Shared Flashcard Set

Details

Macroeconomics
Basic Knowledge and useful Definitions
153
Economics
Undergraduate 2
12/11/2009

Additional Economics Flashcards

 


 

Cards

Term
chain-weighted index
Definition
calculates changes in prices by using numbers from the a base and neighboring years
Term
consumption expenditures
Definition
purchases of newly produced goods and services by households
Term
depreciation
Definition
reduction int he value of capital goods over a one year period due to physical wear and tear. also called capital consumption allowance
Term
economic growth
Definition
sustained increases in the real GDP of an economy over a long period of time
Term
expansion
Definition
the period after a trough in the business cycle in which the economy recovers
Term
export
Definition
a good or service produced in the home country that is send and sold in another country
Term
GDP Deflator
Definition
An index that measures how the prices of goods and services included in GDP change over time
Term
GDP (Gross Domestic Product)
Definition
The total value of final goods and services produced in a given year in a specific economy
Term
gross investment
Definition
total investment expenditures
Term
gross national product (GNP)
Definition
GDP plus new income earned abroad
Term
nation income
Definition
the national income earned by a nation's resident both domestically and abroad in the production of good and services
Term
nominal GDP
Definition
the value of GDP in current dollars
Term
real GDP
Definition
A measure of GDP that controls for changes in price
Term
value added
Definition
the sum of income -wages, interests, profits, and rents- generated by an organization. For a firm, we can measure value added by the dollar value of the goods and services purchased from other firms.
Term
GDP- Components
Definition
C+I+G+NX
consumption + investment + Govt. spending + net exports (does not include non market transactions, leisure time, the underground economy or effects on the environment
Term
labor force
Definition
total number of workers, both the employed and unemployed
Term
labor force participation rate
Definition
% of the population over 16 that is in the labor force
Term
discouraged workers
Definition
workers who have left the labor force because they could not find jobs
Term
seasonal unemployment
Definition
the component of unemployment attributed to seasonal factors
Term
cyclical unemployment
Definition
fluctuations in unemployment that fluctuate with real GDP
Term
frictional unemployment
Definition
normal changed in employment, searching for better more suitable positions
Term
structural unemployment
Definition
mismatch of skills to jobs.
Term
natural rate of unemployment
Definition
only frictional and structural employment
Term
full employment
Definition
the level of unemployment that occurs when the unemployment rate is the natural rate
Term
unemployment insurance
Definition
payments to unemployed received from govt. a transfer payment
Term
consumer price index (CPI)
Definition
a price index that measure the cost of a fixed basket of goods chose to represent the consumption patter of a typical consumer
Term
Cost of Living Adjustments (COLAS)
Definition
automatic increases in wages or other payments that are tied to the CPI calculations
Term
Inflation Rate
Definition
the percentage rate of a change in the price level
Term
deflation
Definition
negative inflation or falling prices of goods and services, lenders gain, borrowers suffer
Term
inflation
Definition
an increase in prices of goods and services, lenders suffer, borrowers gain
Term
menu costs
Definition
the costs associated with changing prices and printing new price lists when there is inflation
Term
shoe leather costs
Definition
costs of inflation that arise from trying to reduce holding cash
Term
unemployment rate calculation
Definition
(unemployed/labor force) x 100
Term
CPI Calculation for a given year
Definition
(cost of basked in year k/cost of basket in base year)x 100
Term
classical models
Definition
economic models that assume wages and prices adjust freely to changes in supply and demand
Term
production function
Definition
the relationship between the level of output of a good and the factors of production that are inputs to production
Term
stock of capital
Definition
the total of all machines, equipment, and buildings in an entire economy
Term
real wage
Definition
the wage rate paid to employees adjusted for changes in price level
Term
full employment output
Definition
the level of output that results when the labor markets is in equilibrium and the economy is producing at full employment
Term
real business cycle theory
Definition
the economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity
Term
crowding out
Definition
the reduction in a component of GDP due to an increase in govt. spending
Term
closed economy
Definition
an economy that does not trade internationally
Term
open economy
Definition
an economy that trades internationally
Term
crowding in
Definition
the increase in a component of GDP due to a decrease in govt. spending
Term
capital deepening
Definition
increases in the stock of capital per worker
Term
technological progress
Definition
more organized way to conduct economic affairs that allow an economy to increase output without increasing inputs
Term
human capital
Definition
knowledge and skills acquired by a worker through education and experience that allow them to produce goods and services
Term
real GDP per Capita
Definition
GDP per person adjusted for changes in prices. Measures living standards across time and between countries
Term
growth rate
Definition
the percentage rate of change of a variable from one to another
Term
rule of 70
Definition
a rule of thumb to calculate the amount of time a economy's output to double at a certain growth rate: 70/x where is is percentage as a whole number
Term
convergence
Definition
the process by which poorer countries close the gap with richer countries in terms of real GDP/ capita
Term
savings
Definition
income that is not consumed
Term
growth accounting
Definition
determines the contribution to economic growth from increases capital, labor, and tech. progress
Term
creative destruction
Definition
firms will try to come up with new products and efficient ways of production to earn monopoly profits
Term
creative destruction
Definition
firms will try to come up with new products and efficient ways of production to earn monopoly profits
Term
new growth theory
Definition
modern theories of growth that try to explain the origins of technological process
Term
flexible prices
Definition
prices that fluctuate greatly and often ex: fruit and veggies at different times of the year
Term
sticky prices
Definition
prices that do not change drastically ex: steel, wages, and other items that have consistent prices over time
Term
short run
Definition
period of time where prices do not change or do not change very much
Term
Aggregate Demand
Definition
total demand for goods and services in an entire economy
Term
Definition

[image]Aggregate Demand Curve: In blue.

 

Term
components of Aggregate Demand
Definition
consumption, investment, govt. spending, net exports will shift the curve up or down. (increase in got. spending will move the curve right, increase in money supply will move the curve right, increase in taxes will shift the curve left, decrease in govt. spending will shift the curve left, decrease in money supply will shift curve left etc.)
Term
Wealth Effect
Definition
an increase in spending because the real value of money increases when the price level falls. Lower prices lead to higher levels of wealth and higher levels of wealth increases spending. When the price level rises, the real value of money decreases which reduces people's wealth and in turn their demand for goods and services. At higher prices, everything is more expensive so, even substitutes are out of economic reach.
Term
Interest Rate Effect
Definition
Lower price level will lead to a lowered interest rate. Lower interest rates allow firms and consumers to borrow money easier and make more purchases there fore demand increases. When interest rates increase, firms and consumers are less likely to borrow money, so demand decreases.
Term
International Trade Effect
Definition
if domestic goods become cheaper, the demand for them increase both domestically as well as the export rate due to the decrease in price. Imports will increase. If domestic goods increase in price, there will be an increase in imports as well as a decrease in exports.
Term
Why does the Aggregate Demand Curve downward?
Definition
wealth, interest and international trade effects.
Term
Changes in money supply and effects on AD
Definition
an increase in the money supply will shift the AD curve right. If the supply decreases, AD shifts left
Term
changes in taxes and effect on AD
Definition
decrease in taxes shift AD curve right, more money in circulation, an increase shift AD curve left, less money in circulation.
Term
changes in govt. spending on AD curve
Definition
when govt. spends more money, the AD curve shifts right, when govt. decreases spending, the AD curve shift left.
Term
other changes and how they affect the AD curve
Definition
foreign demand for goods can change with the growth or contraction of larger economy. ex: an increase in demand for our products will shift demand left. a contraction in their economy will lead to less desire for our goods shifting the curve left.
Term
The AD Multiplier
Definition
the idea that a small change in a component of AD will result in a large overall increase or decrease in the long run. ex: govt. spends more money, therefore there is more money in circulation therefore consumption increases.
Term
Consumption function equation
Definition
C = Ca + by (Consumption spending = autonomous spending (constant) + (mpc x level of income)
Term
MPC Def and Calc
Definition
Marginal Propensity to Consume:the likelihood of consumers to consume
additional consumption/additional income = MPC
Term
MPS
Definition
Marginal Propensity to Save: the likelihood of saving over spending.
additional savings/additional income = MPS
Term
MPC and MPS relationship
Definition
MPC+MPS=1 Consumers either consume or save.
Term
Definition

[image]Aggregate Supply in Red

Term
Short Run Aggregate Supply
Definition
curve that demonstrates how prices do not change much over time and firms adjust production to meet demand.
Term
Input prices and their affects of SRAS
Definition
input prices: an increase in input prices will force the curve to shift the curve right. A decrease in input prices will shift the curve left.
Term
State of Technology and its effect on SRAS
Definition
Improvements in technology will shift curve left, a technological setback will shift it right
Term
Taxes, Subsides, and govt. regulation and how they affect SRAS
Definition
an increase in taxes will shift curve right, a new subside will shift curve left, a govt. regulation that disrupts business will shift the curve right.
Term
Supply Shocks-SRAS
Definition
~oil prices can increase drastically and then the SRAS will also shift right
~stagflation: an increase in prices and decrease in output
Term
Long Run Aggregate Supply Curve
Definition
Straight up and down, shows that prices change drastically over a long period of time while output does not change at all.
Term
Definition

[image]Economy experiences a AD bust, first shifts to align with SRAS then moves to intersect with LRAS, shows an increase in prices and no overall change in output.

Term
Expansionary Policy
Definition
increase in govt. spending and decrease in taxes to increase aggregate demand. used to grow the economy in a time of bust
Term
contractionary policy
Definition
decrease in govt. spending and increase in taxes to decrease AD and slow economic growth
Term
Fiscal Multiplier
Definition
stabilization by fiscal policy that create more change in demand as it trickles through the economy. both expansionary and contractionary policies are amplified.
Term
Stabilization Policy
Definition
acts by the govt. to move economy toward full employment an potential output.
Term
Stabilization Lags
Definition
inside: the time it takes to formulate a policy to guide economy in wanted direction
outside: time it takes for policy to show affects on GDP and overall economy
Term
discretionary spending
Definition
programs authorized on an annual basis that are NOT automatically funded by prior laws
Term
mandatory spending
Definition
programs that are authorized by previous law or govt. agreement to receive federal funding annually
Term
Federal Revenue
Definition
income takes (bulk), gift taxes, social security taxes, death takes, customs duties, etc. Money the govt. spends.
Term
Supply side economics
Definition
a school of thought that attributes importance to tax policy, looks at the effects of taxes on both supply and demand.
Term
Laffer Curve/Thought
Definition
lower taxes could yield higher govt. revenues. Bell shaped curve that shows a maximum at a median tax rate.
Term
Automatic Stablizers
Definition
taxes and transfer payments that help stabilize GDP without explicitly action taken by policymakers
Term
The Depression Era
Definition
no modern fiscal policy, some changes to expand by increasing govt. spending, but tax also increased so there was no net fiscal expansion (Roosevelt and Hoover)
Term
The Kennedy Admin.
Definition
Taxes were cut to decrease unemployment and increase tax revenues as the economy grew. unemployment rate decreased.
Term
The Vietnam War Era
Definition
Temporary tax implements were set to slow the overheating economy. Tax was not very effective because consumers went about spending as they did after the taxation took place. Did not change their spending habits.
Term
The Reagan Admin.
Definition
Supply side mentality. Tax cuts were aimed to increase output.
Term
The Clinton and George W Admins
Definition
Tax increases during Clinton's era made budget surpluses. George W did the complete opposite.
Term
Definition
[image]
Term
Changes in Consumptions Function Slope
Definition
an increase in autonomous spending shift the consumption function upward. an increase in mpc or income will increase or decrease the slope depending on the shock or change.
Term
money market
Definition
the market in which the amount of money supplied and the amount demanded meet to determine the nominal interest rate
Term
transaction demand for money
Definition
the demand for money based on teh desire to facilitate transactions
Term
Shifts and Changes for the demand of money
Definition
-prices changes: when increased, the demand for money shift right. when decreased, shift left
-real GDP: increase in GDP would would shift demand right, a decrease will shift demand left
Term
illiquid
Definition
not easily transferable to money
Term
liquidity demand for money
Definition
allows to made transactions on short notice, cash on hand
Term
speculative demand for money
Definition
holding money for a short period of time, less risky than holding stocks and bonds
Term
open market operations
Definition
the purchase or sale of US govt. securities by the Fed
Term
open market operations
Definition
the purchase or sale of US govt. securities by the Fed
Term
open market purchases
Definition
the Fed's purchase of govt. bonds from the private sector
Term
open market sales
Definition
the Fed sale of govt. securities to the private sector
Term
discount rate
Definition
the interest rate at which banks can borrow from the Fed
Term
federal funds market
Definition
the market in which banks borrow and lend reserve to and from one another
Term
federal funds rate
Definition
the interest rate on reserves that banks lend to each other
Term
money supplies=?
Definition
money demanded
Term
price of bonds equation
Definition
price of bond = (promised payment)/(1 + interest rate)

in other words: present value over the amount of interest you will earn over time.
Term
Bond prices rise as __________ fall.
Definition
interest rates. and vice versa. Bond prices fall as interest rates increase.
Term
Increased money demand will _____________ interest rates.
Definition
increase. and vice versa.
Term
Money supply increase and interest rates __________.
Definition
fall.
Term
Monetary Policy
Definition
Has very long lags
Term
exchange rate
Definition
rate at which currencies trade for one another in the market
Term
depreciation of a currency
Definition
a decrease in the value of a currency
Term
Long Run Macroeconomics
Definition
the period of time where prices have fully adjusted to any economic changes.
Term
Keynes
Definition
short run guy
Term
Friedman
Definition
more worried about long run
Term
wage-price spiral
Definition
the process by which changes in wages and prices cause farther changes in wages and prices
Term
Employment Below Natural Rate means....
Definition
output is about potential, wages and prices increase, work is easily found.
Term
Employment is above natural rate means....
Definition
output is below potential, wages and prices fall, work is hard to come by.
Term
In a Recession:
Definition
output is less than full employment prices will fall to get back to full employment
Term
In a boom:
Definition
output is more than full employment, prices will rise and output will decrease back to full employment
Term
Liquidity Traps
Definition
A situation in which nominal interest rates are so low, they can no longer fall
Term
Political Business cycle
Definition
the effects on the economy of using monetary or fiscal policy to stimulate the economy before an election to improve reelection prospects
Term
Long run neutrality of money
Definition
a change in the supply o fmoney has no effect on real interest rates, investments, or output int eh long run. It does affect prices and therefore AD
Term
Real Balances
Definition
the amount of work your money can do
Term
Prices are __________ to money supply.
Definition
proportional
Term
nominal wages
Definition
wages expressed in current dollars
Term
real wages
Definition
wage rates paid to employees adjusted for changes in the price level
Term
money illusion
Definition
confusion of real and nominal magnitudes
Term
expectations of inflation
Definition
the belief held by the public about the likely path of inflation in the future
Term
expectations Philips Curve
Definition
the relationship between unemployment and inflation when taking into account expectations of inflation
Term
rational expectations
Definition
the economic theory that analyzes how the public forms expectations in such a manner that on average they forecast the future correctly.
Term
Shifts in Unemployments rate:
Definition
-demographics
-institutional changes
-the recent history of the economy
-changes in the growth of labor productivity
Term
The velocity of money
Definition
the rate at which money turns over during the year. v$=(nominal GDP/Money Supply)
Term
quantity equation
Definition
the equation that links money, velocity, prices adn real output. M x V = P x Y
Term
hyperinflation
Definition
an inflation rate exceeding 50%/ month
Term
seignorage
Definition
revenue raised from money creation
Term
govt. deficit
Definition
new borrowing from the public and new money created
Term
monetarists
Definition
economists who emphasize the role that the supply of money plays in determining nominal income and inflation
Term
exchange rate
Definition
the price at which currencies trade for one another in the market
Term
real exchange rate
Definition
the price of US goods and services relative to foreign goods adn services, expressed in a common currency
Term
real exchange rate equations
Definition
RER= (exchange rate x us price index)/(foreign price index)
Term
law of one price
Definition
the theory that goods are easily traded across countries should sell at the same price.
Term
purchasing power partity
Definition
a theory to exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries
Supporting users have an ad free experience!