# Shared Flashcard Set

## Details

Macro Vocab
Macroeconomics Vocab- KState Final
159
Economics
12/14/2011

Term
 When a good has external costs associated with its production the government should award a subsidy for the production of that good.
Definition
 False
Term
 When I purchase a new home that is classified as investment spending when we measure GDP.
Definition
 True
Term
 A Honda (Japanese Firm) Car produced in the US would be a part of GNP for Japan and GDP for the US.
Definition
 True
Term
 The price level increased by 4% between yr 1 and 2, while nominal GDP increase by 3%. Real output must have ___ by ___ percent
Definition
 Increase by 1%
Term
 When the supply of Good X increases and the price of a substitute to Good X also increases, we know the ___ of good X is expected to ___
Definition
 amount sold, increase
Term
 the most important component (as an indicator of potentional recessions) of personal consumption expenditures (C) is...
Definition
 durable goods spending
Term
 During which recession did the US experience the highest output gap since 1945?
Definition
 2009
Term
 Suppose the CPI was 130 in year 1 and 169 in year 2. we know that prices increased by ___ percent from year 1 to 2.
Definition
 (169 - 130) / 130 = 30%
Term
 Nominal GDP
Definition
 Current Output x current prices
Term
 Real GDP
Definition
 Current Output x base year or constant (chain weighted) prices
Term
 Higher than expected inflation would benefit someone who borrowed money while harming the individual that loaned that money out.
Definition
 True
Term
 An increase in the CPI is a very strong indicator that the PPI will increase in about 6 months. The PPI increasing is not as good of an indicator as it relates to future CPI increases.
Definition
 False
Term
 According to the classical model changes in nominal variables such as spending or changes in aggregate demand are not expected to increase Real GDP.
Definition
 True.
Term
 Because of the discouraged worker effect unemployment may not be as much of a problem as the official unemployment rate indicates.
Definition
 False.
Term
 The most important factor in determining whether or not a nation has the potental to experience economic growth is the existence of a well defined property rights.
Definition
 True. (if people can just take stuff, nobody will work hard)
Term
 Type of unemployment that is most associated with a change in PRODUCTION TECHIQUES that makes some jobs OBSOLETE?
Definition
 Structural
Term
 the type of unemployment rate that is not a part of the natural rate of unemployment
Definition
 frictional
Term
 Ex. GDP = \$2000. if there is constant 10% growth rate, what will GDP be after 2 years of growth?
Definition
 2000 x .10 = 200 -> 2220 x .10 = 220 ->220 + 2200 = 2420
Term
 The Humphrey Hawkins Act told policy makers to focus on price stability only and not to worry about full employment of resources.
Definition
 False
Term
 According to KC Star's article, consumers were upset about the prospect of higher ATM fees so Bank of America had to abandon their plan to increase those fees.
Definition
 True
Term
 During the Great Depression the unemployment rate reached as high as 25%. the US has not experienced this high of an unemployment rate since then
Definition
 True
Term
 The aggregate supply curve slopes ___
Definition
 upward because businesses can generally purchase labor and other inputs at fixed costs for some period of time.
Term
 the idea that wages may be extremely flexible means the aggregate supply curve will be ___ than they would be otherwise and this is most consistent with the __ belief about flexibility of wages
Definition
 steeper (more vertical), classical
Term
 because of a dramatic increase in oil prices we could show a __ shift in the __ curve if we were explaining how this affected the actual price level and real GDP.
Definition
 Leftward, AS
Term
 The US Federal Government is currently spending more moeny than they collect in tax revenue (running a budget deficit)
Definition
 True
Term
 the speculative demand for money is based off of the interest rate while the transactions demand for money is a function of income
Definition
 True
Term
 The biggest problem with the lag in fiscal policy is that people typically are not responsive to tax cuts and these policies do not have much of an effect
Definition
 False
Term
 One of the Fed. Reserve's job is to...
Definition
 Determine the discount rate and potentially lend money to banks. This is part of MONETARY POLICY.
Term
 Suppose macro consumption function is C = 100 + .8Yd. I = 80. G, T, NX all = 0. What is equilibrium level of spending/output?
Definition
 180 / .2 = 900
Term
 your personal checking account (demand deposits) is/are part of what type of money?
Definition
 M1 and M2
Term
 what function of money deals with the fact that prices convey easily accessible information? By conveying the price of a good in a stable price system such as dollars we are able to compare the price of a pizza to the price of a new refrigerator or even a new car.
Definition
 Unit of Account
Term
 What function of money is least affected by hyperinflation? We talked to some degree even in teh Survivor auction money did serve this function.
Definition
 Medium of Exchange
Term
 Because of a dramatic increase in government spending we chould show a __ shift in the __ curve if we were explaining how this affected the actual price level and real GDP.
Definition
Term
 Higher inflation & higher unemploymentNegatie supply shock (1970's increase oil prices)
Definition
 Lose / Lose
Term
 Higher inflation and Lower unemploymentincrease in G or decrease in T (fiscal)decrease interest rates (monetary) EXPANSIONARY POLICY
Definition
 Lose / Win
Term
 Lower inflation but higher unemploymentCONTRADICTIONARY POLICY. ^ T or decrease G (fiscal) or ^ IR (mont)
Definition
 Win / Lose
Term
 Lowerer inflation and lower unemployment. ^ land labor capital (1990s) decrease oil prices ^ technology
Definition
 Win / Win "win/win/win"
Term
 mandated that economic (monetary) policy should "maintain LONG RUN GROWTH, FULL EMPLOYMENT, MINIMIZE INFLATION, AND PROMOTE PRICE STABILITY
Definition
 Employment Act of 1946 & Humphrey-Hawkins Act.
Term
 Which price model ignores aggregate supply?
Definition
 simple Keynesian (fixed price) model
Term
 why is the aggregate supple curve upward sloping?
Definition
 because the prices firms recieve for output are going up by a larger amount than costs are such as wages and capital costs.
Term
 What does the aggregate supply curve look like in the LONG RUN?
Definition
 Vertical because in the long run wages are perfectly flexible and a change in price cannot effect output
Term
 Who used Keynesian model of cutting taxes during periods of high unemployment? This is believed to have been effective
Definition
Term
 Decreased taxes with the idea that it would increase aggregate supply. The immediate effect of these policies was however to increase aggregate demand but this was during a time of high budget deficits. Whether policies were effective is much debated today.
Definition
 Reagan Era
Term
 47% personal income taxes12% corporate income taxes35% social security
Definition
 US Government Revenue
Term
 increases in AD are caused by...
Definition
 expansionary (fiscal and monetary) policies, independent changes in consumer spending and business spendingShort run: increase inflation =( and decrease employment =)
Term
 decreases in AD are caused by...
Definition
 Contractionary Policies and independent changes in consumer and business spendingShort Run: decrease inflation =) and increase unemployment =(
Term
 higher inflation and higher unemployment occuring at the same time
Definition
 stagflation
Term
 decrease in aggregate supply is caused by...
Definition
 loss in natural resources (natural disaster) or "supply shock" (oil prices)
Term
 incrase in AS is caused by...
Definition
 technological breakthroughs, which decrease costs for firms... they hire more workers.. but still potentially lower prices. =)
Term
 consists of actual currency and demand deposits (checking accounts) and other checkable deposits and travelers checks
Definition
 M1
Term
 includes everything in M1 along with savings accounts, money market mutual funds and small deposits. many parts aren't "liquid"
Definition
 M2
Term
 Customers checking deposits (demand deposits)
Definition
 Liability
Term
 Loans to customers
Definition
 Asset
Term
 Cash on hand
Definition
 Asset
Term
 US Gov't securities (bonds
Definition
 Assets
Term
 understanding money multiplier
Definition
 creates increases or decreases in the money supply when deposits change. "money creation process" if people continue to spend money
Term
 1 / Reserve Requirement; shows POTENTIAL increase in the money supply that is created when deposits are added to a bank
Definition
 Money Multiplier
Term
 If Reserve Requirement is 10%... the money multiplier is...
Definition
 1 / .1 = 10
Term
 If RR is 20%, the money multiplier is..if the RR is 25%...
Definition
 1 / .2 = 51 / .25 = 4
Term
 Founded in 1913, must be politcally independent to look after the LONG TERM goals of the economy
Definition
 Federal Reserve
Term
 when too much money has been printed and currency loses all value
Definition
 Currency Debasement (Germany, Bolivia, Yugoslavia, Zimbabwe
Term
 Who implements MONETARY POLICY?
Definition
 Federal Reserve
Term
 What "lags" are the biggest concern with monetary policy?
Definition
 chaning money supply to affect INTEREST RATES and therefore AGGREGATE DEMAND. there is very little of an INSIDE lag here.
Term
 Outside lag
Definition
 Non-policy Makers. The problem is getting people to spend thsi money when interest rates fall (Response Lag / Outside Lag)
Term
 Roles of the Fed
Definition
 1. banks bank (loan money/discount rate, clears checks) 2 set monetary policy: controls discount rate, open market operations- buying and selling of bonds, control reserve requirement)3. regulates banks
Term
 FOMC
Definition
 Federal Open Market Committee. 14 members. 12 voting members ( 7 governers + 5 central bank presidents) and 7 non voting members
Term
 Goal of monetary policy
Definition
 Fights unemployment by increasing Aggregate Demand and output produced.
Term
 John Maynard Kenes
Definition
 wrote the general theory of employment, investment and money-economic consequences of Great Depression
Term
 "if consumers demanded a given level of output, it would be provided by business."
Definition
 John Keynes
Term
 compared the Great Depression the dark ages
Definition
 John Keynes
Term
 consumer spending, business investment spending, government spending, net exports. Y = C + I + G +NX + T
Definition
 Aggregate Expenditures
Term
 spending by individuals and households on both durable and non durable goods- 70% of GDP
Definition
 Consumption
Term
 Examples: food, clothes, entertainment
Definition
 Non-Durable Goods
Term
 Examples: Autos, appliances, electronics
Definition
 Durable Goods
Term
 percent of income that is consumed(C / Y)
Definition
 Average propensity to consume
Term
 change in consumption associated with a given change in income (C / Y )
Definition
 marginal propensity to consume
Term
 investment is positively related to income and households intend to save more, but they actually save less
Definition
Term
 changes in government spending causes income and output to rise or fall by the spending change X the multiplier
Definition
 TRUE
Term
 Yd = Y - T
Definition
 Disposable Income = income - taxes
Term
 balanced budget multiplier =
Definition
 1
Term
 simple keynesian model ignores both gov't and foreign sector
Definition
 ya.
Term
 increase in aggregate spending needed to bring a DEPRESSED economy back to full employment
Definition
 recessionary gap= to the GDP gap / the multiplier
Term
 the spending reduction necessary to bring an overheated economy back to full employment
Definition
 inflationary gap
Term
 the output of goods and services (real GDP) demanded at different price levels
Definition
 aggregate demandAD Curve shows relationship between price levels and Real GDP
Term
 AD curves negatively for 2 reasons:
Definition
 1. when price of a given product declines, consumers spendable income increases (less income buys same product)<-- income effect
Term
 AD Curves negatively for 2 reasons:
Definition
 2. price of a product falls, consumers will purchase more of it.
Term
Definition
 substitution effect
Term
 families usually hold onto some of their wealth such as savings, bonds, cash and a rising aggregate price level means that purchasing power declines
Definition
 wealth effect
Term
 Curve shows the real GDP that firms will produce
Definition
 Aggregate supply curve
Term
 Short run- positivly sloped because not many input costs are slow to change
Definition
 aggregate supply
Term
 long run- vertical at full employment, since economy has reached its capacity to product
Definition
 aggregate supply
Term
 occurs at the intersection of short run aggregate supply and aggregate demand curves
Definition
 macroeconomic equilibrium
Term
 occurs when aggregate demand expands so much that equilibrium output exeeds full employment output and the price level rises
Definition
 demand pull inflation
Term
 example. telecommunications- late 1990sinflation starts slow/gradual, but then quickly increasees
Definition
 demand pull inflation
Term
 occurs when a supply shock hits the economy shifting the short run aggregate supply curve leftward
Definition
 cost-push inflation
Term
 example. reduces output and increases the price level.1973 oil shock effects a lot of other things
Definition
 cost-push inflatino
Term
 part of the budget that works its way through the appropriations process of Congrfess each year
Definition
 discretionary spending
Term
 includes programs like national defense, trasportation, science, environment, income security
Definition
 discretionary spending
Term
 spending authorized by pernament laws that does not go through the same appropriations as discretionary
Definition
 mandatory spending
Term
 includes social securty, medicare, and interest on national debt
Definition
 mandatory spending
Term
 involves adjusting government spending and tax policies with the express short run goal of moving economy to full employment, expanding econ grown and control inflation
Definition
 discretionary fiscal policy
Term
 tax cuts meant to exand economy in short run and long run
Definition
 discretional fiscal policy
Term
 example. tax cuts from Kennedy, Reagan, George W
Definition
 discretional fiscal policy
Term
 involved INCREASING GOVT SPENDING, increasing transfer payments or decrease taxes ALLLLL to increase AD to expand output and the economy
Definition
 expansionary fiscal policy
Term
 Example. Social Security, Unemployment, Welfare
Definition
 expansionary fiscal policay
Term
 involved increasing withrdraws from the economy by REDUCING govt spending, transfer payments, ORRR raising taxes ALLLL to decrease aggregate demand to contract output and the economy
Definition
 contractionary fiscal policy
Term
 focus on shifting the long run aggregate supply curve to the right, expanding the economy without increasing inflatory pressures
Definition
 supply-side fiscal policy
Term
 unlike policies to increase AD, ____ policies take ____ to impact economy
Definition
 Supply side; Longer
Term
 plots hypothetical tax revenues at various income tax rates. if tax rates are 0, tax revenues are 0. if rates are 100%, revunes will also be 0
Definition
 laffer curve
Term
 as tax rates rise from 0, revenues will RISE, reach a MAXIMUM, and then DECLINE again.
Definition
 laffer curve
Term
 _____ policies take a longer time to have an impact
Definition
 FISCAL
Term
 tax revenues and transfer payments automatically expand or contract in ways that reduce the intensity of business fluctuations without any overt action by congress or other policy makers
Definition
 automatic stablizers
Term
 the time for economic data to be collected and processed
Definition
 information lag
Term
 most macroecon data aren't available until at least one quarter later
Definition
 information lag
Term
 the time it akes for POLICY MAKERS to CONFIRM that the economy is trending in or out of a recesscion
Definition
 recognition lag
Term
 time take Congress to DECIDE
Definition
 decision lag
Term
 turn fiscal policy into law and eventually have an IMPACT on the economy
Definition
 implementation lag
Term
 when deficit spending requiring the government to borrow, which drives up interest rates, which reduced consumer spending and business investment
Definition
 crowding out effect
Term
 public debt owed by US banks, corporations, mutual funds, pension plans and individuals
Definition
 internally held debt
Term
 public debt held by foreigners, roughly equal to half of the outstanding US debt held by public
Definition
 externally held debt
Term
 anything that is accepted in exchange for other goods and services for PAYMENT of debt
Definition
 Money
Term
 good and servies are sold for money, then money is used to purchase other good and services
Definition
 medium of exchange. money is used
Term
 money provides a yard stick for measuring and comparing the values of a wide variety of goods and services
Definition
 unit of account
Term
 it eliminates the problem of double coincidence and wants associated with barter
Definition
 unit of account
Term
 enable people to save the money they earn today and use it to buy the things they want tomorrow
Definition
 store of value. the value is stored
Term
 how quickly and easily and relaible an asset can be converted into cash
Definition
 liquidity
Term
 narrowest definition of money
Definition
 M1
Term
 type of money that includes currency (coins and paper money), stock markets,
Definition
 M1
Term
Definition
 M2
Term
 includes "near monies", not as liquid as cashsavings deposits, etc and M1
Definition
 M2
Term
 Central bank of the US is called __
Definition
 Federal Reserve System
Term
 ____ member, board of governersoversees open market operations
Definition
 Federal Open Market Committee
Term
 main tool of monetary money
Definition
 Federal Open Market Committee
Term
 required ration of funds that commercial banks and other depository institutions must hold in reserve against deposits
Definition
 reserve requirements
Term
 the interest rate financial institions charge each other for over night laosn used as reserves
Definition
 Federal Funds Rate
Term
 the interest rate the Federal Reserve charges commercial banks and other depository institutions to borrow from a regional for bank
Definition
 discount rate
Term
 "An increase in tax on been will raise its price" Normative/Positive
Definition
 Positive
Term
 "Taxes should be increased on beer because college students drink too much"Normative/Positive
Definition
 Normative
Term
 money payments made to owners of land, labor, captical, entrepeneurial ability are:
Definition
 rent, wages, interest, and profits respectively
Term
 the transactions demand for money will shift to the:
Definition
 right when aggregate income increases
Term
 flat money is:
Definition
 money because the government asserts that it is
Term
 if z is an inferior good, a decrease in money income will shift the ___ curve for Z to the ___
Definition
 demand; right
Term
 Graphically, cost-push inflation is shown as a:
Definition
 leftward shift of the AS curve
Term
 when economists say that money serves as a unit of account, they mean that is:
Definition
 a monetary unit for measuring and comparing the relative values of goods
Term
 the invisible hand....?
Definition
 notion that, under competition, decisions motivated by self-interest promote the social interest
Term
 ceteribus paribus, if the national incomes of the major trading partners of the US were to rise, the US...
Definition
 AD curve would shift to the right
Term
 equal increase in demand and supply will ___ equilibrium price and ____ equilibrium quanity
Definition
 LEAVE equilibrium price UNCHANGED and INCREASE equilibrium quantity.
Term
 Milton Friedman was in favor of non-interventionist policies. He believed that monetary policies were not able to help predictablly control spending.
Definition
 True
Term
 When interest rates increase, bond prices tend to decrease.
Definition
 True
Term
 There are twelve governors that servce on the Fed Board of Governors.
Definition
 False.
Term
 If the dollar appreciates against the yen we expect American consumers to relatively benefit and Japanese producers to relatively benefit.
Definition
 True
Term
 From 1981-83 inflation and unemployment rates in the US were much lower than they were from 1996-1998.
Definition
 False
Term
 If the US imposes a quote on Japan, that will create more revenue for US government than a tariff would have
Definition
 False
Term
 The Phillips Curve shows the expeced relationship between ____ and ___.
Definition
 Inflation and Unemployment
Term
 Suppose tax is placed on wheat, while at same time its discovered that eating wheat is even better for you than previously believed. we know for sure that....
Definition
 the price of wheat will increase
Term
 the idea behind the Laffer Curve and supply side economics is...
Definition
 by lowering tax rates, we can increase tax revenues.
Term
 which type of unemployment is the largest concern if we are worried about a recession or economic slowdown?
Definition
 cyclical
Term
 steelworkers laid off from their jobs as a result of a recession are considered:
Definition
 cyclically unemployed
Term
 laissez-faire economy is also known as:
Definition
 market-based economy
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