Macroeconomics

Capital budgeting:

An accounting procedure that

measures both assets and liabilities.

Capital requirement:

A minimum amount of

bank capital mandated by regulators.

Central bank:

The institution responsible for the

conduct of monetary policy, such as the Federal Re-

serve in the United States.

Classical dichotomy:

The theoretical separation

of real and nominal variables in the classical 

model, which implies that nominal variables do

not influence real variables. (Cf. neutrality of

money.)

Classical model:

A model of the economy derived

from the ideas of the classical, or pre-Keynesian,

economists; a model based on the assumptions that

wages and prices adjust to clear markets and that

monetary policy does not influence real variables.

(Cf. Keynesian model.)

Closed economy:

An economy that does not en-

gage in international trade. (Cf. open economy.)