Macroeconomics

‭Leakages:‬ ‭Money‬ ‭going‬‭out‬‭of‬‭the‬‭circular‬‭flow‬ ‭of‬ ‭income‬ ‭in‬ ‭the‬ ‭form‬ ‭of‬ ‭savings,‬ ‭taxes,‬ ‭and‬ ‭imports.‬ ‭Legal‬ ‭tender:‬ ‭Money‬ ‭that‬ ‭the‬ ‭government‬ ‭has‬ ‭declared‬ ‭to‬ ‭be‬ ‭acceptable‬ ‭in‬ ‭the‬ ‭settlement‬‭of‬ ‭debts.‬ ‭Level‬ ‭of‬ ‭unemployment:‬ ‭The‬ ‭total‬ ‭number‬ ‭of‬ ‭people who are unemployed in a country.‬ ‭Liability:‬ ‭Anything‬ ‭of‬ ‭value‬ ‭that‬ ‭is‬ ‭owed‬ ‭to‬ ‭someone.‬ ‭Liquidity:‬ ‭The‬‭ease‬‭with‬‭which‬‭an‬‭asset‬‭can‬‭be‬ ‭transformed‬‭into‬‭cash‬‭without‬‭losing‬‭purchasing‬ ‭power.‬ ‭Liquidity‬‭trap:‬ ‭A‬‭situation‬‭where‬‭an‬‭increase‬‭in‬ ‭the‬ ‭money‬ ‭supply‬ ‭cannot‬ ‭further‬ ‭reduce‬ ‭interest rates to stimulate economic activity.‬ ‭Loanable‬‭funds‬‭market:‬ ‭A‬‭hypothetical‬‭market‬ ‭that‬ ‭shows‬ ‭how‬ ‭funds/loans‬ ‭from‬ ‭savers‬ ‭are‬ ‭allocated to borrowers for investment purposes.‬ ‭Loanable‬ ‭funds‬ ‭market‬ ‭graph:‬ ‭A‬ ‭graph‬ ‭showing‬ ‭the‬ ‭demand‬ ‭and‬ ‭supply‬ ‭curves‬ ‭of‬ ‭loanable‬‭funds‬‭and‬‭how‬‭equilibrium‬‭is‬‭achieved‬ ‭at their intersection.‬ ‭Long-run‬ ‭aggregate‬ ‭supply‬ ‭(LRAS):‬ ‭The‬ ‭total‬ ‭output‬‭of‬‭an‬‭economy‬‭supplied‬‭when‬‭the‬‭prices‬ ‭of‬ ‭factors‬ ‭of‬ ‭production‬ ‭have‬ ‭adjusted‬ ‭to‬ ‭economic‬‭changes,‬‭such‬‭as‬‭increased‬‭aggregate‬ ‭demand.‬ ‭Long-run‬ ‭aggregate‬ ‭supply‬ ‭curve‬ ‭(LRAS‬ ‭curve):‬ ‭A‬ ‭vertical‬ ‭line‬ ‭showing‬‭the‬‭relationship‬ ‭between‬ ‭the‬ ‭price‬ ‭level‬ ‭and‬ ‭the‬ ‭total‬ ‭supply‬ ‭when all prices are fully flexible.‬ ‭Long-run‬ ‭macroeconomic‬ ‭equilibrium:‬ ‭The‬ ‭point‬ ‭of‬ ‭intersection‬ ‭between‬ ‭the‬ ‭aggregate‬ ‭demand,‬ ‭the‬ ‭short-run‬ ‭aggregate‬ ‭supply,‬ ‭and‬ ‭the‬‭long-run‬‭aggregate‬‭supply‬‭curves,‬‭indicating‬

‭that‬ ‭the‬ ‭economy‬ ‭is‬ ‭producing‬ ‭at‬ ‭its‬ ‭full‬ ‭potential.‬ ‭Long-run‬ ‭Phillips‬ ‭curve‬ ‭(LRPC):‬ ‭A‬ ‭line‬ ‭that‬ ‭shows‬ ‭the‬ ‭absence‬ ‭of‬ ‭a‬ ‭trade-off‬ ‭between‬ ‭inflation‬ ‭and‬ ‭unemployment‬ ‭in‬ ‭the‬ ‭long‬ ‭run‬ ‭at‬ ‭the natural rate of unemployment.‬ ‭Long-run‬ ‭self‬ ‭adjustment‬ ‭mechanism:‬ ‭The‬ ‭Classical‬ ‭belief‬ ‭that‬ ‭the‬ ‭economy‬ ‭tends‬ ‭to‬ ‭return‬‭to‬‭full‬‭employment‬‭over‬‭time‬‭without‬‭the‬ ‭need for government intervention.‬ ‭Macroeconomics:‬ ‭A‬ ‭branch‬ ‭of‬ ‭economics‬ ‭that‬ ‭studies‬‭the‬‭economy‬‭as‬‭a‬‭whole‬‭and‬‭focuses‬‭on‬ ‭aggregates,‬‭such‬‭as‬‭national‬‭income‬‭and‬‭overall‬ ‭price levels, instead of individual variables.‬ ‭Marginal‬ ‭Propensity‬ ‭to‬ ‭Consumer‬ ‭(MPC):‬ ‭The‬ ‭proportion‬ ‭of‬ ‭extra‬ ‭income‬ ‭that‬ ‭is‬ ‭spent‬ ‭on‬ ‭consumption.‬ ‭Marginal‬ ‭Propensity‬ ‭to‬ ‭Save‬ ‭(MPS):‬ ‭The‬ ‭proportion of extra income that is saved.‬ ‭Medium‬‭of‬‭exchange:‬ ‭The‬‭ability‬‭of‬‭an‬‭asset‬‭to‬ ‭buy something else.‬ ‭Microeconomics:‬ ‭A‬ ‭branch‬ ‭of‬ ‭economics‬ ‭that‬ ‭studies‬ ‭the‬ ‭behavior‬ ‭of‬ ‭individual‬ ‭households,‬ ‭frms, and industries.‬ ‭Monetary‬ ‭base:‬ ‭The‬ ‭sum‬ ‭of‬ ‭currency‬ ‭in‬ ‭circulation‬ ‭and‬ ‭bank‬ ‭reserves‬ ‭held‬ ‭in‬ ‭vaults,‬ ‭referred to as M0.‬ ‭Monetary‬ ‭policy:‬ ‭An‬ ‭economic‬ ‭policy‬ ‭implemented‬ ‭by‬ ‭the‬ ‭central‬ ‭bank‬ ‭to‬ ‭influence‬ ‭macroeconomic‬ ‭aggregates‬ ‭such‬ ‭as‬ ‭output,‬ ‭inflation,‬‭and‬‭unemployment‬‭through‬‭the‬‭use‬‭of‬ ‭money supply.‬ ‭Money:‬ ‭Any‬ ‭asset‬ ‭that‬ ‭serves‬ ‭the‬ ‭functions‬ ‭of‬ ‭medium‬‭of‬‭exchange,‬‭store‬‭of‬‭value,‬‭and‬‭unit‬‭of‬ ‭account.‬

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