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| the study of a nation’s economy as a whole focusing on the overall economy’s performance in terms of economic growth, business cycles, unemployment, inflation, and balance of payments and on methods for improving the performance |
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| general rise in prices as measured by a price index. |
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| growth, unemployment, inflation, smooth growth of output (smooth out business cycle). |
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| growth, unemployment, inflation, smooth growth of output (smooth out business cycle). |
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| 2 Methods to improve performance |
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| Use of macro models, policies - Monetary and fiscal. |
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| Types of policies used to improve performance of the economy. |
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| Changes in real GDP over time consisting of recession, recovery and expansion. |
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| Real GDP includes these 4 things |
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C - Personal Consumption
I - Gross Private Domestic Investment
G - Government Purchases
Nx - Net exports |
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| market value of all final goods and services produced within a country in a given time period (usually a year). |
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C - Personal Consumption
I - Gross Private Domestic investment
G - Government Purchases
Nx - Net exports |
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| Final Four Expenditures percentages for GDP |
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Personal Consumption - 70%
Gross Private Domestic Investment - 13%
Governmental Purchases - 19 %
Net Exports - 3% |
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| Potential Real GDP Definition |
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| estimate of real GDP based on the assumption that the economy is at full employment. Y^P (i.e., U=U^T=5%) |
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| at least a two quarter downturn in real GDP |
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| National Bureau of Economic Research |
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determines the months of the peak and trough (the recession) by analyzing four variables.
1. employment
2. real personal income less transfer payments
3. industrial production index
4. real wholesale and retail trade |
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| 4 NBER variables they analyze |
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1. employment
2. real personal income less transfer payments
3. industrial production index
4. real wholesale and retail trade |
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| Where are we at in overall performance of the economy now? |
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| in between recovery and expansion. |
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| runs opposite of real GDP - Unemployment |
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| Coincident - Turns right at the peak, turns right at the peak |
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| (Lg, Lg) Economic Indicators |
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| Lag - Turns after the peak, turns after the trough. |
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| (L,L) Economic Indicators |
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| Leading - Turns before the peak and before the trough. |
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| Unemployment rate Indicators(x,x) |
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| Industrial Production Index - Economical Indicators (x,x) |
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| Capacity Utilization - Economic indicators - (x,x) |
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| Purchasing Managers Index - Economic Indicators (x,x) |
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| 4 Official Status Economic Indicators |
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| Unemployment rate, Industrial Production Index, Capacity Utilization Rate, Purchasing Managers Index |
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| IPI (Industrial Production Index) includes what three things? |
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| Manufacturing, Mining, utilities. (35%) |
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PMI (Purchasing Managers Index) - no official indicator states but
Recession = x%
Growth = x% |
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Recession - PMI <=41
Growth - PMI >=42 |
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| Everything- minus Food and Energy |
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| fall in prices related to a price index |
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| fall in the inflation rate |
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| Y^P or y^P is a function of variables contributing to long run economic growth and not money supply. |
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| Unemployment due to the business cycle itself Uc |
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| mismatch between skillset you have and skillset demanded in the economy. |
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| mismatch between skillset you have and skillset demanded in the economy. |
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| New entrants to labor force that have yet to secure a job |
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| lowest unemployment a nation can have month after month after having the highest inflation rate in an economy. |
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| 3 Characteristics of money |
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| Medium of exchange, Unit of storage, store of value |
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| Demand deposits, Travelers checks, other checkable funds, currency |
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| businesses ability to ability to meet its payment obligations, in terms of possessing sufficient liquid assets, and to such assets themselves. |
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| Federal reserve act of 1913 |
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| set up walls that made it so you could only do investing and banking. Set up the first central bank |
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| How often does the federal reserve meet? |
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| How many people are appointed to the board of governors? |
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| 7 appointed by president and confirmed by senate for 14 year term |
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| How many members are a part of the open market committee |
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| 19 (7 Board of Governors + 12 Federal reserve district Bank Presidents) |
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| How often does the open market committee meet? |
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| What are the 4 Policy Tools of monetary policy? |
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reserve requirements ratio/rules
target federal funds rate
open market operations
primary credit rate |
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| how much checkable funds does the reserve requirement ration hold? |
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| What is the target federal funds rate |
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| what is open market operations? |
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| buying and selling of treasury bonds |
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| what is the primary credit rate usually at? |
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| typically 100 basis points above the target federal funds rate. |
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| Who does fiscal policy include? |
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| What are the two policy tools of fiscal policy? |
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Tax rates
Government purchases |
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| a country's standard of living depends on its ability to produce goods and services. |
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| What does World bank Data/Maps show? (5) |
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| per capita GDP, infant mortality, life expectancy, ratio of girls to boys in primary and secondary school, telephone lines all tell a very similar story. |
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| What 5 things contribute to growth and development in long run economic growth and development? |
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1. Savings, investment, physical capital.
2. Natural resources
3. Ongoing formation of human capital.
4. Promotion and acceptance of technological innovation
Institutions: a. stable social, political and economic systems.
b. significant use of "free market system" |
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| What is a Heritage Foundation? |
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| Economic freedom: Individuals are free to work, produce, consume and invest in any way they please. |
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| Douglass North's institutional model. An institution has 3 characteristics what are they? |
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1. rules
2. enforcement mechanisms
3. stories which justify the rules and enforcement mechanisms |
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| study of the allocation of resources over time and the management of risk. |
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private domestic
public/government domestic
international |
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| What is efficient market hypothesis |
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| it is impossible to beat the market because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. |
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| What are the 5 investment instruments? |
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Subprime mortages
Adjustable Rate Mortages
Mortgage backed securites
collateralized debt obligations
Credit defalt swaps |
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| What are the 2 fiscal policy responses to the crisis of 2008-2010? |
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Bush economy stimulus act 2008 - 150 billion
Obama's american recovery and reinvestment act of 2009 - 787 billion |
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| Financial institutions are intermediaries that stand between those with savings and those who want to borrow. What are some intermediaries? |
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commercial bank
savings and loan
investment bank
asset management company
hedge fund
insurance company
pension fund |
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| Financial Debt Instruments (3) |
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| what are the 3 rating agencies |
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standard and poors
moodys
fitch |
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| Examples of Debt instruments! |
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mortgage
auto loan
certificate of deposit
mortage-backed securities
collateralized debt obligations (CDOs) |
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