Glossary terms from Johnson

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A selection of glosssary terms from Johnson < http://www.auburn.edu/~johnspm/gloss/>

These terms are defined here: Aggregate demand / Aggregate supply / Banking / Budget / Budget deficit / Budget surplus / Business cycle / Capital / Capitalism / Checks and balances / Cost / Communism / Discount rate / Economics / Federal Reserve System / Fiscal policy / Gross Domestic Product (GDP) / Human capital / Inflation / Laissez-faire / Demand, law of / Supply, law of / Monetary policy / Libertarianism / Separation of powers

Aggregate demand

Also more accurately referred to as aggregate expenditure, this is one of the key concepts introduced by John Maynard Keynes that still today is at the heart of most macroeconomic theories about the determination of the overall level of employment (and thus the level of national income produced) in a country's economy during a given year. Although there have turned out to be a number of logical problems and ambiguities in making the analogy work, Keynes's original basic notion was that “aggregate demand” represented a sort of grand total or summarization of all the various demand schedules for all the millions of different goods and services produced in a country's national economy. Thus, Keynes reasoned, just as the microeconomic theorist can fruitfully analyze the relationship between the various quantities of a particular good or service that will be purchased by consumers at various prices on a single market by means of a demand schedule or demand curve, the macroeconomic theorist can make similarly good use of an aggregate demand schedule or aggregate demand curve as a means for analyzing the relationship between the various possible grand totals of all goods and services purchased in the national economy (as measured by their total monetary value in the form of a national product estimate like GNP or GDP) and the general price level (as measured by some sort of comprehensive price index rather like those whose yearly rates of change are commonly used to measure inflation). Once he had the brainstorm that one could sum up all the demand schedules for individual goods into a single grand total “aggregate demand schedule,” it was not much of a mental leap for Keynes to conclude that it might be useful first to divide up aggregate demand into a small number of “subtotal” aggregate demand schedules whose interrelationships might help explain such large-scale macroeconomic phenomena as the business cycle, inflation, economic growth and the like. Thus Keynes invented most of the basic ideas of what is today the macroeconomists' conventional system of national income accounting when he formulated his famous aggregate demand identity

Y = C + I + G + (X - M)

which simply means that a single country's aggregate demand for national product (Y) is always equal to the total demands of its households for Consumer goods and services (C), plus the total demands of its firms for Investment goods (I), plus the total demands of its various Government agencies for goods and services (G), plus the net demands of foreign consumers, firms and governments for the country's goods and services (exports minus imports).

See also:* aggregate supply,* macroeconomics,* Gross National Product (GNP),* fiscal policy,* investment

Aggregate supply

Another of the concepts introduced by John Maynard Keynes that still today are used in macroeconomic theories about the determination of the overall level of employment and national income. Like his concept of aggregate demand, the basic notion of aggregate supply was created by analogy to a microeconomic concept originally applying only to an analysis of the market for a single product — in this case, the concept of a supply schedule. Thus, Keynes reasoned, just as the microeconomic theorist can fruitfully analyze the relationship between the various quantities of a particular good or service that will be produced and offered for sale by firms at various prices on a single market by means of a supply schedule or supply curve, the macroeconomic theorist can make similarly good use of an aggregate supply schedule or aggregate supply curve to depict the relationship between the various possible grand totals of all goods and services produced and offered for sale in the national economy (as measured by their total monetary value in the form of a national product estimate like GNP or GDP) and the general price level (as measured by some sort of comprehensive price index rather like those whose yearly rates of change are commonly used to measure inflation).

See also:* aggregate demand,* macroeconomics,* Gross National Product (GNP),* fiscal policy

Banking

In the broadest sense of the term, “banking” is the business of accepting temporary responsibility for safeguarding other people's money (“deposits”) and then lending out these funds (along with the bankers' own funds) in order to earn interest for the bank's own account. Banking firms thus earn their profits primarily by serving as “financial intermediaries” who mobilize the scattered savings of many households and firms (by offering safekeeping services and paying interest on at least some kinds of accounts) and then make these pooled funds available to suitable borrowers (to business firms that want to finance proposed investment projects or perhaps to consumers who want to finance big ticket durable consumers' goods like automobiles or perhaps to governmental entities whose policy-makers have decided to spend more money than they have received in revenue collections). The bank pledges its own capital (and also buys outside deposit insurance) to guarantee that any depositor can get all his/her money back in cash no later than some contractually specified length of time after giving notice of withdrawal. The bank makes this somewhat risky guarantee even though it is quite predictable that some (hopefully small) percentage of the loans the bankers make using depositers' funds will “turn sour” and not be repaid by the borrower. The bank's profits arise mainly from the (positive) spread between its costs of securing and servicing deposits and its revenues from fees and interest on the loans extended. (Of course banks frequently seek to make additional profits selling other financial services to their clients and customers as well, but the business of accepting deposits and making loans is the defining core of the banking business.)

Not all firms engaging in “banking” in this broad sense are officially called “banks.” Savings and loan associations, credit unions and other miscellaneous thrift institutions provide similar services under other names. The laws of the United States and most other developed industrial countries provide for multiple types of financial intermediary institutions whose official “labels” normally depend upon the selected purposes for which they will loan money (business loans, consumer loans, real estate mortgages, etc.), the maximum time period for which they will contract a loan (2 years? 5 years? 30 years?), and the kinds of supplementary services (checking privileges, foreign exchange, management of trusts and estates, etc.) that they may provide for their customers beyond basic taking of deposits and extension of loans.

From the perspective of this course, banks are mainly of interest because of their key role in determining the size of the money stock. Considerably less than half of the US money stock (M1) consists of physical cash or currency (coins and bills). Most of the money stock in the US (or any other present-day advanced industrial economy) is in the form of “mere” ledger entries representing bank depositers' credit balances in their individual or corporate checking accounts. And, amazingly enough to the uninitiated, this means that banks are constantly creating money “out of thin air” simply by making bookkeeping entries that assign new checking account credits to customers as they take out loans from the bank.

Of course, private banks cannot simply create money out of thin air without limit and still expect to stay in business. When the bank credits a borrower's account with the amount of his new loan, it is to be expected that the borrower will very soon want to spend part or all of the money he has borrowed. After the check the borrower writes is deposited in somebody else's account in another bank, the check will soon be presented for collection at the lending bank, and they will have to have the cash on hand to pay the other bank off at that time. The more dollars' worth of loans a bank has extended, the more cash it will have to have on hand in reserves to meet the daily flow of redemptions. Most or all of the check redemption demands coming in every day can normally be offset by the cash and checks drawn on other banks that the depositers and borrowers have brought in and deposited or paid that day, but an “unsound” bank that extends loans with reckless abandon sooner or later will find that the flow of checks presented to it for collection greatly exceeds the flow of outside checks and cash being brought in. Once the bank's vaults are empty and the cash reserves are gone, the management must quickly (overnight!) either borrow the necessary additional cash elsewhere (probably at high interest rates) or else sell off some of the bank's assets (because of the haste, probably at fire-sale prices). When the troubled bank can no longer borrow and has no assets left that can be sold on short notice, it can no longer fulfill its ontractual guarantees to pay its obligations on demand and is therefore out of business with the banks owners and managers now subject to civil (and perhaps criminal) legal penalties (bankrupcy, suits for breach of contract, negligence, and fraud, indictments for fraud, embezzlement, etc.).

“Sound” banks limit the volume of the loans they extend so that they remain in a prudent proportional relationship to the amount of instantly liquid funds they have available in “reserves” (either as currency in the vault or as demand deposits in some other bank, such as the Federal Reserve). But bankers face a difficult trade-off. The flow of checks that will be presented for payment and the volume of new deposits and loan repayments coming in every day cannot be predicted with 100% accuracy, so the higher the fraction of its total deposit obligations the bank holds ready in reserves, the safer or “sounder” the bank can be considered (and the more attractive the bank will seem to depositers and other potential business associates). However, reserves do not yield any interest income to the bank; only the funds that are tied up in loans to (solvent) borrowers can contribute directly and immediately to the bank's profitability. To maximize their profits, bank management must find the best way to strike a balance between the need to maintain their “reserve ratio” at a level high enough to limit their risks of becoming insolvent and the conflicting need to keep the highest feasible proportion of the bank's available funds loaned out at interest.

See also: * money stock,* monetary policy,* reserve requirement,* Federal Reserve System

Budget

A statement of a government's planned or expected financial position for a specified period of time (usually one year) based on estimates of the expenditures to be made by the government's main subdivisions (wages and salaries of government employees; consultants' fees; purchases of equipment, supplies, real estate, etc.; money transferred to beneficiaries of various programs, and so on) during the specified period, along with estimates of the revenues to be realized from the various sources of income that will be available for paying for these expenditures. The budget of a government may be seen as a comprehensive plan of what the government will spend for its various programs during the next fiscal year and how it expects to raise the money to pay for them (tax receipts, charges for services, sale of assets, borrowing, new emissions of currency, etc.) Somewhat confusingly, the same term is used to denote both the advance estimate or plan of what the government will be taking in and spending and also the actual amounts that finally end up being taken in and spent — even though the planned and actual numbers never really match perfectly when the returns come in!

See also: * budget deficit,* budget surplus,* fiscal policy

Budget deficit

The amount by which total government spending is more than government income during a specified period; the amount of money which the government has to raise by borrowing or currency emission in order to make up for the shortfall in tax revenues.

See also:* budget,* budget surplus,* national debt,* fiscal policy

Budget surplus

The amount by which government revenues are more than government spending during a specified period.
See also:* budget,* budget deficit,* national debt,* tax,* fiscal policy

Business cycle

More or less regular swings or wave-like fluctuations in the pace of a country's economic growth, well above and well below the long-term trend in the growth rate of total production; the ups and downs of overall business activity, as evidenced by surges and declines in GNP and GDP, unemployment rates, and the general price level; the boom-and-bust pattern of recession (or depression) and recovery. In older economic literature (and still today in British usage) the term “trade cycle” is often used as a synonym for “business cycle.”

What causes business cycles has been one of the hottest and longest running theoretical debates in political economy. There is a fair amount of agreement on what at least some of the factors are that are associated with the alternation of economic booms and busts, but different schools of thought differ considerably in the relative weight and the causal priority they assign to these various factors. Some schools of thought emphasize uneven government economic policies as the principal cause of business cycles, while others see government economic policies as the key influences working to even out business cycles allegedly brought on by inherent features of the market economy.

Nearly all of these competing theories key in on one or more of the factors believed to influence the expansion and contraction of total saving by the public and of new capital investment undertaken by business firms as the most immediate causes of booms and busts in the larger economy.

John Maynard Keynes's explanation of the business cycle emphasized periodic shifts in the public's allocation of their incomes between current spending for immediate consumption and savings for future consumption — which leads to shifts in the overall level of demand for consumers' goods, which in turn encourages producers of consumers' goods disproportionately to expand or contract their own purchases of producers's goods like raw materials and machinery (and labor) more or less all at once in response to improvements or declines in their current sales. Keynes believed that the public typically tends to save too much and consume too little, thereby throttling aggregate (total) demand, unless the government steps in from time to time through its fiscal policies to artificially increase aggregate demand by spending more on goods and services than it takes away from consumers' purchasing power in taxes (“running a budget deficit”).

Other non-Keynesian theorists of the business cycle have focussed on other (often psychological) factors besides the growth or decline of their current sales that influence businessmen's optimism or pessimism about future economic conditions (and hence their investment plans). Still other theorists emphasize the role of occasional “supply shocks” — sudden and unexpected changes in the supply of key resources resulting from weather cycles, natural disasters, international conflicts, big regulatory or tax changes by government, etc. (For example, the formation of the OPEC oil producers' cartel and their two massive waves of concerted production cuts/price increases in the 1970s.) Joseph Schumpeter's theory of “creative destruction” stresses the role of waves of massive innovation (major technological breakthroughs, introduction of major new products that create whole new industries) in precipitating major adjustments and reallocation of resources as old industries die and are replaced by new ones. “Monetarist” theories of the business cycle analyze the impact of shifts in decisions of the government monetary authorities (such as the Board of Governors of the U.S. Federal Reserve Banking System) to expand or contract the money supply in their efforts to manipulate short-term interest rates and foreign exchange rates (often for selfish political reasons). “Supply-side” theorists of the business cycle tend to emphasize the impact of periodic changes in government tax policies (especially changes in the marginal rates of taxation on various forms of investment expenditures and business income) as the major precipitant of booms and busts.

See also: * depression,* inflation,* political business cycle

Capital

The existing stock of goods which are to be used in the production of other goods or services and which have themselves been produced by previous human activities. Capital is conventionally subdivided into "fixed capital" and "circulating capital," although the distinction is mainly a matter of degree of durability rather than a clear-cut difference in kind. Fixed capital refers to durable producers' goods such as buildings, plant and machinery, while circulating capital refers to stockpiles of materials, semi-finished goods, and components that are normally used up very rapidly in production. Notice that "capital" in the strictest economic sense refers only to real, physical means of production already in being, not to the sums of money put aside through savings to purchase real capital with in the future (although the total amount of capital in a particular firm may for convenience be described or summarized in monetary terms by the potential resale values of all the separate items of capital added together in one grand sum).

See also: derived demand

Federal Reserve System

The central bank for the United States banking system and the institution that holds the primary responsibility for the making and execution of American monetary policies. Its bank notes circulate today as the United States' everyday paper currency. (Metal coins, however, are issued by the United States Treasury Department, not by the Federal Reserve.)

The Federal Reserve System represents an almost unique hybrid or blending of elements of governmental power with elements of private ownership and control. Because the authors of the 1913 legislation that set up the Federal Reserve System felt that it was vital to insulate monetary policy from "undue" pressure and influence by partisan politicians obsessed with their own short-range re-election prospects, the Federal Reserve was set up along the lines of an independent regulatory commission -- not as just one more agency of the Executive Branch that would be under the direction of the President and supervised closely by Congress. The private banking community was also given a major role in the running of the Federal Reserve System that continues to give banking interests privileged access to the process by which the US government's monetary policy is made.

The Federal Reserve System's highest decision-making body is its Board of Governors, which consists of seven members. Members of the Fed's Board of Governors are nominated for their positions by the President of the United States and then must be confirmed by a majority vote of the Senate before taking office. The members of the Federal Reserve's Board of Governors serve very long terms (fourteen years), and, once appointed and confirmed, they may not be removed from office by either President or Congress (except through a cumbersome process of impeachment by Congress for serious violations of the criminal law). People selected for appointment to the Board of Governors have nearly always been professional bankers, executives of Wall Street brokerage houses, or, occasionally, professional economists. They tend to share many of the relatively conservative political and economic views of the business and professional groups from which they are drawn. Because the President can not fire them from their positions before their fourteen-year terms expire, members of the Board of Governors normally feel relatively free to ignore or oppose the President's preferences when they make U.S. monetary policies. Moreover, even though some members of the Board of Governors perhaps feel an ideological kinship or sense of political loyalty that might predispose them to support the policy views of the President who appointed them, the terms of the Governors are staggered, so that only one Governor's term expires every two years, making it unlikely that any President would be able to dominate the Board with a majority of his own appointees until near the end of his own second four- year term in office. (However, every four years, the President does at least get the opportunity to designate which one of the seven Governors will serve for the next four years as Chairman of the Board of Governors and exercize "moral leadership" as first among equals in the Governors' collective deliberations on monetary policy.)

Congressional influence on the Federal Reserve System's monetary policy decisions is also in practice rather limited. The Federal Reserve generates its own revenues to pay its expenses from fees paid to it by the commercial banks it regulates and from interest payments on the federal bonds, notes and bills that it holds as assets, so Congress lacks the normal leverage it has over other agencies through carrots and sticks brandished during the annual appropriations process. Of course, Congress, which created the Federal Reserve System by statute in 1913, has the constitutional power to alter or abolish the Federal Reserve system by a simple majority vote in both houses, subject to the possibility of a presidential veto, and the threat that Congress might actually do so if the Fed's policies contradict Congresssional preferences too seriously for too long undoubtedly induces a certain amount of responsiveness to Congressional jaw-boning by the Fed's policy-makers.

The Federal Reserve System presided over by the Board of Governors consists organizationally of 12 separate Federal Reserve District Banks -- each one located in and serving one of twelve geographical regions of the country. The district Federal Reserve banks are organized rather like private banking corporations whose shareholders consist of the private member banks in the district. But despite their semi-private character, the district Federal Reserve banks exercise Congressionally delegated legal powers to regulate the banking industry. Each district Federal Reserve Bank is managed from day to day by its own president, who is elected to a 5-year term by his district Federal Reserve Bank's own individual board of directors. Two-thirds of the members of the district boards of directors are elected to their positions by the privately owned commercial banks in the district that are member banks of the Federal Reserve system. (Member banks are divided on the basis of their assets into "small", "medium", and "large" banks, with each category of banks allowed to elect two directors on a "one bank, one vote" basis.) The other one- third of the directors in each district are appointed from Washington by the Fed's Board of Governors, rather as though the Board of Governers were a major creditor or minority stockholder with guaranteed representation on the district boards.

The district Federal Reserve Banks act as non-profit "bankers' banks" -- that is, only commercial banking or depository institutions (and certain agencies of the federal government) maintain deposits at the Federal Reserve, and only member banking institutions and the US government are eligible to receive loans from it, not private citizens nor other kinds of non-bank commercial enterprises. All banks chartered as "national banks" by Federal law must be "member banks," that as such are obligated to maintain most of their reserves as deposits in their accounts at the Federal Reserve and to submit to detailed Federal Reserve banking regulations. Many state-chartered banks and thrift institutions nowadays also choose to be members of the Federal Reserve System and submit to its regulations in order to enjoy the valuable services which the Fed provides to them.

The district Federal Reserve Banks operate clearing houses for checks and bank drafts, issue new paper currency ("Federal Reserve notes") for sale to member banks on demand, withdraw worn-out currency from circulation, sit in judgment on the applications of banks that wish permission to merge with each other, extend "discount loans" to member banks (with the member banks putting up their own borrowers IOUs as collateral), and perform various miscellaneous regulatory functions pertaining to the banks in their districts. When the Federal Reserve System was originally created back in 1913, it was expected that the district Federal Reserve Banks would each pursue slightly different monetary policies, depending upon the economic conditions in their individual districts, so they were given the authority to collect a wide variety of information and statistical data on changes in regional business conditions to use in their decision-making. The high degree of integration of the national economy has for many years made it impractical for the district Federal Reserve Banks to maintain different levels of interest rates or pursue differing policies regarding the growth or contraction of the money stock (these policy decisions are made centrally for the entire country by the Fed's Board of Governors in consultation with the district bank presidents), but the 12 district banks are still a major source of detailed economic data used by government policy-makers at both the national, state and local levels as well as by private economic forecasters and business executives.

The primary reason why the banking industry generally supported the creation of the Federal Reserve System and continues to support it today despite the inconveniences imposed by the Fed's regulations, is the valuable privilege that memberhip brings to the bankers to count on the Fed for large emergency loans of cash if they someday need it to survive a "run" on their bank. In a bank "run," large numbers of depositors frightened by rumors that their bank is about to fail suddenly begin crowding into the bank, demanding to withdraw all their deposits in cash. This exhausts the very limited cash reserves normally kept on hand in the bank's own vaults within a few hours. Since the large majority of the depositers' dollars on deposit are always out on loan to the bank's credit customers, and since it takes days or weeks to call in any sizable fraction of the loans outstanding, the bank would have to "go bankrupt" and be liquidated by the courts unless it can raise enough cash somewhere on short notice to pay off the panicky depositers demanding their money. This is where the Fed steps in as rescuing angel with armored cars full of cash pulling up to the beleagered bank within a few hours.

Bank runs are much more rare nowadays than they used to be, mainly because most depositers today feel much less reason to panic when they believe that they can get their money "for sure" -- either by virtue of the Fed's stepping in with loans in the case of a short-term "liquidity crunch" if the bank in question is relatively sound or (with more delay) by virtue of the insurance provided by the Federal Deposit Insurance Corporation if the bank really does turn out to be irretrievably in the red financially. And because runs are now both less likely to happen and less dangerous to the bank even if they do, bankers can earn higher profits by maintaining lower reserves than would otherwise be necessary and thus being able to lend out a higher percentage of their deposits at interest.

Because many bankers with the "king's X" of Federal Reserve and FDIC backing if they should get into difficulties might otherwise pursue excessively reckless lending policies to increase their profits, the Federal Reserve's Board of Governors was given the power to set minimum reserve requirements for the member banks, to make regulations limiting the riskiness of banks' loan portfolios, and to send "bank examiners" out periodically to audit the books of member banks in order both to assure their compliance with regulations and to safeguard depositors' accounts against fraud or embezzlement by bank managers and employees.

The Fed's role as maker and executer of macroeconomically significant monetary policies for the United States government centers around three major policy tools at the Fed's disposal:

1. Manipulating the legally required reserve ratios ("reserve requirements") for banks (and, less directly, for some other depository institutions, such as savings and loans and credit unions)

2. Buying or selling U.S. government debt instruments (Treasury bonds, notes and bills) on the private financial markets in New York ("open market operations")

3.Setting the interest rate at which the Fed stands ready to make short-term loans to member banks and other depository institutions that would othertwise fall below the required reserve ratios (the Fed's "discount rate").

Using its discretionary power to manipulate these policy tools, the Fed is able to exercise substantial influence (but not complete control) over changes in the size of the money stock and thus over interest rates, thereby influencing overall levels of business activity and employment in the national economy (as well as indirectly influencing the rates at which the dollar is exchanged for foreign currencies and thus the flow of international trade and investment across U.S. borders).

The Fed's Board of Governors sets policies regarding reserve requirements and the discount rate all by itself, but changes in these two policy levers tend to be relatively infrequent (perhaps once or twice a year on average for the discount rate, and perhaps once every five to ten years on average for the reserve requirement). The Fed's main policy tool of choice for exerting its influence on the money stock and interest rates on a week-to-week basis is its "open market operations." The necessary policy decisions about the Fed's on-going open market operations (buying or selling varying quantities of U.S. bonds and other treasury securities on the New York financial markets) are made for the Fed's Board of Governors by a slightly expanded body called the Federal Open Market Committee (FOMC). The FOMC consists of all seven members of the Board of Governors plus five of the 12 banker-elected presidents of the Federal Reserve district banks. (The president of the New York district bank is a permanent member of the FOMC, while the other 11 district bank presidents serve one-year terms on a rotating basis, with only four of them having the right to vote at any given time.) The FOMC meets rather frequently in Washington, DC, but it has also been the practice in recent years for the FOMC membership to convene informally via long-distance telephone conference calls or one-on-one communications with the Fed's Chairman on almost a daily basis.

See also: banking, monetary policy, money stock, discount rate, open market operations, reserve requirement

Fiscal policy

That part of government policy which is concerned with raising revenue through taxation and with deciding on the amounts and purposes of government spending. Keynesian economic theorists believe that government can, and should, regulate the overall pace of activity in the national economy through fiscal policy, principally by deliberately having government borrow to spend more than it takes in (running a budget deficit) to increase total demand for goods and services in times of high unemployment and economic slowdown (the deficit being created either by cutting taxes or by increasing spending or both). Similarly, Keynesian theorists would advocate having government spend less than it takes in (running a budget surplus) to cool down the national economy when too great an expansion of total demand has pushed production to its physical limits and threatens to bring on excessive inflation.

[See also: budget, budget deficit, budget surplus, business cycle, unemployment, investment, depression (or recession), tax, taxation]

Free trade

A legal arrangement or national policy under which the exchange of goods and services across international borders is neither restricted nor subsidized by techniques of government intervention such as import tariffs, import quotas, export subsidies, discriminatory regulations disadvantaging foreign buyers or foreign sellers, trade embargoes, political manipulation of foreign currency exchange rates, and the like. From their first origins in the writings of Adam Smith up to the present, the classical and neoclassical schools of economic theory have emphasized the advantages of free trade policies and the disadvantages of protectionism for the improvement of popular living standards and the promotion of overall rates of economic growth.

Although the theoretical arguments can and do become extremely detailed and complex, the basic conclusion of classical and contemporary neoclassical economic theory is that the advantages of free international trade represent basically only a special case of the advantages of the free market system in general. Although moving toward free trade may represent very real financial losses for the small minority of companies with the political influence to get themselves protected from foreign competition, these losses are normally much more than counterbalanced by the gains to the great majority of the population. Free trade leaves the country's consumers free to seek out the best bargains they can find by not arbitrarily restricting their ability to choose foreign suppliers when they offer a better deal than their domestic competitors in terms of price and/or quality. This enhances competition and breaks down local monopolies. Free trade also enhances the profitability of many other local industries by enabling them to shop around for better deals in purchasing their supplies of raw materials and other capital goods and thus helping them to reduce their costs of production. In the most general terms, free trade makes possible a progressive extension of the area within which specialization and the division of labor takes place according to the principle of comparative advantage, producing gains from trade in overall productivity and economic efficiency that result in higher average living standards both at home and abroad.

Gross Domestic Product (GDP)

An estimate of the total money value of all the final goods and services produced in a given one-year period using the factors of production located within a particular country's borders.