# Shared Flashcard Set

## Details

Chapters 9, 10, 11, 12
n/a
72
Economics
04/23/2014

## Additional Economics Flashcards

Term
 Economic growth
Definition
 a sustained expansion of production possibilities
Term
 Economic growth rate
Definition
 the annual percentage change of real GDP
Term
 Real GDP per person
Definition
 real GDP divided by the population
Term
 Rule of 70
Definition
 the number of years it takes for the level of any variable to double is approximately 70 divided by the annual percentage growth rate of the variable.ex: if the interest rate is 1% you take 70 (average life span) divided by the interest rate, 1, you have 70 years until it will doubleIf you deposit \$100 with a 5% interest rate, provided you leave the money alone, 70/5= 14 years for you to double your money
Term
 Labor productivity
Definition
 the quantity of real GDP produced by one hour of laborlabor productivity= real GDP/aggregate hours
Term
 Law of diminishing marginal returns
Definition
 If the quantity of capital is small, an increase in capital brings a large increase in production; and if quantity of capital is large, an increase in capital brings a small increase in production
Term
 Productivity curve
Definition
 The relationship that shows how real GDP per hour of labor changes as the quantity of capital per hour of labor changes
Term
 Expansion of Human Capital
Definition
 human capital" the accumulated skill and knowledge of people--comes from three sources:- Education and training (creating a work force that produces scientists, engineers, mathematicians, biologists, and lots of other specialized skills, advances productivity and technology)- Job experience (school/formal education is not the only place people learn, hands on experience, seeing how things change over time, learning by doing, eg: during WWII largely the work force was ill equipped for what was being required of them so now that they are being trained/put on the job production was able to meet the demand)- Health and diet (healthy workers is very important, human capital is not machinery, you cannot work humans all night and expect them to come back in the morning and keep up the production necessary)
Term
 Classical growth theory
Definition
 the theory that the clash between an exploding population and limited resources will eventually bring economic growth to an end
Term
 Malthusian theory
Definition
 another name for classical growth theory-- named for Thomas Robert Malthus
Term
 New growth theory
Definition
 the theory that our unlimited wants will lead us to ever greater productivity and perpetual economic growth- Human capital expansion and choice (people decide how long to stay in school, what to study, and how hard to study, once they graduate they decide job training and on the job training, all these choices govern the speed at which human capital expands)- Discoveries and choices (chance/luck has nothing to do with the rate at which discoveries are made, when technology advances it pushes people to look for new technology and dictates how intensively they are looking)- Discoveries and Profits (profit sparks technological changes , eventually new discovery is copies and profits disappear)- many people can use discoveries at the same time, once a profitable discovery has been made someone is going to copy it and resources are freed up, they have zero opportunity cost)- physical activities can be replicated, as capital accumulates, labor productivity grows indefinitely as long as people devote resources to expanding human capital and introducing new technologies)
Term
 Economic freedom
Definition
 A condition in which people are able to make personal choices, their private property is protected by the rule of law, and they are free to buy and sell in markets
Term
 Property rights
Definition
 the social arrangements that govern the protection of private property
Term
 Requirements of economic freedom
Definition
 - private property- free markets
Term
 Policies to achieve faster growth
Definition
 - Create incentive mechanisms (encourage people to save, invest, and innovate by having a strong sense of personal property and well-functioning legal system, this is missing through much of Africa and what Russia is trying to do)- Encourage saving (increase the growth of capital and stimulate economic growth, taxing consumption rather than income)- Encourage research and development (governments can direct public funds to basic research, National Science Foundation helps allocate funds to universities and public research facilities to encourage basic research)- Encourage international trade (free-international trade, fast growing exports and imports help stimulate economic growth)- Improve the quality of education (funding basic education and having high standards of skills, language, mathematics, and science help improve governments potential for growth)
Term
 Finance
Definition
 the lending and borrowing that moves funds from savers to spenders
Term
 Money
Definition
 the object (or objects_ that people use to make payments
Term
 Capital or physical capital
Definition
 the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used to produce goods and services
Term
 Gross investment
Definition
 the total amount spent on new capital
Term
 Net investment
Definition
 the change in the quantity of capital--equals gross investment minus depreciation
Term
 Wealth
Definition
 the value of all the things that people own
Term
 Markets for financial capital
Definition
 - Loan markets (getting funds from a bank, businesses want to buy more inventory and extend credit to their customers, households want to buy big ticket items, often relying on bank loans and credit cards to make their purchases)- Bond Markets (a promise to pay specified sums of money on specified dates)= Stock Markets (a certificate of ownership and claim to the profits that a firm makes)
Term
 Bond
Definition
 a promise to pay specified sums of money on specified dates
Term
 Stock
Definition
 a certificate of ownership and claim to the profits that a firm makes
Term
 Financial institutions
Definition
 a firm that operates on both sides of the markets for financial capital: It borrows in one market and lends in another- investment banks (firms that help other financial institutions and governments raise funds by issuing and selling bonds and stocks, as well as providing advice on transactions such as mergers and acquisitions)- commercial banks (the bank you use for your own banking services and that issues your credit card is a commercial bank)- government-sponsored mortgage lenders (two large financial institutions, the Federal National Mortage Association or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac, are government sponsored enterprises that buy mortgages from banks, package them into mortgage-backed securities and sell them)- pension funds (financial institutions that use the pension contributions of firms and workers to buy bonds and stocks)- insurance companies (companies that enter agreements with households and firms to provide compensation in the event of accident, theft, fire, ill health, and a host of other misfortunes)
Term
 Net worth
Definition
 the total market value of what a financial institution has lent minus the market value of what it has borrowed
Term
 Interest rate
Definition
 on a financial asset, is a percentage of the price of the asset
Term
 Quantity of loanable funds demanded
Definition
 total quantity of funds demanded to finance investment, the government budget deficit, and international investment or lending during a given period
Term
 Determining Investment and the demand for loanable funds
Definition
 - The real interest rate (the opportunity cost of the funds used to finance the purchase of capital)- expected profit (comparing the real interest rate with the rate of profit they expect to earn on their new capital)Other things remaining the same, the higher the real interest rate, the smaller is the quantity of loanable funds demanded; and the lower the real interest rate, the greater is the quantity of loanable funds demanded
Term
 Demand for loanable funds
Definition
 the relationship between the quantity of loanable funds demanded and the real interest rate when all other influences on borrowing plans remain the same
Term
 Changes in the demand for loanable funds
Definition
 the expected profit rises during a business cycle expansion and falls during a recession; rises when technological change creates profitable new products; rises as a growing population brings increased demand
Term
 Quantity of loanable funds supplied
Definition
 total funds available from private saving, the government budget surplus, and international borrowing during a given periodOther things remaining the same, the higher the real interest rate, the greater is the quantity of loanable funds supplied; and the lower the real interest rate, the smaller is the quantity of loanable funds supplied
Term
 Supply of loanable funds
Definition
 the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same
Term
 Disposable income
Definition
 the income earned minus net taxes
Term
 Wealth
Definition
 what it owns
Term
 Expected future income
Definition
 the household with the larger expected future disposable income will spend a larger portion of its current disposable income on consumption goods and services and so save less today
Term
 Default risk
Definition
 the risk that a loan will not be repaid, the higher is the interest rate needed to induce a person to lend and the smaller is the supply of loanable funds
Term
 Shifts of the supply of loanable funds curve
Definition
 an increase in disposable income, or a decrease in wealth, expected future income, or default risk increases the supply of loanable fundsdisposable income rises or wealth, expected future income, or default risk decreases shift rightwards
Term
 Equilibrium in the loanable funds market
Definition
 higher real interest rate, the greater amount of saving and larger quantity of loanable funds supplied. Higher the real interest rate, the smaller the amount of investment and the smaller is the quantity of loanable funds demandedequilibrium = quantity of loanable funds demand + supply funds+6% interest rate: quantity loanable funds > quantity demanded, easy to get a loan, real interest rate falls until -6% interest rate where quantity loanable funds < quantity demanded, hard to get a loan but lending all they got, real interest rate rises until... etc. cycle
Term
 Changes in demand and supply
Definition
 Demand: increase in expected profits, increase in demand for loanable funds; no change in supply... shortage of funds for demand, interest rises; shift rightwardSupply: increased saving, supply of loanable funds increase, non change in demand therefore surplus of the funds until interest rate falls enough for equilibrium to be restored, curve shifts rightwardAlthough demand and supply trend upward, the real interest rate has no trend
Term
 A government budget surplus
Definition
 increases supply of loanable funds, real interest rate falls, decreases saving, decreases quantity of private funds supplied; lower interest rate increases the quantity of loanable funds demanded and increases investment
Term
 A government budget deficit
Definition
 increases demand for loanable funds, real interest rate rises, increases private saving, increases the quantity of private funds supplied, higher real interest rate decreases investment and the quantity of loanable funds demanded by firms to finance investments
Term
 Ricardo-Barro Effect
Definition
 government budget deficit has no effect on the real interest rate or investment, smaller expected future disposable incomes, saving increases supply of loanable funds shifts SLF curve right
Term
 Money
Definition
 any commodity or token that is generally accepted as a means of payment
Term
 Means of payment
Definition
 a method of settling a debt
Term
 Medium of exchange
Definition
 an object that is generally accepted in return for goods and services
Term
 Barter
Definition
 the direct exchange of goods and services for other goods and services, which requires a double coincidence of wants
Term
 Unit of account
Definition
 an agreed-upon measure for stating the prices of goods and services
Term
 Store value
Definition
 any commodity or token that can be held and exchanged later for goods and services
Term
 Fiat money
Definition
 objects that are money because the law decrees or orders them to be money
Term
 Currency
Definition
 notes (dollar bills) and coins
Term
 M1
Definition
 currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses
Term
 M2
Definition
 M1 plus savings deposits and small time deposits, money market fundsm and other deposits
Term
 Checks
Definition
 checks are not money, it is an instruction to a bank to make a payment
Term
 Credit card
Definition
 credit cards are not money, it is an automatic loan
Term
 Debit card
Definition
 like an instant paper check
Term
 e-Check
Definition
 electronic equivalent of a paper check
Term
 Banking system
Definition
 the federal reserve and the banks and other institutions that accept deposits and provide the services that enable people and businesses to make and receive payments
Term
 Commercial bank
Definition
 a firm that is chartered by the Comptroller of the Currency in the U.S. Treasury (or by a state agency) to accept deposits and make loans
Term
 Reserves
Definition
 the currency in the bank's vaults plus the balance on its reserve account at a Federal Reserve Bank
Term
 Required reserve ratio
Definition
 the minimum percentage of deposits that the Fed requires banks and other financial institutions to hold in reserves
Term
 Liquid assest
Definition
 short-term treasury bills and overnight loans to other banks
Term
 Securities
Definition
 onds issued by the U.S. government and by other organizations
Term
 Loans
Definition
 the provision of funds to businesses and individuals
Term
 Federal funds rate
Definition
 the interest rate on interbank loans (loans made in the federal funds market)
Term
 Savings bank
Definition
 a financial institution that accepts savings deposits and makes mostly consumer and home purchase loans
Term
 Credit union
Definition
 a financial institution owned by a social or economic group, such as a firm's employees, that accepts savings deposits and makes mostly consumer loans
Term
 Money market fund
Definition
 a financial institution tat obtains funds by selling shares and uses these funds to buy assets such as U.S. Treasury bills
Term
 Federal Reserve System (the Fed)
Definition
 the central bank of the United States
Term
 Central bank
Definition
 a public authority that provides banking services to banks and governments and regulates financial institutions and markets
Term
 Structure of the Federal Reserve
Definition
 - the chairman of the Board of Governors- the Board of Governors- the regional Federal Reserve Banks- the Federal Open Market Committee
Term
 Federal Open Market Committee
Definition
 the Fed's main policy-making committeeConsists of...- the Chairman and the other six members of the Governors- the president of the Federal Reserve Bank of New York- Four presidents of the other regional Federal Reserve Banks (on a yearly
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