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Details Title: eco more Description: harder and faster Total Flash Cards: 68 Created: 04/05/2007 12:40:18	To study from this set of flash cards, or to create your own your own study flash cards, register HERE. If you are already a registered user, CLICK HERE.
Cards Term GDP expenditure method Definition C+Ig+G+Xn - Consumer spending + gross investment + government spending + net exports Term NDP Definition Instead of Ig or gross investment it uses In or NET investment - it is GDP - depressiation or In = Ig-depreciation Term Difference between real and nominal GDP Definition Real GDP is adjusted for inflation and a better economic measurement than nominal GDP Term How do you get Nominal GDP Definition Output_per_the_year * Price_for_the_year Term 4 phases of business cycle Definition GROWTH - PEAK - RECESSION - TROUGH Term Karl Marx Definition 1st economist to write shit down - said real value of something is equal to the amount of labor put into it - most things are not valued this way Term Joseph Schumpeter Definition Focused on Long run economy causing business cycles Term JB Say Definition capitalist economy is a self healing economy, supply creates its own demand, Government interaction not needed Term Keyes Definition GDP expenditure method comes from him Completely demand driven Multiplier effectt Term Predicting Recession - 3 types of economic indicators Definition Leading indicators - Before new stage of business cycle Coincidental Indicators - Happens during the business cycle Lagging indicators - hange after the business cycle Term Leading recession indicators Definition Average hours worked per week, unemployment claims, stock prices, capital goods investment, consumer expectations, delivery time of goods Term Coincidental recession indicators Definition Payroll employment, industrial production, personel income Term Lagging recession indicators Definition Labor cost per unit of output, inventory to sales ratio, unemployment duration, consumer debt, outstanding commercial loans, Prime interest rate Term Labor force Definition Employed - all full time and part time workers Officially unemployed - all people who are actively looking for jobs Term Unemployment rate Definition Offially_unemployed / total labor force Term discouraged workers Definition people that have been unemployed for an extended period of time, cant find a job, giveu p and NOT part of the labor force Term Three types of unemployment Definition 1) Frictional - Most common - people in between or waiting to get jobs 2) Structural Unemployment - due to changes in structure of work place- automation or corporate downsizing 3) Cyclical - Unemployment due to recession (change in business cycle) Term Natural Rate of unemployment Definition frictional_unemployment + structural_uneemployment Term Full employment Definition 100% - natural_unemployment Term Potential GDP Definition What we can produce at full employment Term GDP gap Definition potential GDP - actual GDP Term 2 Costs of Unemployment Definition Social cost - Increase in suicide rate, divorce rate, prison population size Lost production - Term Inflation Definition Sustained increase in the average price level Term Deflation Definition decrease in average price level Term Stagflation Definition Recession with inflation - Unemployment rate AND inflation rate both rising Term Demand pull inflation Definition Demand for goods and services increases - prices go up and output goes up Most common reason for inflation Term Cost push inflation Definition Reduction in supply - business costs are going up, supply falls, price and unemployment rise Term Who loses from inflation Definition People on a fixed income Savers worse off, value of money drops Lenders or creditors lose from unexpected inflation Term Who wins from inflation Definition borrowers may win Government may gain Term Types of inflation Definition Creeping inflation - average american inflation, single digit increase Galloping - 2 digit increase per year Hyper inflatino - >50% increase - Hungary was worst - hyperinflation always caused by government excessively printing money Term Fiat money Definition Money with no intrinsic value - nothing backing it but faith in it Term Marginal Propensity to Consume Definition Change in consumer spending / change in consumer income Term Marginal Propensity to save Definition MPS + MPC = 1 If MPC = .7 MPS = .3 - what consumers save from each dollar increase Term Expenditure Multiplier formula Definition 1/(1-MPC) or 1/MPS Means that each $1 change in spending, GDP changes by Term How to find impact on GDP with the expenditure multiplier Definition expenditure_multiplier * change_in_spending Term Aggregate Demand Definition Average price of all goods and services demanded Term Reasons why aggregate demand slope down Definition 1) Wealth effect - Consumer spending higher at lower levels 2) Interest Rate effect - Spending is lower at higher interest rates 3) Foreign Purchases Effect - Import products get bought more during higher general price, and exports is lower at a higher general price Term Determinants of aggregate demand Definition Consumer spending, gross investment, government spending, and netexports Term Determinants of Aggregate Supply Definition Resource prices, prices of imported resources, prices of raw materials, technology and productivity (Same determinants from both long and short) Term SRAS - Aggregate demand increases Definition Growth with inflation, unemployment down, aggregate supply up Demand pull inflation Term SRAS - Aggregate demand falls Definition Real GDP is going down, unemployment rising, RECESSION Term SRAS - Agg supply increase Definition General price level drops, Real GDP is higher, falling unemployment, rise in productino growth or expansion and deflation Term SRAS - Aggregate supply decreases Definition Real GDP goes down, price levels drop, unemployment rises, Recession with inflatinon - STAGFLATION Term LRAS - Agg Demand Increases Definition Only thing affected general price level is higher Term LRAS - Agg demand drops Definition Only thing here is average price level drops Term Budget deficit Definition Government spending - tax_revenues Term 3 Basic Budget Philosophies Definition 1) Annually Balanced Budget 2) Cyclically Balanced Budget 3) Functional Finance Term Annually Balanced Budget Definition Requires government spending = tax revenues each year to balance up Too strict at certain times, during a recession tax revenues drop but goverment spending rises Term Cyclically balanced budget Definition Less strict than annually balanced budget Good years pay for the bad years Save up during good years Term Functional Finance Definition Don't worry about balancing, just whatever is necessary to keep economy growing Focus on a growing economy and low unemployment Term Major historical causes of debt Definition War and recession Term Government debts result in what: Definition Higher real interest rates Term Debt related problems: Definition 1) Crowding out effect - real interest rates go up, Business investments go down 2) Impact on net exports - Due to higher real interest rates, imports increase because cheaper to get out of country, which caused net exports to go down causing GDP to down Term Can the federal government go bankrupt? Definition No 1) Debt never due, can rollover 2) Power to tax every year 3) Power to print money Term Solution to Budget Deficit Definition Requires less spending and more money coming in Term Basic functions of Money Definition 1) Serves as basic medium of exchange 2) Way to store value, way of saving 3) Standard of value 4) Standard of deferred payment Term Define the money supply Definition M1 - Includes all money in checking accounts, checkable depoits, and money in circulation outside of banks M2 - Includes everything in the M1, PLUS savings acounts, money market accounts, mutual founds - LARGER THAN M1 Term Money Supply (controlled by who) Definition Federal reserve controls it, the line is a vertical straight line Term Money demand curve Definition Top left to bottom right curve - Term Types of Money Demand Definition 1) Transactions demand - to buy stuff 2) Asset Demand - precautionary and speculative Term Money Demand Increases or decreases Definition Increases interest rates go up, decreases the opposite Term If money supply increases or decreases Definition Increases interest rate goes DOWN - decreases interest rate RISES Term Prime Interest rate Definition Interest rates larger banks charge their larger/best customers Term Fractional Reserve banking: Two types of reserves Definition Required Reserves: Percentage of deposit required to keep in bank as a reserve Excess Reserve: amount left after required reserves reserved Term Discount Rate Definition Interest rate federal reserve bank charges commercial banks for a loan Term Open Market operations Definition Federal reserve buys and sells government Securities Term Federal Funds Rate Definition Loan rate commercial banks charge each other for an over night line, 1/2 point below discount rate and considered short term interest rate Term Tools used by Feds to control money supply Definition 1) Required Reserve ratio % 2) Discount Rate 3) Open market operations 4) Federal funds Rate