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GLOSSARY
Aggregate demand. The amount of planned spending on domestic goods and
services at each level of aggregate income.
Automatic stabilizers. Mechanisms in the economy, such as the income tax,
that automatically reduce response of GNP to shifts in aggregate demand.
Barter economy. One without any commonly accepted medium of exchange.
Goods are traded directly for other goods.
Bretton Woods system. An exchange-rate system in which countries maintain a
fixed exchange rate with respect to other currencies. This system was used for
major currencies during the Bretton Woods period from 1944 to 1971. (Bretton
Woods is a resort in New Hampshire where the international negotiations to set
up the new system took place).
Business cycle. The more or less regular pattern of expansion (recovery) and
contraction (recession) in real output around the economy’s average or trend
growth path.
Currency. Money used in hand-to-hand circulation, equal in modern economies
to the amount of coins and notes held by individuals and businesses aside from
banks.
Deflation. Occurs when average prices fall, i.e. when the inflation rate is
negative.
Dollar standard. Under the dollar standard, countries fixed the value of their
currencies in terms of dollars. They also maintained convertibility of their
currencies into dollars.
Dumping. Takes place when firms sell abroad at a price below cost.
European Monetary System. A system in which several European countries
maintain their exchange rates against each other fixed, with occasional
adjustments.
Federal Reserve (Fed). The central bank of the United States; controls the
money supply, lends to commercial banks, and performs other functions.
Gold standard. An exchange rate and monetary system in which central banks
or governments were obliged to buy and sell gold at a fixed price in terms of
their currencies.
Indexation. Automatically adjusting payments for the effects of inflation using
a price index.
International Monetary Fund (IMF). The IMF is an international institution
located in Washington, D.C. It was set up in 1945 to be the central banks’
banker, as part of what is now known as the Bretton Woods system of post-
World War II international finance.
Keynesian economics. The body of thought developed by John Maynard
Keynes holding that a capitalist system does not automatically tend toward a
full-employment equilibrium. According to Keynes, the resulting
underemployment equilibrium could be cured by fiscal or monetary policies to
raise aggregate demand.
