Economics Glossary: R

Rate of return regulation – A regulation that sets the price at a level that enables a firm to earn a specific rate of return.

Ration coupons – A method of allocating goods using a nonprice mechanism.  Involves tickets or coupons that entitle individuals to purchase or receive a certain amount of a given good or service within a given time period.

Rational choice – A choice that sues the available information and resources to achieve the best outcome for the person making the choice.

Rational-expectation hypothesis – The idea that people understand how the economy works and that they use this knowledge and available information to make plans for the future.

Real business cycle theory – A theory that attempts to explain the business cycle fluctuations and assumes that prices and wages are completely flexible and that people have rational expectations.  This theory also stresses the importance of shocks to the economy, such as technological and supply shocks as a reason for the fluctuations.

Real GDP – The value of all final goods and services produced in a given year expressed in terms of prices from the base year.

Real GDP per person – The amount of Real GDP divided by the current population.

Real interest rate – The difference between the nominal interest rate and the inflation rate.

Real wage rate – The amount of goods and services the nominal wage can rate can buy.

Real wealth effect, real balance effect – The change in consumption that occurs when there is a change in real wealth for an individual that is caused by a change in the price level.

Realized capital gain – The gain that occurs when an owner of an asset sells the asset for more than she originally paid for it.

Recession, clump, contraction – A period during which aggregate output goes down.  A rule of thumb for identifying a recession is that output decline for two consecutive quarters (about 6 months).

Recessionary gap – A gap that exists when potential GDP exceeds real GDP which then results In a falling price level (occurs with a decrease or leftward shift in AD).

Recognition lag – The time it takes for policy makers to identify the existence of a slump or boom in the economy.

Reference base period – The year when the CPI (consumer price index) is defined to be 100.

Regulation – Rules by the government to influence prices, quantities, entry, or other economic activities by firms and industries. 

Relative-wage explanation of unemployment – A possible explanation for sticky wages and unemployment.  If workers worry about their wages relative to other workers, they may be unwilling to accept a decline in their wages unless they are confident that all workers will receive similar wages.

Rent ceiling – A price ceiling applied to the housing/apartment market.

Rent seeking – The act of lobbying or engaging in other political activity with the goal of capturing gains from trade.  The goal is to divert surplus from consumers or the government to producers by obtaining special treatment from the government to engage in non-perfectly competitive markets.

Rental income, rent – The income received by property owners. 

Required reserve ratio – The percentage of a bank’s total deposits that it must keep as reserves at the Federal Reserve.

Reserves – The deposits that a bank has at the federal reserve bank plus the cash it has available on hand.

Residential investment – The expenditures by households on new houses.

Response lag – The time that it takes for an economy to adjust to a new policy implemented by the government.

Rule of 70 – The number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth of the variable you are considering.  For example, if something grows at a rate of 10% per year, it will take 7 years to double in size (70/10=7).

Run on a bank – This occurs when people are scared that a bank may not be able to satisfy all of the withdrawal demands and therefore all approach the bank at the same time creating a problem.  This is an example of a self-fulfilling prophecy, because normally a bank would be able to handle all of the demand but when everyone approaches at once, it cannot satisfy everyone’s wishes.

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