Federal Reserve and Regulation
Open market operations, discount window, and reserve requirements
Tools of the Fed
A benefit obtained without compensation by third parties from the production or consumption of sellers or buyers.
Positive externality
The difference between the actual price a producer receives ( or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price.
Producer Surplus
A good or service whose consumption increases when income increases and falls when income decreases.
Normal Goods
The difference between GDP that is adjusted for inflation and that is not.
Nominal Vs Real GDP
Maximum employment and price stability
Role of the Fed
A cost imposed without compensation on third parties by the production or consumption of sellers or buyers.
Negative Externalities
The difference between the maximum price a consumer is (or consumers are ) willing to pay for an additional unit of a product and its market price.
Consumer Surplus
A good or service that is individually consumed and that can be profitably provided by privately owned firms because they can exclude nonpayers from receiving the benefits.
Private Goods
A rise in the general level of prices in an economy; an increase in an economy’s price level.
Inflation
The interest rate that U.S. banks and the other nonbank financial firms charge one another on overnight loans of currency held on deposit at one of the twelve Federal Reserve Banks.
Fed Fund Rate
A problem arising when information known to one party to a contract or agreement is not known to the other party, causing the latter to incur major costs.
Adverse selection problem
A reduction in the total net benefit that society can obtain from its limited supply of resources.
Deadweight Loss
A good or service that is characterized by nonrivalry and nonexcludability. These characteristics typically imply that no private firm can break even when attempting to provide such products. As a result, they are often provided by governments, who pay for them using general tax revenues.
Quasi-public goods
An index that measures the prices of a fixed “market basket” of some 300 goods and services bought by a “typical” consumer.
Consumer Price Index
The situation that occurs when a governmental regulatory agency ends up being controlled by the industry that it is supposed to be regulating.
Regulatory Capture
The possibility that individuals or institutions will behave more recklessly after they obtain insurance or similar contracts that shift the financial burden of bad outcomes onto others.
Moral Hazard
An inflation rate that exhibits resistance to change, including in response to monetary or fiscal policy shifts that would normally be expected to alter the inflation rate substantially.
Sticky Prices
A good or service that is characterized by nonrivalry and nonexcludability. These characteristics typically imply that no private firm can break even when attempting to provide such products. As a result, they are often provided by governments, who pay for them using general tax revenues.
Public Goods
Recurring increases and decreases in the level of economic activity over periods of years consist of peak, recession, trough, and expansion phases.
Business Cycle
financial benefit provided by a government or organization to an individual, business, or industry
Subsidy
The idea, that some externalities can be resolved through private negotiations among the affected parties.
Coase Theorem
The sum of consumer surplus and producer surplus.
Total Surplus
high-quality, non-essential products whose demand increases disproportionately as consumer wealth rises.
Luxury Goods
The failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.
Unemployment