Term
| What is "fiscal policy"? (4/2) |
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Definition
| Actions or programs taken by Congress and POTUS in order to have an effect on macroeconomics (production, prices, unemployment.) |
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Term
| Who conducts Fiscal Policy? (4/2) |
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Definition
| President & Congress (in U.S.) |
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Term
| What are 3 tools that affect fiscal policy? (4/2) |
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Definition
| Taxes, Government Purchases, Transfer Payments |
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Term
| What is the most effective fiscal policy tool? (4/2) |
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Definition
| No good answer, but can be divided between Demand-Siders and Supply-Siders |
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Term
| What do Demand-Siders believe is the most effective tool for fiscal policy? (4/2) |
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Definition
Government Purchases (Increasing) because it goes straight into economy
Y= C+I+G+NX
Ex. G/200=Y/800 |
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Term
| When do transfer payments register in GDP? (4/2) |
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Definition
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Term
| What is the simple [spending] multiplier? (4/2) |
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Definition
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Term
| If the government gives me $200 in transfer payments, MPC is 0.75, how much does Y change? (4/2) |
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Definition
1/1-0.75 => 1/0.25 => 4
TP/+200 => C/150 => Y/600
Answer: +$600 |
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Term
| If the government increases taxes and the MPC is 0.75, how much does Y change? (4/2) |
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Definition
1/1-0.75 => 1/0.25 => 4
Tax Cut/ - $200 => DI/ +$200 => C +$150 => Y/$600
Answer: Y increases by $600 (Tax Cut = Increase in Disposable Income) |
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Term
| What is the main difference between Demand-Siders and Supply-Siders? (4/2) |
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Definition
| Demand-Siders are focused on spending. Way to grow econ is to get people, investors, foreigners, & gov't to spend more $, thinking it will create jobs and those people will spend $, which will create more jobs. So supply-siders are focused on output, incentivizing work, incentivizing investment, incentivize production. |
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Term
| From the government's point of view, which costs more to change the economy: Government Spending, Tax Cuts, or Transfer Payments? (4/2) |
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Definition
| Even if the government spends the same amount on each one, or loses the same amount through tax cuts he biggest impact comes from an increase in G (government purchases). |
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Term
| Which is the most effective for changing the economy? Transfer Payments or Tax Cuts? (4/2) |
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Definition
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Term
| Why don't Supply Siders think that spending will grow the economy? (4/2) |
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Definition
| Supply-siders thinks if it were as simple as spending money, then the gov't should employ everyone to dig holes, cover them back up, then spend our paychecks. Except, if we all do that, no one could buy anything like bread because everyone would be digging holes. |
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Term
| According to Supply Siders, what is the most effective fiscal policy tool? (4/2) |
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Definition
| Cutting taxes (4 ways) 1) Cut Income Taxes 2) Cut Taxes on Savings Income 3) Cut Capital Gain Income Taxes 4) Cut Taxes on Corporations |
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Term
| According to Supply Siders, how does cutting income taxes grow the economy? (4/2) |
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Definition
| Income Taxes => L => Y If you take less of of someone's income, they will want to work more because they get to keep more of what they earn. L goes up, Y goes up. |
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Term
| According to Supply Siders, how does cutting taxes on income generated by savings grow the economy? (4/2) |
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Definition
| Income Taxes => K => Y If you cut taxes, people will save more and loan more, which allows businesses to have more loanable funds. They can use that money to buy equipment in order to produce more. Loans increase Kapital = Increases output, which makes the AS curve shift to the right. |
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Term
| According to Supply Siders, how does cutting taxes on Capital Gain Income grow the economy? (4/2) |
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Definition
Kapital Gain Income Taxes => K => Y
People pay taxes on profits from investments (Stocks, bonds, gold, reselling a house) If taxes are cut, we incentivize people to buy more stocks, bonds; save more. That increases the amount of loanable funds, which increases the amount of K (Capital) in the economy, which increases Y (Output) |
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Term
| According to Supply Siders, how does cutting Corporate taxes grow the economy? (4/2) |
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Definition
Corporation Taxes => K (human & physical), and/or L, and/or Technology => Y
if corporations have more $, they can increase L, or K (human & physical), or Technology, which increases Y (Output). |
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Term
| What are criticisms of supply-side tax cut policies? (4/2) |
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Definition
| 1) Cutting these taxes may create large budget deficit & debt. 2) Cutting taxes may increase income inequality. 3) Capital gains tax cuts impact AD more than AS because tax cuts make more disposable income, increasing Consumption. 4) Cutting income taxes may make people work less because they have more money and don't need to work as much. 5) Political/ Philosophical difference btw big or small government. |
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Term
| Multiplier including leakages. (4/2) |
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Definition
| Y = (1/1-b+bt+m) (a + I + G + X-M) |
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Term
|
Definition
MPC (Marginal Propensity to Consume);
equal to slope (4/2) |
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Term
|
Definition
|
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Term
|
Definition
| MPC * Output (need to verify) (4/2) |
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Term
|
Definition
|
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Term
|
Definition
|
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Term
|
Definition
| t = income tax rate (4/2) |
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Term
|
Definition
m = MPM Marginal Propensity to import
money spent on foreign goods (4/2) |
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Term
|
Definition
| I = autonomous investment |
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Term
|
Definition
|
|
Term
Reduce this equation so that Y is alone on the left side:
Y=a+b(Y-Yt)+I+G+X-i-m(Y-Yt) |
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Definition
Y=a + b(Y-Yt)+I+G+X-m(Y-Yt)
Y= a + bY –bYt + I + G + X – mY + mYt
Y – bY + bYt + mY – mYt = a + I + G + X
Y(1 – b + bt + m – mt) = a + I + G + X
Y = ___1___ (a + I + G + X)
(1-b+bt+m-mt) |
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Term
| Why is the multiplier from the second half of the semester so much lower than the multiplier form the first half? |
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Definition
| Because it includes leakages (4/4) |
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Term
| What are the 3 functions of money? (4/4) |
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Definition
1) Medium of Exchange
2) Unit of Accounts?
3) Store of Value |
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Term
| How is money a medium of exchange? (4/4) |
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Definition
| It is the object(s) used to buy & sell other items i.e. goods/ services (textbook) For example, we can exchange something like us washing Muzzi's car for him teaching us. But if we don't have anything he wants (double coincidence of wants,) we need a medium of exchange ($). (4/4) |
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Term
| What is a "double coincidence of wants"? (4/4) |
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Definition
| When we have something that another person wants and they have something we want. Eg. A farmer who grows corn wants peanuts and the farmer who grows peanuts wants corn. Without monetary system, each farmer needs to find someone who wants his crop. (textbook) |
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Term
| How is money a Unit of Account? (4/4) |
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Definition
| Standard unit for quoting prices (text). measure of value (4/4) When $ becomes Med of Exchange, it becomes the Unit of Account (text) Eg We don't say that a car is worth 40,000 McNuggets |
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Term
| How is money a Store of Value? (4/4) |
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Definition
| "item used to store wealth from one point in time to another (text). e.g., we don't use bananas because they don't last e.g.. Zimbabwe's dollar failed so they asked to be paid in USD |
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Term
| What is Commodity money? (4/4) |
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Definition
| object in use as medium of exchange that also has substantial value in alternative (nonmonetary) uses cigarettes, cattle, etc (text) something that has intrinsic value ie.e gold (4/4) |
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Term
| What is Fiat money? (4/4) |
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Definition
| money that is decreed as such by the government. Little value as commodity money (text) |
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Term
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Definition
| Commodity money has intrinsic value i.e., gold. Fiat money maintains its value as medium of exchange because people have faith that the issuer will stand behind the paper & limit production |
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Term
| What are desirable characteristics of money? (4/9) |
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Definition
| 1) durability 2) portablity 3) uniformity 4) fixability 5) no counterfeitability 6) divisibility |
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Term
| Why does money need to be uniform to be a good medium of exchange? (4/9) |
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Definition
| To be easy to recognize (text) |
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Term
| What is Gresham's Law? (4/9) |
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Definition
| You are hoarding and not using the nice crisp $ bills. Commodity money more susceptible (i.e prettier shells) Wikipedia:"When government overvalues one type of money and undervalues another, undervalued money will leave country or disappear from circulation into hoards, while overvalued money will flood into circulation. Commonly stated as: Bad money drives out good". |
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Term
| Why does money need to be uniform? (4/9) |
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Definition
| If not uniform, it will lead to Gresham's Law. |
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Term
| Why does money need to be limitable? Fixable? Controllable? (4/9) |
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Definition
| fixed amount of money. meaning a fifty dollar bill always amounts to the same |
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Term
| Why does money need to be divisible? (4/9) |
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Definition
| It needs to be easy to divide. Eg. it would be difficult to chisel off a piece of gold. Or cut up a piece of a cow to buy 2 apples. |
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Term
| How does the government measure the supply/ amount of money in the economy? (4/9) |
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Definition
| M1 and M2. Not credit cards. |
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Term
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Definition
1) Currency & coins
2) "checking deposits" aka demand deposits checking acounts
3) Traveler's checks (~1% of M1) |
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Term
|
Definition
1) M1
2) savings acounts
3) money market rate accounts |
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Term
| How much of M2 is M1? (4/9) |
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Definition
| M2 is about 4 xs the amount of M1. M2 ~ $8T and M1 is ~$2T |
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Term
| Why aren't credit cards counted in the money supply? (4/9) |
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Definition
| It's not money that we have, it's money we have to pay back. |
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Term
| How are money market rate accounts different than checking accounts? (4/9) |
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Definition
| Money Market Rate Accounts pay interest. (different than checking accounts) |
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Term
| What comprises the majority of M2? (4/9) |
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Definition
| Savings Accounts and Money Market Rate Accounts |
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Term
| What are the origins of banking? (4/9) |
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Definition
| Gold was not portable/ easily divisible, so people deposited with goldsmiths for a receipt. Then, people asked for multiple receipts, which became paper notes. Goldsmiths => banks (each had different notes) Banks noticed peeps used receipts, rarely came back to exchange for gold, so banks could loan & make more $. Stopped charging to hold & started paying interest. |
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Term
| How was gold a good form of money and how was it not? (4/9) |
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Definition
Good: uniform and hard to counterfeit
Not good: not portable, not easily divisible |
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Term
| How do banks make $ - Part I? (4/9) |
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Definition
| They charge borrower's a high interest rate while paying depositors a low interest rate. |
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Term
| GIve an example of how a bank makes $, part 1. (4/(( |
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Definition
| $100K deposits, 1% to depositors, loan $80K at 5% is $4K-$1K= $3K minus operating costs $2K = $1K profits |
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Term
|
Definition
| RRR = Required Reserve Ratio? |
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Term
| What is RRR in the U.S.? (4/9) |
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Definition
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Term
| How do banks make $ - Part II? (4/9) |
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Definition
| [add chart w/ assets & liabilities] Banks loan out a % to another bank, then that bank loans, and so on. |
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Term
| What is the simple [money] multiplier? (4/9) |
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Definition
| (1/rrr)*∆ monetary base= ∆ Money Supply (M1) |
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Term
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Definition
| ERR = Excess Reserve Ratio; the amount in excess of RRR; typically not more than 20% |
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Term
| What is the Actual Money Multiplier? (4/9) |
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Definition
| (1/(rrr+err))* ∆ monetary base= ∆ change in money supply |
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Term
| If Assets = Liabilities, what is the net equity? (4/9) |
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Definition
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Term
| What is the monetary base? (4/9) |
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Definition
| The monetary base is how much cash is in the financial system. |
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Term
| What is a Moral Hazard? (4/9 & 4/11) |
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Definition
| an incentive to behave badly (4/9) any situation that makes you behave badly (4/11) |
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Term
| How does the banking system create a moral hazard? (4/9) |
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Definition
| Banks borrow your $, make a profit of loaning it out, and may or may not share. If they don't make a profit, they don;t lose because it's your money. |
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Term
| What is the difference between a bank run and a bank panic? (4/9) |
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Definition
bank run = 1 bank
bank panic = systemwide |
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Term
| Why did we create the FDIC? (4/9 & 4/11) |
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Definition
| created because of bank runs (4/9 & 4/11) |
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Term
| What is the current U.S. unemployment rate? |
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Definition
|
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Term
| What does FDIC stand for? (4/11) |
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Definition
| Federal Deposit Insurance Corporation |
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Term
| What is the problem with banks? (4/11) |
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Definition
| They are subject to bank runs |
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Term
| When was the Fed Reserve created? |
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Definition
| Legislation created 1913, enacted 1914 |
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Term
| Why was FDIC created? (4/11) |
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Definition
| The govt' decided a rumor about bank would cause a bank run and the bank would go bankrupt |
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Term
| How much does the FDIC insure? (4/11) |
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Definition
| $250K per bank account, per bank. Note: you could spread it out among banks, or put it under their name as long as the have a taxpayer ID # |
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Term
| How much did FDIC insurance go up in 2008? (4/11) |
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Definition
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Term
| How does the FDIC worsen the moral hazard of banks? (4/11) |
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Definition
| Formerly, people wanted to what their banks invested in; now they don't care; nor do banks and may make more investment risks. (seatbelt example) |
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Term
| What is the Federal Reserve bank? (4/11) |
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Definition
| Central bank of the U.S.; the big bank; the bank's bank |
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Term
| Is the Fed Reserve run by the government? (4/11) |
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Definition
| not exactly. It's quasi-governmental |
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Term
| How would FDIC pay what they have insured if the gov't has no $? (4/11) |
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Definition
| print the money (like Zimbabwe) |
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Term
| What is the analogy for explaining the reasoning behind the FDIC? (4/11) |
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Definition
| house on fire, can't let it burn because there is a strong wind? no, you put out the fire and try to make rules about smoking cigarettes in bed. |
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Term
| are banks allowed to invest in stocks? (4/11) |
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Definition
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Term
| How many territories does the Fed Reserve have? (4/11) |
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Definition
| 12 district banks in 12 territories (12 slices) |
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Term
| Who owns the Fed Reserve? (4/11) |
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Definition
| the banks that operate in that territory, but they don't get the profits (e.g. owning a house and not living in it nor collecting rent) |
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Term
| Who controls the Fed Reserve (4/11) |
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Definition
|
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Term
| Who appoints the Fed Reserve Board of Governors and about how much are they paid? (4/11) |
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Definition
| The President of the U.S. ; ~$250-350K |
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Term
| How many members does the Fed Board of Governors have? (4/11) |
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Definition
| 7 members, overlapping 14-year terms (impartiality) Chair (currently Ben Bernanke), 4-year terms |
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Term
| How is each of the 12 Fed Reserve district's president appointed and how much are they paid? (4/11) |
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Definition
| Each of the 12 Fed Reserve district's president appointed by its member banks; ~ $1M |
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Term
| Who gets Fed Reserve profits? (4/11) |
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Definition
| U.S Treasury gets Fed Reserve Bank profits |
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Term
| What are the Fed Reserve Bank's purposes? (4/11) |
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Definition
| 1) uniform currency 2) regulatory 3) control money supply 4) lender of last resort 5) bank's bank 6) monetary policy |
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Term
| Explain the Fed's role in uniform currency. (4/11) |
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Definition
| got rid of all the different types of notes that were floating around; made a uniform currency |
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Term
| Explain how the Fed is a regulator? (4/11) |
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Definition
| to supervise the banks (that it owns) to make sure they are not investing riskily |
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Term
| What does it mean that the Fed is a lender of last resort? (4/11) |
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Definition
| if a bank can't get another bank to loan them any money (overnight lending,) they go to the Fed |
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Term
| What is overnight lending? (4/11?) |
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Definition
| banks get in trouble when they don't have enough cash (RRR); if customers withdraw a lot, and bank doesn't have enough cash (RRR), they have to get more cash before midnight from other banks or, as a last resort, Fed |
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Term
| How is the Fed "banks' bank?" (4/11) |
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Definition
| Banks store some of their money at the Fed |
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Term
| How does the Fed control the money supply? (4/11) |
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Definition
| They have the authority to tell The Mint to print money |
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Term
| Does the Fed actually print money? (4/11) |
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Definition
| No, they tell The Mint to print |
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Term
| What is the Fed's Dual Mandate from Congress? (4/11) |
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Definition
| Conduct monetary policy to provide 1) price stability 2) full employment |
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Term
| What are the Fed's 3 Tools for conducting monetary policy? (4/11) |
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Definition
| 1) RRR 2) Lending money to banks 3) Open Market Operations (most important) |
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Term
| If the RRR decreases, what happens to the money supply and how? (4/11) |
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Definition
| it increases through the multiplier. eg if rrr goes from .1 (10) to .05 (20), the multiplier (when divided by 1) goes from 10 to 20 |
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Term
| What is monetary policy? (4/11) |
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Definition
| Monetary Policy is when the Fed Reserve Bank has plan or program to affect the 3 variables in macroeconomy (production, prices, employment) |
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Term
|
Definition
|
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Term
| How does the Fed conduct monetary policy by lending? (4/11) |
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Definition
| They can print money and let banks borrow it. Maybe they reduce the interest rate making people want to borrow from Fed, then borrow from other banks |
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Term
| Why are rrr & lending money the 2 least important of the 3 tools for the Fed to conduct monetary policy? |
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Definition
| 1) rrr hasn't changed since 1993 because it's risky to do so 2) the only time they lend is when banks are in trouble (we'd prefer they borrow from other banks) |
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Term
| What are Open Market Operations? (4/11) |
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Definition
| The Fed either buys or sells bonds in the Bond Market. |
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Term
| From whom does the Fed buy bonds or to whom do they sell? (4/11) |
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Definition
|
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Term
|
Definition
| a bond is a piece of paper. One buys a bond, and the gov't gives a piece of paper that promises to pay x interest on certain annual date and the principle on x year; whomever owns it receives the payments (so you can sell it) |
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Term
| If Fed wants to increase money supply in economy, what do they do? (4/11) |
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Definition
| Print money, go to open market and buy back bonds from banks. Fed gives cash to banks. Banks give bonds to the Fed, bonds go out of economy, now cash is in economy, banks loan out cash |
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Term
| How does Fed Control $ supply in economy? (4/11) |
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Definition
|
|
Term
| If Fed wants to decrease money supply in economy, what do they do? (4/11) |
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Definition
| They sell bonds to banks, which takes cash out of the economy |
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Term
| Draw bond market showing what happens when Price of bonds go up (4/11) |
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Definition
|
|
Term
| Draw money market when bonds go up (4/11) |
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Definition
|
|
Term
| If Fed buys bonds, what happens to the Price of bonds? (4/11) |
|
Definition
|
|
Term
| If the Price of bonds goes up, what happens to the Money Supply (MS)? (4/11) |
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Definition
| MS goes up (shifts right) |
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Term
| If MS goes up, then what happens to r (interest rates)? (4/11) |
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Definition
|
|
Term
| If r goes down, what happens to I (investment)? (4/11) |
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Definition
| AE goes up (AE demand curve shifts right) |
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Term
| Why are banks attracted to bonds? (4/16) |
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Definition
| Buying binds is attractive to banks because they receive interest payments and the bonds are pretty much guaranteed to be paid back |
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Term
| Why would you want to buy bonds when the price is low? (4/16) |
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Definition
| When bond is issued, the gov’t receives $100K and gives note promising to pay back $100K in 5 years and 5% on that every year from today. Owner of that paper receives $5k each year and $100K at end of 5 years. If I sell it to someone, does that change the ink the value? No; it’s still going to pay annual interest and $100K when it matures. What bond is obligated to pay does not change, but the price varies with supply and demand. So wouldn’t you love to buy that bond at a low price? |
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Term
| What is the equation of the price of bonds? (4/16) |
|
Definition
P bond= Σ[Future Payments/(1+r)^n]
P bond = summation of [Future Payments of Bonds over 1+r to how many times you get payments]
Price of a bond (or any asset) is determined by how much that asset will pay you in the future divided by 1+r. |
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Term
| What is the relationship between the Price of bonds and r (interest rate)? (4/16) |
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Definition
| they are inversely related. If denominator grows, quotient shrinks; if denominator shrinks, quotient grows. eg 1/2 = 0.5; 1/4= 0.25 |
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Term
|
Definition
| Federal Open Reserve Market Committee |
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|
Term
| How many people are on the FOMC and who are they? (4/16) |
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Definition
| 12 total. 7 BOG from Fed, President of NY Fed Reserve bank; 4 remaining rotate between other regions |
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Term
| Why is NY Fed pre always on FOMC? (4/16) |
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Definition
| east Coast bias, NYC is "financial capitol" |
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Term
| From Keynesian viewpoint, why would Fed buy bonds? |
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Definition
| If they buy bonds, it will increase the monetary base through expansionary monetary policy |
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Term
| What is Expansionary Monetary Policy and why is it Keynesian? (4/16) |
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Definition
| increasing money supply because production went up, so price goes up. Keynesian because it is focused on spending, shift right; reduced interest rates encourage Y (thru K and more) so econ expands |
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Term
| What is the Money Transmission Mechanism equation? |
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Definition
Fed buys bonds=> MB => [goes through MM] MS => r => I => AE => AD ⇒shifts right (Keynesian)
If Fed wants to step on gas, buys bonds. If Fed wants to slow down, it sells bonds. |
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Term
| What happens when Fed sells bonds (Contractionary Monetary Policy)? (4/16) |
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Definition
| Fed sells bonds=> MB => [goes through MM] MS => r => I => AE => AD ⇐shifts left If Y falls & general Prices fall (deflation) (Keynesian) |
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Term
| Why would Fed want to sell bonds? (4/16) |
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Definition
|
|
Term
| What are 2 types of Hoarding that result from low interest rates? (4/16) |
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Definition
| 1) Individual - People are hoarding when they don't put cash in bank because r is low, increasing multiplier 2) Banks hoard less ERR and loan more, increasing multiplier even more |
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Term
| Draw a money market graph w/ upward sloping supply curve. (4/16) |
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Definition
|
|
Term
| Draw a Money Supply Curve (4/16) |
|
Definition
|
|
Term
| Why is the Money Demand Curve negatively sloped? (4/16) |
|
Definition
| when the interest rate falls, people want to carry more money; the price you pay to hold $ |
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Term
| How and why is the Supply Demand Curve affected by r? (4/16) |
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Definition
| If you hold cash in your pocket, and r is low, you don't lose much by doing so. If r is high, you make more $ by keeping cash in bank. So high r = high MS |
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Term
| Explain: when r is high, MS is high; when r is low, MS is low. (4/16) |
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Definition
| 1) When r is low, people hoard (keep cash on person, not in bank). If high, we put more $ in bank, which goes through multiplier. Therefore, MS is higher. 2) Also, banks will hoard less (less ERR), and loan more, increasing multiplier even more |
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|
Term
| Why is MS curve upward sloping? (4/16) |
|
Definition
| Because there is less hoarding when r is high. |
|
|
Term
| What makes MS shift right? (4/16) |
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Definition
| The Fed. through Expansionary Monetary Policy |
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Term
| What makes MS shift left? (4/16) |
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Definition
| The Fed through Contractionary Monetary Policy |
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Term
| What makes you carry more or less money besides interest rates? (4/16) |
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Definition
| Income & Price. If Income is higher, people carry more $, there are more transactions, they want to carry more cash. eg parents carry more $ because they make more $. Price eg person from 1910 carried less because prices were less. |
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Term
| What causes MD to shift right? (4/16) |
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Definition
| An increase in Y (output, transactions in econ), MD will shift right |
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Term
| What causes a shift in MD? (4/16) |
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Definition
| Changes in Prices and Income |
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Term
| What cause a movement in MD? (4/16) |
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Definition
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Term
| What causes movement along money supply curve? (4/16) |
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Definition
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Term
| What causes shift in MS curve? (4/16) |
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Definition
| The Fed (but not just through printing $ if it just sits there) |
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Term
| Would the Fed printing money cause a shift on the MS curve? (4/16) |
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Definition
| Not if it just sits there. But yes, if it sells bonds. |
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Term
| How does high r increase money supply? (4/16 & 4/18) |
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Definition
| If r is high, less hoarding, money in bank multiplies, increasing the $ supply |
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Term
| What is the Monetarism theory? (4/18) |
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Definition
| Theory that change in MS has direct effect on GDP (not thru long Money Transmission Mechanism); aka increasing $ increases GDP |
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Term
| What is the Monetarism Equation of Exchange? (4/18) |
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Definition
M*V = P*Y
M=Money Supply
V=Velocity
P= General Price Level
Y = Real Output aka Real GDP aka Real Production of Goods & Services |
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Term
| What is another way of arranging M*V = P*Y? (4/18) |
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Definition
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Term
| What is P*Y in Monetarism Equation of Exchange (M*V = P*Y)? (4/18) |
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Definition
| P= General Price Level * Y = Real Output aka Real GDP aka Real Production of Goods & Services = Nominal GDP |
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Term
| What is V in Monetarism Equation of Exchange (M*V = P*Y)? (4/18) |
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Definition
| V = Velocity is the amt of times that $ turns over in economy. Eg if only 1 person pays cab driver $20 bill who spends that on breakfast, whose resto owner goes to a movie = $60 |
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Term
| Is Velocity constant or variable? (4/18) |
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Definition
| Velocity is constant. Also, moves at same pace as Real GDP |
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Term
| How long is Velocity typically measured? (4/18) |
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Definition
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Term
| How do monetarists move from equation into theory? (4/18) |
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Definition
| They found through stats (Friedman) that V and Y constant; moves at same pace as Real GDP |
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Term
| What was average annual growth rate of Real GDP since the 1950s? (4/18) |
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Definition
| ~3%/ year. ~1% from pop. growth; ~2% from tech growth |
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Term
| If you increase M in M*V = P*Y, what happens to P and what does that cause? (4/18) |
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Definition
| If M goes up, then P goes up (even though Y&V grow constant at their own pace) then you have inflation |
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Term
| What did Milton Friedman say about inflation? (4/18) |
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Definition
| "Inflation is always and everywhere a monetary phenomenon." |
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Term
| GIve the title of the book by Milton Friedman & Anna Schwartz and describe it. (4/18) |
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Definition
| "The History of Money" Went back as far as Roman Times and found only 1 reason for inflation: increase in MS causing increase in P. Concluded that Inflation is caused by increase in MS |
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Term
| Does printing $ make production (Y) go up? (4/18) |
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Definition
| No, all it does is increase Price levels. Y is inceased by increase in K, L, etc. |
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Term
| Keynesians v Monetarists (4/18) |
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Definition
| Monetarists say increasing MS increases nom GDP, but has no effect on Y. Keynesians say yes, it does. You lower r, then I increases & that's real effect. Rebut: Mntrsts say it may look like GDP grows, really only M&P go up, but that's just inflation. (Always, everywhere mon phenom) |
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Term
| What is Self-Correction v Gov’t Action? (4/18) |
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Definition
C: don’t do anything yet, might get worse, will self-correct. Eg, recession from cyc unemploy causes wages to go down or peeps not buying so prices go down, then demand goes back up
K: gov’t should solve recession thru increase in TP, tax cuts, increase G |
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Term
| What is Tax Cuts v Gov’t Action? (4/18) |
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Definition
C: Supply-siders: increase in G increases spending, but not Y, so cut taxes to increase Y
K: Demand-Siders: best way is to increase G, which causes people to spend more |
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Term
| What is Crowding Out v Crowding In? (4/18) |
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Definition
| C: increase G, increases AE (shifts up), AD shifts right, P & Y go up, which makes MD increase (right), which would make r go up & I go down. So gov’t spending crowding out private investment K: But K say not important, because Animal Spirits go up (optimism) because Y & P go up, which will make I go back up. |
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Term
| What is Quantity Theory v Monetary Transmission? (4/18) |
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Definition
| C: Monetarists Increases Money, increases inflation, Y stays same K: Fed buys bonds=> MB => [goes through MM] MS => r => I => AE => AD ⇒shifts right, so Y & P increase. Essentially, saying printing $ makes Real Y go up (people produce more) |
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Term
| What is AS Vertical v AS Positive Slope? (4/18) |
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Definition
| C: Monetarists: AS curve is vertical; when AD shifts right, only Prices go up, then Costs of Production go up, then Profits (Y) are constant, so no incentive. K: AS curve has + slope; when AD shifts right, both Prices and Y go up. So print $; so Prices go up, Cost of Production is constant = higher profits = increase Y, giving biz more incentive to produce |
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Term
| What is Rule V. Discretionary Policy? (4/18) |
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Definition
C: Pick a rule and stick with it. i.e only give antibiotics if temp above 103
K: Make decisions on facts from past: (I, G, etc), and adjust. Eg driving through rearview mirror. They do so because we don’t get GDP Q1 until a month later, then it gets adjusted again twice, final # 90 days |
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