Term
Loanable Funds/Crowding out
formula |
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Definition
| G increase - Intrest increase - Investment decrease |
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Term
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Definition
| land, labor, capital, entrepreneurship |
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Term
| how are goods allocated in the market? |
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Definition
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Term
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Definition
| division of labor and wrote the Wealth of Nations |
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Term
| Who thought population would grow faster than food production? |
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Definition
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Term
| which economist explained the role of comparative advantage in international trade? |
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Definition
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Term
| why was Mill opposed to the progressive income tax, and in favor of the flat tax and inheritance tax? |
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Definition
| the progressive tax reduced incentives to save money and work because it taxes at a rate proportinal to your income. (higher income=higher tax). flat tax taxed at a flat rate, so if you made more money you were not taxed more. inheritance tax created an incentive to spend money in the market, & opened jobs |
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Term
| which economist said "from each according to his abililty of each, according to his need"? |
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Definition
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Term
| if a society decieds not to use the market to allocate goods, what are their alternatives? |
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Term
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Definition
| the buying of one good in a cheap market and selling it in an expensive market. shoes in cola, then sell in chas town. |
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Term
| The federal budget defecit continues to get worse, according to the twin defecit theory, what else will happen (if I=S) ? |
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Definition
Formula:
O = (G+TR-T) + (I-S) + (X-M)
if I=S the budget defecit makes the trade defecit get worse |
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Term
| what is the quantity theory of money? |
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Definition
formula:
MV =PQ
quantity theory of money states that inflation is increased when you print more money.
Germany 1923 |
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Term
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Definition
| crowding out is when government continues to borrow more and more money, and the investment firms cant afford the higher rates, so they are "crowded out" |
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Term
| to be a Keynesian means you believe in 2 principles? |
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Definition
1. the market will not reach full employment
2. the government can solve the problem |
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Term
1977 = 60.6
1990 = 130.7
what is the inflation rate between 1977 and 1990? |
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Definition
1990 = 130.7/
1977= 60.6 =2.15 = 115% increase |
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Term
| explain how free trade can result in wage equalization across countires? |
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Definition
| US buys cars from Mexico which causes the Demand to increase in Mexico. the US sells the cars in the US. The supply increases in the US. So the wages go up in Mexico and the prices go down in the US. |
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Term
| if current interest rates are 8% and inflation is 3%, what is the real interest rate? |
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Definition
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Term
calculate equilibrium income in the simple keynesian model:
A = 600 + .80Y |
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Definition
A = Y
Y = 600 + .80 Y
.20 Y = 600
Y = 3000 |
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Term
| explain "Shoe leather Cost " as applies to inflations. |
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Definition
| Shoe leather cost refers to the cost of time and effort (more specifically the opportunity cost of time and energy) that people spend trying to counter-act the effects of inflation, such as holding less cash and having to make additional trips to the bank. The term comes from the fact that more walking is required to go to the bank and get cash and spend it, thus wearing out shoes more quickly. |
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Term
How will the following things affect the moeny supply?
1. A reduction in the discount rate?
2. An increase in the reserve requirements?
3. purchase by the FED of 100 mil in US governmeny bonds from citibank?
4. an insurance company buys a million dollar government bond from the treasury
5. a us citizen buys a new car for $33000
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Definition
1. MS increases w/ reduction of discount rate
2. MS decreases in an increase of reserve req.
3. MS increases w/ buying bonds
4. nothing happens to the MS
5. transfer of funds |
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Term
| what is meant by monetizing the debt? |
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Definition
| monetizing the debt means printing money to pay off debt. |
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Term
| you take $100 you had under your mattress and deposit it in your bank account. if the reserve ratio is 10% what happens to the money supply? |
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Definition
your money will multiply by the ratio (10%) so
$100 x 10 = $1000. $900 created |
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Term
assume the reserve requiremnet is 20%. The federal reserve decides that it wants to expand the money supply by $40 million.
a. if the Fed is using open-market operations, will it buy or sell bonds?
b. what quantity of bonds does the Fed need to buy or sell to accomplish the goal? |
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Definition
a. It will buy bonds
20% = 1/5 Money Multiplier =5
b. MM = 5 x ? = $40 million
? = 8 |
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Term
| the economy is not fully recovered from the depression. If roosevelt makes the shopping period longer before xmas, what is he trying to do. us AS and AD |
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Definition
| Increase AD to boost the economy from the depression. |
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Term
| What are the 3 tools of Fiscal policy? Explain how they can be used in an expansionary policy. |
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Definition
1. (increase) government spending
2. (decrease) taxes
3. transfer payment |
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Term
| 3 Monetary Policy tools? what do each do? |
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Definition
1. open market operations: Fed buying and selling previously issued U.S. government securities, or IOUs of the federal government.
2. reserve requirements: the percentages of certain types of deposits that banks must keep on hand in their own vaults or on deposit at a Federal Reserve Bank
3. discount rate: is the interest rate that the Fed charges banks for short-term loans. |
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Term
| In 1973 OPEC reduced the supply of the oil to the US thus driving up oil prices. using the AS-AD model, show and explain what happened to the US economy. |
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Definition
affect: (supply side economics) input cost & technology so
AS decreases
Inflation Increases
Unemployment Increaes
Economy growth decreases |
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Term
| What does the Laffer Curve say about the relationship between tax rates and tax revenues? |
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Definition
| As taxes increase Tax Revenue decreases. there is an optimal level for tax rate and tax revenue |
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Term
| Is the laffer curve a supply side or demand side model? |
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Definition
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Term
| As americans buy more Euro products, what would u expect will happen to the exchange rate between the US $ and the Euro. (rate 1$=1 euro) |
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Definition
Americans demand more European products. The dollar depreciates with respect to the euro.
$ on bottom, supply increaes. euro/$ |
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Term
| An economy is operating with output $400 billion beloew its full employment rate and fiscal policy makers want to close the rec. gap. assume the Marginal propensity to consume is 4/5, how much would government spending have to increase in order to close this gap? |
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Definition
MPS = 4/5
M = 1/5
400/5 = 80...
Government spending needs to increase by $80 billion |
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Term
| "a genuine breakdown of the monetary policy mechanism" ? |
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Definition
MS ^ --> i decrease --> I ^
if MS ^ and i dosent decrease there is liquidity |
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Term
| What is the Keynsian government spending multiplier if the marginal propensity to consume is 9/10? |
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Definition
MPC = 9/10
MPS 1/10
Multiplier = 1/MPS : 1/(1/10) = 10 |
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Term
What is says law?
What did keynes think about says law? |
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Definition
| supply creates its own demand. He disagreed, there are general gluts. General gluts could occur; too much supply or insufficient demand (full employment is not reached) |
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Term
year = CPI
1977=60.6
1993=144.5
What would a $10,000 salary in 197 be worth in 1993, if your salary kept up with inflation? |
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Definition
1993 = 144.5/ 1977 = 60.6 =2.38
2.38 x $10,000 = $ 23,800 |
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Term
| in the simple keynesian model, label and define the term "recessionary gap" |
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Definition
recessionary gap = amount of gdp needed to produce full employment [image]
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Term
| What is the fiscal stimulus policy? |
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Definition
Government spending policy to make the economy grow.
1. increased governemnt spending
2. decreased taxes
3. transfer payment |
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Term
| What is the difference between a regressive and a progressive tax? |
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Definition
In a progressive tax, the more you earn, the higher your tax rate. (example income tax)
In a regressive tax, the less you earn, the higher your tax rate. (example sales tax) |
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Term
| college graduate looking for a job may not find them right away, although the jobs are out there. what term describes this type of unemployment? |
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Definition
Frictional unemployment
(seasonal and structural are the others) |
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Term
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Definition
| Marginal propensity to save |
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Term
| Because of the uncertainty in the economy right now, many people are saving more than they used to. how does this affect the Keynesian spending multiplier? |
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Definition
MPS = 1/10, M = 10
MPS = 2/10, M =5
so the more you save the smaller the spending multiplier. |
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Term
| The balance of payments = ____ + ____ ? |
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Definition
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Term
| Why are only final goods and servies counted in GCP? |
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Definition
| to avoid double counting (you only look at the final goods) |
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Term
| A farmer grows corn, for which he sells for $10; a miller buys the corn, grinds it, and sells it as cornmeal for $15; a baker buys the cornmeal and sells it as corn muffins for $22. How much was contributed to GDP in these transactions? |
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Definition
10 + 15 + 22...
10 + 5 +7 = final value of $22 |
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Term
| What does a price index of 180 mean? how much have prices risen since the base year? |
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Definition
| prices have gone up 80 % since the base year |
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Term
| What is the differecne between real and nominal wages? |
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Definition
| real wages is what you can buy and nominal is the dollar amount. Real wages take the effects of inflation (real wages are smaller) and nominal wages includes inflation. |
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Term
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Definition
GDP increases
Unemployment decreases |
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Term
| If the rec. gap is $100 million and the M is 2, how much doe the gov spending have to increase in the simple keynesian view? |
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Definition
2 x __ = 100 million?
$50 Million |
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Term
A worker has quit looking for a job because he or she thinks nothing is available. how is this person counted by the BLS in the unemployment market?
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Definition
Discouraged worker
Dosent count in the labor force |
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Term
| What are the 4 major componets of GDP |
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Definition
| C (consumption) + I (investment) + G (government spending) + NX (net exports) |
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Term
| what is structural unemployment? |
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Definition
| It is a mismatch of skills and opportunities due to the structure of the economy changing |
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Term
| what do we mean by the menu costs of inflation? |
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Definition
| the cost of constantly changing prices. |
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Term
| Keynesians do not believe in the self-correcting mechanism. what does this mean? |
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Definition
| when left alone, the market economy will not reach full employment. therefor, government has to solve the problem by spending or fiscal stimulus |
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Term
| What is disposable income? |
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Definition
Gross Income - income tax
Y-T+TR =Yd |
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Term
| In the simple keynesian model, budget defecits have no affect on the economy. why? |
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Definition
| budget defecits effect interest rates (loanable funds model) and effects are assumed away. |
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Term
What is the absolute advantage?
What is the comparitive advantage? |
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Definition
absolute advantage is the ability to produce a good with fewer inputs and
comparative advantage is the ability to produce a good at a lower relative cost. |
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Term
| What economists beliebe that every thesis has an antithesis which provides a synthesis (next thesis) |
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Definition
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Term
| What is a pegged exchange rate? |
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Definition
A pegged, or fixed system, is one in which the exchange rate is set and artificially maintained by the government. The rate will be pegged to some other country's dollar, usually the U.S. dollar. The rate will not fluctuate from day to day.
A government has to work to keep their pegged rate stable. Their national bank must hold large reserves of foreign currency to mitigate changes in supply and demand. If a sudden demand for a currency were to drive up the exchange rate, the national bank would have to release enough of that currency into the market to meet the demand. They can also buy up currency if low demand is lowering exchange rates. |
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Term
Who wins if inflation increases?
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Definition
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Term
| What are the 4 reasons for taxes? |
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Definition
1. raises revenue for government
2. behavior modification (tax things you dont want us to do)
3. social fairness: people who make more than a certain amount are taxed
4. economic stabalization |
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Term
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Definition
| The federal reserve prints money, the mint is the machine |
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Term
| What causes the AS to shift? |
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Definition
| input costs (price of resources, labor productivity) and technology |
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Term
Why would a country (vietnamn )want to devalue its currency?
"beggar thy neighbor policy" |
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Definition
| the dollar appreciates compared to their currency. It cost more to buy american stuff so vietnamn wants to reduce imports and increase net exports. US will buy vietnamns goods because they are cheaper compared to the dollar. |
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Term
| you have a $1000 bond @ 10% per year. at the end of the year how much do you have? |
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Definition
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