Home > Flashcards > Economics > Econ 102 (Principles of Macro)

Details Title: Econ 102 (Principles of Macro) Description: Macroeconomics Vocab Ch 4,10,11,13,12,16,17 Total Flash Cards: 101 Created: 07/24/2007 05:46:49	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 market Definition a group of buyers and sellers of a particular good or service Term competetive market Definition a market in which there are so many buyers and sellers that all are price takers (must take market price as given) Term quantity demanded Definition the amount of a good that buyers are willing and able to purchase Term law of demand Definition the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises Term demand schedule Definition a table that shows the relationship between the price of a good and the quantity demanded Term demand curve Definition a graph of the relationship between the price of a good and the quantity demanded Term quantity supplied Definition the amount of a good that sellers are willing and able to sell Term law of supply Definition the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises Term supply schedule Definition a table that shows the relationship between the price of a good and the quantity supplied Term 4 of the most important variables that can shift the supply curve Definition technology, expectations, number of sellers, input prices Term 5 of the most important variables that can shift the demand curve Definition income, prices of related goods, tastes, expectations, number of buyers Term normal good Definition a good for which, other things equal, an increase in income leads to an increase in demand Term inferior good Definition a good for which an increase in income leads to a decrease in demand Term substitutes Definition two goods for which an increasein the price of one leads to an increase in the demand for the other Term complements Definition two goods for which an increase in the price of one leads to a decrease in the demand for the other Term equlibrium Definition a situation in which the market price has reached the level at which quantity supplied equals quantity demanded Term equilibrium price Definition the price that balances quantity supplied and quantity demanded Term equilibrium quantity Definition the quantity supplied and the quantity demanded at the equilibrium price Term surplus Definition a situation in which quantity supplied is greater than quantity demanded Term shortage Definition a situation in which quantity demanded is greater than quantity supplied Term law of supply and demand Definition the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance Term factors of production Definition inputs like labor, land, capital, and natural resources Term factor payments Definition are payments to the factors of production (e.g. wages, rent) Term Gross Domestic Product (GDP) Definition the market value of all final goods and servies produced within a ountry in a given period of time GDP = C + I + G + NX Term final goods Definition goods intended for the end user Term intermediate goods Definition goods used as components or ingredients in the production of other goods Term consumption (C) Definition total spending by households on goods and servies (includes rent payments or inputed rental value of the house for homeowners) Term investment (I) Definition total spending on goods that will be used in the future to produce more goods (captial equipment, structures, inventories) Term government purchases (G) Definition all the spending on goods and services by the government at the federal, state, and local levels. Term Net Exports (NX) Definition Exports - Imports Term Nominal GDP Definition values output using current prices and is not corrected for inflation Term Real GDP Definition values output using the prices of a base year. Real GDP is corrected for inflation. Term Consumer Price Index (CPI) Definition measures the typical consumers cost of living using a fixed basket of goods Term indexation Definition correcting for inflation (as in the case of COLAs) Term financial system Definition the group of institutions that helps match the saving of one person with the investment of another Term financial markets Definition institutions through which savers can directly provide funds to borrowers (bond market, stock market) Term financial intermediaries Definition institutions through which savers can indirectly provide funds to borrowers (banks, mutual funds) Term mutual funds Definition institutions that sells hares to the public and use the proceeds to buy portfolios of stocks and bonds Term mutual funds Definition institutions that sell shares to the publics and use the proceeds to buy portfolios of stocks and bonds Term bond Definition certificate of indebtedness Term stock Definition a claim to partial ownership in a firm Term private saving Definition the portion of household's inome that is not used for consumption or paying taxes = Y - T - C Term public saving Definition tax revenue minus government spending Term national saving Definition private saving + public saving = Y - C - G the portion of national income that is not used for consumption or government purchases Term investment Definition the purchase of new capital (not the purchase of stocks and bonds!) Term budget surplus Definition an excess of tax revenue over government spending Term budget deficit Definition a shortfall of tax revenue from government spending Term crowding out Definition the government borrows to finance its deficit, leaving less funds available for investment Term The Production Function Definition shows the relationship between outputs and inputs (factors of production) Y = A F (L,K,H,N) where A is technology, L is labor, H human capital and N natural resources Term constant returns to scale Definition changing all inputs by the same percentage cuses output to change by that percentage Term physical capital Definition the stock of equipment and structure used to produce goods and services Term human capital Definition knowledge and skills workers qcquire through education, training, and experience Term natural resources Definition the inputs into production that nature provides Term technological knowledge Definition society's understanding of the best ways to produce goods and services Term diminishing returns to capital Definition as input increases, output increases but by less and less for each additional unit of input Term the catch-up effect Definition the property whereby poor countries tend to grow more rapidly than rich ones Term foreign direct investment Definition a capital investment that is owned and operated by a foreign entity Term foreign portfolio investment Definition a capital investment financed with foreign money but operated by domestic residents Term property rights Definition the ability of people to excerise quthority over the resources that they own Term inward-oriented policies Definition aim to raise living standards by avoiding interaction with other countries (tariffs, limits on investments from abroad) Term outward-oriented policies Definition promote integration with the world economy (the elimination of restrictions on trade or foreign investment) Term medium of exchange Definition an item buyers give to sellers when they want to purchase goods and services Term unit of account Definition the yardstick people use to post prices and record debts Term store of value Definition an item people can use to transfer purchasing power form the present to the future Term functions of money Definition medium of exchange, unit of account, store of value Term money Definition assets in an economy which people regularly use to buy goods and services Term double coincidence of wants Definition the unlikely occurence that two people each have a good the other wants (required if economy doesn't have medium of exchange ) Term barter Definition the exchange of one good or service for another Term monetary policy Definition the setting of the money supply by policy makers in the central bank Term money supply Definition the quantity of money available in the economy Term the two kinds of money Definition fiat and commodity Term fiat money Definition takes the form of a commodity with intrinsic value Term fiat money Definition money without intrinsic value used as money because of government decree Term frational reserve banking system Definition banks keep a fraction of deposits as reserves and use the rest to make loans Term reserve requirements Definition regulations on the minimum amount of resrves that banks must hold against deposits Term required reserve ratio R Definition fraction of deposits that banks hold as reserves Term T-account Definition a simple accounting statement that shows a bank's assets and liabilities Term money multiplier Definition the amount of money that banking system generates with each dollar of reserves Term open market operations (OMOs) Definition the purchase and sale of US government bonds by the Fed to increase or decrease money supply respectively Term the fed's three tools of monetary control Definition Open Market Operations, The discount rate, reserve requirements Term quantity theory of money Definition claims that the quantity of money determines the value of money in the long run P`x Y = M x V Term Money Supply depends on (3) Definition federal reserve, banking system, consumer behavior Term money demand Definition how much wealth people want to hold in liquid form Term theory of liquidity preferences (keynes) Definition people hold money instead of other assets with higher rate of returns because they can buy goods and services with it Term money demand depends (3) Definition positively on the price level P negatively on the real interest rate positively on income Term Velocity of money Definition the rate at which money changes hands V = (P x Y)/M Term monetary neutrality Definition the proposition that changes in the money supply do not affect real variables Term classical dichotomy Definition the theoretical seperation of nominal and real variables Term nominal variables Definition measured in monetary units Term real variables Definition measured in physical units Term relative price Definition price of one good relative to (divided by) another Term inflation tax Definition printing money causes inflation, which is like a tax on everyone who holds money Term The Fisher Effect Definition an increase in inflation causes an equal increase in the nominal interest rate so that the real interest rate (on wealth) is unchanged nominal r = pi + real r Term the inflation fallacy Definition the incorrect belief that inflation erodes real incomes Term shoeleather costs Definition the resoures wasted when inflation encourages people to reduce their money holdings Term menu Definition the costs of changing prices (for businesses) Term the costs of inflation (5) Definition misallocation of resources from relative-price variability confusion and incovenience shoeleather costs menu costs tax distortions arbritrary redistributions of wealth Term misallocation of resources from relative-prie variability Definition firms don't all raise pries at the same time in inflation, so relative prices can vary, this distorts the allocation of resources Term confusion and inconvenience due to inflation Definition inflation changes the yardstick we use to measure transactions and complicates long-range planning and the comparison of dollar amounts over time Term tax distortions due to inflation Definition inflation makes nominal income grow faster than real income and so inflates taxes, which are not indexed for inflation Term arbitrary redistributions of wealth due to inflation Definition higher than expected inflation transfers purchasing power from creditors to debtors and: debtors get to repay their debt with dollars that aren't worth as much. lower than expected inflation transfers purchasing power from debtors to creditors