question
What is Gross Domestic Product made up of
answer
Gross Domestic Product = consumption + net exports(exports - imports) + investment + government spending
question
What is the nominal GDP?
answer
This is the GDP based on the current market prices of goods
question
What is the real GDP?
answer
This is the GDP based on the market prices from a base year
question
How do you calculate GDP deflator?
answer
Nominal / real * 100
question
What is the Consumer Price index?
answer
This is the typical cost of goods and services bought by the typical consumer
question
What is a market basket?
answer
A bundle of goods and services that is included in the Consumer Price Index
question
What is the core CPI
answer
This is the CPI excluding food and energy
question
What is the producer price index
answer
This is the CPI but it only includes goods and services that are bought by producers
question
What are three problems with the consumer price index?
answer
1. The substitution effect, as one good becomes better or worse it will be exchanged
2. New goods can replace old ones
3. There is no way to measure the changei n quantity of an item. As quality of an item decreases you get less for the same price, so it may be bought less.
2. New goods can replace old ones
3. There is no way to measure the changei n quantity of an item. As quality of an item decreases you get less for the same price, so it may be bought less.
question
What are the main differences between the CPI and GDP?
answer
-The CPI is goods and services bought only by consumers, whereas GDP includes the total goods and services produced domestically.
-The CPI is fixed to a market basket, GDP automatically adjusts to currently produced goods
-The CPI is fixed to a market basket, GDP automatically adjusts to currently produced goods
question
How do you find inflation with the CPI?
answer
Amount in x year * CPI today / CPI in year x
question
What is the real interest rate?
answer
Real Interest = Nominal rate - Inflation rate
question
What is productivity?
answer
Productivity is the amount of goods producer per unit of labor
question
What are the four influences on productivity?
answer
Physical capital, human capital, natural resources, technical knowledge
question
What is the law of diminishing returns?
answer
Each additional unit yields less and less additional output.
question
What is the catch up effect?
answer
Because of the law of diminishing returns, countries that start off poorer will have higher rates of growth that countries that are rich, because each additional unit of labor is worth more.
question
What are some of the ways that you can increase productivity?
answer
Increase saving, encourage foreign investment, increase education, better health and nutrition, property rights and political stability, free trade, R & D
question
What is money? What are its three distinct properties of money?
answer
-Money is a set of assets in the economy that people use to buy goods and services
-Medium of exchange
- Unit of account. Is away for us to assign a universal measure of worth
- Store value
-Medium of exchange
- Unit of account. Is away for us to assign a universal measure of worth
- Store value
question
What is the difference between commodity money and fiat money?
answer
Commodity money has inherent worth outside of the government, whereas fiat money only has worth because the government says it does.
question
What are the two purposes of the Federal Reserve?
answer
1. Ensure the health of banks by being a lender of last resort
2. Regulates the amount of money in the economy to control the money supply
2. Regulates the amount of money in the economy to control the money supply
question
What are open market operations?
answer
-The Fed can increase the money supply by buying bonds
-The Fed can decrease the money supply by selling bonds
-The Fed can decrease the money supply by selling bonds
question
What is 100% reserve banking?
answer
A banking system in which money is just held in reserve, nothing is lent out?
question
What is fractional reserve banking?
answer
A banking system in which money is held in reserve and also some money is lent out for interest in order to make profit.
question
What is the reserve ratio?
answer
The fraction of deposits held as reserves
question
What is money multiplier?
answer
A way to measure the growth rate of money from banks. It is how much it multiplies.
question
What is bank capital?
answer
Bank capital is the money accrue from giving out equity.
question
What is bank leverage?
answer
The use of borrowed money to supplement existing funds?
question
What is the leverage ratio?
answer
This is the ratio of total assets to bank capital
question
What are capital requirements?
answer
a set amount of equity that banks must maintain to be sure that they can pay off debts.
question
What is the discount rate?
answer
the interest rate that banks pay to the Fed to borrow from it
question
What are two problems with the Federal Reserve controlling the money supply?
answer
1. The federal reserve doesn't control deposits
2. The federal reserve doesn't control loan size
2. The federal reserve doesn't control loan size
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