Holt 7525-9 S15_IT

Less developed country (LDC) – has a
relatively low per capita Real GDP.
License – a permit issued by the government
authorizing a person to conduct a certain type
of business.
Liquid asset – an asset that can be converted
quickly into cash at a low transaction cost.
Logrolling – vote trading in order to pass
legislation.
Long run – a period in which all inputs can be
varied.
Long-run equilibrium – when Real GDP is
equal to Natural Real GDP.
Loopholes – exclusions and exemptions from
income, deductible expenses, and tax credits.
Lorenz curve – contrasts the actual
distribution of income with perfect equality.
M1 – consists of currency in circulation plus
checkable deposits.
M2 – consists of M1 plus small-denomination
time deposits, savings deposits, and money
market accounts.
Macroeconomics – the branch of economics
that focuses on overall economic behavior.
Marginal cost – the change in total cost that
results from producing an additional unit of
output.
Marginal factor cost (MFC) – the additional
cost from employing an additional factor unit.
Marginal physical product (MPP) – the
change in output with one additional unit of
input.
Marginal propensity to consume (MPC) –
the slope of the consumption function.
Marginal rate of substitution – the quantity
of one good that a consumer is willing to
sacrifice to obtain a unit of another good.
Marginal revenue – the change in total
revenue from selling one additional unit of
output.
Marginal revenue product (MRP) – the
change in total revenue from employing an
additional factor unit.
Marginal social benefit (MSB) – the value
(benefit) to society of the marginal unit of
output.
Marginal social cost (MSC) – the cost to
society of producing the marginal unit of
output.
Marginal utility – the additional utility
received from consuming an additional unit of
a good.
Market failure – occurs when the market does
not produce the optimal quantity of output.
Market power – the ability of a seller or a
buyer to affect market price.
Merger – the combining of two separate
companies into one.
Microeconomics – the branch of economics
that focuses on the components of the
economy.
Misperception effect – If the price level
changes, both workers and producers may
misperceive the effect of the change in the
price level.
Monetary base – currency in circulation plus
bank reserves.
Monetary policy – changes in the money
supply to achieve macroeconomic goals.
Money – whatever is generally accepted as a
medium of exchange.
Money creation – increases in checkable
deposits made possible by fractional reserve
banking.
Monopolistic competition – many sellers of
similar products.
Monopoly – a firm that is the lone seller of a
product with no close substitutes.
Monopsony – a lone buyer in a factor market.
Moral hazard – one party to an exchange
changes his or her behavior in a way
unexpected by and detrimental to the other
party.
Multiplier effect – according to Keynesian
theory, an initial change in Total Expenditures
will lead to a multiplied change in Real GDP.
Nash equilibrium – the outcome when each
game player has chosen their best strategy,
assuming that all other players have also
chosen their best strategies.
National debt – the total amount the federal
government owes its creditors.
National defense argument – argument for
trade restrictions that says that national
defense concerns may require certain trade
restrictions.
National income – total output measured as
the sum of all payments to resource owners.
Natural monopoly – an industry in which
economies of scale are so important only one
firm can survive.
Natural Real GDP – the quantity of total
output that results in the natural
unemployment rate.
Natural unemployment rate – the lowest
unemployment rate that can be sustained
without causing increasing inflation.
Net exports – exports minus imports.
Net worth – a firm’s assets minus its liabilities.
Nonexcludable good – nonpayers cannot
easily be excluded from consuming the good.
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