Economics Micro & Macro (CliffsAP)

ceteris paribus:Latin phrase meaning all other things held equal or constant.

circular flow diagram:An illustration that demonstrates the flow of output and income between the government,

households, and firms.

classical economics:An economic perspective that states that real national income is determined by aggregate supply

and that the economy is self-correcting.

closed shop:A workplace in which union membership is a condition of employment.

collective bargaining:A process of negotiation between union management and labor management to settle contract

discrepancies.

commercial bank loan:A loan that comes from a bank at market interest rates.

commodity money:Money that has intrinsic value and that has more than three functions (store of value, medium of

exchange, and unit of account).

comparable worth:The notion that wages should be determined by job characteristics rather than the forces of supply

and demand.

comparative advantage:When one entity has a lower opportunity cost than another entity in the production of a good

or service.

complementary goods:Goods that are used together (such as DVD movies and DVD players); when the price of one

rises, the demand for the other shifts to the left.

constant returns to scale:Unit costs remain stable as the quantity of production is increased and all the resources are

variable.

consumer price index:An index that has been created using a “market basket” of goods; its purpose is to measure the

price level for consumer-bought goods and services in the economy.

consumer sovereignty:The authority consumers have by purchasing power to determine what is produced and how

much it is sold for.

consumption:Expenditures by the household sector on goods and services calculated in a single year.

contraction:A period of declining GDP, usually preceded by a peak in GDP.

contractionary fiscal policy:Governmental action used to contract real GDP. Policy includes the raising of taxes

and/or decreasing government spending. It is used to deal with inflation.

contractionary monetary policy:Central banking policy used to deal with inflation by decreasing the money supply.

copyright:Exclusive privilege granted by the government to reproduce, publish, and distribute with intentions of

obtaining revenue.

corporation:A legal grouping or entity owned by shareholders whose liability is limited to the value of the stock

they own.

cost-benefit analysis:The process of evaluating the costs and benefits of choices to arrive at a decision.

cost-of-living adjustment (COLA):An increase in wages that is designed to match increases in the price level. Its main

goal is to stabilize consumer purchasing power.

cost-push inflation:Inflation caused by the increase in prices for business costs of production.

coupon:A fixed amount that a borrower agrees to pay a bondholder each year.

credit:Available savings that are lent to borrowers for consumption.

Glossary

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