Macroeconomics

Nominal exchange rate:

The rate at which one

country’s currency trades for another country’s cur-

rency. (Cf. exchange rate, real exchange rate.)

Nominal interest rate:

The return to saving and

the cost of borrowing without adjustment for infla-

tion. (Cf. real interest rate.)

Normal good:

A good that a consumer demands

in greater quantity when his or her income rises.

Okun’s law:

The negative relationship between

unemployment and real GDP, according to which a

decrease in unemployment of 1 percentage point is

associated with additional growth in real GDP of 

approximately 2 percent.

100-percent-reserve banking:

A system in which

banks keep all deposits on reserve. (Cf. fractional-

reserve banking.)

Open economy:

An economy in which people

can freely engage in international trade in goods and

capital. (Cf. closed economy.)