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

Details Title: Econ 102 (Principles of Macro) Description: Macroeconomics Ch 15,20,21,22,18,19,8,14(micro) Total Flash Cards: 78 Created: 08/01/2007 20:10:36	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 recessions Definition periods of falling real incomes and rising unemployment Term depressions Definition sever recessions (very rare) Term business cycles Definition short run economic fluctuations Term why the AD curve slopes downward (3) Definition interest rate effect, wealth effect, exchange rate effect Term the wealth effect Definition an increase in P causes a drop in C which means a smaller quantity of goods and services are demanded (AD slopes down) Term the interest rate effect Definition P rises and increases money demand so people sell assets and borrow more driving up the interest rate and causing a decrease in investment (AD slopes down) Term the long run supply curve depends on economy's stock of Definition factors of production (increase in P does not affect LRAS because of monetary neutrality) Term Three theories of SRAS Definition 1. sticky price theory 2. sticky wage theory 3. misperceptions theory Term the sticky price theory Definition many prices are stiky in the short run (maybe due to menu costs) and since they don't change with P level fluctuations, AS is affected (Y changes) by change in P in the short run and so slopes upward. Term the sticky wage theory Definition nominal wages adjust sluggishly in the short run and so when P changes output changes because labor costs don't change immediatley. This makes SRAS depend on price in short run and sloping upward. Term misperceptions theory Definition firms may confuse changes in P with changes in the relative price of the products that they sell and so may change output in short run causing upward sloping SRAS curve. Term stagflation Definition a period of falling output and rising prices (SRAS curve shifts left) Term employed Definition people who do market work (paid employees, self-employed, and unpaid workers in a family business) Term unemployed Definition people not working who have looked for work during the previous 4 weeks Term not in the labor force Definition people no working who have not looked for work during the previous 4 weeks Term labor force Definition employed + unemployed = adult population - not in labor force Term unemployment rate Definition % of labor force that is unemployed (100)(#unemployed/labor force) Term labor force participation rate Definition % of adult population that is in the labor force (100)(labor force/adult population) Term natural rate of unemployment Definition the normal rate of unemployment around which the actual unemployment rate fluctuates Term cyclical unemployment Definition the deviation of unemployment from its natural rate, associated with the business cycle Term frictional unemployment Definition occurs when workers spend time searching for the jobs that best suit their skills and tastes. short term. Term structural unemployment Definition occurs when there are fewer jobs than workers. longer term. Term job search Definition the process of matching workers with appropriate jobs Term sectoral skills Definition changes in the composition of demand across industries or regios of the country Term unemployment insurance Definition a government program that partially protects worker's incomes when they become unemployed Term union Definition a worker association that bargains with employers over wages, benefits, and working conditions Term efficiency wages Definition higher than equilibrium wages given with the idea that they boost worker productivity Term four reasons why firms might pay efficiency wages Definition worker health, turnover, quality, effort Term marginal propensity to consume (MPC) Definition the fraction of extra income that households consume rather than save Term crowding out effect Definition fiscal expansion also increases money demand by shifting AD to the right and thus increases interest rate r, which reduces investment borrowing so AD doesn't shift as much Term fiscal policy Definition the setting of the level of government spending and taxation by government policy makers Term expansionary fiscal policy Definition aims to shift AD right by increasing G or decreasing T Term contractionary fiscal policy Definition aims to shift AD left by decreasing G and or increasing T Term the multiplier effect Definition AD curve shifts by more than the change in spending by policy makers because fiscal policy affects income so affects consumption in addition to G Term automatic stabilizers Definition changes in fisal policy that stabilize the economy without policy intervention Term Phillips curve Definition shows the short-run tradeoff between inflation and unemployment Term natural-rate hypothesis Definition unemployment eventually returns to its normal or natural rate regardless of the inflation rate because of monetary neutrality Term expected inflation Definition a measure of how much people excpect the price level to change Term supply shock Definition an event that directly alters firms' costs, shifting the AS and PC curves Term rational expectations Definition theory according to which people optimally use all the information they have, including info about government policies when forecasting the future. Term disinflation Definition a reduction in the inflation rate Term exports Definition domestically produced goods and services sold abroad Term imports Definition foreign-produced goods and services sold domestically Term net exports (NX) trade balance Definition value of exports - value of imports Term trade dficit Definition an excess of imports over exports Term trade surplus Definition an excess of exports over imports Term balanced trade Definition when exports = imports Term net capital outflow (NCO) Definition domestic residents' purchases of foreign assets minus foreigners purchases of domestic assets = financial balance = FDI + FPI + CB Term net foreign investment Definition investments by domestic firms in foreign countries minus investments by foreign firms in the US Term two types of net foreign investments (NFI) Definition foreign direct investment (FDI), foreign portfolio investment(FPI) Term foreign direct investment Definition domestic residents actively manage the foreign investment Term foreign portfolio investment Definition domestic residents purchase foreign stocks or bonds, supplying "loanable funds" to a foreign firm Term currency balance Definition domestic residents purchases of foreign currencies minus foreigners purchases of domestic currencies Term appreciation Definition an increase in the value of currency as meaured by the amount of foreign currency it can buy Term depreciation Definition a decrease in the value of a currency as measured by the amount of forien currency it can buy Term real exchange rate E Definition the rate at which the goods and services of one country trade for the goods and services of another Term law of one price Definition the theory that a good should sell fro the same price in all markets Term purchasing power parity (PPP) Definition a theory of exchange rates whereby a unit of any currency should be able to buy the same quantity of goods in all countries Term arbitrage Definition making a quick profit by buying goods where they are cheaper and selling them where they are more expensive. this equilibrates prices Term nominal exchange rate e Definition the rate at which one country's currency trades for another Term tariff Definition a tax on imports Term import quota Definition a limit on the quantity of imports Term "voluntary import restrictions" Definition the government pressures another country to restrict its exports (essentially the same as an import quota) Term capital flight Definition a large and sudden reduction in the demand for assets located in a country Term absolute advantage Definition the ability to produce a good using fewer inputs than another producer Term comparative advantage Definition the ability to produce a good at a lower opportunity cost than another producer Term opportunity costs (OC) Definition cost in terms of forgone use of resources for the next best alternative Term inequality Definition disparity of the distribution of assets (wealth) or income Term inequality Definition disparity of the distribution of assets (wealth) or income Term curve of perfect equality Definition 45-degree line = everyone would hold the same income Term absolute poverty Definition based on fixed calorie cut-off or dollars a day Term relative poverty Definition some minimal amount of annual income to avoid sever economic hardship in a society Term current population survey Definition a monthly survey of a sample of US households done by the US census bureau; it measures employment, unemployment, the labor force,a nd other characteristics of the US population Term quintiles Definition divisions or groupings of one-fifth of a population ordered by income, weath, or some other statistic Term Lorenz curve Definition a curve showing the realtion between the cumulative percentage of the population and the proportion of total income earned by each cumulative percentage. it measures income inequality Term gini coefficient Definition an index of income inequality ranging from 0 (for perfect equality) and 1 (for absolute inequality); it is defined as the ratio of the area between the lorenz curve and the perfect equality line to the area between the lines of perfect equality and perfect inequality Term poverty rate Definition the percentage of people living below the poverty line Term poverty line Definition an estimate of minimum amount of annual income required for afamily to avoid severe economic hardship