Macro final Umaine - Assignment Essays

question

Being Employed

answer

Paid employees, self employed and unpaid workers in a family business

question

Unemployed

answer

People that are not working, but have looked for work in the last 4 weeks

question

Not in Labor force

answer

Everyone else

question

Labor force

answer

Total number of workers, employed and unemployed

question

Unemployment rate&formula

answer

The percent of the labor force that is unemployed
100 x unemployed/Adult population

question

Labor force participation rate

answer

The percent of Adult population that is in the labor force
100 x Labor force /adult population

question

Natural rate of unemployment

answer

The normal rate of unemployment around which the actual unemployment rate fluctuates (smoother curve)

question

Cyclical rate of unemployment

answer

The deviation of unemployment from its natural rate
(more aggressive shifts)

question

Frictional unemployment

answer

Occurs when workers spend time searching for jobs that best suit there skills and tastes.
normally short term

question

Structural unemployment

answer

Occurs when there are fewer jobs than workers
-Usually long term

question

Job search

answer

The process of matching workers with appropriate jobs

question

Structural shifts

answer

the changes in the composition of money demand across industries or regions in the country

question

Government employment agencies

answer

Provide info about job vacancy to speed up matching of workers within jobs

question

Public training programs

answer

Aim to equip workers in declining industries with new skills for new job opportunities

question

Unemployment insurance

answer

A government program that partially protects workers incomes when they become unemployed

question

Benefits of unemployment insurance

answer

-Reduces uncertainty over income
-Gives the unemployed more time to search for
jobs, resulting in better job matches

question

Structural unemployment

answer

Minimum wage exceeds the equilibrium for unskilled workers causing structural unemployment

question

Minimum wage law problem

answer

A workers association that bargains employers over wages, benefits and working conditions

question

Unions

answer

Firms voluntary pay above equilibrium level to boost worker productivity

question

The theory of efficency wages

answer

-Worker health, more money = better health care
-Worker turnover, higher wages means employees stay longer
-Worker quality, higher wages = better job applicants
-Work effort , Have to work hard or get fired.

question

Four reasons why firms pay efficecny wages

answer

Shows the short run trade off between inflation and unemployment

question

The Philips curve

answer

The claim that unemployment eventually returns to its normal or natural rate regardless of the inflation rate

question

Natural rate hypothesis

answer

A measure of how much people expect the price level to change

question

Expected inflation rate

answer

Fed can reduce Unemployment rate below the natural rate by making inflation greater then expected

question

Short run

answer

An event that directly alters firms costs and prices

question

supply shock

answer

nah , it doesn't work ,interesting to look at but do not form policy on it

question

To trust the Phillips curve in the long run

answer

A reduction in the inflation rate
-Fed must slow the rate of money growth, which reduces demand
-Short run - output falls & unemployment rises
- Long run- output and employment return to there natural rates

question

Disinflation

answer

Stable output, unemployment is low, inflation rises. We are not trying to be at a peak because then a rescission occurs.

question

Business cycle

answer

Falling output, unemployment is rising, prices are stuck (companies don't adjust prices

question

Peak business cycle

answer

Stable output, unemployment is high but stabilizing, deflation may occur

question

rescission

answer

Rising output, unemployment is falling, prices are stable at first, may rise

question

Trough

answer

-irregular innovation
-productivity changes
-Monetary factors
-Political events
-financial instability

question

Expansion

answer

The limited nature of societies resources

question

Causes of shocks in the market

answer

The study of how a society manages these scarce resources

question

Scarcity

answer

The quantity demanded of a good is the amount that buyers are willing and able to purchase. The sum of the quantity demanded by all buyers at each price

question

Economics

answer

Prices go up, demand goes down

question

Quantity of demand

answer

A table that shows the demand at certain prices

question

Law of demand

answer

Moving along the curve and the law of demand

question

Demand schedule

answer

True

question

Price change

answer

Substitutes - If an increase in the price of one good causes an increase in demand for the other\

Complements - If an increase in the price of one good causes a reduction in demand for the other

Tastes - changes in tastes and trends

question

True or false
As the number of buyers increases the quantity demanded increases by the same amount at each price

answer

A movement along a fixed demand curve. Occurs when price changes

question

Demand curve shifters

answer

A shift in the demand curve, this occurs when a non price determinate of demand changes

question

Change in the quantity of demand

answer

The ability to produce a good using fewer inputs than another producer

question

Change in demand

answer

The ability to produce a good at a lower opportunity cost than another producer

question

Absolute advantage

answer

Inputs like labor, land , capital , and natural resources

question

Comparative advantage

answer

Are payments to the factors of production (wages, rent)

question

Factors of production

answer

Consumption (C)
Investment (I)
Government purchases (G)
Net exports (NX)
Y= C+I+G+NX

question

Factor payments

answer

- Total spending by households on goods and services
- Durable goods ( cars,washing machines)
- Non durable goods ( food, toothbrush)

question

Four components of GDP

answer

-Total spending on goods that will b e used in the future to produce more goods
- Includes spending on capital equipment (machines), structures (offices, factory), inventories ( goods produced but not sold)

question

Consumption component GDP

answer

- All spending on the goods and services purchased by the government at the federal, state, and local levels
- Includes transfer payments such as social security or unemployment benefits

question

Investment component GDP

answer

NX = exports - Imports

question

Government purchases GDP

answer

Measures the typical consumers cost of living

question

Net exports GDP

answer

- Choose your base year and compute
100 x cost of basket in current year / cost of basket in base year

question

Consumer price index (CPI)

answer

CPI this year - CPI last year / CPI last year
then multiple by 100

question

How to calculate consumer price index

answer

The introduction of new good decreases variety, (Iphone has compass, gps...) allowing consumers to find the products that more closely meet there needs

question

Compute inflation rate

answer

Each of these problems causes the CPI to overstate the cost of living

question

Introduction of new goods

answer

Amount in today's dollars =
Amount in allotted year x Price level today/ price level in allotted year

question

Problems with Consumer price index

answer

A dollar amount is indexed for the inflation if it is automatically corrected for the inflation by law or in a contract

question

How to compare money figures from different eras

answer

This interest rate is not corrected for inflation

question

Indexation

answer

= nominal interest rate - inflation

question

Nominal Interest rate

answer

The average quantity of goods and services are produced per unit of labor input
Y/L ( output per worker)
L- quantity of labor

question

Real Interest rate

answer

The stock of equipment and structures used to produce goods and services.
- Denoted by K
- productivity is higher when the average worker has more capital

question

Productivity

answer

K / L

question

Physical capital

answer

The knowledge and skill of workers acquire through education, training , expertise
- H

question

Capital per worker

answer

H / L

question

Human capital

answer

True

question

Average workers human capital

answer

The inputs production that nature provides (land, minerals
-N

question

True or false
An increase in H/L causes an increase in Y/L

answer

True

question

Natural resources

answer

socities understandings of the best way to produce goods and services

question

True or false
An increase in N/L causes an increase in Y/L

answer

Y = A F(LKHN)
F = a function that shows how these inpts are combined to produce output
A - level of tech

question

Tech knowledge

answer

Used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested

question

Production function

answer

- In a poor country workers have little K (physical capital), giving more K increases production
- Rich nations with a lot of K are not able to increase production as much when K increases

question

Diminishing returns

answer

The property where by poor countires tend to grow much more rapidly than rich ones

question

The production function and diminishing return work

answer

A capital investment (factory) that is owned and operated by a foreign entity
- Important in poor countries to generate savings

question

catch up effect

answer

The ability of people to exercise authority of resources they own

question

Foreign direct investment

answer

Aim to raise the living standards by avoiding interaction with other countries
(tariffs)
countries tend to to struggle with growth

question

Property rights

answer

Promote integration with the world economy

question

Inward oriented policies

answer

-Stretching natural resources
-Promoting tech progress
-Diluting capital stock

question

Outward oriented policies

answer

The group of institutions that helps match the savings of one person with the investment of another

question

Population effects standards of living

answer

Institutions through which savers can directly provide funds to borrowers
(Bonds)

question

The finical system

answer

Institutions through which savers can indirectly provide funds to followers

question

Finical markets

answer

Institutions that sell shares to the public and use the proceeds to buy portfolio stocks and bonds

question

Finicial intermidies

answer

The portion of household income that is not used for consumption or paying taxes
= Y - T - C

question

Mutual funds

answer

tax revenue
T - G

question

Private savings

answer

Private savings + Public savings
Y - C - G

question

Public savings

answer

An excess of tax revenue over government spending

question

National savings

answer

A short fall of taz revenue from government spending
G -T

question

Budget surplus

answer

The government borrows to finance its deficit leaving less funds available for investment
- does not mean you are going to a recession

question

Budget deficit

answer

-Without money everything would require barter
-Every transaction would need a double coincidence of wants at the same time and for each others good
-Need to search to trade

question

Crowding out

answer

An item buyers give to sellers when they want to purchase goods and services

question

The Monetary System

answer

A nominal monetary unit of measure or currency used to represent the real value (or cost) of any economic item

question

Medium of exchange

answer

An item people can use to transfer purchasing power from the present to the future

question

Unit of account

answer

Takes the form of commodity with intrinsic value (gold coins)

question

Store of value

answer

money without intrinsic value, used as money because of Government decree ( US dollar bill)

question

Commodity money

answer

The quantity of money avalible in the economy

question

Fiat Money

answer

The paper bills and coins in the hands of the public

question

Money supply

answer

Balances in loan k accounts that depositors can access in demand by writing a check

question

Currency

answer

Currency
demand deposits
travelers checks and other check-able deposits
3.2 trillion

question

Demand deposits

answer

Everything in M1
savings deposits
small deposits
money market
mutual funds
and a four minor categories
12.7 trillion

question

answer

An institution that oversees the banking system and regulates the money supply

question

answer

The setting of the money supply by policy makers in the central bank

question

Central bank

answer

The central bank of the United States

question

Monetary Policy

answer

7 Board of Governors
watch over the US economy
forecast

question

Federal reserve

answer

12 regional federal reserve banks across the US with gold and bonds

question

Structure of the Federal Reserve

answer

Banks keep a fraction of deposits as resources and use the rest to make loans

question

How many regional federal reserve banks are there

answer

Regulations on minimum amount of reserves that banks must hold against deposits, based on 2008 market crash

question

Fractional reserve banking system

answer

True

question

Banking reserve requirements

answer

The amount of money the banking system generates with each dollar of resources
money multiplier = 1/R
R=10% 1/.1 = 10

question

True or false when a bank makes a loan they create money

answer

besides resources and loans, banks also hold onto securities ownership of a company or other stocks

question

Money multipler

answer

Besides deposits, banks also obtain funds from issuing debts and equity

question

Assets

answer

The resources a bank obtains by issuing equity to its owners

question

Liabilities

answer

The use of borrowed funds to supplement existing funds for investment purposes

question

Bank capital

answer

The ratio assets to bank captial
1000/50=20

question

Leverage

answer

question

Leverage ratio

answer

A government regulation that specifies a minimum amount of capital banks must hold

question

If bank assets decrease by more than______%, bank capital is negative and the bank is insolvent

answer

By changing banks resources
or changing money supply

question

Capital requirements

answer

The purchase and sale of us government bonds by the Fed

question

The Fed can change the money supply by changing _____________________ or ____________________________

answer

The interest rate on loans the fed makes to banks, to influence the amount of resources banks borrow

question

Open market regulation

answer

The fed chooses the quantity of resources it will loan , then banks bud against each other for these loans

question

Discount rate

answer

Banks have fewer resources, therefore they make fewer loans, thereby the money supply drops

question

Auction facility

answer

Banks with insuffient resources can borrow from banks with excess reserves

question

If households hold more of thier moeny as currency what happens to the banks and the money supply

answer

The intrest rate on the bank loans

question

Federal reserve rate

answer

The Fed sells government bonds (OMO)
this removes residences from the banking system , reduccing the supply of the fed rate. this causes rf to rise (there are less of them making them worth more

question

Federal funds rate

answer

Asserts that quantity of money determines the value of money

question

To raise Fed funds rate

answer

1/p is the value rate of $1 measured in goods

question

Quantity theory of money

answer

prices
Value of money

question

P is the price of the value of goods measured in money

answer

Refers to how much wealth people want to hold in liquid form

question

Inflation drives up ___________ and drives down the ___________

answer

Money
drops

question

Money demand

answer

...

question

As the value of ___________ rises the price level ___________

answer

Price of labor
W

question

As fed increases the amount of money in the system prices rise

answer

Price of goods and services
P

question

Nominal wage

answer

The price of labor relative to the price of output
W / P

question

Price level

answer

There rate at which money changes hands, or the number of transactions in which the average dollar is used

question

Real wage

answer

P xY = nominal GDP = price lvl x real GDP
M = money supply
V= velocity
V= PxY / M

question

Velocity of money

answer

Fairly stable

question

Velocity of money formula

answer

M x V = P x Y
- v is stable
- Change in m causes nominal GDP (PY) to change by the same percentage

question

Velocity is ________ in the long run

answer

The revenue from printing money, printing money causes inflation, which is like a tax on everyone who holds money

question

Quantity equation

answer

Inflation that is very high and out of control

question

Inflation tax

answer

In the long run money is neutral. a change in money growth rate affects the inflation rates

question

Hyper inflation

answer

Inflation rate + real interest rate

question

The fisher effect

answer

Most people think inflation erodes real income

question

Nominal interest rate

answer

The resources wasted when inflation encourages people to reduce their money holdings

question

Inflation fallacy

answer

The cost of changing prices

question

Shoe Leather cost

answer

Inflation makes nominal income grow faster than real income
-pay more taxes than real income
-taxes are based on nominal income, not adjusted for inflation

question

Menu costs

answer

Higher than expected inflation transfers purchasing power from creditors to debtors
- Debtors get to repay their debt with dollars that are not worth as much

question

Tax distortions

answer

-Consumer preference for foreign and domestic goods
-Prices of goods at home and abroad
-income of consumer at home and abroad
-exchange rate of foreign currency to domestic
-transportation costs
- government policies

question

Arbitrary redistribution of wealth

answer

Domestic residents purchase of foreign assets minus foreign purchases

question

Variables that influence net exports

answer

Domestic residents manage the foreign investment (mcdanks in china)

question

Net capital outflow (NCO)

answer

Domestic residents purchase foreign stocks, supplying funds to foreign firms

question

foreign direct investments

answer

Measures the imbalance in a countries trade assets

question

Foreign portfolio

answer

domestic purchases of foreign assets is larger than foreign purchases of domestic assets

question

What does the Net capital outflow measure

answer

Capital inflow, foreign purchases of domestic products is larger than domestic purchases of foreign goods

question

When the NCO is greator than zero

answer

NCO = NX
Arises because every transaction that affects NX affects NCO the same way and same amount

question

when NCO is less than zero

answer

The rate at which ones countries currency is worth trades for another

question

Accounting identity

answer

An increase in value of a currency as measure bu the amount of foreign currency it can buy

question

Nominal exhcange rate

answer

A decrease in value of a currency as measured bu the amount of foreign currency it can buy

question

Appriciation

answer

The rate at which Goods and services of one country trade for the goods and services of another

question

Depreciation

answer

(e)(p) / p*
e = national exchange rate
p* = foreign price
p = Domestic price

question

Real exchange rate

answer

The notion that a good should sell for the smae price in all markets

question

Real echange rate formula

answer

Making a quick profit by buying a good for a cheaper price somewhere else and selling it in another area

question

Law of one price

answer

A theory of exchange rate where bu a unit of any currency should be able to buy

question

Arbitrage

answer

-Many goods cannot be traded easily
-Foreign & domestic goods are not traded equally

question

Purchasing power parity

answer

-The wealth effect
-The interest rate effect
-the exchange rate effect

question

Two reasons exchange rate don not always adjust easily

answer

A simple theory of interest rate
- r adjusts to balence supply and dmeand

question

Aggregate demand slopes downward when

answer

Y & P
- If Y rises houses want to buy more goods and services
-An increase in Y causes an icnrease in money supply

question

The theory of liquidity preference

answer

When the interest rate is zero
- monetary policy stimulates aggregate demand by reducing the interest rate

question

The variables that infleucne money demand

answer

Setting of the level of government spending and taxation by government policy makers

question

Liquidity trap

answer

The additional shifts in AD that result when ducal policy increases income

question

Fisical policy

answer

Fraction of extra income houses consume rather than save
Change in Y = 1/1- mpc (change in G)

question

Multiplier effect

answer

Fiscal policy has another effect on AD, that works in the opposite direction

question

Marginal propensity to consume

answer

undefined

question

The crowding out effect

answer

undefined

1 of 172

question

Being Employed

answer

Paid employees, self employed and unpaid workers in a family business

question

Unemployed

answer

People that are not working, but have looked for work in the last 4 weeks

question

Not in Labor force

answer

Everyone else

question

Labor force

answer

Total number of workers, employed and unemployed

question

Unemployment rate&formula

answer

The percent of the labor force that is unemployed
100 x unemployed/Adult population

question

Labor force participation rate

answer

The percent of Adult population that is in the labor force
100 x Labor force /adult population

question

Natural rate of unemployment

answer

The normal rate of unemployment around which the actual unemployment rate fluctuates (smoother curve)

question

Cyclical rate of unemployment

answer

The deviation of unemployment from its natural rate
(more aggressive shifts)

question

Frictional unemployment

answer

Occurs when workers spend time searching for jobs that best suit there skills and tastes.
normally short term

question

Structural unemployment

answer

Occurs when there are fewer jobs than workers
-Usually long term

question

Job search

answer

The process of matching workers with appropriate jobs

question

Structural shifts

answer

the changes in the composition of money demand across industries or regions in the country

question

Government employment agencies

answer

Provide info about job vacancy to speed up matching of workers within jobs

question

Public training programs

answer

Aim to equip workers in declining industries with new skills for new job opportunities

question

Unemployment insurance

answer

A government program that partially protects workers incomes when they become unemployed

question

Benefits of unemployment insurance

answer

-Reduces uncertainty over income
-Gives the unemployed more time to search for
jobs, resulting in better job matches

question

Structural unemployment

answer

Minimum wage exceeds the equilibrium for unskilled workers causing structural unemployment

question

Minimum wage law problem

answer

A workers association that bargains employers over wages, benefits and working conditions

question

Unions

answer

Firms voluntary pay above equilibrium level to boost worker productivity

question

The theory of efficency wages

answer

question

Four reasons why firms pay efficecny wages

answer

Shows the short run trade off between inflation and unemployment

question

The Philips curve

answer

The claim that unemployment eventually returns to its normal or natural rate regardless of the inflation rate

question

Natural rate hypothesis

answer

A measure of how much people expect the price level to change

question

Expected inflation rate

answer

Fed can reduce Unemployment rate below the natural rate by making inflation greater then expected

question

Short run

answer

An event that directly alters firms costs and prices

question

supply shock

answer

nah , it doesn't work ,interesting to look at but do not form policy on it

question

To trust the Phillips curve in the long run

answer

question

Disinflation

answer

Stable output, unemployment is low, inflation rises. We are not trying to be at a peak because then a rescission occurs.

question

Business cycle

answer

Falling output, unemployment is rising, prices are stuck (companies don't adjust prices

question

Peak business cycle

answer

Stable output, unemployment is high but stabilizing, deflation may occur

question

rescission

answer

Rising output, unemployment is falling, prices are stable at first, may rise

question

Trough

answer

-irregular innovation
-productivity changes
-Monetary factors
-Political events
-financial instability

question

Expansion

answer

The limited nature of societies resources

question

Causes of shocks in the market

answer

The study of how a society manages these scarce resources

question

Scarcity

answer

The quantity demanded of a good is the amount that buyers are willing and able to purchase. The sum of the quantity demanded by all buyers at each price

question

Economics

answer

Prices go up, demand goes down

question

Quantity of demand

answer

A table that shows the demand at certain prices

question

Law of demand

answer

Moving along the curve and the law of demand

question

Demand schedule

answer

True

question

Price change

answer

question

True or false
As the number of buyers increases the quantity demanded increases by the same amount at each price

answer

A movement along a fixed demand curve. Occurs when price changes

question

Demand curve shifters

answer

A shift in the demand curve, this occurs when a non price determinate of demand changes

question

Change in the quantity of demand

answer

The ability to produce a good using fewer inputs than another producer

question

Change in demand

answer

The ability to produce a good at a lower opportunity cost than another producer

question

Absolute advantage

answer

Inputs like labor, land , capital , and natural resources

question

Comparative advantage

answer

Are payments to the factors of production (wages, rent)

question

Factors of production

answer

Consumption (C)
Investment (I)
Government purchases (G)
Net exports (NX)
Y= C+I+G+NX

question

Factor payments

answer

- Total spending by households on goods and services
- Durable goods ( cars,washing machines)
- Non durable goods ( food, toothbrush)

question

Four components of GDP

answer

question

Consumption component GDP

answer

- All spending on the goods and services purchased by the government at the federal, state, and local levels
- Includes transfer payments such as social security or unemployment benefits

question

Investment component GDP

answer

NX = exports - Imports

question

Government purchases GDP

answer

Measures the typical consumers cost of living

question

Net exports GDP

answer

- Choose your base year and compute
100 x cost of basket in current year / cost of basket in base year

question

Consumer price index (CPI)

answer

CPI this year - CPI last year / CPI last year
then multiple by 100

question

How to calculate consumer price index

answer

The introduction of new good decreases variety, (Iphone has compass, gps...) allowing consumers to find the products that more closely meet there needs

question

Compute inflation rate

answer

Each of these problems causes the CPI to overstate the cost of living

question

Introduction of new goods

answer

Amount in today's dollars =
Amount in allotted year x Price level today/ price level in allotted year

question

Problems with Consumer price index

answer

A dollar amount is indexed for the inflation if it is automatically corrected for the inflation by law or in a contract

question

How to compare money figures from different eras

answer

This interest rate is not corrected for inflation

question

Indexation

answer

= nominal interest rate - inflation

question

Nominal Interest rate

answer

The average quantity of goods and services are produced per unit of labor input
Y/L ( output per worker)
L- quantity of labor

question

Real Interest rate

answer

The stock of equipment and structures used to produce goods and services.
- Denoted by K
- productivity is higher when the average worker has more capital

question

Productivity

answer

K / L

question

Physical capital

answer

The knowledge and skill of workers acquire through education, training , expertise
- H

question

Capital per worker

answer

H / L

question

Human capital

answer

True

question

Average workers human capital

answer

The inputs production that nature provides (land, minerals
-N

question

True or false
An increase in H/L causes an increase in Y/L

answer

True

question

Natural resources

answer

socities understandings of the best way to produce goods and services

question

True or false
An increase in N/L causes an increase in Y/L

answer

Y = A F(LKHN)
F = a function that shows how these inpts are combined to produce output
A - level of tech

question

Tech knowledge

answer

Used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested

question

Production function

answer

- In a poor country workers have little K (physical capital), giving more K increases production
- Rich nations with a lot of K are not able to increase production as much when K increases

question

Diminishing returns

answer

The property where by poor countires tend to grow much more rapidly than rich ones

question

The production function and diminishing return work

answer

A capital investment (factory) that is owned and operated by a foreign entity
- Important in poor countries to generate savings

question

catch up effect

answer

The ability of people to exercise authority of resources they own

question

Foreign direct investment

answer

Aim to raise the living standards by avoiding interaction with other countries
(tariffs)
countries tend to to struggle with growth

question

Property rights

answer

Promote integration with the world economy

question

Inward oriented policies

answer

-Stretching natural resources
-Promoting tech progress
-Diluting capital stock

question

Outward oriented policies

answer

The group of institutions that helps match the savings of one person with the investment of another

question

Population effects standards of living

answer

Institutions through which savers can directly provide funds to borrowers
(Bonds)

question

The finical system

answer

Institutions through which savers can indirectly provide funds to followers

question

Finical markets

answer

Institutions that sell shares to the public and use the proceeds to buy portfolio stocks and bonds

question

Finicial intermidies

answer

The portion of household income that is not used for consumption or paying taxes
= Y - T - C

question

Mutual funds

answer

tax revenue
T - G

question

Private savings

answer

Private savings + Public savings
Y - C - G

question

Public savings

answer

An excess of tax revenue over government spending

question

National savings

answer

A short fall of taz revenue from government spending
G -T

question

Budget surplus

answer

The government borrows to finance its deficit leaving less funds available for investment
- does not mean you are going to a recession

question

Budget deficit

answer

-Without money everything would require barter
-Every transaction would need a double coincidence of wants at the same time and for each others good
-Need to search to trade

question

Crowding out

answer

An item buyers give to sellers when they want to purchase goods and services

question

The Monetary System

answer

A nominal monetary unit of measure or currency used to represent the real value (or cost) of any economic item

question

Medium of exchange

answer

An item people can use to transfer purchasing power from the present to the future

question

Unit of account

answer

Takes the form of commodity with intrinsic value (gold coins)

question

Store of value

answer

money without intrinsic value, used as money because of Government decree ( US dollar bill)

question

Commodity money

answer

The quantity of money avalible in the economy

question

Fiat Money

answer

The paper bills and coins in the hands of the public

question

Money supply

answer

Balances in loan k accounts that depositors can access in demand by writing a check

question

Currency

answer

Currency
demand deposits
travelers checks and other check-able deposits
3.2 trillion

question

Demand deposits

answer

Everything in M1
savings deposits
small deposits
money market
mutual funds
and a four minor categories
12.7 trillion

question

answer

An institution that oversees the banking system and regulates the money supply

question

answer

The setting of the money supply by policy makers in the central bank

question

Central bank

answer

The central bank of the United States

question

Monetary Policy

answer

7 Board of Governors
watch over the US economy
forecast

question

Federal reserve

answer

12 regional federal reserve banks across the US with gold and bonds

question

Structure of the Federal Reserve

answer

Banks keep a fraction of deposits as resources and use the rest to make loans

question

How many regional federal reserve banks are there

answer

Regulations on minimum amount of reserves that banks must hold against deposits, based on 2008 market crash

question

Fractional reserve banking system

answer

True

question

Banking reserve requirements

answer

The amount of money the banking system generates with each dollar of resources
money multiplier = 1/R
R=10% 1/.1 = 10

question

True or false when a bank makes a loan they create money

answer

besides resources and loans, banks also hold onto securities ownership of a company or other stocks

question

Money multipler

answer

Besides deposits, banks also obtain funds from issuing debts and equity

question

Assets

answer

The resources a bank obtains by issuing equity to its owners

question

Liabilities

answer

The use of borrowed funds to supplement existing funds for investment purposes

question

Bank capital

answer

The ratio assets to bank captial
1000/50=20

question

Leverage

answer

question

Leverage ratio

answer

A government regulation that specifies a minimum amount of capital banks must hold

question

If bank assets decrease by more than______%, bank capital is negative and the bank is insolvent

answer

By changing banks resources
or changing money supply

question

Capital requirements

answer

The purchase and sale of us government bonds by the Fed

question

The Fed can change the money supply by changing _____________________ or ____________________________

answer

The interest rate on loans the fed makes to banks, to influence the amount of resources banks borrow

question

Open market regulation

answer

The fed chooses the quantity of resources it will loan , then banks bud against each other for these loans

question

Discount rate

answer

Banks have fewer resources, therefore they make fewer loans, thereby the money supply drops

question

Auction facility

answer

Banks with insuffient resources can borrow from banks with excess reserves

question

If households hold more of thier moeny as currency what happens to the banks and the money supply

answer

The intrest rate on the bank loans

question

Federal reserve rate

answer

The Fed sells government bonds (OMO)
this removes residences from the banking system , reduccing the supply of the fed rate. this causes rf to rise (there are less of them making them worth more

question

Federal funds rate

answer

Asserts that quantity of money determines the value of money

question

To raise Fed funds rate

answer

1/p is the value rate of $1 measured in goods

question

Quantity theory of money

answer

prices
Value of money

question

P is the price of the value of goods measured in money

answer

Refers to how much wealth people want to hold in liquid form

question

Inflation drives up ___________ and drives down the ___________

answer

Money
drops

question

Money demand

answer

...

question

As the value of ___________ rises the price level ___________

answer

Price of labor
W

question

As fed increases the amount of money in the system prices rise

answer

Price of goods and services
P

question

Nominal wage

answer

The price of labor relative to the price of output
W / P

question

Price level

answer

There rate at which money changes hands, or the number of transactions in which the average dollar is used

question

Real wage

answer

P xY = nominal GDP = price lvl x real GDP
M = money supply
V= velocity
V= PxY / M

question

Velocity of money

answer

Fairly stable

question

Velocity of money formula

answer

M x V = P x Y
- v is stable
- Change in m causes nominal GDP (PY) to change by the same percentage

question

Velocity is ________ in the long run

answer

The revenue from printing money, printing money causes inflation, which is like a tax on everyone who holds money

question

Quantity equation

answer

Inflation that is very high and out of control

question

Inflation tax

answer

In the long run money is neutral. a change in money growth rate affects the inflation rates

question

Hyper inflation

answer

Inflation rate + real interest rate

question

The fisher effect

answer

Most people think inflation erodes real income

question

Nominal interest rate

answer

The resources wasted when inflation encourages people to reduce their money holdings

question

Inflation fallacy

answer

The cost of changing prices

question

Shoe Leather cost

answer

Inflation makes nominal income grow faster than real income
-pay more taxes than real income
-taxes are based on nominal income, not adjusted for inflation

question

Menu costs

answer

Higher than expected inflation transfers purchasing power from creditors to debtors
- Debtors get to repay their debt with dollars that are not worth as much

question

Tax distortions

answer

question

Arbitrary redistribution of wealth

answer

Domestic residents purchase of foreign assets minus foreign purchases

question

Variables that influence net exports

answer

Domestic residents manage the foreign investment (mcdanks in china)

question

Net capital outflow (NCO)

answer

Domestic residents purchase foreign stocks, supplying funds to foreign firms

question

foreign direct investments

answer

Measures the imbalance in a countries trade assets

question

Foreign portfolio

answer

domestic purchases of foreign assets is larger than foreign purchases of domestic assets

question

What does the Net capital outflow measure

answer

Capital inflow, foreign purchases of domestic products is larger than domestic purchases of foreign goods

question

When the NCO is greator than zero

answer

NCO = NX
Arises because every transaction that affects NX affects NCO the same way and same amount

question

when NCO is less than zero

answer

The rate at which ones countries currency is worth trades for another

question

Accounting identity

answer

An increase in value of a currency as measure bu the amount of foreign currency it can buy

question

Nominal exhcange rate

answer

A decrease in value of a currency as measured bu the amount of foreign currency it can buy

question

Appriciation

answer

The rate at which Goods and services of one country trade for the goods and services of another

question

Depreciation

answer

(e)(p) / p*
e = national exchange rate
p* = foreign price
p = Domestic price

question

Real exchange rate

answer

The notion that a good should sell for the smae price in all markets

question

Real echange rate formula

answer

Making a quick profit by buying a good for a cheaper price somewhere else and selling it in another area

question

Law of one price

answer

A theory of exchange rate where bu a unit of any currency should be able to buy

question

Arbitrage

answer

-Many goods cannot be traded easily
-Foreign & domestic goods are not traded equally

question

Purchasing power parity

answer

-The wealth effect
-The interest rate effect
-the exchange rate effect

question

Two reasons exchange rate don not always adjust easily

answer

A simple theory of interest rate
- r adjusts to balence supply and dmeand

question

Aggregate demand slopes downward when

answer

Y & P
- If Y rises houses want to buy more goods and services
-An increase in Y causes an icnrease in money supply

question

The theory of liquidity preference

answer

When the interest rate is zero
- monetary policy stimulates aggregate demand by reducing the interest rate

question

The variables that infleucne money demand

answer

Setting of the level of government spending and taxation by government policy makers

question

Liquidity trap

answer

The additional shifts in AD that result when ducal policy increases income

question

Fisical policy

answer

Fraction of extra income houses consume rather than save
Change in Y = 1/1- mpc (change in G)

question

Multiplier effect

answer

Fiscal policy has another effect on AD, that works in the opposite direction

question

Marginal propensity to consume

answer

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question

The crowding out effect

answer

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