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68
Economics
12th Grade
04/05/2007

Additional Economics Flashcards

 


 

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Term
GDP expenditure method
Definition
C+Ig+G+Xn - Consumer spending + gross investment + government spending + net exports
Term
NDP
Definition
Instead of Ig or gross investment it uses In or NET investment -
it is GDP - depressiation or In = Ig-depreciation
Term
Difference between real and nominal GDP
Definition
Real GDP is adjusted for inflation and a better economic measurement than nominal GDP
Term
How do you get Nominal GDP
Definition
Output_per_the_year * Price_for_the_year
Term
4 phases of business cycle
Definition
GROWTH - PEAK - RECESSION - TROUGH
Term
Karl Marx
Definition
1st economist to write shit down - said real value of something is equal to the amount of labor put into it - most things are not valued this way
Term
Joseph Schumpeter
Definition
Focused on Long run economy causing business cycles
Term
JB Say
Definition
capitalist economy is a self healing economy, supply creates its own demand, Government interaction not needed
Term
Keyes
Definition
GDP expenditure method comes from him
Completely demand driven
Multiplier effectt
Term
Predicting Recession - 3 types of economic indicators
Definition
Leading indicators - Before new stage of business cycle
Coincidental Indicators - Happens during the business cycle
Lagging indicators - hange after the business cycle
Term
Leading recession indicators
Definition
Average hours worked per week, unemployment claims, stock prices, capital goods investment, consumer expectations, delivery time of goods
Term
Coincidental recession indicators
Definition
Payroll employment, industrial production, personel income
Term
Lagging recession indicators
Definition
Labor cost per unit of output, inventory to sales ratio, unemployment duration, consumer debt, outstanding commercial loans, Prime interest rate
Term
Labor force
Definition
Employed - all full time and part time workers
Officially unemployed - all people who are actively looking for jobs
Term
Unemployment rate
Definition
Offially_unemployed / total labor force
Term
discouraged workers
Definition
people that have been unemployed for an extended period of time, cant find a job, giveu p and NOT part of the labor force
Term
Three types of unemployment
Definition
1) Frictional - Most common - people in between or waiting to get jobs
2) Structural Unemployment - due to changes in structure of work place- automation or corporate downsizing
3) Cyclical - Unemployment due to recession (change in business cycle)
Term
Natural Rate of unemployment
Definition
frictional_unemployment + structural_uneemployment
Term
Full employment
Definition
100% - natural_unemployment
Term
Potential GDP
Definition
What we can produce at full employment
Term
GDP gap
Definition
potential GDP - actual GDP
Term
2 Costs of Unemployment
Definition
Social cost - Increase in suicide rate, divorce rate, prison population size
Lost production -
Term
Inflation
Definition
Sustained increase in the average price level
Term
Deflation
Definition
decrease in average price level
Term
Stagflation
Definition
Recession with inflation - Unemployment rate AND inflation rate both rising
Term
Demand pull inflation
Definition
Demand for goods and services increases - prices go up and output goes up

Most common reason for inflation
Term
Cost push inflation
Definition
Reduction in supply - business costs are going up, supply falls, price and unemployment rise
Term
Who loses from inflation
Definition
People on a fixed income
Savers worse off, value of money drops
Lenders or creditors lose from unexpected inflation
Term
Who wins from inflation
Definition
borrowers may win
Government may gain
Term
Types of inflation
Definition
Creeping inflation - average american inflation, single digit increase
Galloping - 2 digit increase per year
Hyper inflatino - >50% increase - Hungary was worst - hyperinflation always caused by government excessively printing money
Term
Fiat money
Definition
Money with no intrinsic value - nothing backing it but faith in it
Term
Marginal Propensity to Consume
Definition
Change in consumer spending / change in consumer income
Term
Marginal Propensity to save
Definition
MPS + MPC = 1
If MPC = .7 MPS = .3 - what consumers save from each dollar increase
Term
Expenditure Multiplier formula
Definition
1/(1-MPC) or 1/MPS

Means that each $1 change in spending, GDP changes by
Term
How to find impact on GDP with the expenditure multiplier
Definition
expenditure_multiplier * change_in_spending
Term
Aggregate Demand
Definition
Average price of all goods and services demanded
Term
Reasons why aggregate demand slope down
Definition
1) Wealth effect - Consumer spending higher at lower levels
2) Interest Rate effect - Spending is lower at higher interest rates
3) Foreign Purchases Effect - Import products get bought more during higher general price, and exports is lower at a higher general price
Term
Determinants of aggregate demand
Definition
Consumer spending, gross investment, government spending, and netexports
Term
Determinants of Aggregate Supply
Definition
Resource prices, prices of imported resources, prices of raw materials, technology and productivity
(Same determinants from both long and short)
Term
SRAS - Aggregate demand increases
Definition
Growth with inflation, unemployment down, aggregate supply up
Demand pull inflation
Term
SRAS - Aggregate demand falls
Definition
Real GDP is going down, unemployment rising, RECESSION
Term
SRAS - Agg supply increase
Definition
General price level drops, Real GDP is higher, falling unemployment, rise in productino growth or expansion and deflation
Term
SRAS - Aggregate supply decreases
Definition
Real GDP goes down, price levels drop, unemployment rises, Recession with inflatinon - STAGFLATION
Term
LRAS - Agg Demand Increases
Definition
Only thing affected general price level is higher
Term
LRAS - Agg demand drops
Definition
Only thing here is average price level drops
Term
Budget deficit
Definition
Government spending - tax_revenues
Term
3 Basic Budget Philosophies
Definition
1) Annually Balanced Budget
2) Cyclically Balanced Budget
3) Functional Finance
Term
Annually Balanced Budget
Definition
Requires government spending = tax revenues each year to balance up

Too strict at certain times, during a recession tax revenues drop but goverment spending rises
Term
Cyclically balanced budget
Definition
Less strict than annually balanced budget
Good years pay for the bad years
Save up during good years
Term
Functional Finance
Definition
Don't worry about balancing, just whatever is necessary to keep economy growing
Focus on a growing economy and low unemployment
Term
Major historical causes of debt
Definition
War and recession
Term
Government debts result in what:
Definition
Higher real interest rates
Term
Debt related problems:
Definition
1) Crowding out effect - real interest rates go up, Business investments go down
2) Impact on net exports - Due to higher real interest rates, imports increase because cheaper to get out of country, which caused net exports to go down causing GDP to down
Term
Can the federal government go bankrupt?
Definition
No
1) Debt never due, can rollover 2) Power to tax every year 3) Power to print money
Term
Solution to Budget Deficit
Definition
Requires less spending and more money coming in
Term
Basic functions of Money
Definition
1) Serves as basic medium of exchange
2) Way to store value, way of saving
3) Standard of value
4) Standard of deferred payment
Term
Define the money supply
Definition
M1 - Includes all money in checking accounts, checkable depoits, and money in circulation outside of banks

M2 - Includes everything in the M1, PLUS savings acounts, money market accounts, mutual founds - LARGER THAN M1
Term
Money Supply (controlled by who)
Definition
Federal reserve controls it, the line is a vertical straight line
Term
Money demand curve
Definition
Top left to bottom right curve -
Term
Types of Money Demand
Definition
1) Transactions demand - to buy stuff
2) Asset Demand - precautionary and speculative
Term
Money Demand Increases or decreases
Definition
Increases interest rates go up, decreases the opposite
Term
If money supply increases or decreases
Definition
Increases interest rate goes DOWN - decreases interest rate RISES
Term
Prime Interest rate
Definition
Interest rates larger banks charge their larger/best customers
Term
Fractional Reserve banking:
Two types of reserves
Definition
Required Reserves: Percentage of deposit required to keep in bank as a reserve

Excess Reserve: amount left after required reserves reserved
Term
Discount Rate
Definition
Interest rate federal reserve bank charges commercial banks for a loan
Term
Open Market operations
Definition
Federal reserve buys and sells government Securities
Term
Federal Funds Rate
Definition
Loan rate commercial banks charge each other for an over night line, 1/2 point below discount rate and considered short term interest rate
Term
Tools used by Feds to control money supply
Definition
1) Required Reserve ratio %
2) Discount Rate
3) Open market operations
4) Federal funds Rate
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