fractional reserve banking system:A system in which banks must keep some percentage of a deposit in the form of
reserves.
free enterprise:A market economy with no government regulation.
free rider:A person who benefits from a public good without sharing its costs.
frictional unemployment:Unemployment of people who are temporarily between jobs.
full employment:When between 95 and 96 percent of the labor force is employed.
functional distribution of income:The way in which income is divided by economic functions.
G
game theory:A tool for analyzing oligopoly behavior; predicts a firm’s pricing decisions based on its competitors’
decision to increase or decrease prices.
GDP gap:The difference between potential GDP and real GDP.
gold standard:A system in which each nation sets the value of its currency in accordance with the amount of gold it
possesses.
good:An item that usually satisfies a need or want.
government budget:A listing of government’s spending and income for a period of one year.
gross domestic product:The total value of all final goods and services produced on a nation’s soil within a specific year.
gross national product:The total dollar value of all final goods and services produced in an economy during one year.
H
homogeneous products:Goods that have no variance from one producer to another.
horizontal merger:A combining of two companies in the same market.
household sector:The part of a nation’s economy in which the consumers are the owners of the factors of production,
and households provide the factors of production to businesses for a monetary payment.
human capital:Intangible skill (knowledge) individuals possess used to produce goods.
human resources:Individuals who are productive aids in creating goods and services.
I
imports:Goods and services that one country demands from another country.
incentives:Factors that aid the decision-making process when dealing with scarcity.
income:Money that is earned by households and businesses.
income distribution:The allocation of earnings in an economy between the various economic classes.
income effect:The effect of increasing or decreasing prices on the purchasing power of income.
CliffsAP Economics Micro & Macro
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