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Ch#
1
Term
Ceteris paribus
1
Big tradeoff
1
Capital
1
Cross-section
graph
1
Direct
relationship
1
Economic model
1
Economic theory
1
Economics
1
Entrepreneurship
Definition
Other things being
equal-all other
relevant things
remaining the
same.
The conflict
between equity and
efficiency.
The tools,
equipment,
buildings, and
other
constructions that
businesses now use
to produce goods
and services.
A graph that shows
the values of an
economic variable
for different
groups in a
population at a
point in time.
A relationship
between two
variables that
move in the same
direction.
A description of
some aspect of the
economic world
that includes only
those features of
the world that are
needed for the
purpose at hand.
A generalization
that summarizes
what we think we
understand about
the economic
choices that
people make and
the performance of
industries and
entire economies.
The social science
that studies the
choices that we
make as we cope
with scarcity and
the incentives
that influence and
reconcile those
choices.
The human resource
Sound
1
Factors of
production
1
Goods and services
1
Human capital
1
Incentive
1
Interest
1
Inverse
relationship
1
Labour
1
Land
1
Linear
relationship
1
Macroeconomics
1
Margin
that organizes the
other three
factors of
production:
labour, land, and
capital.
The resources used
to produce goods
and services.
All the objects
that people value
and produce to
satisfy their
wants.
The knowledge and
skill that people
obtain from
education, on-thejob training, and
work experience.
A reward that
encourages or a
penalty that
discourages an
action.
The income that
capital earns.
A relationship
between variables
that move in
opposite
directions.
The work time and
work effort that
people devote to
producing goods
and services.
All the gifts of
nature that we use
to produce goods
and services.
A relationship
between two
variables that is
illustrated by a
straight line.
The study of the
performance of the
national economy
and the global
economy.
When a choice is
changed by a small
amount or by a
little at a time,
the choice is made
at the margin.
1
Marginal benefit
1
Marginal cost
1
Microeconomics
1
Negative
relationship
1
Opportunity cost
1
Positive
relationship
1
Profit
1
Rent
1
Scarcity
The benefit that a
person receives
from consuming one
more unit of a
good or service.
It is measured as
the maximum amount
that a person is
willing to pay for
one more unit of
the good or
service.
The opportunity
cost of producing
one more unit of a
good or service.
It is the best
alternative
forgone. It is
calculated as the
increase in total
cost divided by
the increase in
output.
The study of the
choices that
individuals and
businesses make,
the way these
choices interact,
and the influence
governments exert
on them.
A relationship
between variables
that move in
opposite
directions.
The highest-valued
alternative that
we give up to get
something.
A relationship
between two
variables that
move in the same
direction.
The income earned
by
entrepreneurship.
The income that
land earns.
The state in which
the resources
available are
insufficient to
satisfy people's
1
Scatter diagram
1
Self-interest
1
Slope
1
Social interest
1
Time-series graph
1
Tradeoff
1
Trend
1
Wages
2
Absolute advantage
2
Allocative
efficiency
2
Capital
accumulation
wants.
A diagram that
plots the value of
one variable
against the value
of another.
The choices that
you think are best
for you.
The change in the
value of the
variable measured
on the y -axis
divided by the
change in the
value of the
variable measured
on the x -axis.
Choices that are
the best for
society as a
whole.
A graph that
measures time (for
example, months or
years) on the x axis and the
variable or
variables in which
we are interested
on the y -axis.
A constraint that
involves giving up
one thing to get
something else.
The general
tendency for a
variable to move
in one direction.
The income that
labour earns.
A person has an
absolute advantage
if that person is
more productive
than another
person.
A situation in
which we cannot
produce more of
any good without
giving up some of
another good that
we value more
highly.
The growth of
capital resources,
2
Comparative
advantage
2
Dynamic
comparative
advantage
2
Economic growth
2
Firm
2
Learning-by-doing
2
Marginal benefit
curve
which includes
human capital.
A person or
country has a
comparative
advantage in an
activity if that
person or country
can perform the
activity at a
lower opportunity
cost than anyone
else or any other
country.
A comparative
advantage that a
person or country
possesses as a
result of having
specialized in a
particular
activity and then,
as a result of
learning-by-doing,
having become the
producer with the
lowest opportunity
cost.
The expansion of
production
possibilities that
results from
capital
accumulation and
technological
change.
An economic unit
that hires factors
of production and
organizes those
factors to produce
and sell goods and
services.
People become more
productive in an
activity (learn)
just by repeatedly
producing a
particular good or
service (doing).
A curve that shows
the relationship
between the
marginal benefit
of a good and the
quantity of that
good consumed.
2
Marginal benefit
2
Marginal cost
2
Market
2
Money
2
Preferences
2
Production
efficiency
2
Production
possibilities
frontier
2
Property rights
The benefit that a
person receives
from consuming one
more unit of a
good or service.
It is measured as
the maximum amount
that a person is
willing to pay for
one more unit of
the good or
service.
The opportunity
cost of producing
one more unit of a
good or service.
It is the best
alternative
forgone. It is
calculated as the
increase in total
cost divided by
the increase in
output.
Any arrangement
that enables
buyers and sellers
to get information
and to do business
with each other.
Any commodity or
token that is
generally
acceptable as the
means of payment.
A description of a
person's likes and
dislikes.
A situation in
which the economy
cannot produce
more of one good
without producing
less of some other
good.
The boundary
between the
combinations of
goods and services
that can be
produced and the
combinations that
cannot.
Social
arrangements that
govern the
ownership, use,
2
Relative price
2
Technological
change
3
Change in demand
3
Change in supply
3
Change in the
quantity demanded
3
Change in the
quantity supplied
and disposal of
resources or
factors of
production, goods,
and services that
are enforceable in
the courts.
The ratio of the
price of one good
or service to the
price of another
good or service. A
relative price is
an opportunity
cost.
The development of
new goods and of
better ways of
producing goods
and services.
A change in
buyers' plans that
occurs when some
influence on those
plans other than
the price of the
good changes. It
is illustrated by
a shift of the
demand curve.
A change in
sellers' plans
that occurs when
some influence on
those plans other
than the price of
the good changes.
It is illustrated
by a shift of the
supply curve.
A change in
buyers' plans that
occurs when the
price of a good
changes but all
other influences
on buyers' plans
remain unchanged.
It is illustrated
by a movement
along the demand
curve.
A change in
sellers' plans
that occurs when
the price of a
good changes but
3
Competitive market
3
Complement
3
Demand curve
3
Demand
3
Equilibrium price
3
Equilibrium
quantity
3
Inferior good
3
Law of demand
all other
influences on
sellers' plans
remain unchanged.
It is illustrated
by a movement
along the supply
curve.
A market that has
many buyers and
many sellers, so
no single buyer or
seller can
influence the
price.
A good that is
used in
conjunction with
another good.
A curve that shows
the relationship
between the
quantity demanded
of a good and its
price when all
other influences
on consumers'
planned purchases
remain the same.
The relationship
between the
quantity of a good
that consumers
plan to buy and
the price of the
good when all
other influences
on buyers' plans
remain the same.
It is described by
a demand schedule
and illustrated by
a demand curve.
The price at which
the quantity
demanded equals
the quantity
supplied.
The quantity
bought and sold at
the equilibrium
price.
A good for which
demand decreases
as income
increases.
Other things
3
Law of supply
3
Money price
3
Normal good
3
Quantity demanded
3
Quantity supplied
3
Substitute
3
Supply curve
3
Supply
remaining the
same, the higher
the price of a
good, the smaller
is the quantity
demanded of it.
Other things
remaining the
same, the higher
the price of a
good, the greater
is the quantity
supplied of it.
The number of
dollars that must
be given up in
exchange for a
good or service.
A good for which
demand increases
as income
increases.
The amount of a
good or service
that consumers
plan to buy during
a given time
period at a
particular price.
The amount of a
good or service
that producers
plan to sell
during a given
time period at a
particular price.
A good that can be
used in place of
another good.
A curve that shows
the relationship
between the
quantity supplied
and the price of a
good when all
other influences
on producers'
planned sales
remain the same.
The relationship
between the
quantity of a good
that producers
plan to sell and
the price of the
good when all
other influences
4
Cross elasticity
of demand
4
Elastic demand
4
Elasticity of
supply
4
Income elasticity
of demand
4
Inelastic demand
on producers'
plans remain the
same. It is
described by a
supply schedule
and illustrated by
a supply curve.
The responsiveness
of the demand for
a good to a change
in the price of a
substitute or
complement, other
things remaining
the same. It is
calculated as the
percentage change
in the quantity
demanded of the
good divided by
the percentage
change in the
price of the
substitute or
complement.
Demand with a
price elasticity
greater than 1;
other things
remaining the
same, the
percentage change
in the quantity
demanded exceeds
the percentage
change in price.
The responsiveness
of the quantity
supplied of a good
to a change in its
price, other
things remaining
the same.
The responsiveness
of demand to a
change in income,
other things
remaining the
same. It is
calculated as the
percentage change
in the quantity
demanded divided
by the percentage
change in income.
A demand with a
price elasticity
4
Perfectly elastic
demand
4
Perfectly
inelastic demand
4
Price elasticity
of demand
4
Total revenue test
4
Total revenue
4
Unit elastic
demand
between 0 and 1;
the percentage
change in the
quantity demanded
is less than the
percentage change
in price.
Demand with an
infinite price
elasticity; the
quantity demanded
changes by an
infinitely large
percentage in
response to a tiny
price change.
Demand with a
price elasticity
of zero; the
quantity demanded
remains constant
when the price
changes.
A units-free
measure of the
responsiveness of
the quantity
demanded of a good
to a change in its
price, when all
other influences
on buyers' plans
remain the same.
A method of
estimating the
price elasticity
of demand by
observing the
change in total
revenue that
results from a
change in the
price, when all
other influences
on the quantity
sold remain the
same.
The value of a
firm's sales. It
is calculated as
the price of the
good multiplied by
the quantity sold.
Demand with a
price elasticity
of 1; the
percentage change
5
Big tradeoff
5
Command system
5
Consumer surplus
5
Deadweight loss
5
Producer surplus
5
Symmetry principle
5
Transactions costs
in the quantity
demanded equals
the percentage
change in price.
The conflict
between equity and
efficiency.
A method of
organizing
production that
uses a managerial
hierarchyresources are
allocated by order
(command) of
someone in
authority.
The value of a
good minus the
price paid for it,
summed over the
quantity bought.
A measure of
inefficiency. It
is equal to the
decrease in
consumer surplus
and producer
surplus that
results from an
inefficient level
of production.
The price of a
good minus the
opportunity cost
of producing it,
summed over the
quantity sold.
A requirement that
people in similar
situations be
treated similarly.
The costs that
arise from finding
someone with whom
to do business, of
reaching an
agreement about
the price and
other aspects of
the exchange, and
of ensuring that
the terms of the
agreement are
fulfilled. The
opportunity costs
of conducting a
5
Utilitarianism
6
Black market
6
Farm marketing
board
6
Living wage
6
Minimum wage
6
Price ceiling
6
Price floor
6
Production quota
6
Rent ceiling
transaction.
A principle that
states that we
should strive to
achieve "the
greatest happiness
for the greatest
number of people."
An illegal trading
arrangement in
which the price
exceeds the
legally imposed
price ceiling.
A regulatory
agency that
intervenes in an
agricultural
market to
stabilize the
price of an
agricultural
product.
An hourly wage
rate that enables
a person who works
a 40-hour work
week torent
adequate housing
for not more than
30 percent of the
amount earned.
A regulation that
makes the hiring
of labour below a
specified wage
rate illegal.
A regulation that
makes it illegal
to charge a price
higher than a
specified level.
A regulation that
makes it illegal
to charge a price
lower than a
specified level.
An upper limit to
the quantity of a
good that may be
produced in a
specified period.
A regulation that
makes it illegal
to charge a rent
higher than a
specified level.
6
Search activity
6
Subsidy
6
Tax incidence
7
Consumer
equilibrium
7
Diminishing
marginal utility
7
Marginal utility
per dollar
7
Marginal utility
7
Real income
7
Relative price
7
Total utility
The time spent
looking for
someone with whom
to do business.
A payment that the
government makes
to private
producers.
The division of
the burden of the
tax between the
buyer and the
seller.
A situation in
which a consumer
has allocated all
his or her
available income
in the way that,
given the prices
of goods and
services,
maximizes his or
her total utility.
The decrease in
marginal utility
as the quantity
consumed
increases.
The marginal
utility from a
good divided by
its price.
The change in
total utility
resulting from a
one-unit increase
in the quantity of
a good consumed.
A household's
income expressed
as a quantity of
goods that the
household can
afford to buy.
The ratio of the
price of one good
or service to the
price of another
good or service. A
relative price is
an opportunity
cost.
The total benefit
that a person gets
from the
consumption of
7
Utility
8
Budget line
8
Diminishing
marginal rate of
substitution
8
Income effect
8
Indifference curve
8
Marginal rate of
substitution
8
Price effect
8
Real income
goods and
services.
The benefit or
satisfaction that
a person gets from
the consumption of
a good or service.
The limits to a
household's
consumption
choices.
The general
tendency for a
person to be
willing to give up
less of good y to
get one more unit
of good x , and at
the same time
remain
indifferent, as
the quantity of
good x increases.
The effect of a
change in income
on consumption,
other things
remaining the
same.
A line that shows
combinations of
goods among which
a consumer is
indifferent.
The rate at which
a person will give
up good y (the
good measured on
the y -axis) to
get an additional
unit of good x
(the good measured
on the x -axis)
and at the same
time remain
indifferent
(remain on the
same indifference
curve).
The effect of a
change in the
price on the
quantity of a good
consumed, other
things remaining
the same.
A household's
8
Relative price
8
Substitution
effect
9
Command system
9
Economic
depreciation
9
Economic
efficiency
9
Economic profit
9
Economies of scale
income expressed
as a quantity of
goods that the
household can
afford to buy.
The ratio of the
price of one good
or service to the
price of another
good or service. A
relative price is
an opportunity
cost.
The effect of a
change in price of
a good or service
on the quantity
bought when the
consumer
(hypothetically)
remains
indifferent
between the
original and the
new consumption
situations-that
is, the consumer
remains on the
same indifference
curve.
A method of
organizing
production that
uses a managerial
hierarchyresources are
allocated by order
(command) of
someone in
authority.
The change in the
market value of
capital over a
given period.
A situation that
occurs when the
firm produces a
given output at
the least cost.
A firm's total
revenue minus its
opportunity cost.
Features of a
firm's technology
that lead to a
falling long-run
average cost as
9
Economies of scope
9
Firm
9
Four-firm
concentration
ratio
9
HerfindahlHirschman Index
9
Implicit rental
rate
9
Incentive system
9
Monopolistic
competition
9
Monopoly
output increases.
Decreases in
average total cost
that occur when a
firm uses
specialized
resources to
produce a range of
goods and
services.
An economic unit
that hires factors
of production and
organizes those
factors to produce
and sell goods and
services.
A measure of
market power that
is calculated as
the percentage of
the value of sales
accounted for by
the four largest
firms in an
industry.
A measure of
market power that
is calculated as
the square of the
market share of
each firm (as a
percentage) summed
over the largest
50 firms (or over
all firms if there
are fewer than 50)
in a market.
The firm's
opportunity cost
of using its own
capital.
A method of
organizing
production that
uses a market-like
mechanism inside
the firm.
A market structure
in which a large
number of firms
compete by making
similar but
slightly different
products.
A market structure
in which there is
9
Normal profit
9
Oligopoly
9
Perfect
competition
9
Principal-agent
problem
9
Product
differentiation
9
Technological
efficiency
one firm, which
produces a good or
service that has
no close
substitutes and in
which the firm is
protected from
competition by a
barrier preventing
the entry of new
firms.
The expected
return for
supplying
entrepreneurial
ability.
A market structure
in which a small
number of firms
compete.
A market in which
there are many
firms each selling
an identical
product; there are
many buyers; there
are no
restrictions on
entry into the
industry; firms in
the industry have
no advantage over
potential new
entrants; and
firms and buyers
are well informed
about the price of
each firm's
product.
The problem of
devising
compensation rules
that induce an
agent to act in
the best interest
of a principal.
Making a product
slightly different
from the product
of a competing
firm.
A situation that
occurs when the
firm produces a
given output by
using the least
amount of inputs.
9
Technology
9
Transactions costs
10
Average fixed cost
10
Average product
10
Average total cost
10
Average variable
cost
10
Constant returns
to scale
10
Diminishing
marginal returns
Any method of
producing a good
or service.
The costs that
arise from finding
someone with whom
to do business, of
reaching an
agreement about
the price and
other aspects of
the exchange, and
of ensuring that
the terms of the
agreement are
fulfilled. The
opportunity costs
of conducting a
transaction.
Total fixed cost
per unit of
output.
The average
product of a
factor of
production. It
equals total
product divided by
the quantity of
the factor
employed.
Total cost per
unit of output.
Total variable
cost per unit of
output.
Features of a
firm's technology
that lead to
constant long-run
average cost as
output increases.
When constant
returns to scale
are present, the
LRAC curve is
horizontal.
The tendency for
the marginal
product of an
additional unit of
a factor of
production to be
less than the
marginal product
of the previous
unit of the
10
Diseconomies of
scale
10
Economies of scale
10
Law of diminishing
returns
10
Long run
10
Long-run average
cost curve
10
Marginal cost
10
Marginal product
factor.
Features of a
firm's technology
that lead to
rising long-run
average cost as
output increases.
Features of a
firm's technology
that lead to a
falling long-run
average cost as
output increases.
As a firm uses
more of a variable
input, with a
given quantity of
other inputs
(fixed inputs),
the marginal
product of the
variable input
eventually
diminishes.
A period of time
in which the
quantities of all
resources can be
varied.
The relationship
between the lowest
attainable average
total cost and
output when both
plant size and
labour are varied.
The opportunity
cost of producing
one more unit of a
good or service.
It is the best
alternative
forgone. It is
calculated as the
increase in total
cost divided by
the increase in
output.
The increase in
total product that
results from a
one-unit increase
in the variable
input, with all
other inputs
remaining the
same. It is
10
Minimum efficient
scale
10
Short run
10
Sunk cost
10
Total cost
10
Total fixed cost
10
Total product
10
Total variable
calculated as the
increase in total
product divided by
the increase in
the variable input
employed, when the
quantities of all
other inputs are
constant.
The smallest
quantity of output
at which the longrun average cost
curve reaches its
lowest level.
The short run in
microeconomics has
two meanings. For
the firm, it is
the period of time
in which the
quantity of at
least one input is
fixed and the
quantities of the
other inputs can
be varied. The
fixed input is
usually capitalthat is, the firm
has a given plant
size. For the
industry, the
short run is the
period of time in
which each firm
has a given plant
size and the
number of firms in
the industry is
fixed.
The past cost of
buying a plant
that has no resale
value.
The cost of all
the productive
resources that a
firm uses.
The cost of the
firm's fixed
inputs.
The total output
produced by a firm
in a given period
of time.
The cost of all
cost
11
External
diseconomies
11
External economies
11
Long-run industry
supply curve
11
Marginal revenue
11
Perfect
competition
the firm's
variable inputs.
Factors outside
the control of a
firm that raise
the firm's costs
as the industry
produces a larger
output.
Factors beyond the
control of a firm
that lower the
firm's costs as
the industry
produces a larger
output.
A curve that shows
how the quantity
supplied by an
industry varies as
the market price
varies after all
the possible
adjustments have
been made,
including changes
in plant size and
the number of
firms in the
industry.
The change in
total revenue that
results from a
one-unit increase
in the quantity
sold. It is
calculated as the
change in total
revenue divided by
the change in
quantity sold.
A market in which
there are many
firms each selling
an identical
product; there are
many buyers; there
are no
restrictions on
entry into the
industry; firms in
the industry have
no advantage over
potential new
entrants; and
firms and buyers
are well informed
11
Price taker
11
Short-run industry
supply curve
11
Shutdown point
11
Total revenue
12
Average cost
pricing rule
12
Barriers to entry
12
Legal monopoly
about the price of
each firm's
product.
A firm that cannot
influence the
price of the good
or service it
produces.
A curve that shows
the quantity
supplied by the
industry at each
price when the
plant size of each
firm and the
number of firms in
the industry
remain the same.
The output and
price at which the
firm just covers
its total variable
cost. In the short
run, the firm is
indifferent
between producing
the profitmaximizing output
and shutting down
temporarily.
The value of a
firm's sales. It
is calculated as
the price of the
good multiplied by
the quantity sold.
A rule that sets
price to cover
cost including
normal profit,
which means
setting the price
equal to average
total cost.
Legal or natural
constraints that
protect a firm
from potential
competitors.
A market structure
in which there is
one firm and entry
is restricted by
the granting of a
public franchise,
government
licence, patent,
12
Marginal cost
pricing rule
12
Market power
12
Monopoly
12
Natural monopoly
12
Perfect price
discrimination
12
Price
discrimination
12
Rent seeking
12
Single-price
or copyright.
A rule that sets
the price of a
good or service
equal to the
marginal cost of
producing it.
The ability to
influence the
market, and in
particular the
market price, by
influencing the
total quantity
offered for sale.
A market structure
in which there is
one firm, which
produces a good or
service that has
no close
substitutes and in
which the firm is
protected from
competition by a
barrier preventing
the entry of new
firms.
A monopoly that
occurs when one
firm can supply
the entire market
at a lower price
than two or more
firms can.
Price
discrimination
that extracts the
entire consumer
surplus.
The practice of
selling different
units of a good or
service for
different prices
or of charging one
customer different
prices for
different
quantities bought.
Any attempt to
capture a consumer
surplus, a
producer surplus,
or an economic
profit.
A monopoly that
monopoly
13
Cartel
13
Collusive
agreement
13
Contestable market
13
Cooperative
equilibrium
13
Dominant strategy
equilibrium
13
Duopoly
13
Game theory
must sell each
unit of its output
for the same price
to all its
customers.
A group of firms
that has entered
into a collusive
agreement to
restrict output
and increase
prices and
profits.
An agreement
between two (or
more) producers to
restrict output,
raise the price,
and increase
profits.
A market in which
firms can enter
and leave so
easily that firms
in the market face
competition from
potential
entrants.
The outcome of a
game in which the
players make and
share the monopoly
profit.
A Nash equilibrium
in which the best
strategy for each
player is to cheat
(deny) regardless
of the strategy of
the other player.
A market structure
in which two
producers of a
good or service
compete.
A tool that
economists use to
analyze strategic
behaviourbehaviour that
takes into account
the expected
behaviour of
others and the
recognition of
mutual
interdependence.
13
Limit pricing
13
Monopolistic
competition
13
Nash equilibrium
13
Oligopoly
13
Payoff matrix
13
Product
differentiation
13
Signal
13
Strategies
14
Anti-combine law
The practice of
setting the price
at the highest
level that
inflicts a loss on
an entrant.
A market structure
in which a large
number of firms
compete by making
similar but
slightly different
products.
The outcome of a
game that occurs
when player A
takes the best
possible action
given the action
of player B and
player B takes the
best possible
action given the
action of player
A.
A market structure
in which a small
number of firms
compete.
A table that shows
the payoffs for
every possible
action by each
player for every
possible action by
each other player.
Making a product
slightly different
from the product
of a competing
firm.
An action taken by
an informed person
(or firm) to send
a message to
uninformed people.
All the possible
actions of each
player in a game.
A law that
regulates and
prohibits certain
kinds of market
behaviour, such as
monopoly and
monopolistic
practices.
14
Average cost
pricing rule
14
Capture theory
14
Crown Corporation
14
Earnings sharing
regulation
14
Government failure
14
Marginal cost
pricing rule
14
Market failure
14
Political
equilibrium
14
Price cap
regulation
14
Rate of return
regulation
A rule that sets
price to cover
cost including
normal profit,
which means
setting the price
equal to average
total cost.
A theory of
regulation that
states that the
regulations are
supplied to
satisfy the demand
of producers to
maximize producer
surplus-to
maximize economic
profit.
A publicly owned
firm in Canada.
A regulation that
if a firm's
profits rise above
a target level,
they must be
shared with the
firm's customers.
A situation in
which government
actions result in
inefficiency.
A rule that sets
the price of a
good or service
equal to the
marginal cost of
producing it.
A state in which
the market does
not allocate
resources
efficiently.
The outcome that
results from the
choices of voters,
firms,
politicians, and
bureaucrats.
A regulation that
specifies the
highest price that
the firm is
permitted to set.
A regulation that
requires the firm
to justify its
14
Regulation
14
Social interest
theory
15
Coase theorem
15
Copyright
15
Externality
price by showing
that the price
enables it to earn
a specified target
percent return on
its capital.
Rules administered
by a government
agency to
influence economic
activity by
determining price,
product standards
and types, and
conditions under
which a new firm
may enter an
industry.
A theory that
politicans supply
the regulation
that achieves an
efficient
allocation of
resources.
The proposition
that if property
rights exist, if
only a small
number of parties
are involved, and
transactions costs
are low, then
private
transactions are
efficient.
A governmentsanctioned
exclusive right
granted to the
inventor of a
good, service, or
productive process
to produce, use,
and sell the
invention for a
given number of
years.
A cost or a
benefit that
arises from
production and
falls on someone
other than the
producer, or a
cost or a benefit
that arises from
15
Intellectual
property rights
15
Marginal external
benefit
15
Marginal external
cost
15
Marginal private
benefit
15
Marginal private
cost
15
Marginal social
benefit
15
Marginal social
cost
consumption and
falls on someone
other than the
consumer.
Property rights
for discoveries
owned by the
creators of
knowledge.
The benefit from
an additional unit
of a good or
service that
people other than
the consumer
enjoy.
The cost of
producing an
additional unit of
a good or service
that falls on
people other than
the producer.
The benefit from
an additional unit
of a good or
service that the
consumer of that
good or service
receives.
The cost of
producing an
additional unit of
a good or service
that is borne by
the producer of
that good or
service.
The marginal
benefit enjoyed by
society-by the
consumer of a good
or service
(marginal private
benefit) plus the
marginal benefit
enjoyed by others
(marginal external
benefit).
The marginal cost
incurred by the
entire society-by
the producer and
by everyone else
on whom the cost
falls- and is the
sum of marginal
15
Negative
externality
15
Patent
15
Pigovian taxes
15
Positive
externality
15
Property rights
15
Public provision
15
Subsidy
private cost and
marginal external
cost.
An externality
that arises from
either production
or consumption and
that imposes an
external cost.
A governmentsanctioned
exclusive right
granted to the
inventor of a
good, service, or
productive process
to produce, use,
and sell the
invention for a
given number of
years.
Taxes that are
used as an
incentive for
producers to cut
back on an
activity that
creates an
external cost.
An externality
that arises from
either production
or consumption and
that provides an
external benefit.
Social
arrangements that
govern the
ownership, use,
and disposal of
resources or
factors of
production, goods,
and services that
are enforceable in
the courts.
The production of
a good or service
by a public
authority that
receives its
revenue from the
government.
A payment that the
government makes
to private
producers.
15
Transactions costs
15
Voucher
16
Common resource
16
Excludable
16
Free-rider problem
16
Individual
transferable quota
(ITQ)
16
Nonexcludable
16
Nonrival
The costs that
arise from finding
someone with whom
to do business, of
reaching an
agreement about
the price and
other aspects of
the exchange, and
of ensuring that
the terms of the
agreement are
fulfilled. The
opportunity costs
of conducting a
transaction.
A token that the
government
provides to
households, which
they can use to
buy specified
goods and
services.
A resource that is
rival and
nonexcludable.
A good or service
or a resource is
excludable if it
is possible to
prevent someone
from enjoying the
benefit of it.
The absence of an
incentive for
people to pay for
what they consume.
A production limit
that is assigned
to an individual
who is free to
transfer the quota
to someone else.
A good or service
or a resource is
nonexcludable if
it is impossible
(or extremely
costly) to prevent
someone from
benefiting from
it.
A good or service
or a resource is
nonrival if its
use by one person
16
Principle of
minimum
differentiation
16
Private good
16
Public good
16
Rational ignorance
16
Rival
17
Bilateral monopoly
17
Derived demand
17
Discounting
17
Economic rent
does not decrease
the quantity
available for
someone else.
The tendency for
competitors to
make themselves
identical as they
try to appeal to
the maximum number
of clients or
voters.
A good or service
that is both rival
and excludable.
A good or service
that is both
nonrival and
nonexcludable-it
can be consumed
simultaneously by
everyone and from
which no one can
be excluded.
The decision not
to acquire
information
because the cost
of doing so
exceeds the
expected benefit.
A good or service
or a resource is
rival if its use
by one person
decreases the
quantity available
for someone else.
A situation in
which a single
seller (a
monopoly) faces a
single buyer (a
monopsony).
Demand for a
factor of
production, which
is derived from
the demand for the
goods and services
produced by that
factor.
The conversion of
a future amount of
money to its
present value.
The income
17
Labour union
17
Marginal revenue
product
17
Monopsony
17
Net present value
17
Nonrenewable
natural resources
17
Present value
received by the
owner of a factor
of production over
and above the
amount required to
induce that owner
to offer the
factor for use.
An organized group
of workers whose
purpose is to
increase wages and
to influence other
job conditions.
The change in
total revenue that
results from
employing one more
unit of a factor
of production
(labour) while the
quantity of all
other factors
remains the same.
It is calculated
as the increase in
total revenue
divided by the
increase in the
quantity of the
factor (labour).
A market in which
there is a single
buyer.
The present value
of the future flow
of marginal
revenue product
generated by
capital minus the
cost of the
capital.
Natural resources
that can be used
only once and that
cannot be replaced
once they have
been used.
The amount of
money that, if
invested today,
will grow to be as
large as a given
future amount when
the interest that
it will earn is
taken into
17
Rand Formula
17
Renewable natural
resources
18
After-tax income
18
Average tax rate
18
Big tradeoff
18
Lorenz curve
18
Low-income cutoff
18
Market income
18
Poverty
account.
A requirement that
all workers
represented by a
union must pay
union dues,
whether they join
the union or not.
Natural resources
that can be used
repeatedly without
depleting what is
available for
future use.
Total income minus
tax payments by
households to
governments.
The percentage of
income that is
paid in tax.
The conflict
between equity and
efficiency.
A curve that
graphs the
cumulative
percentage of
income or wealth
against the
cumulative
percentage of
households.
The income level,
determined
separately for
different types of
families (for
example, single
persons, couples,
one parent) that
is selected such
that families with
incomes below that
limit normally
spend 55 percent
or more of their
income on food,
shelter, and
clothing.
The wages,
interest, rent,
and profit earned
in factor markets
and before paying
income taxes.
A state in which a
18
Progressive income
tax
18
Proportional
income tax
18
Regressive income
tax
18
Total income
19
Business cycle
19
Current account
19
Deflation
19
Discouraged worker
19
Economic growth
household's income
is too low to be
able to buy the
quantities of
food, shelter, and
clothing that are
deemed necessary.
A tax on income at
an average rate
that increases
with the level of
income.
A tax on income at
a constant average
rate, regardless
of the level of
income.
A tax on income at
an average rate
that decreases
with the level of
income.
Market income plus
cash payments to
households by
governments.
The periodic but
irregular up-anddown movement in
production and
jobs.
A record of
exports minus
imports and
interest payments
paid to and
received from
abroad.
A fnegative
inflation rate-a
process in which
the price level is
falling.
A person who does
not have a job, is
available for
work, and is
willing to work
but who has given
up the effort to
find work.
The expansion of
production
possibilities that
results from
capital
accumulation and
19
Expansion
19
Fiscal policy
19
Government budget
deficit
19
Government budget
surplus
19
Great Depression
19
Growth recession
19
Inflation
19
Labour force
technological
change.
A business cycle
phase between a
trough and a peaka period in which
real GDP
increases.
The use of the
federal budget to
achieve
macroeconomic
objectives such as
full employment,
sustained longterm economic
growth, and price
level stability by
setting and
changing taxes,
making transfer
payments, and
purchasing goods
and services.
The deficit that
arises when the
government spends
more than it
collects in taxes.
The surplus that
arises when the
government
collects more in
taxes than it
spends.
A decade (19291939) of high
unemployment and
stagnant
production
throughout the
world economy.
A situation in
which the growth
rate of real GDP
remains positive
but slows so that
real GDP falls
below potential
GDP.
A process in which
the price level is
rising and money
is losing value.
The sum of the
people who are
employed and who
19
Lucas wedge
19
Monetary policy
19
Output gap
19
Potential GDP
19
Price level
19
Productivity
growth slowdown
19
Real GDP
19
Real gross
domestic product
(real GDP)
19
Recession
are unemployed.
The accumulated
loss of output
that results from
a slowdown in the
growth rate of
real GDP per
person.
The attempt to
control inflation
and moderate the
business cycle by
changing the
quantity of money
and adjusting
interest rates and
the exchange rate.
Real GDP minus
potential GDP.
The value of
production when
all the economy's
labour, capital,
land, and
entrepreneurial
ability are fully
employed; the
quantity of real
GDP at full
employment.
The average level
of prices as
measured by a
price index.
A situation in
which the growth
rate of output per
person sags.
The value of final
goods and services
produced in a
given year when
valued at constant
prices.
The value of final
goods and services
produced in a
given year when
valued at constant
prices.
A period during
which real GDP
decreases-the
growth rate of
real GDP is
negative-for at
least two
19
Unemployment rate
19
Unemployment
20
Capital
consumption
20
Chain-weighted
output index
20
Consumption
expenditure
20
Depreciation
20
Economic growth
rate
20
Economic welfare
20
Exports
20
Final good
20
Flow
20
GDP deflator
successive
quarters.
The percentage of
the people in the
labour force who
are unemployed.
A state in which a
person does not
have a job but is
available for
work, willing to
work, and has made
some effort to
find work within
the previous four
weeks.
The decrease in
the capital stock
that results from
wear and tear and
obsolescence.
An index that uses
the prices of two
adjacent years to
calculate the real
GDP growth rate.
The total payment
for consumer goods
and services.
The decrease in
the capital stock
that results from
wear and tear and
obsolescence.
The percentage
change in the
quantity of goods
and services
produced from one
year to the next.
A comprehensive
measure of the
general state of
economic wellbeing.
The goods and
services that we
sell to people in
other countries.
An item that is
bought by its
final user during
the specified time
period.
A quantity per
unit of time.
One measure of the
20
Government
expenditures
20
Gross domestic
product (GDP)
20
Gross investment
20
Imports
20
Intermediate good
20
Investment
20
National saving
20
Net exports
20
Net investment
20
Net taxes
price level, which
is the average of
current-year
prices as a
percentage of
base-year prices.
Goods and services
bought by the
government.
The market value
of all final goods
and services
produced within a
country during a
given time period.
The total amount
spent on purchases
of new capital and
on replacing
depreciated
capital.
The goods and
services that we
buy from people in
other countries.
An item that is
produced by one
firm, bought by
another firm, and
used as a
component of a
final good or
service.
The purchase of
new plant,
equipment, and
buildings and
additions to
inventories.
The sum of private
saving (saving by
households and
businesses) and
government saving.
The value of
exports minus the
value of imports.
Net increase in
the capital stockgross investment
minus
depreciation.
Taxes paid to
governments minus
transfer payments
received from
governments.
20
Nominal GDP
20
Price level
20
Real GDP
20
Real gross
domestic product
(real GDP)
20
Saving
20
Stock
20
Wealth
21
Aggregate hours
21
Base period
21
Consumer Price
Index (CPI)
The value of the
final goods and
services produced
in a given year
valued at the
prices that
prevailed in that
same year. It is a
more precise name
for GDP.
The average level
of prices as
measured by a
price index.
The value of final
goods and services
produced in a
given year when
valued at constant
prices.
The value of final
goods and services
produced in a
given year when
valued at constant
prices.
The amount of
income that
households have
left after they
have paid their
taxes and bought
their consumption
goods and
services.
A quantity that
exists at a point
in time.
The market value
of all the things
that people ownthe market value
of their assets.
The total number
of hours worked by
all the people
employed, both
full time and part
time, during a
year.
The period in
which the CPI is
defined to be 100.
An index that
measures the
average of the
prices paid by
21
Cyclical
unemployment
21
Discouraged worker
21
Employment-topopulation ratio
21
Frictional
unemployment
21
Full employment
21
Growth rate cycle
downturn
21
Inflation rate
21
Labour force
participation rate
urban consumers
for a fixed
"basket" of the
consumer goods and
services.
The fluctuations
in unemployment
over the business
cycle.
A person who does
not have a job, is
available for
work, and is
willing to work
but who has given
up the effort to
find work.
The percentage of
people of working
age who have jobs.
The unemployment
that arises from
normal labour
turnover-from
people entering
and leaving the
labour force and
from the ongoing
creation and
destruction of
jobs.
A situation in
which the quantity
of labour demanded
equals the
quantity supplied.
At full
employment, there
is no cyclical
unemployment-all
unemployment is
frictional,
structural, and
seasonal.
A pronounced,
pervasive, and
persistent decline
in the growth rate
of aggregate
economic activity.
The percentage
change in the
price level from
one year to the
next.
The percentage of
the working-age
21
Labour force
21
Natural rate of
unemployment
21
Potential GDP
21
Real wage rate
21
Seasonal
unemployment
21
Structural
unemployment
21
Unemployment rate
population who are
members of the
labour force.
The sum of the
people who are
employed and who
are unemployed.
The unemployment
rate when the
economy is at full
employment. There
is no cyclical
unemployment; all
unemployment is
frictional,
structural, and
seasonal.
The value of
production when
all the economy's
labour, capital,
land, and
entrepreneurial
ability are fully
employed; the
quantity of real
GDP at full
employment.
The quantity of
goods and services
that an hour's
work can buy. It
is equal to the
money wage rate
divided by the
price level and
multiplied by 100.
Unemployment that
arises because the
number of jobs
available has
decreased because
of the season.
The unemployment
that arises when
changes in
technology or
international
competition change
the skills needed
to perform jobs or
change the
locations of jobs.
The percentage of
the people in the
labour force who
are unemployed.
21
Working-age
population
22
Above fullemployment
equilibrium
22
Aggregate demand
22
Aggregate
production
function
22
Below fullemployment
equilibrium
22
Disposable income
22
Fiscal policy
22
Inflationary gap
22
Long-run aggregate
supply curve
The total number
of people aged 15
years and over.
A macroeconomic
equilibrium in
which real GDP
exceeds potential
GDP.
The relationship
between the
quantity of real
GDP demanded and
the price level.
The relationship
between the
quantity of real
GDP supplied and
the quantities of
labour and capital
and the state of
technology.
A macroeconomic
equilibrium in
which potential
GDP exceeds real
GDP.
Aggregate income
minus taxes plus
transfer payments.
The use of the
federal budget to
achieve
macroeconomic
objectives such as
full employment,
sustained longterm economic
growth, and price
level stability by
setting and
changing taxes,
making transfer
payments, and
purchasing goods
and services.
The amount by
which real GDP
exceeds potential
GDP.
The relationship
between the
quantity of real
GDP supplied and
the price level in
the long run when
real GDP equals
potential GDP.
22
Long-run
macroeconomic
equilibrium
22
Macroeconomic long
run
22
Macroeconomic
short run
22
Monetary policy
22
Natural rate of
unemployment
22
Recessionary gap
22
Short-run
aggregate supply
curve
22
Short-run
macroeconomic
A situation that
occurs when real
GDP equals
potential GDP-the
economy is on its
long-run aggregate
supply curve.
A time frame that
is sufficiently
long for real GDP
to return to
potential GDP so
that full
employment
prevails.
A period during
which real GDP has
fallen below or
risen above
potential GDP.
The attempt to
control inflation
and moderate the
business cycle by
changing the
quantity of money
and adjusting
interest rates and
the exchange rate.
The unemployment
rate when the
economy is at full
employment. There
is no cyclical
unemployment; all
unemployment is
frictional,
structural, and
seasonal.
The amount by
which potential
GDP exceeds real
GDP.
A curve that shows
the relationship
between the
quantity of real
GDP supplied and
the price level in
the short run when
the money wage
rate, other
resource prices,
and potential GDP
remain constant.
A situation that
occurs when the
equilibrium
23
Aggregate planned
expenditure
23
Autonomous
expenditure
23
Consumption
function
23
Disposable income
quantity of real
GDP demanded
equals the
quantity of real
GDP supplied-at
the point of
intersection of
the AD curve and
the SAS curve.
The expenditure
that households,
firms,
governments, and
foreigners plan to
undertake in given
circumstances. It
is the sum of
planned
consumption
expenditure,
planned
investment,
planned government
expenditures on
goods and
services, and
planned exports
minus planned
imports.
The sum of those
components of
aggregate planned
expenditure that
are not influenced
by real GDP.
Autonomous
expenditure equals
the sum of
investment,
government
expenditures,
exports, and the
autonomous parts
of consumption
expenditure and
imports.
The relationship
between
consumption
expenditure and
disposable income,
other things
remaining the
same.
Aggregate income
minus taxes plus
transfer payments.
23
Equilibrium
expenditure
23
Induced
expenditure
23
Marginal
propensity to
consume
23
Marginal
propensity to
import
23
Marginal
propensity to save
23
Multiplier
23
Saving function
The level of
aggregate
expenditure that
occurs when
aggregate planned
expenditure equals
real GDP.
The sum of the
components of
aggregate planned
expenditure that
vary with real
GDP. Induced
expenditure equals
consumption
expenditure minus
imports.
The fraction of a
change in
disposable income
that is consumed.
It is calculated
as the change in
consumption
expenditure
divided by the
change in
disposable income.
The fraction of an
increase in real
GDP that is spent
on imports.
The fraction of an
increase in
disposable income
that is saved. It
is calculated as
the change in
saving divided by
the change in
disposable income.
The amount by
which a change in
autonomous
expenditure is
magnified or
multiplied to
determine the
change in
equilibrium
expenditure and
real GDP.
The relationship
between saving and
disposable income,
other things
remaining the
24
Automatic fiscal
policy
24
Automatic
stabilizers
24
Autonomous tax
multiplier
24
Autonomous taxes
24
Balanced budget
24
Budget deficit
24
Budget surplus
24
Contractionary
fiscal policy
24
Cyclical surplus
or deficit
24
Discretionary
fiscal policy
24
Expansionary
fiscal policy
24
Federal budget
same.
A change in fiscal
policy that is
triggered by the
state of the
economy.
Mechanisms that
stabilize real GDP
without explicit
action by the
government.
The magnification
effect of a change
in autonomous
taxes on
equilibrium
expenditure and
real GDP.
Taxes that do not
vary with real
GDP.
A government
budget in which
revenues and
outlays are equal.
A government's
budget balance
that is negativeoutlays exceed
revenues.
A government's
budget balance
that is positiverevenues exceed
outlays.
A decrease in
government
expenditures or an
increase in taxes.
The actual surplus
or deficit minus
the structural
surplus or
deficit.
A policy action
that is initiated
by an act of
Parliament.
An increase in
government
expenditures or a
decrease in taxes.
The annual
statement of the
outlays and
revenues of the
government of
24
Fiscal policy
24
Government debt
24
Government
expenditures
multiplier
24
Induced taxes
24
Provincial budget
24
Structural surplus
or deficit
Canada, together
with the laws and
regulations that
approve and
support those
outlays and
revenues.
The use of the
federal budget to
achieve
macroeconomic
objectives such as
full employment,
sustained longterm economic
growth, and price
level stability by
setting and
changing taxes,
making transfer
payments, and
purchasing goods
and services.
The total amount
of borrowing that
the government has
undertaken. It
equals the sum of
past budget
deficits minus the
sum of past budget
surpluses.
The magnification
effect of a change
in government
expenditures on
goods and services
on equilibrium
expenditure and
real GDP
Taxes that vary
with real GDP.
The annual
statement of the
outlays and
revenues of a
provincial
government,
together with the
laws and
regulations that
approve and
support those
outlays and
revenues.
The budget balance
that would occur
25
Automated Clearing
Settlement System
(ACSS)
25
Barter
25
Central bank
25
Chartered bank
25
Credit union
25
Currency drain
ratio
25
Currency
25
Demand for money
curve
25
Depository
if the economy
were at full
employment and
real GDP were
equal to potential
GDP.
A system through
which all payments
not processed by
the LVTS are
handled.
The direct
exchange of one
good or service
for other goods
and services.
A public authority
that supervises
financial
institutions and
markets and
conducts monetary
policy.
A private firm,
chartered under
the Bank Act of
1992 to receive
deposits and make
loans.
A cooperative
organization that
operates under the
Co-operative
Credit Association
Act of 1992 and
that receives
deposits and makes
loans to its
members.
The ratio of
currency to
deposits.
The coins and Bank
of Canada notes
that we use today.
The relationship
between the
quantity of money
demanded and the
interest rate when
all other
influences on the
amount of money
that people wish
to hold remain the
same.
A firm that takes
institution
25
Desired reserve
ratio
25
Excess reserves
25
Financial
innovation
25
Interest rate
25
Large Value
Tranfer System
(LVTS)
25
Lender of last
resort
25
Liquidity
25
M1
deposits from
households and
firms and makes
loans to other
households and
firms.
The ratio of
reserves to
deposits that
banks wish to
hold.
A bank's actual
reserves minus its
desired reserves.
The development of
new financial
products-new ways
of borrowing and
lending.
The amount
received by a
lender and paid by
a borrower
expressed as a
percentage of the
amount of the
loan.
An electronic
payments system
that enables
financial
institutions and
their customers to
make large
payments instantly
and with sure
knowledge that the
payment has been
made.
The Bank of Canada
stands ready to
make loans to
banks when the
banking system as
a whole is short
of reserves.
The property of
being instantly
convertible into a
means of payment
with little loss
in value.
A measure of money
that consists of
currency held
outside the banks
plus demand
25
M2+
25
Means of payment
25
Monetary base
25
Monetary policy
25
Money multiplier
25
Money
25
Payments system
deposits at
chartered banks
that are owned by
individuals and
businesses.
A measure of money
that consists of
M1 plus personal
savings deposits,
and nonpersonal
notice deposits at
chartered banks
plus all types of
deposits at trust
and mortgage loan
companies, credit
unions, caisses
populaires, and
other financial
institutions.
A method of
settling a debt.
The sum of the
Bank of Canada
notes outside the
Bank of Canada,
chartered banks'
deposits at the
Bank of Canada,
and coins held by
households, firms,
and banks.
The attempt to
control inflation
and moderate the
business cycle by
changing the
quantity of money
and adjusting
interest rates and
the exchange rate.
The ratio of the
change in the
quantity of money
to the change in
the monetary base.
Any commodity or
token that is
generally
acceptable as the
means of payment.
The system through
which banks make
payments to each
other to settle
transactions by
their customers.
25
Reserve ratio
25
Reserves
25
Trust and mortgage
loan company
26
Canadian interest
rate differential
26
Crawling peg
26
Currency
appreciation
26
Currency
depreciation
26
Currency union
26
Fixed exchange
rate
The fraction of a
bank's total
deposits that are
held in reserves.
Cash in a bank's
vault plus the
bank's deposits at
the Bank of
Canada.
A privately owned
depository
institution that
operates under the
Trust and Loan
Companies Act of
1992.
A gap equal to the
Canadian interest
rate minus the
foreign interest
rate.
A policy regime is
one that selects a
target path for
the exchange rate
with intervention
in the foreign
exchange market to
achieve that path.
The rise in the
value of one
currency in terms
of another
currency.
The fall in the
value of one
currency in terms
of another
currency.
A merger of the
currencies of a
number of
countries to form
a single money and
avoid foreign
exchange
transactions.
A policy regime in
which the value of
the exchange rate
is decided by the
government or
central bank and
the unregulated
forces of demand
and supply are
blocked by direct
26
Flexible exchange
rate
26
Foreign currency
26
Foreign exchange
market
26
Foreign exchange
rate
26
Interest rate
parity
26
Purchasing power
parity
Cost-push
inflation
27
27
Demand-pull
inflation
27
Equation of
exchange
27
Long-run Phillips
curve
intervention in
the foreign
exchange market.
A policy regime in
which the value of
the exchange rate
is determined by
demand and supply
with no direct
intervention in
the foreign
exchange market by
the central bank.
The notes, coins
and bank deposits
in the currency of
another country.
The market in
which the currency
of one country is
exchanged for the
currency of
another.
The price at which
one currency
exchanges for
another.
A situation in
which the interest
rates on assets in
different
currencies are
equal when
exchange rate
changes are taken
into account.
The equal value of
different monies.
An inflation that
results from an
initial increase
in costs.
An inflation that
results from an
initial increase
in aggregate
demand.
An equation that
states that the
quantity of money
multiplied by the
velocity of
circulation equals
GDP.
A curve that shows
the relationship
between inflation
27
Phillips curve
27
Quantity theory of
money
27
Rational
expectation
27
Short-run Phillips
curve
27
Velocity of
circulation
28
k -percent rule
28
Bank rate
and unemployment
when the actual
inflation rate
equals the
expected inflation
rate.
A curve that shows
a relationship
between inflation
and unemployment.
The proposition
that in the long
run, an increase
in the quantity of
money brings an
equal percentage
increase in the
price level.
The most accurate
forecast possible,
a forecast that
uses all the
available
information,
including
knowledge of the
relevant economic
forces that
influence the
variable being
forecasted.
A curve that shows
the tradeoff
between inflation
and unemployment,
when the expected
inflation rate and
the natural rate
of unemployment
remain the same.
The average number
of times a dollar
of money is used
annually to buy
the goods and
services that make
up GDP.
A rule that makes
the quantity of
money grow at a
rate of k percent
a year, where k
equals the growth
rate of potential
GDP.
The interest rate
that the Bank of
28
Core inflation
28
Instrument rule
28
Interest-sensitive
expenditure curve
28
McCallum rule
28
Nominal interest
rate
Canada charges the
chartered banks on
the reserves it
lends them.
A measure of
inflation based on
the CPI excluding
the eight most
volatile pricesthe prices of
fruit, vegetables,
gasoline, fuel
oil, natural gas,
mortgage interest,
intercity
transportation,
and tobacco-and
also excluding
changes in
indirect taxestaxes such as GST,
HST, and
provincial sales
taxes.
A decision rule
for monetary
policy that sets
the policy
instrument at a
level that is
based on the
current state of
the economy.
The relationship
between aggregate
expenditure plans
and the real
interest rate when
all other
influences on
expenditure plans
remain the same.
A rule that makes
the growth rate of
the monetary base
respond to the
long-term average
growth rate of
real GDP and
medium-term
changes in the
velocity of
circulation of the
monetary base.
The percentage
return on an asset
such as a bond
28
Open market
operation
28
Operating band
28
Overnight loans
rate
28
Real exchange rate
28
Real interest rate
28
Settlements
balances rate
28
Targeting rule
expressed in terms
of money.
The purchase or
sale of government
of Canada
securitiesTreasury bills and
government bondsby the Bank of
Canada from or to
a chartered bank
or the public.
The target
overnight loans
rate plus or minus
0.25 percentage
points.
The interest rate
on overnight loans
that members of
the LVTS (big
banks) make to
each other.
The relative price
of the GDP baskets
of goods and
services in two
countries.
The percentage
return on an asset
expressed in terms
of what money will
buy. It is the
nominal interest
rate adjusted for
inflation and is
approximately
equal to the
nominal interest
rate minus the
inflation rate.
The interest rate
that the Bank of
Canada pays banks
on their reserve
deposits at the
Bank of Canada.
A decision rule
for monetary
policy that sets
the policy
instrument at a
level that makes
the forecast of
the ultimate
policy target
equal to the
28
Taylor rule
29
Crowding in
29
Crowding out
29
International
crowding out
29
Keynesian
29
Long-run
neutrality
29
Monetarist
29
Policy conflict
target.
A rule that sets
the overnight rate
in response to
only the current
inflation rate
rate and the
current estimate
of the output gap.
The tendency for
expansionary
fiscal policy to
increase
investment.
The tendency for
an expansionary
fiscal policy
action to decrease
investment.
The tendency for
an expansionary
fiscal policy to
decrease net
exports.
A macroeconomist
who regards the
economy as being
inherently
unstable and
requiring active
government
intervention to
achieve stability.
The proposition
that in the long
run, a change in
the quantity of
money changes the
price level and
leaves all real
variables
unchanged.
A macroeconomist
who believes that
fluctuations in
the quantity of
money are the main
source of economic
fluctuations.
A situation in
which the
government and the
Bank of Canada
pursue different
goals and the
actions of one
make it harder for
29
Policy
coordination
30
Demand for labour
30
Efficiency wage
30
Human capital
30
Job rationing
30
Job search
30
Labour
productivity
Law of diminishing
returns
30
the other to
achieve its goals.
A situation in
which the
government and the
Bank of Canada
work together to
achieve a common
set of goals.
The relationship
between the
quantity of labour
demanded and the
real wage rate
when all other
influences on
firms' hiring
plans remain the
same.
A real wage rate
that is set above
the fullemployment
equilibrium wage
rate and that
balances the costs
and benefits of
this higher wage
rate to maximize
the firm's profit.
The knowledge and
skill that people
obtain from
education, on-thejob training, and
work experience.
The practice of
paying a real wage
rate above the
equilibrium level
and then rationing
jobs by some
method.
The activity of
looking for an
acceptable vacant
job.
Real GDP per hour
of labour.
As a firm uses
more of a variable
input, with a
given quantity of
other inputs
(fixed inputs),
the marginal
product of the
30
Learning-by-doing
30
Long-run aggregate
supply curve
30
Marginal product
of labour
30
Minimum wage
30
Money wage rate
30
Production
function
30
Quantity of labour
demanded
30
Quantity of labour
supplied
30
Real wage rate
variable input
eventually
diminishes.
People become more
productive in an
activity (learn)
just by repeatedly
producing a
particular good or
service (doing).
The relationship
between the
quantity of real
GDP supplied and
the price level in
the long run when
real GDP equals
potential GDP.
The additional
real GDP produced
by an additional
hour of labour
when all other
influences on
production remain
the same.
A regulation that
makes the hiring
of labour below a
specified wage
rate illegal.
The number of
dollars that an
hour of labour
earns.
The relationship
between real GDP
and the quantity
of labour employed
when all other
influences on
production remain
the same.
The number of
labour hours hired
by all the firms
in the economy.
The number of
labour hours that
all households in
the economy plan
to work.
The quantity of
goods and services
that an hour's
work can buy. It
is equal to the
30
Short-run
aggregate supply
curve
30
Supply of labour
31
Aggregate
production
function
31
Classical growth
theory
31
Growth accounting
money wage rate
divided by the
price level and
multiplied by 100.
A curve that shows
the relationship
between the
quantity of real
GDP supplied and
the price level in
the short run when
the money wage
rate, other
resource prices,
and potential GDP
remain constant.
The relationship
between the
quantity of labour
supplied and the
real wage rate
when all other
influences on work
plans remain the
same.
The relationship
between the
quantity of real
GDP supplied and
the quantities of
labour and capital
and the state of
technology.
A theory of
economic growth
based on the view
that real GDP
growth is
temporary and that
when real GDP per
person increases
above subsistence
level, a
population
explosion brings
real GDP back to
subsistence level.
A method of
calculating how
much real GDP
growth results
from growth of
labour and capital
and how much is
attributable to
technological
change.
31
31
Labour
productivity
Law of diminishing
returns
31
Neoclassical
growth theory
31
New growth theory
31
One-third rule
31
Productivity curve
Real GDP per hour
of labour.
As a firm uses
more of a variable
input, with a
given quantity of
other inputs
(fixed inputs),
the marginal
product of the
variable input
eventually
diminishes.
A theory of
economic growth
that proposes that
real GDP per
person grows
because
technological
change induces a
level of saving
and investment
that makes capital
per hour of labour
grow.
A theory of
economic growth
based on the idea
that real GDP per
person grows
because of the
choices that
people make in the
pursuit of profit
and that growth
can persist
indefinitely.
The rule that,
with no change in
technology, a 1
percent increase
in capital per
hour of labour
brings, on the
average, a onethird of 1 percent
increase in real
GDP per hour of
labour.
A relationship
that shows how
real GDP per hour
of labour changes
as the amount of
capital per hour
of labour changes
31
Subsistence real
wage rate
32
Dumping
32
Exports
32
General Agreement
on Tariffs and
Trade
32
Imports
32
Infant-industry
argument
32
Net exports
32
Nontariff barrier
32
North American
Free Trade
Agreement
32
Quota
with a given state
of technology.
The minimum real
wage rate needed
to maintain life.
The sale by a
foreign firm of
exports at a lower
price than the
cost of
production.
The goods and
services that we
sell to people in
other countries.
An international
agreement signed
in 1947 to reduce
tariffs on
international
trade.
The goods and
services that we
buy from people in
other countries.
The argument that
it is necessary to
protect a new
industry to enable
it to grow into a
mature industry
that can compete
in world markets.
The value of
exports minus the
value of imports.
Any action other
than a tariff that
restricts
international
trade.
An agreement,
which became
effective on
January 1, 1994,
to eliminate all
barriers to
international
trade between the
United States,
Canada, and Mexico
after a 15-year
phasing-in period.
A quantitative
restriction on the
import of a
particular good,
32
Tariff
32
Terms of trade
32
Voluntary export
restraint
32
World Trade
Organization
which specifies
the maximum amount
that can be
imported in a
given time period.
A tax that is
imposed by the
importing country
when an imported
good crosses its
international
boundary.
The quantity of
goods and services
that a country
exports to pay for
its imports of
goods and
services.
An agreement
between two
governments in
which the
government of the
exporting country
agrees to restrain
the volume of its
own exports.
An international
organization that
places greater
obligations on its
member countries
to observe the
GATT rules.