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Macroeconomics Mid-Term
General macroeconomics
99
Economics
Undergraduate 1
10/13/2013

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Term
allocate
Definition
distribute
Term
economics
Definition
study of how we allocate scarce resources
Term
microeconomics
Definition
based on profit, supply/demand, etc.
Term
macroeconomics
Definition
based on politics & government
Term
when did shift to Keynesian economics occur
Definition
late 1940/s; after WWII
Term
4 Factors of Production
Definition
land, labor, capital, entrepreneur
Term
land
Definition
the wealth underground (oil, natural gas, iron, aluminum, other metals) + wealth above ground
Term
payment for land
Definition
rent + mortgage (borrow & pay back w/ interest)
Term
labor
Definition
human effort
Term
payment for labor
Definition
wages (hourly or per unit/commission) + salaries
Term
capital & 2 types
Definition
increases the productivity of labor

physical & human
Term
physical capital
Definition
computers, machinery
Term
human capital
Definition
knowledge
Term
cost for capital comes from...
Definition
prior human knowledge (teachers, profs, etc.)
Term
entrepreneur
Definition
brings together other 3 factors to create wealth & products
Term
payment for entrepreneurs
Definition
profit!
Term
types of economic goods
Definition
tangible & intangible, then also consumer & capital
Term
tangible goods
Definition
any product that you can touch
Term
intangible goods
Definition
services -> doctors, lawyers, carpenters
Term
consumer goods
Definition
for personal satisfaction & enjoyment
Term
capital goods
Definition
give up consumer goods to earn human capital to earn more consumer goods in the future
Term
wealth
Definition
accumulation of assets
Term
assets
Definition
something of marketable value
Term
who is marketable value determined by
Definition
the buyer
Term
market system
Definition
interaction of supply and demand for products
Term
capitalism
Definition
country's trade and industry are controlled by private owners, not by the state

right to own private property by individuals
Term
which more important in capitalism: individual or community?
Definition
individual
Term
socialism
Definition
all property and major industries owned by government
Term
which more important in socialism: individual or community?
Definition
community
Term
free enterprise
Definition
right to have what job you want
Term
US what type of economy
Definition
mixed but moving toward socialism
Term
production possibilities
Definition
how we allocate scarce factors of production

sacrifice today for the expectation that by increasing your human capital, you will become more successful
Term
entitlements
Definition
government issued to help people out

causes our debt to increase by $1T/yr
Term
US treasury bond
Definition
promise by US government to pay back money that they are borrowing
Term
maturity date
Definition
when money for treasury bond is due (most pop. 10 yr.)
Term
yield
Definition
interest rate

annual payment divided by price
Term
interest
Definition
payment for use of money
Term
principle
Definition
initial amount being lent/borrowed
Term
opportunity cost
Definition
cost vs. benefit when buying a product or service
Term
opportunity profit
Definition
difference between possible profit due to interest rate & possible risks

% profit of possible investment #1 - % profit of possible investment #2
Term
due diligence
Definition
function of checking out an investment opportunity
Term
purpose of borrowing money
Definition
to buy capital
Term
gross domestic product (GDP)
Definition
total market value of all goods and services purchased & produced within a country in a given period of time
Term
inventory
Definition
accumulation of finished product
Term
excess inventory results in...
Definition
surplus
Term
expectation
Definition
what you hope to sell

determines inventory
Term
expectation too high =
Definition
too much inventory = lay off employees
Term
exogenous
Definition
event that occurs completely unexpectedly due to external factors
Term
endogenous
Definition
event that occurs within the economy (i.e. an increase in taxes) due to internal factors
Term
6 characteristics of classical economics
Definition
1. minimal government intervention
2. 2 purposes of gov: national defense & encouraged exports
3. money backed by gold until Aug. 15, 1971
4. individual more important than state
5. government operates on a balanced budget
Term
surplus budget
Definition
revenue > expenditure

helps economy by having money available to borrow
Term
balanced budget
Definition
revenue = expenditure
Term
deficit budget
Definition
revenue < expenditure
Term
basic factors of demand shock
Definition
change in taste & desire
change in income
change in wealth (value inc.)
change in taxes
Term
Federal Reserve Banking System
Definition
central bank

Congress passes 1913 law to minimize great depressions
Term
how did the economy start growing after WWII
Definition
European governments devastated. tradesmen immigrate to US w/ specific skills. start their own business or hired.
Term
electricity introduced in 1920 =
Definition
new inventions that people are buying
people making more income
discovering stock market
Term
buying on margin
Definition
only pay marginal price, borrow the rest from broker
Term
when people sell stock what happens to the price of stock
Definition
goes down
Term
Smoot-Hawley Tariff & its effect
Definition
1930 - tariff on foreign goods -> raises their price

other countries did the same thing -> made depression worse
Term
1932 presidential election
Definition
Herbert Hoover (Rep.) - current pres. - practiced deficit financing
vs. FDR
FDR criticizes Hoover's deficit fin. so Hoover raises taxes
FDR wins
Term
programs implemented by FDR
Definition
labor unions, unemployment compensation, social security, food & drug, security exchange

also continues Hoover Dam

electricity to small towns & cities
Term
FDR's role in WWII in Europe
Definition
secretly shipped supplies to England
Term
early economics based on
Definition
philosophy
Term
Plato & Aristotle emphasized the importance of
Definition
agriculture as the basis of wealth and degraded tradesmen and artisans
Term
when did money start being used as a medium of exchange
Definition
after the roman empire disintegrated, feudalism grew. tradesmen and merchants organized into guilds (unions)
Term
St. Thomas Aquinas idea/theory
Definition
charging of interest as "usury"
Term
Antonio Serra wrote a treatise in which he emphasized that
Definition
gold was the source of wealth, not agriculture
Term
Bullionists
Definition
encouraged Spain to concentrate on the accumulation of gold and silver
Term
Thomas Munn said that a country should
Definition
emphasize trade as the path to wealth and power
Term
Marcantilism
Definition
Thomas Munn's philosophy which emphasized trade
Term
Adam Smith
Definition
published The Wealth of Nations which is considered the best summation of economic theory of his time; explained how the wealth of a nation is created and how it is distributed; agriculture & labor as the source of wealth; division/specialization of labor will increase standard productivity
Term
father of the Classical School of Economics
Definition
Adam Smith
Term
Thomas Malthus
Definition
wages increased = more children = food shortages = mass starvation, labor shortage, increasing wages, increasingly more children. only hope is to have wars, pestilence, and famine.
Term
Malthus's writings caused economics to be referred to as
Definition
Dismal Science
Term
David Ricardo
Definition
further explained the payment of rent for land, the payment of wages for the services of labor, and how each is determined
Term
Karl Marx
Definition
wrote the Communist Manifesto (later Das Kapital) -> labor was true source of wealth & it wasn't being paid its fair wages -> labor should unite, rise up, and overthrow the government
Term
Henry George
Definition
wrote Progress and Poverty -> agreed with Marx that labor was exploited, but did not encourage revolution -> recognized that machinery and labor = productivity increases
Term
Alfred Marshall
Definition
wrote Principles of Economics -> grand summation of all of the major and accepted theories in economics aka the Bible of the Classical School -> explained how an economy operates & how the payments to the factors of production should be determined
Term
Law of Demand
Definition
if price is reduced, all of the supply in an inventory will be purchased, prices & wages will readjust, & the economy will reestablish equilibrium at the full empoloyment
Term
Classical Theory said that depressions would
Definition
eventually disappear and prosperity would occur but only after dislocations, bankruptcies, and loss of savings, jobs, and businesses
Term
% of labor force unemployed during great depression
Definition
25%
Term
John Maynard Keynes
Definition
professor of classical economics at cambridge; "short run that counts"
Term
Laissez-fair
Definition
"that government that rules the least, rules the best"
Term
Keynes said aggregate ____ more imporant than aggregate _____
Definition
demand; supply
Term
2 parts of an economy
Definition
aggregate demand & aggregate supply
Term
aggregate demand
Definition
total market value of all goods & services purchased in an economy
Term
4 sectors of aggregate demand
Definition
1. consumer 70%
2. business 12%
3. government 20%
4. foreign -2.0%
Term
aggregate supply
Definition
total market value of all goods & services produced in an economy
Term
consumers purchase for...
Definition
personal satisfaction
Term
businesses purchase what?
Definition
raw materials, labor, capital, & inventory
Term
purpose of Keynesian economics
Definition
full employment
Term
full employment
Definition
all the individuals in a country who want to work, have a job
Term
how to reach full employment
Definition
shifts in aggregate demand
Term
what conditions will cause consumers to buy more?
Definition
increase in income, lower taxes, change in taste & desires, change in wealth, increase in value of assets, change in interest rates, change in expectations (confidence)
Term
what conditions will cause businesses to buy more?
Definition
**increase in demand for their product**
higher expectations, lower interest rates, lower production cost, lower taxes, lower inventory
Term
fiscal policy & its what it determines
Definition
controlled by Congress -> determines the 20% of government spending
1. taxes
2. spending
3. borrowing
Term
monetary policy & what it determines
Definition
controlled by Federal Reserve Banking System
1. money supply
2. interest rates
Term
what causes foreign to increase/decrease?
Definition
lower value of dollar = more exports
higher value of dollar = more imports
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