Supply creates its own demand.

Occurs when the market price is above the equilibrium price.

When aggregate demand is equal to aggregate supply, and we are at full employment.

Curve showing planned purchase rates for all goods and services in the economy at various price levels.

The sum of all expenditures for goods and services.

The influence a change in household purchasing power has on the quantity of real GDP that consumers are willing to buy.

A rising price level pushes up interest rates, which in turn lowers the consumption of certain goods and services and also lowers investment in plant and equipment.

When our price level rises relative to the price levels in other countries, making American goods and services more expensive and causing our exports to decline.

The nation’s total output of goods and services.

As income rises, consumption rises, but not as quickly.

As income rises, saving rises, but not as quickly.

When aggregate demand equals aggregate supply.

When aggregate demand does not equal aggregate supply.

Manipulation of the federal budget to attain price stability, relatively full employment, and a satisfactory rate of economic growth.

The level of output at which aggregate demand equals aggregate supply.

The level of spending (or aggregate demand) that will result in full employment.

This occurs when equilibrium GDP is less than full-employment GDP.

Occurs when equilibrium GDP is greater than full-employment GDP.

Any change in spending (C, I, or G) will set off a chain reaction leading to a multiplied change in GDP. Equation is 1/(1 − MPC).

Programs such as unemployment insurance benefits and taxes that are already on the books to help alleviate recessions and hold down the rate of inflation.

If everyone tries to save more, they will all end up saving less.

Structures such as dams, bridges, highways, hospitals, and schools that are built and owned by government agencies.

The time it takes for policy makers to realize that a business cycle turning point has been passed.

The time it takes for policy makers to decide what to do and take action.

The time it takes for the policy action to have a substantial effect.

When the government is paying out more than it’s taking in.

When federal tax receipts are greater than federal government spending.

When federal tax receipts equal federal government spending.

Large federal budget deficits are financed by Treasury borrowing, which then crowds private borrowers out of financial markets and drives up interest rates.

An increase in private sector spending stimulated by federal budget deficits financed by U.S. Treasury borrowing.

The amount of federal securities outstanding, which represents what the federal government owes.

Any asset that can be used to make a purchase. Its main job is to be a medium of exchange; also serves as a standard of value and a store of value.

Items sellers generally accept and buyers generally use to pay for a good or service; the primary job of money.

The property of money that informs consumers how much a good or service is actually worth.

The ability of money to hold value over time.

The exchange of one good or service for another good or service; a trade.

Currency, checkable deposits, traveler’s checks, and other checklike deposits (M or M1).

Coins and paper money that serve as a medium of exchange.

M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.

M2 plus large-denomination time deposits.

This represents the inverse relationship between the level of money balances and the price of holding money balances.

The acceptance of deposits and the making of loans.

A firm that engages in the business of banking, accepting deposits, offering checking accounts, and making loans.

Financial institution cooperatives made up of depositors with a common affiliation.

Firms that accept deposits from savers and use those deposits to make loans to borrowers.

The acceptance of deposits and withdrawals at more than one bank location.

Machine that accepts deposits, dispenses cash withdrawals, and provides other bank teller functions.

The acceptance of deposits and withdrawals at the branches of a bank located in more than one state.

Insures bank deposits up to $250,000

The ability to write checks totaling more than is on deposit in an account.

Control of the rate of monetary growth by the Board of Governors of the Federal Reserve.

Central bank of the United States, whose main job is to control our rate of monetary growth.

The 12 banks chartered by the U.S. government to control the money supply, issue currency, and perform other functions.

The Federal Reserve System’s governing body.

The specified minimum percentage of its checkable deposits that a bank or thrift must keep on deposit or hold as vault cash.

Minimum amount of vault cash or reserves held at the Federal Reserve District Banks.

The amount of money that a bank has on deposit at its Federal Reserve District Bank or is holding as vault cash.

The difference between actual reserves and required reserves.

A bank’s deposits at the Federal Reserve District Bank and the vault cash it is holding.

Treasury bills, notes, certificates, and bonds (that will mature in less than a year) that a bank is holding.

The ratio of the change in demand deposits to the change in bank reserves.

The purchase or sale of Treasury securities by the Federal Reserve; main monetary policy weapon.

The principal ­decision-making body of the Federal Reserve, conducting open-market operations.

he interest rate charged by the Federal Reserve to depository institutions.

The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves.

Occurs when the Federal Open Market Committee raises or lowers the percentage of checkable deposits that banks must hold as reserves.

The series of changes brought about by a change in monetary policy that ultimately changes the level of GDP.

Rate of interest that banks charge their most creditworthy customers.

At very low interest rates, said John Maynard Keynes, people will neither lend out their money nor put it in the bank, but will simply hold it.

This made all depository institutions subject to the Federal Reserve’s legal reserve requirements and allowed all depository institutions to issue checkable deposits.

A procedure used by the central bank to flood the banking system with large quantities of money in an effort to ease pressure on banks and to promote economic growth.

Shows the relationship among four variables: M (the money supply), V (velocity of circulation), P(the price level), and Q (the quantity of goods and services produced). MV = PQ.

The number of times per year each dollar in the money supply is spent. Identified by V.

A measure of prices in a given month or year in relation to prices in a base year.

Crude version: Changes in the money supply cause proportional changes in the price level. Sophisticated version: If we are well below full employment, an increase in M will lead to an increase in output. If we are close to full employment, an increase in M will lead mainly to an increase in P.

The rate of interest that equilibrates the level of saving with the level of investment demand for loanable funds.

A school of economics that places paramount importance on money as the key determinant of the level of prices, income, and employment.

School of economics that aimed to cut tax rates and reduce government spending and government regulation.

Shows that at very high tax rates, very few people will work and pay taxes; therefore government revenue will rise as tax rates are lowered.

This is based on three assumptions: (1) that individuals and business firms learn through experience to anticipate the consequences of changes in monetary and fiscal policy; (2) that they act immediately to protect their economic interests; and (3) that all resource and product markets are purely competitive.

A branch of economic thought that combines insights from economics, psychology, and neuroscience to explain consumer choice behavior.