Page 907 - Krugmans Economics for AP Text Book_Neat

GLOSSARY G-11

public debt government debt held by real income income divided by the Rule of 70 a mathematical formula
individuals and institutions outside price level. (p. 135) that states that the time it takes real
the government. (p. 300) real interest rate the nominal interest GDP per capita, or any other variable
public good a good that is both nonex- rate minus the inflation rate. (p. 138) that grows gradually over time, to
cludable and nonrival in consumption. real wage the wage rate divided by the double is approximately 70 divided by
(p. 745) price level. (p. 135) that variable’s annual growth rate.
public ownership when goods are sup- recession a period of economic down- (p. 371)
plied by the government or by a firm turn when output and unemployment savings and loans (thrifts) deposit-
owned by the government to protect are falling; also referred to as a con- taking banks, usually specialized in
the interests of the consumer in traction. (p. 10) issuing home loans. (p. 257)
response to natural monopoly. (p. 619) savings–investment spending identity
recessionary gap exists when aggregate
purchasing power parity (between two output is below potential output. an accounting fact that states that
countries’ currencies) the nominal (p. 195) savings and investment spending are
exchange rate at which a given basket always equal for the economy as a
of goods and services would cost the regressive tax a tax that takes a whole. (p. 222)
same amount in each country. smaller share of the income of high- scarce in short supply; a resource is
(p. 427) income taxpayers than of low-income scarce when there is not enough of
taxpayers. (p. 499)
quantity control (quota) an upper the resource available to satisfy all the
limit, set by the government, on the relative price the ratio of the price of various ways a society wants to use it.
quantity of some good that can be one good to the price of another. (p. 3)
bought or sold; also referred to as a (p. 797) screening using observable informa-
quota. (p. 88) relative price rule at the optimal con- tion about people to make inferences
sumption bundle, the marginal rate of about their private information; a way
quantity demanded the actual amount
of a good or service consumers are substitution of one good in place of to reduce adverse selection. (p. 783)
willing to buy at some specific price. another equal to their relative price. securitization the pooling of loans
(p. 49) (p. 798) and mortgages made by a financial
rental rate the cost, explicit or implicit, institution and the sale of shares in
quantity supplied the actual amount of
a good or service producers are willing of using a unit of either land or capital such a pool to other investors.
to sell at some specific price. (p. 59) for a given period of time. (p. 691) (p. 259)
required reserve ratio the smallest self-correcting refers to the fact that
Quantity Theory of Money a theory
that emphasizes the positive relation- fraction of deposits that the Federal in the long run, shocks to aggregate
ship between the price level and the Reserve allows banks to hold. (p. 244) demand affect aggregate output in the
money supply. It relies on the equa- research and development (R & D) short run, but not the long run.
tion (M × V = P × Y). (p. 349) spending to create and implement (p. 196)
new technologies. (p. 388) shoe-leather costs (of inflation) the
quota rent the earnings that accrue to
the license-holder from ownership of reserve ratio the fraction of bank increased costs of transactions caused
the right to sell the good. (p. 91) deposits that a bank holds as reserves. by inflation. (p. 137)
In the United States, the minimum shortage the insufficiency of a good
rate of return (of an investment
project) the profit earned on an required reserve ratio is set by the or service that occurs when the quan-
investment project expressed as a Federal Reserve. (p. 244) tity demanded exceeds the quantity sup-
percentage of its cost. (p. 278) reserve requirements rules set by the plied; shortages occur when the price
Federal Reserve that set the minimum is below the equilibrium price. (p. 68)
rational expectations a theory of
expectation formation that holds that reserve ratio for banks. For checkable short run the time period in which at
individuals and firms make decisions bank deposits in the United States, the least one input is fixed. (p. 542)
optimally, using all available informa- minimum reserve ratio is set at 10%. short-run aggregate supply curve a
tion. (p. 352) (p. 246) graphical representation of the rela-
resource anything, such as land, labor, tionship between the aggregate price
real business cycle theory a theory of
business cycles that asserts that fluctua- and capital, that can be used to pro- level and the quantity of aggregate out-
tions in the growth rate of total factor duce something else; includes natural put supplied that exists in the short
productivity cause the business cycle. resources (from the physical environ- run, the time period when many pro-
(p. 352) ment) and human resources (labor, duction costs can be taken as fixed.
skill, intelligence). (p. 3) The short-run aggregate supply curve
real exchange rate the exchange rate has a positive slope because a rise in
adjusted for international differences revaluation an increase in the value of the aggregate price level leads to a rise
in aggregate price levels. (p. 425) a currency that is set under a fixed
exchange rate regime. (p. 438) in profits, and therefore output, when
real GDP the total value of all final production costs are fixed. (p. 181)
goods and services produced in the econ- rival in consumption referring to a short-run equilibrium aggregate output
omy during a given year, calculated good, describes the case in which one the quantity of aggregate output pro-
using the prices of a selected base unit cannot be consumed by more duced in short-run macroeconomic
year. (p. 114) than one person at the same time.
(p. 743) equilibrium. (p. 190)