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Economic Policy (Macroeconomics)

Economic Policy (Macroeconomics)

economic-policy-macroeconomics Terms

Aggregate Demand

The total demand of consumers, businesses, and government at various price levels. Economist John Maynard Keynes argued that the government stimulate aggregate demand during periods of recession by cutting taxes and increasing government spending.

Consumer Price Index

A statistic used to measure inflation by tracking changes in a “basket” of goods and services consumed by a typical household.

Cost-Push Inflation

A type of inflation caused by an increase in the costs of production pushing prices upward.

Cyclical Unemployment

A type of unemployment triggered by periodic contractions in the economy. Although most economists believe that these economic contractions are unavoidable, they are not predictable and therefore the timing of this type of unemployment cannot be anticipated.

Demand-Pull Inflation

A type of inflation caused by increasing demand pulling prices upward.

Demand Side

A term applied to a series of economic theories that emphasize strengthening the economy through policies aimed at consumers on the demand side of the economic equation. Demand side advocates favor lowering taxes for middle- and lower-class consumers.

Discount Rate

The interest rate charged by the Federal Reserve Bank when it extends loans to commercial banks. Discount Rates are one of the tools of Monetary Policy.

Discouraged worker

Persons able and willing to work but who have not searched for work in the past four weeks because they believe that there are no jobs available. These workers are part of the larger category of “marginally attached workers” not included in the “unemployment rate.”

Federal Reserve Board

This seven-member board governs the Federal Reserve System and sets monetary policy for the United States; that is, by adjusting interest rates and reserve requirements, the "Fed" regulates the amount of money in circulation.

The board of governors of the Federal Reserve System. Also known as the Fed, it oversees the Federal Reserve System and sets monetary policy including discount rates and minimum reserve requirements. The Fed’s seven members are appointed by the president and serve 14-year terms.

Fiscal Policy

The tax and spending measures implemented by the president and Congress aimed at maintaining steady economic growth without inflation.

Frictional Unemployment

A type of unemployment that includes people who are between jobs, in the process of relocating to take another job, or taking some time off between jobs. As a portion of the workforce will always be in this transitional state a certain percentage will always be unemployed.

Full Employment

A concept used by economists to describe the maximum level of employment possible within the economy under the best circumstances. As a certain amount of frictional unemployment is unavoidable, economists estimate that full employment is achieved at 4.5-5.5%.

Gross Domestic Product

A widely cited economic indicator and measurement of productivity. The GDP measures the total market value of all goods and service produced within a country (by citizens and foreign residents) during a specified period. In comparison, the Gross National Product measures the total market values of all goods and services produced by a nation’s citizens regardless of where they live.

Gross National Product

A widely cited economic indicator and measurement of productivity. The GNP measures the total market values of all goods and services produced by a nation’s citizens regardless of where they live. In comparison, the Gross Domestic Product measures the total market value of all goods and service produced within a country (by citizens and foreign residents) during a specified period.

Housing Starts

An economic indicator frequently used by economists on the premise that general economic health is reflected in the number of new houses beginning construction during a specified period.

Inflation

A general increase in the price of goods and services.

Interest Rate

The cost of borrowing money as a percentage of the amount borrowed. For borrowers, it is the amount paid to the lender in return for the use of the lender’s money. For the lender or creditor, it is the amount earned for extending a loan to a borrower.

Involuntary Part-Time Workers

Workers who are willing and able to work full time but due to economic conditions are able to secure only part-time employment.

Macroeconomics

The study of the economic behavior of entire societies, taken in aggregate.  This is in contrast to microeconomics, which focuses on individual households and firms.  The key concepts of macroeconomics are aggregate demand and aggregate supply.

Marginally Attached Workers

People who want to work and have either held or searched for a job at some point over the past year, but not during the past four weeks. This broad category includes the “discouraged unemployed” (people who have given up searching because they believe there are no jobs available), and persons whose ability to work is hindered by family responsibilities or transportation problems. Because they are considered only “marginally attached” to the workforce, they are not included in the unemployment rate. Economists estimate that if counted, they would add about one percentage point to the unemployment rate.

Minimum Reserve Requirement

The portion of its deposits that a bank must keep in its vaults or place in the Federal Reserve Bank. Set by the Federal Reserve Board, these requirements ensure that banks do not lend out all of their depositors’ money and retain enough cash to handle day to day transactions. If a bank does meet its reserve requirement at the close of each day, it must borrow funds from another bank or the Federal Reserve Bank. Minimum reserve requirements are one of the tools of Monetary Policy.

Monetary Policy

The policies implemented by the Federal Reserve Board to maintain a money supply adequate to fund economic growth but limited enough to prevent inflation. Discount Rates, Minimum Reserve Requirements, and Open Market Operations are the tools of Monetary Policy.

New Orders for Consumer Goods

An economic indicator favored by many economists on the premise that the placement of new orders reflects consumer and business attitudes about future economic conditions.

Open Market Operations

The buying and selling of government securities by the Federal Reserve Board in order to manipulate the amount of money in circulation. As recommended by the Federal Open Market Committee, the Federal Reserve Board buys government securities such as Treasury Bills and Treasury Bonds in order to inject money into the economy during periods of recession and sells these securities during times of inflation in order to draw money out of circulation. Open Market Operations is the primary tool of Monetary Policy.

Producer Price Index

A statistic used to measure inflation by tracking changes in the prices received by the producers of goods and services. Unlike the Consumer Price Index that tracks prices paid by consumers, the PPI measures the price of goods and services before they reach the retailer and therefore before prices are affected by certain government subsidies, sales and excise taxes, and distribution costs. The Producer Price Index was formerly called the Whole Sale Price Index.

Push-Pull Inflation

A type of inflation caused by both increasing production costs pushing and increasing demand pulling prices upward.

Recession

A period of slow or no growth in the economy. One widely accepted definition states that a recession is a decline in a nation’s gross domestic for two or more successive quarters of a year.

Seasonal Unemployment

A type of unemployment linked to repeated, and therefore predictable, variations in a trade or industry. Waiters at a summer resort and construction workers unable to work during rainy seasons are subject to seasonal unemployment.

Structural Unemployment

A type of unemployment that occurs when those seeking work do not possess the skills or experience needed to fill the jobs available. Structural unemployment can be caused by the development of new technologies and production processes, as well as deficiencies in the educational process.

Supply Side

A term applied to a series of economic theories that emphasize strengthening the economy through policies aimed at producers and suppliers of goods and services. Supply-side advocates support lowering business and corporate taxes and reducing the capital gains tax.

Tight Money Policies

A term used to describe Federal Reserve Board policies aimed at fighting inflation. These policies include raising interest rates and reserve requirements, and selling government securities.

Unemployment Rate

The percentage of the workforce without jobs who are able to work and actively seeking work during the past four week.

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