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Glossary • 485Excludability A legal concept that when enforced allows an owner to exclude othersfrom using his asset. An institution is always required to make an asset excludable,but some by their very nature are nonexcludable (e.g., the ozone layer).If the asset is rival (a physical property), then excludability is more or less natural.If the asset is nonrival, then excludability is typically more difficult but sometimespossible, as in the case of patents.Exponential growth Growth at a constant percentage rate (fixed doubling time).Exponential growth leads to very large numbers surprisingly quickly.Externality An unintended and uncompensated loss or gain in the welfare of oneparty resulting from an activity by another party.Extrinsic incentivesFallacy of composition The argument that what is true for the part must necessarilybe true for the whole, or vice versa.Fallacy of misplaced concreteness To mistake the map for the territory, to be unmindfulof the degree of abstraction in an argument, especially to draw conclusionsat a level of abstraction (or concreteness) different from the level ofabstraction of the concepts in which the argument is conducted.Federal Reserve System A coordinated system of district central banks in theU.S. that influences interest rates and money supply by means of open-market operations,discount rate changes, and reserve ratio requirements.First Law of Thermodynamics Neither matter nor energy can be created or destroyed.Fiscal policy The attempt to influence GNP, employment, interest rates, and inflationby manipulating government expenditure and taxes.Fixed exchange rate regime A regime in which the value of one country’s currencyis pegged to another country’s (typically the U.S. dollar).Flexible exchange rate regime A regime in which exchange rates are determinedby the global supply and demand for currencies, and central banks play no directrole.Floating exchange rate regime See “flexible exchange rate regime.”Fossil fuels Petroleum, coal, natural gas. Fuels formed over geologic ages from bioticmaterials but now treated as nonrenewable abiotic resources.Fractional reserve banking The practice of keeping on hand reserves against depositsthat are only a small fraction of deposits, so that banks can lend the difference.This practice allows the private banking sector to create money, sincedemand deposits are counted as money.Free rider One who enjoys the benefit of a public good without paying a share ofthe cost of its provision and maintenance.Fund-service resources Resources not materially transformed into what they produce(efficient cause), which can be used only at a given rate, and their productivityis measured as output per unit of time; cannot be stockpiled; and are wornout, rather than used up. See “stock-flow resources.”General equilibrium model The vision of the economy as a giant system of thousandsof simultaneous equations balancing the supply and demand and determiningthe price and quantity for each commodity in the economy.