Macroeconomics Flashcards

Only 10 flashcards are shown at a time! Once you’ve mastered these 10 Economic terms, click the shuffle button below for 10 new terms. There are approximately 150 flashcards covering Macroeconomics.

Foreign Direct Investment (FDI)
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Investment in factors of production abroad by multi-national corporations.

Foreign Direct Investment (FDI)
Bond
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A certificate of debt issued by a company or a government to an investor.

Bond
Inflation
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A rise in the average level of prices in the economy over time (percentage change in the CPI).

Inflation
Transfer payments
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Payments from the government to one group of individuals using tax money raised from taxes on another group of individuals. Meant to reallocate income in an economy, often times from the rich to the poor, but also from households to firms (in the case of subsidies for certain industries).

Transfer payments
Open market operations
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The central bank’s buying and selling of government bonds on the open market from commercial banks and the public. Aimed at increasing or decreasing the level of reserves in the banking system and thereby affecting the interest rate and the level of aggregate demand. Selling bonds takes money out of circulation, reducing the supply of money and raising the interest rate (contractionary monetary policy). The Fed’s buying of bonds increases the amount of money in circulation, increasing the money supply and reducing interest rates (expansionary monetary policy).

Open market operations
Phillips Curve
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A downward sloping curve showing the short run tradeoff between the level of inflation and the level of unemployment in a nation. There is also a long-run curve which is vertical at the natural rate of unemployment showing that in the long run there is no trade off between the price level and the level of unemployment in an economy.

Phillips Curve
GDP (per capita)
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The total value of a nation’s output divided by the number of people in the country. Gives a more accurate measure of the level of income of a nation than the GDP alone.

GDP (per capita)
Excess reserves
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The amount by which a bank’s actual reserves exceeds its required reserves. The amount of excess reserves in the banking system determines equilibrium interest rate.

Excess reserves
Lorenz Curve
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A curve showing the distribution of income within a nation. Shows what percentage of the total income in a nation is earned by each quintile (e.g. the top 20% versus the middle or the bottom 20%)

Lorenz Curve
Regressive tax
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A tax that places a smaller burden on the incomes of the rich than it does the poor. For example a sales tax that adds $1000 to the price of a product (say a 10% tax on a $10,000 car) places a larger burden on someone earning $50,000 (2% of his income) than someone earning $100,000 (1% of his income). A sales tax is therefore a regressive tax.

Regressive tax

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