times the price of the output.
Extent to which possible outcomes of an uncertain event differ.
Costs that are dependent on the quantity of output produced.
Sum of profits on each incremental unit produced by a firm, i.e., profit ignoring fixed costs.
The rate at which money changes hands.
The idea that taxpayers with a greater ability to pay taxes should pay larger amounts.
Organizational form in which a firm contains several divisions, with some producing parts and components that others use to produce finished products.
Index of stock market volatility.
Where people choose to remain unemployed rather than take jobs which are available.
A provision that automatically increases wages in response to an increase in prices.
The relation between the wage chosen by wage setters, the price level, and the unemployment rate.
When both parties to an argument hold their grounds, hoping that the other party will give in.
The total of all stores of value, including both money and non-monetary assets.
The study of how the allocation of resources affects economic well-being. Or: Normative evaluation of markets and economic policy.
Gains and losses to consumers and producers.
That part of banking dealing with corporate finance and investment in financial instruments.
Financing through the issuance of short-term debt rather than through deposits.
The maximum amount that a buyer will pay for a good.
Situation in which the winner of a common-value auction is worse off as a consequence of overestimating the value of the item and thereby overbidding.
The price of a good that prevails in the world market for that good.
The failure of a firm to operate at maximum efficiency due to a lack of competitive pressure and reduced incentives to control costs.
The ratio of the coupon payment to the value of the bond.
The relation between yield and maturity for bonds of different maturities, also called the term structure of interest rates.
The constant interest rate that makes the price of an n-year bond today equal to the present value of future payments, also called the n-year interest rate.
A firm is earning a normal return on its investment—i.e., it is doing as well as it could by investing its money elsewhere.
The lowest interest rate the central bank can achieve before it becomes more attractive to hold cash than to hold bonds.