Capital – The things are used as an input in the production
of other goods and services. Can be
broken down into physical capital (tools, factories, robots, shovels, etc.)
human capital (education, knowledge, experience, etc.) and natural capital
(land, air, water, oil, etc.)
Capital flight – When both human and financial capital leave
developing countries in search of higher rates of return (higher wages, or
rents) typically in developed countries.
This is similar to brain drain.
Capital gain – An increase in the value of a financial
asset.
Capital goods – Goods that are bought by firms to increase
their productive capacity.
Capital market – The factor/input market where households
supply savings, and firms demand funds to buy capital goods.
Capital-intensive technology – A production technique that
uses a larger amount of capital relative to labor.
Capture theory – The theory that regulation serves the
interest of the producer and results in maximized profit, underproduction and a
deadweight loss to the economy.
Cartel – A group of firms acting together to limit out in an
attempt to raise prices and increase economic profit. Or a group of firms attempting to behave as a
monopoly.
Cartesian coordinate system – A method of graphing two
variables in a graph that uses two perpendicular lines as a mapping system.
Catch up – The theory suggesting that the growth rate of
developing country should be higher than the growth rate of developed
countries, and that this fact will allow the developing countries to “catch
up”. Most often shown in the catch up
curve graph.
Central bank – A public institution that provides banking
services to banks and governments. It
can also regulate the financial institutions and markets. In the United States, there is no central
bank, but the Federal Reserve has similar duties.
Ceteris paribus, or all else equal –A method used to analyze
the relationship between two variables and ONLY those two variables (hence
everything else equal). All of the other
variables in the analysis should remain unchanged so the true relationship
between the two variables is understood.
An example would be the law of demand, as price rises quantity demand
goes down ceteris paribus (meaning income, preferences, etc, don’t change).
Chained-dollar real GDP – The measure of real GDP as
calculated by the Bureau of Economic Analysis.
Change in business inventories – The amount of the change in
inventories for all firms within a given time period. Inventories are the goods produced by firms
in the current time period, but will not be sold until future time periods.
Change in demand or a shift in demand – A change in one of
the determinants of demand, or one of the factors influencing demand that
before was held constant. Note that a
change in price does NOT result in a change in demand.
Change in quantity demanded – A change in the quantity of a
good or service that people buy that results from a change in price of the good
or service, ceteris paribus (everything else equal). This typically occurs due to a shift in the
supply curve or change in supply.
Change in quantity supplied – A change in the quantity that
suppliers supply that results from a change in price of the good or service,
ceteris paribus (everything else equal).
This typically occurs due to a shift in the demand curve, or a change in
demand.
Change in the quantity supplied – A change in one of the
determinates of supply, or one of the factors influencing supply that before
was held constant. Note that a change in
price does NOT result in a change in supply.
Circular flow diagram– A diagram showing the income and
payments received by each sector (traditionally households and firms, but may
include government and the rest of the world) of the economy.
Classical economics – The view that the market economy works
well, and that aggregate fluctuations are a natural occurrence of an expanding
economy. They also believe that
government intervention cannot improve the efficiency of a market economy. They believe in the presence of the Long Run
Aggregate Supply Curve (LRAS) and that all resources are used efficiently and
at capacity.
Coase Theorem – The proposition that if property rights
exist, only a small number of parties are involved, and the transactions costs
are 0, then private transactions are efficient and the outcome is not affected
by who is assigned the property right.
Typically an argument used by free market economists as a solution to
solve negative externality problems such as pollution.
Command economy – An economy where a central government sets
prices, incomes, and output targets. The
central government may have a direct or indirect role.
Commodity monies –
Goods used as money that also have value in some other use. For example, gold, jewelry, shells, food, or
perhaps cigarettes.
Comparative advantage – When an individual or a country can
produce a good or service at a lower opportunity cost than another individual
or country. For example, if Britain’s
opportunity cost of producing a bag of tea is ½ bag of coffee, while America’s
opportunity cost of a bag of tea is 1 bag of coffee then Britain has the
comparative advantage in making tea.
Compensation of employees – Includes wages, salaries, and
various other benefits that are paid to households by firms and the government.
Complement in production – A good that I produced along with
another good. For example, steaks and
hamburgers are outputs from the same input (and use different parts of the
input).
Complements or complementary goods – Goods that go well
together. This usually means that a
decrease in the price of one good will result in an increase in demand for the
other, or the price increases for one good demand will fall for the other. Examples include hot dogs and hot dog buns,
cars and gasoline, bread and deli meat, or beer and aspirin. Also note that complements are the opposite
of substitutes.
Constant returns to scale --
When a firm increases its plant size and labor employed by the same
percentage, the output produced by the firm will increase by the same
percent. Long run average total cost
will remain the same.
Constrain supply of labor – The amount a household will
actually work in a given period of time at the current wage rate.
Consumer goods – goods produced for consumption, usually
during the present time period.
Consumer price index (CPI) – A price index computed each
month by the Bureau of Labor Statistics using a bundle of goods and services
that is meant to represent the market basket purchased monthly by a typical
United State’s citizen.
Consumer sovereignty – The idea that consumers choose what
will or will not be produced by choosing what to and what not to buy.
Consumer surplus – The difference between the maximum amount
a person is willing to pay (the demand curve) for a good or service and the
price they have to pay (equilibrium price).
Usually calculated as the area of a triangle: ½(difference between max
WTA and price * quantity sold).
Consumption expenditure – The expenditure by households on
goods and services.
Consumption function – The relationship between consumption
and income, and usually includes two components: autonomous consumption
(intercept) and marginal propensity to consume (the slope).
Contraction, recession, or slump – The period in a given
business cycle from a peak down to the trough during which GDP/output fall and
unemployment rises.
Contractionary fiscal policy – Government policy designed to
reduce aggregate output or GDP through a shift in the aggregate demand curve
(AD). Can either be done by increasing
taxes, or reducing government expenditures.
Contractionary monetary policy – Central Bank (or Federal
Reserve) policy designed to reduce aggregate output or GDP through a shift in
the aggregate demand curve (AD). Usually
done in an attempt to fight high inflation.
Can be done by either increasing the discount rate, selling bonds (thus
lowering the money supply), or increasing reserve requirements.
Core inflation rate – The annual percentage increase in the
PCE price index excluding the change in prices of food and energy.
Corporate bonds – Promissory notes issued by firms in an
attempt to acquire funds.
Corporate profits – The difference between revenues and
costs of a corporation.
Cost of living adjustments – Contract items that changes
wages or payments to match changes in inflation. Higher inflation rates mean higher wages or
payments.
Cost of living index – A measure of the change in the amount
of money that people need to spend to achieve a given stand of lving.
Cost shock, or supply shock – A change in costs that shifts
the short run aggregate supply curve (SRAS).
Cost-push inflation – Inflation that is caused by an initial
increase in wages, which is then followed by an increase in aggregate demand (a
rightward shift of AD which leads to an inflationary gap).
Cost-push or supply-side inflation – Inflation that is
caused by an increase in costs.
Cross price elasticity of demand – A measure of the
responsiveness of the demand for a good to a change in the price of another
good. The CPEoD for complements is
negative, substitutes is positive, and it is near 0 for goods that are entirely
independent.
Cross-section graph – A graph that shows the values of an
economic variable for different groups in a given point of time for a given
population.
Crowding out effect – When private investment and
consumption fall because of an increase in government spending or a reduction
in taxes. This occurs because the
government must borrow money which leads to increases in the interest rate. The increased interest rates increase the
opportunity cost for money and decrease the amount borrowed by private firms
and consumers.
Currency – Bills and coins produced by a government or
institution.
Currency debasement – The decrease in the value of a
currency that occurs when its supply is rapidly increased.
Current dollars – The current prices that consumers pay for
goods and services.
Cyclical deficit – A deficit that occurs because of a
downturn in the economy (generally brought on by automatic stabilizers).
Cyclical unemployment – The increase in unemployment that
occurs during downturns in the economy (recessions and depressions).
