Term
| 3 categories of employment |
|
Definition
-employed
-unemployed
-not in labor force |
|
|
Term
| adult population includes |
|
Definition
| -employed, unemployed, not in labor force |
|
|
Term
|
Definition
|
|
Term
|
Definition
| -number of unemployed/labor force |
|
|
Term
| labor-force participation rate |
|
Definition
| -labor force/adult population |
|
|
Term
|
Definition
| -results because it takes time for workers to search for jobs that best suit their tastes and skills |
|
|
Term
|
Definition
| -results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one |
|
|
Term
| structural unemployment arises when |
|
Definition
| -wage is above market clearing wage |
|
|
Term
| graph of when wage is above equilibrium wage |
|
Definition
|
|
Term
| 3 reasons for a wage above market clearing wage |
|
Definition
1. minimum-wage laws
2. unions and collective bargaining
3. theory of efficiency wages |
|
|
Term
|
Definition
| -above-equilibrium wages paid by firms to increase worker productivity |
|
|
Term
| 4 reasons why a higher wage might increase worker productivity |
|
Definition
-raises worker health
-reduces worker turnover
-raises worker quality
-raises worker effort |
|
|
Term
|
Definition
| -set of assets in an economy that people regularly use to buy goods and services from other people |
|
|
Term
| money's 3 functions in the economy |
|
Definition
-medium of exchange
-unit of account
-store of value |
|
|
Term
|
Definition
| -an item that buyers give to sellers when they want to purchase goods and services |
|
|
Term
|
Definition
| -the yardstick people use to post prices and record debts |
|
|
Term
|
Definition
| -an item that people can use to transfer purchasing power from the present to the future |
|
|
Term
|
Definition
| -takes the form of a commodity with intrinsic value |
|
|
Term
|
Definition
| -no intrinsic value, used as money because of govt decree |
|
|
Term
| 2 assets included when we measure quantity of money |
|
Definition
-currency (paper bills and coins in hands of public)
-demand deposits (balances in bank accounts that depositors can access on demand by writing a check) |
|
|
Term
|
Definition
| -ease at which an asset can be converted into the economy's medium of exchange |
|
|
Term
|
Definition
| -regulate banks and ensure health of the banking system -control money supply |
|
|
Term
| the money multiplier equals |
|
Definition
| -reciprocal of reserve ratio |
|
|
Term
| Fed's three tools to affect money supply |
|
Definition
-open-market operations
-reserve requirements
-discount rate |
|
|
Term
|
Definition
| -purchase and sale of US govt bonds by the Fed |
|
|
Term
|
Definition
| -regulations on the minimum amount of reserves that banks must hold against deposits |
|
|
Term
|
Definition
| -interest rate on loans that the Fed makes to banks |
|
|
Term
| demand for money reflects |
|
Definition
| -how much wealth people want to hold in the form of an asset that is a medium of exchange |
|
|
Term
| 4 factors that influence demand for money |
|
Definition
1. price level
2. real GDP
3. nominal interest rate
4. technology of the banking system |
|
|
Term
| classical theory of inflation |
|
Definition
| -in the long run, the overall price level adjusts to the level at which demand for money equals the supply for money |
|
|
Term
|
Definition
| -quantity of money determines price level |
|
|
Term
|
Definition
|
|
Term
If velocity is constant and the quantity of money does not affect real
GDP, |
|
Definition
then an increase in the quantity of money must cause an
increase in the price level. |
|
|
Term
| The quantity equation shows that an increase in the quantity of money must be reflected in |
|
Definition
one of the other three variables:
V, P or Y |
|
|
Term
| velocity of money definition and equation |
|
Definition
-rate at which money changes hands
-V= (PxY)/M |
|
|
Term
|
Definition
1. Shoeleather costs: The costs of reducing money holdings
2. Menu costs: The costs of changing prices
3. Relative-price variability and the misallocation of resources
4. Inflation-induced tax distortions
5. Confusion and inconvenience
6. Redistributions of wealth in the case of unexpected inflation |
|
|
Term
|
Definition
| -revenue government raises by creating money |
|
|
Term
|
Definition
| -short-run economic fluctuations around long-run trend of the economy |
|
|
Term
|
Definition
| -declining real incomes (real GDP) and rising unemployment |
|
|
Term
| 4 facts about business cycles |
|
Definition
1. irregular and hard to predict
2. most macroeconomic quantities fluctuate together
3. some macroeconomic variables fluctuate more than others (investment more than GDP, GDP more than consumption)
4. as output falls, unemployment rises |
|
|
Term
| real business cycle theory: |
|
Definition
| -business cycles are due to the fact that technological progress is sometimes faster and sometimes slower |
|
|
Term
|
Definition
| -business cycles are due to the fact that prices do not immediately adjust to changes in the economic environment |
|
|
Term
| aggregate-demand curve shows |
|
Definition
| -quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level |
|
|
Term
| aggregate-supply curve shows |
|
Definition
| -quantity of goods and services that firms in the country choose to produce and sell at each price level |
|
|
Term
| graph of aggregate demand and aggregate supply |
|
Definition
|
|
Term
| a fall in the price level increases consumption, investment and net exports for the following reasons |
|
Definition
-price level and consumption: wealth effect
-price level and investment: interest-rate effect
-price level and net exports: exchange-rate effect |
|
|
Term
| In the long run, the aggregate-supply curve is: |
|
Definition
|
|
Term
| In the short run, the aggregate-supply curve slopes: |
|
Definition
|
|
Term
| why is aggregate supply curve vertical in the long run? |
|
Definition
-the production of goods and services in an economy
is determined by the supplies of labor, capital, and natural resources
and by the available technology |
|
|
Term
| why does aggregate supply curve slope upward in the long run? |
|
Definition
-sticky-wage theory
-sticky-price theory
-misperception theory |
|
|
Term
graph of how aggregate demand and aggregate
supply can explain business cycles |
|
Definition
|
|
Term
| 4 things the demand for money depends on |
|
Definition
1. price level (+)
2. real GDP (+)
3. nominal interest rate (-)
4. technology of the banking system |
|
|
Term
| The demand for money depends negatively on the nominal interest rate because: |
|
Definition
| When the nominal interest rate rises, the opportunity cost of holding money increases |
|
|
Term
| graph of equilibrium in the money market |
|
Definition
|
|
Term
| An increase in the money supply: |
|
Definition
| lowers the equilibrium interest rate, which causes an increase in investment and shifts the aggregate demand curve to the right |
|
|
Term
| an increase in price level |
|
Definition
| increases the equilibrium interest rate, which causes a fall in investment and moves along the aggregate demand curve to the left |
|
|
Term
| by increasing government spending, the government can |
|
Definition
| directly increase aggregate demand. |
|
|
Term
| the government can lower taxes, which: |
|
Definition
|
|
Term
| Expansionary fi
scal policy: |
|
Definition
| Increasing government spending or lowering taxes. |
|
|
Term
| two additional effects of expansionary fiscal policy |
|
Definition
-multiplier effect: additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending
-crowding-out effect: offset in aggregate demand that results when expansionary fiscal policy raises interest rate and thereby reduces investment |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
|
Definition
-demand deposits
-travelers checks
-other checkable deposits
-currency |
|
|
Term
|
Definition
-savings deposits
-small time deposits
-money market mutual funds
-minor categories
-everything in M1 |
|
|
Term
| 4 actions the Fed takes to regulate banks and ensure health of banking system |
|
Definition
-monitors each bank's financial condition
-facilitates bank transactions by clearing checks
-makes loans to banks when banks themselves want to borrow
-acts as a lender of last resort to maintain stability in the overall banking system |
|
|
