Page 899 - Krugmans Economics for AP Text Book_Neat

GLOSSARY G-3

cost-minimization rule hire factors so deflation a fall in the overall level of held fixed, each successive increase in
that the marginal product per dollar prices. (p. 12) the amount of physical capital per
spent on each factor is the same; a demand curve a graphical representa- worker leads to a smaller increase in
firm uses this rule to determine the tion of the demand schedule, showing productivity. (p. 376)
cost-minimizing combination of the relationship between quantity discount rate the interest rate the Fed
inputs. (p. 708) demanded and price. (p. 49) charges on loans to banks. (p. 263)
cost-push inflation inflation that is demand price the price of a given discount window an arrangement in
caused by a significant increase in the quantity at which consumers will which the Federal Reserve stands ready
price of an input with economy-wide demand that quantity. (p. 89) to lend money to banks. (p. 246)
importance. (p. 327)
demand-pull inflation inflation that is discouraged workers nonworking peo-
crowding out the negative effect of caused by an increase in aggregate ple who are capable of working but
budget deficits on private investment, demand. (p. 327) have given up looking for a job due to
which occurs because government bor- the state of the job market. (p. 120)
rowing drives up interest rates. (p. 281) demand schedule a list or table show-
ing how much of a good or service discretionary fiscal policy fiscal policy
currency in circulation actual cash consumers will want to buy at differ- that is the direct result of deliberate
held by the public. (p. 231) ent prices. (p. 49) actions by policy makers rather than
current account see balance of payments demand shock any event that shifts rules. (p. 212)
on the current account. the aggregate demand curve. A positive discretionary monetary policy the
cyclical unemployment unemployment demand shock is associated with high- use of changes in the interest rate
resulting from the business cycle; er demand for aggregate output at any or the money supply to stabilize the
equivalently, the difference between the price level and shifts the curve to the economy. (p. 348)
actual rate of unemployment and the right. A negative demand shock is diseconomies of scale long-run aver-
natural rate of unemployment. (p. 130) associated with lower demand for age total cost increases as output
cyclically adjusted budget balance an aggregate output at any price level and increases. (p. 562)
estimate of what the budget balance shifts the curve to the left. (p. 191) disinflation the process of bringing
would be if real GDP were exactly deposit insurance a guarantee that a down inflation that has become
equal to potential output. (p. 298) bank’s depositors will be paid even if embedded in expectations. (p. 139)
deadweight loss losses associated with the bank can’t come up with the disposable income income plus govern-
quantities of output that are greater funds, up to a maximum amount per ment transfers minus taxes; the total
than or less than the efficient level, as account. (p. 246) amount of household income available
can result from market intervention depreciation of currency a fall in the to spend on consumption and saving.
such as taxes, or from externalities value of one currency in terms of (p. 105)
such as pollution. (pp. 92, 506) other currencies. (pp. 400, 422)
diversification investment in several
debt deflation the reduction in aggre- depression a very deep and prolonged different assets with unrelated, or
gate demand arising from the increase downturn. (p. 10) independent, risks, so that the possi-
in the real burden of outstanding debt derived demand for a factor results ble losses are independent events.
caused by deflation; occurs because from (or is derived from) the demand (p. 225)
borrowers, whose real debt rises as a for the output being produced.
result of deflation, are likely to cut (p. 681) dominant strategy in game theory, an
spending sharply, and lenders, whose action that is a player’s best action
real assets are now more valuable, are devaluation a reduction in the value regardless of the action taken by the
less likely to increase spending. of a currency that is set under a fixed other player. (p. 646)
(p. 339) exchange rate regime. (p. 438) duopolist one of the two firms in a
diminishing marginal rate of substitu- duopoly. (p. 638)
debt–GDP ratio government debt as a
percentage of GDP, frequently used as tion the principle that the more of duopoly an oligopoly consisting of only
a measure of a government’s ability to one good that is consumed in propor- two firms. (p. 638)
pay its debts. (p. 301) tion to another, the less of the second economic aggregates economic meas-
good the consumer is willing to substi-
decreasing returns to scale long-run tute for another unit of the first good. ures that summarize data across dif-
average total cost increases as output (p. 795) ferent markets for goods, services,
increases (also known as diseconomies workers, and assets. (p. 5)
of scale). (p. 563) diminishing returns to an input the economic growth an increase in the
effect observed when an increase in
deductible a sum specified in an the quantity of an input, while hold- maximum amount of goods and serv-
insurance policy that the insured indi- ing the levels of all other inputs fixed, ices an economy can produce. (p. 13)
viduals must pay before being com- leads to a decline in the marginal prod- economic profit a business’s revenue
pensated for a claim; deductibles uct of that input. (p. 545) minus the opportunity cost of resources;
reduce moral hazard. (p. 785) usually less than the accounting profit.
diminishing returns to physical capital
default when a borrower fails to make in an aggregate production function (p. 532)
payments as specified by the bond when the amount of human capital per economics the study of scarcity and
contract. (p. 226) worker and the state of technology are choice. (p. 2)