5/15/12

Economics Glossary: M



M1 (transactions money) – Money that can be used directly to conduct transactions, such as currency, traveler’s checks, and checkable deposits owned by individuals and businesses.

M2 (broad money) – M1 plus savings accounts, money market accounts, and other types of accounts that can be liquidated quickly but not immediately.

Macroeconomics – The branch of economics that examines the economic behavior of aggregates – GDP, income, employment, the interest rate, output, etc.

Margin – The next one/last one.  Choices made on the margin consider all relevant alternatives systematically and incrementally. 

Marginal benefit – The benefit that arises from a one-unit increase in a given activity.  The change in total benefit divided by the change in quantity consumed or action taken.

Marginal cost – The opportunity cost that arises from a one-unit increase in a given activity.  The change in total cost divided by the change in quantity produced or action taken.

Marginal cost pricing rule – A rule generally enforced by the government in a monopoly market that sets price equal to marginal cost in order to achieve an efficient output.

Marginal external benefit – The benefit from an additional unit of a good or service that people not involved in the original transaction enjoy. 

Marginal external cost -- The cost of producing an additional unit of a good or service that falls on people not involved in the original transaction.

Marginal private benefit – The benefit from an additional unit of a good or service that the consumer involved in the transaction receives.

Marginal private cost – The cost of producing an additional unit to the producer of that good or service involved in the transaction.  

Marginal product – The change in total product because of a one-unit increase in the quantity of a variable input (usually labor).

Marginal propensity to consume (MPC) – The fraction of a change in income that is spent on consumption (while the rest is saved).

Marginal propensity to import (MPM) – The change in imports caused by a one unit increase in income (usually greater than zero but less than 1).

Marginal propensity to save (MPS) – The fraction of a change in income that is saved (or 1 –MPC).

Marginal rate of transformation (MRT) – The slope of the production possibilities frontier (PPF).  It shows the opportunity cost of “transforming” one good into another, also known as the trade off.

Marginal revenue – The change in total revenue that results from a one-unit increase in the quantity of the good or service that is sold.

Marginal social benefit – The marginal benefit that is enjoyed by society, both those involved and not involved in the original transaction.

Marginal social cost – The marginal cost incurred by society, both those involved and not involved in the original transaction.

Marginalism – The process of analyzing the additional or incremental costs or benefits that occur when faced with a decision. 

Marginally attached worker – A person who does not currently have a job but is available and willing to work, however they have not made specific efforts to find a job in the previous month but has 
looked for a job in the recent past.

Market – The institution through which buyers and sellers can interact and conduct exchange of goods and services.

Market demand – The sum of all quantities of a good or service demanded by all consumers within a given time period. 

Market equilibrium – When the quantity demanded of a good or service equals the quantity supplied. 

Market supply – The sum of all quantities of a good or service supplied by producers within a given time period.

Means of payment – The decided method for settling a debt.

Medium of exchange – what sellers will generally accept and what buyers are generally able to use as payment for goods and services.

Microeconomics – The branch of economics that examines the behavior of individual industries and the behavior of individual decision making agents.  In particular microeconomics focuses on the decision making behavior of firms and households.

Minimum wage – A price floor that is set for the price of labor.

Minimum wage laws – Laws that set a price floor for wage rates.  It creates a minimum hourly rate for any kind of labor.

Model – A formal statement of a theory which is usually a mathematical statement of a relationship between two or more variables.

Modern economic growth – The period of rapid and sustained increase in real output per capita that began after the Industrial revolution.

Monetarist macroeconomics – The view that the market economy works well and that aggregate fluctuations  are a natural consequence of a growing economy, however changes in the quantity of money also affect the business cycle.

Monetary base – The sum of all coins, Federal Reserve notes, and the banks’ reserves held at the Federal Reserve.

Monetary policy – The policy options available to the Federal Reserve (or Central Bank) concerning a nation’s money supply.  Generally involves changing the money supply, interest rate, or reserve requirements.

Money – Any commodity or token that is generally accepted as a means of payment in a transaction.

Money market – The market where financial instruments are exchanged and where the equilibrium interest rate is determined (where money demanded and money supplied curves cross).

Money multiplier – The multiple by which deposits can increase for every dollar added to the bank’s reserves.  The money multiplier is equal to 1 divided by the required reserve ratio, so a RRR of 0.1 would mean that the money multiplier would be 10.

Monopolistic competition – A market where a large number of firms compete by making a similar but slightly different product.

Monopoly – A market where one firm sells a good or service that has no close substitutes and there exists a barrier to entry for any new firms.

Moral suasion – The pressure that the Federal Reserve has exerted on banks to discourage them from borrowing heavily from the Fed.

Mortality rate – The death rate which is equal to the number of deaths per year divided by the population multiplied by 100.

Movement along the demand curve – The change in quantity demanded (moving along the curve) brought about by a change in price.  Note that the demand curve doesn’t move with a “movement along the demand curve”.  See also: “change in quantity demanded”.

Movement along the supply curve -- The change in quantity supplied (moving along the curve) brought about by a change in price.  Note that the supply curve doesn’t move with a “movement along the supply curve”.  See also: “change in quantity supplied”.

Multiplier – The ratio of the change in the equilibrium level of output with respect to a change in some other exogenous variable.

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