# Shared Flashcard Set

## Details

Econ Exam 3
Econ Exam 3 chapters 6 7 8
58
Economics
04/12/2012

Term
 Aggregate Production function
Definition
 Relationship that tells us how real GDP changes as the quantity of labor changes when all other influences on production remain the same.
Term
 classical growth theory
Definition
 View that the growth of real GDP per person is temporary and that when it rises above the subsistence level a population explosion will bring it back down to that level.
Term
 economic growth rate
Definition
 Real GDP growth rate = (Real GDP in current year - Real GDP in previous year) divided by Real GDP of previous yearx100
Term
 labor productivity
Definition
 Quantity of real GDP produced by an hour of labor.
Term
 neoclassical growth theory
Definition
 Proposition that real GDP per person grows because technological change produces saving and investments that make capital per hour of labor grow. Growth will end if tech. change stops. (diminishing marginal returns)
Term
 new growth theory
Definition
 Holds that real GDP per person grows because of choices people make in the pursuit of profit and that growth will persist indefinitely. Profit spurs tech change. opposite of malthusian theory.
Term
 real GDP per person
Definition
 Real GDP divided by population
Term
 real wage rate
Definition
 Money wage rate divided by the price level. The real wage rate is the quantity of goods and services that an hour of labor earns.
Term
 rule of 70
Definition
 A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. This rule is commonly used with an annual compound interest rate to quickly determine how long it would take to double your money.
Term
 Bond
Definition
 Promise to make specified payments on specified dates.
Term
 Bond market
Definition
 Bonds traded by firms and gov't
Term
 Crowding out affect
Definition
 The tendency for government budget deficit to raise the real interest rate and decrease investment. competes with businesses for scarce financial capital.
Term
 demand for loanable funds
Definition
 Relationship between the quantity of loanable funds demanded and the real interest rate. when all other influences on borrowing plans remain the same.
Term
 financial capital
Definition
 Funds that firms use to buy physical capital.
Term
 financial institution
Definition
 Firm that operates on both sides of the market for financial capital. A borrower in one market and a lender in another.
Term
 gross investment
Definition
 total amount spent on new capital
Term
 loanable funds market
Definition
 Aggregate of all individual financial markets
Term
 mortgage
Definition
 Legal contract that gives ownership of a home to a lender in case the borrower fails to make their loan payments.
Term
 mortgage backed security
Definition
 Entitle their owners to the income from a package of mortgages
Term
 national saving
Definition
 Sum of private saving, government saving, and net taxes.
Term
 net investment
Definition
 Change in the value of capital
Term
 net taxes
Definition
 Taxes paid to governments minus the cash transfers received from governments.
Term
 net worth
Definition
 Market value of what is lent - market value of what is borrowed.
Term
 nominal interest rate
Definition
 Number of dollars that a borrower pays and a lender receives in interest in a year expressed as a percentage of the number of dollars borrowed and lent
Term
 real interest rate
Definition
 Nominal interest rate adjusted for inflation.
Term
 saving
Definition
 Amount of income that is not paid in taxes or spent on consumption goods and services.
Term
 stock
Definition
 Certificate of ownership and claim to the firms profits
Term
 stock market
Definition
 Financial market where shares of corporations stocks are traded.
Term
 supply of loanable funds
Definition
 Relationship between a quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same.
Term
 wealth
Definition
 Value of all things people own
Term
 central bank
Definition
 Bank's bank and a public authority that regulates a nation's depository institution and and conducts monetary policy. Which means that it adjusts the quantity of money in circulation and influences interest rates.
Term
 currency
Definition
 Notes and coins held by individuals and businesses
Term
 currency drain ratio
Definition
 Leakage of bank reserves into currency is the currency drain. Ratio of currency to deposits.
Term
 demand for money
Definition
 Relationship between the quantity of real money demanded and the nominal interest rate when all other influences on the amount of money that people wish to hold remain the same.
Term
 depository institution
Definition
 Financial firm that takes deposits from households and firms
Term
 desired reserve ratio
Definition
 Ratio of reserves to deposits that the banks plan to hold
Term
 excess reserves
Definition
 actual reserves minus desired reserves.
Term
 federal funds rate
Definition
 Borrow overnight from another bank and pay interest overnight.
Term
 federal open market committee
Definition
 Main policy making organ of the Federal Reserve System
Term
 federal reserve system
Definition
 Central Bank of the US
Term
 lender of last resort
Definition
 The Fed. Acts as the last lender to another bank if reserves are too low. Loans at the discount rate.
Term
 M1
Definition
 Consists of currency and traveler's checks plus checking deposits owned by individuals and businesses.
Term
 M2
Definition
 Consists of M1 plus time deposits, savings deposits, and money market mutual funds and other deposits.
Term
 means of payment
Definition
 A method of settling a debt.
Term
 monetary base
Definition
 Sum of the currency and depository institution deposits at the Fed.
Term
 money
Definition
 Any commodity or token that is generally acceptable as a means of payment.
Term
 money multiplier
Definition
 Ratio of the change in the quantity of money to the change in monetary base.
Term
 open market operation
Definition
 Purchase or sale of securities by the Fed in the loanable funds market.
Term
 quantity theory of money
Definition
 Proposition that in the long run, an increase in the quantity of money brings an equal percentage increase in the price level.
Term
 required reserve ratio
Definition
 Minimum percentage of deposits that depository institutions are required to hold as reserves.
Term
 reserves
Definition
 Notes and coins in the bank's vault or in a deposit account at the Fed.
Term
 velocity of circulation
Definition
 Average number of times a dollar of money is used annually to buy the goods and services that make up GDP.
Term
 Supply of labor
Definition
 Relationship between the quantity of labor supplied and the real wage rate.
Term
 Quantity of labor supplied
Definition
 number of labor hours that all the households in the economy plan to work.
Term
 labor market equilibrium
Definition
 Price of labor is the real wage rate. Forces of supply and demand work as they do to eliminate surplus or shortage of labors. When there's neither a shortage or surplus the labor market is in equilibrium
Term
 Disposable income
Definition
 a household's income earned minus net taxes. increase means that consumption expenditure increases as well. But you don't spend as much as you make.
Term
 Expected future income
Definition
 the higher this is, other things remaining the same, the smaller its savings today.
Term
 Physical capital
Definition
 tools instruments and machines buildings and other items that have been produced in the past and are used today to produce goods and services.
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