Page 897 - Krugmans Economics for AP Text Book_Neat

Glossary

Italicized terms within definitions are key terms that are defined elsewhere in this glossary.

absolute advantage the advantage con- capital per worker and human capital other countries, including two main
ferred by the ability to produce more of per worker as well as the state of tech- elements: the balance of payments on
a good or service with a given amount nology. (p. 376) the current account and the balance of
of time and resources; not the same aggregate spending the total spending payments on the financial account.
thing as comparative advantage. (p. 27) on domestically produced final goods (p. 410)
accounting profit a business’s revenue and services; the sum of consumer balance of payments on the current
minus the explicit cost and deprecia- spending (C), investment spending (I), account (current account) a country’s
tion. (p. 531) government purchases of goods and serv- balance of payments on goods and services
actual investment spending the sum of ices (G), and exports minus imports plus net international transfer pay-
planned investment spending and (X − IM). (p. 106) ments and factor income. (p. 412)
unplanned inventory investment. (p. 169) aggregate supply curve a graphical balance of payments on the financial
AD–AS model the basic model used to representation that shows the rela- account (financial account) the differ-
understand fluctuations in aggregate tionship between the aggregate price ence between a country’s sales of
output and the aggregate price level. It level and the total quantity of aggregate assets to foreigners and its purchases
uses the aggregate demand curve and the output supplied. (p. 179) of assets from foreigners during a
aggregate supply curve together to ana- antitrust policy legislative and regula- given period. (p. 413)
lyze the behavior of the economy in tory efforts undertaken by the govern- balance of payments on goods and serv-
response to shocks or government pol- ment to prevent oligopolistic indus- ices the difference between the value
icy. (p. 190) tries from becoming or behaving like of exports and the value of imports
administrative costs (of a tax) the monopolies. (p. 653) during a given period. (p. 412)
resources used (which is a cost) by appreciation a rise in the value of one balance sheet effect the reduction in
government to collect the tax, and by currency in terms of other currencies. a firm’s net worth from falling asset
taxpayers to pay it, over and above (p. 422) prices. (p. 258)
the amount of the tax, as well as to artificially scarce good a good that is bank a financial intermediary that pro-
evade it. (p. 508) excludable but nonrival in consumption. vides liquid assets in the form of bank
adverse selection occurs when an (p. 751) deposits to lenders and uses those
individual knows more about the way automatic stabilizers government funds to finance the illiquid invest-
things are than other people do. spending and taxation rules that cause ments or investment spending needs of
Adverse selection problems can lead to fiscal policy to be automatically expan- borrowers. (p. 229)
market problems: private information sionary when the economy contracts bank deposit a claim on a bank that
leads buyers to expect hidden prob- and automatically contractionary obliges the bank to give the depositor
lems in items offered for sale, leading when the economy expands. Taxes his or her cash when demanded.
to low prices and the best items being that depend on disposable income are (p. 229)
kept off the market. (p. 783) the most important example of auto- bank reserves currency held by banks
aggregate consumption function the matic stabilizers. (p. 212) in their vaults plus their deposits at
relationship for the economy as a autonomous change in aggregate spend- the Federal Reserve. (p. 243)
whole between aggregate current ing an initial rise or fall in aggregate
disposable income and aggregate spending that is the cause, not the bank run a phenomenon in which
consumer spending. (p. 164) result, of a series of income and many of a bank’s depositors try to
withdraw their funds due to fears of a
aggregate demand curve shows the spending changes. (p. 160) bank failure. (p. 246)
relationship between the aggregate autonomous consumer spending the
price level and the quantity of aggregate amount of money a household would barrier to entry something that pre-
output demanded by households, spend if it had no disposable income. vents other firms from entering an
businesses, the government, and the (p. 162) industry. Crucial in protecting the
rest of the world. (p. 172) profits of a monopolist. There are four
average cost pricing occurs when reg- types of barriers to entry: control over
aggregate output the economy’s total ulators set a monopoly’s price equal to scarce resources or inputs, increasing
production of final goods and services its average cost to prevent the firm returns to scale, technological superi-
for a given time period, usually a year. from incurring a loss. (p. 757) ority, and government-created barriers
Real GDP is the numerical measure of such as licenses. (p. 571)
aggregate output typically used by average fixed cost the fixed cost per
economists. (pp. 12, 113) unit of output. (p. 553) black market a market in which goods
average total cost total cost divided by or services are bought and sold illegal-
aggregate price level a measure of the ly, either because it is illegal to sell
overall level of prices in the economy. quantity of output produced. Also them at all or because the prices
(p. 142) referred to as average cost. (p. 552) charged are legally prohibited by a
average variable cost the variable cost
aggregate production function a hypo- price ceiling. (p. 81)
thetical function that shows how pro- per unit of output. (p. 553) bond loan in the form of an IOU that
ductivity (real GDP per worker) balance of payments accounts a sum- pays interest. (p. 104)
depends on the quantities of physical mary of a country’s transactions with

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