Rate of return regulation – A regulation that sets the price
at a level that enables a firm to earn a specific rate of return.
Ration coupons – A method of allocating goods using a
nonprice mechanism. Involves tickets or
coupons that entitle individuals to purchase or receive a certain amount of a
given good or service within a given time period.
Rational choice – A choice that sues the available
information and resources to achieve the best outcome for the person making the
choice.
Rational-expectation hypothesis – The idea that people
understand how the economy works and that they use this knowledge and available
information to make plans for the future.
Real business cycle theory – A theory that attempts to
explain the business cycle fluctuations and assumes that prices and wages are
completely flexible and that people have rational expectations. This theory also stresses the importance of
shocks to the economy, such as technological and supply shocks as a reason for
the fluctuations.
Real GDP – The value of all final goods and services
produced in a given year expressed in terms of prices from the base year.
Real GDP per person – The amount of Real GDP divided by the
current population.
Real interest rate – The difference between the nominal
interest rate and the inflation rate.
Real wage rate – The amount of goods and services the
nominal wage can rate can buy.
Real wealth effect, real balance effect – The change in
consumption that occurs when there is a change in real wealth for an individual
that is caused by a change in the price level.
Realized capital gain – The gain that occurs when an owner
of an asset sells the asset for more than she originally paid for it.
Recession, clump, contraction – A period during which
aggregate output goes down. A rule of
thumb for identifying a recession is that output decline for two consecutive
quarters (about 6 months).
Recessionary gap – A gap that exists when potential GDP
exceeds real GDP which then results In a falling price level (occurs with a
decrease or leftward shift in AD).
Recognition lag – The time it takes for policy makers to
identify the existence of a slump or boom in the economy.
Reference base period – The year when the CPI (consumer
price index) is defined to be 100.
Regulation – Rules by the government to influence prices,
quantities, entry, or other economic activities by firms and industries.
Relative-wage explanation of unemployment – A possible
explanation for sticky wages and unemployment.
If workers worry about their wages relative to other workers, they may
be unwilling to accept a decline in their wages unless they are confident that
all workers will receive similar wages.
Rent ceiling – A price ceiling applied to the
housing/apartment market.
Rent seeking – The act of lobbying or engaging in other
political activity with the goal of capturing gains from trade. The goal is to divert surplus from consumers
or the government to producers by obtaining special treatment from the
government to engage in non-perfectly competitive markets.
Rental income, rent – The income received by property
owners.
Required reserve ratio – The percentage of a bank’s total
deposits that it must keep as reserves at the Federal Reserve.
Reserves – The deposits that a bank has at the federal
reserve bank plus the cash it has available on hand.
Residential investment – The expenditures by households on
new houses.
Response lag – The time that it takes for an economy to
adjust to a new policy implemented by the government.
Rule of 70 – The number of years it takes for the level of
any variable to double is approximately 70 divided by the annual percentage
growth of the variable you are considering.
For example, if something grows at a rate of 10% per year, it will take
7 years to double in size (70/10=7).
Run on a bank – This occurs when people are scared that a
bank may not be able to satisfy all of the withdrawal demands and therefore all
approach the bank at the same time creating a problem. This is an example of a self-fulfilling
prophecy, because normally a bank would be able to handle all of the demand but
when everyone approaches at once, it cannot satisfy everyone’s wishes.
