Macroeconomics Exam 2 Flashcards

Terms Definitions
net national product
Unrelated Goods =?
Independent Goods
labor productivity equals
(Real GDP)/(labor hours)
Trust business more than govt
Net Domestic Product (NDP)
GDP less depreciation
cyclical unemployment
-impacts workers across all industries-once eliminated, economy has reached full employment
average propensity to save (APS)
save, saving/DI
the property of distributing economic prosperity fairly among the members of society (size of the slices)
Positive versus normative analysis
-positive=scientist, normative=policy adviser
-evaluate positive statements by analyzing data
-cannot judge normative statements by data alone (ethics, religion, political philosophy)
-normative statements involve positive analysis and value judgment
-much of economics is positive, with normative goals
Investment depends on what?
market interest rate
something whose quantity can be measured over a period of time
Credit Card
Not money, just a preapproved loan.
Rational Expectations
People use all information available, including information about public policies, when they form their expectations
Supply Curve
The graphical representation of the relationship between quantity supplied and the price of a commodity, other things being equal
Employment Rate
The percentage of the civilian noninstituational population that is employed: Employment rate= Number of employed persons/Civilian noninstitutional poplation.
more times a worker performs a specific task, the more prficient the worker becomes
Suppose that at the current price consumers would like to purchase 10 million large-screen televisions and 15 million are available. When the market coordinates the demand and supply for large-screen televisions, the price of large-screen televisions will
welfare checks, food stamps, and unemployment compensation are examples of what?
transfer payments
Using price index to convert values expressed in current year dollars into values expressed in constant (base-year) dollars.

current $ / price index
Structural unemployment
unemployent because the skills in demand do not match those of teh unemplyed or the unemployed to not live where the jobs are
a resource that regenerates itself through short-term processes
renewable resource
ownership of assets by nongovernment economic actors
private property
the manipulation of levels of government spending and taxation to raise or lower the level of aggregate demand
fiscal policy
the theory that trade should eventually lead to returns to factors of production being equal across countries
factor-price equalization
Open-market operations
the Fed's principal tool of monetary policy: the Fed can increase or decrease the monetary base by selling or buying treasury bonds (respectively)
nominal values
refer to current prices and current quantities
What can the government do to decrease the GDP?
the ratio of the change in the equilibrium level of output to a change in some exogenous variable.
sacrifice ration
the number of percentage points of annual output lost in the process of reducing inflation by 1%
Tight Money Policy
Monetary policy resulting in higher interest rates and restricted access to credit; associated with contraction of the money supply
The value of everything a seller must give up to produce a good.
Study of the way scarce resources are allocated to satisfy competing human wants
a period of decline in total output, income, and employment
The difference, at a particular price, between quantity demanded and quantity supplied, quantity demanded being the greater
Excess demand
efficient point
any combination of goods for which currently available resources do not allow an incrase in the production of one good without a reduction in the production of the other
analysis that does not take into account the passage of time
static analysis
when an indicator moves in the opposite direction from the business cycle. It moves up as the economy goes down into recession, and down as the economy goes up into recovery
countercyclical movement
unemployment that arises as people are in transition between jobs
frictional unemployment
a process of social and economic change, beginning in eighteenth-century England, that developed and applied new methods of production and work organization that resulted in a great increase in output per worker
Industrial Revolution
Monetary policy affects aggregate demand indirectly through changes in the interest rate that affect consumer and investment spending.
Monetary policy affects aggregate demand indirectly through changes in the interest rate that affect consumer and investment spending.
factors of AS
1) price level movement along curve2) input prices increase, profit rates fall, AS shifts to left3) nominal wages increase, profits lower, AS shifts to the left4) better technology-increase labor productivity, increase profit rates, increase AS5) additional resources, AS increases
Depreciation (2)
The amount by which the capital stock is depleted through the production process
potential output
the real output (GDP) an economy can produce when it fully employs its available resources
Proportional Tax
Tax in which percentage of income paid in tax is the same regardless of the level of income
Opportunity Cost
Whatever must be given up to obtain some item
directs the activities of the 12 Federal Reserve Bank, which in turn control the lending activity of the nation’s banks and thrift institutions
federal reserve system
discretionary fiscal policy
The federal government has the power to change tax rates and expenditures in an attempt to cope with unemployment or inflation.
- The government can vary its expenditures for goods and services
- The government can vary welfare payments and other types of transfer payments
- The government can vary tax rates
Workers employed in jobs that do not utilize their productive talents or experience
Underemployed workers
what is fiscal policy?
using government spending, taxes, and income transfers to alter AD
the annual number of births per 1,00 population
birth rate
when high demand for labor and other resources creates upward pressure on wages, which in turn leads to upward pressure on prices and, as a result, further upward pressure on wages
wage-price spiral
a figure that measures the change in size of a magnitude, such as a quantity or price, as compared to its magnitude in some other period.
index number
economic growth
the growing ability of the economy to produce goods and services. means an expansion of the economy's production possibilities: the economy can produce more of everything.
Fractional Reserve Banking
A banking system in which banks are only required to keep a fraction of deposits as reserves 
Labour Productivity
The level of real GDP divided by the level of employment (or total hours worked)
federal funds rate
the interest rate at which banks make overnight loans to one another
What is Money Market?
short run theory for explanation of interest rate
A nation's production possibilities curve is "bowed out" from the origin because:
A) capital goods and consumer goods utilize the same production technology
B) opportunity costs are decreasing
C) resources are scarce relative to human wants
D) resources are not perfectly adaptable to production of alternative goods
An employment level at which the actual rate of unemployment in the economy is equal to the economy’s natural rate of unemployment
Full Employment

I.E. Cyclical unemployment is zero
valuing hours at the amount it would be necessary to pay someone to do the work
replacement cost method
a physical place where there is a reasonable expectation of finding both buyers and sellers for the same product or service
market (first meaning)
a school which bases its analysis on micro-level market behavior, but which justifies activist macroeconomic policies by assuming that markets have "imperfections"
new Keynesian macroeconomics
Define "contractionary fiscal policy," including the means by which it is achieved.
A decrease in government spending or an increase in net taxes aimed at decreasing aggregate output (income).
marginal propensity to save (MPS)
the fraction of any change in disposible income that households save; = change in saving/change in DI
In empirically explaining per capita growth in the United States, the increase in:
Technology is the most important element
what will a rise in wealth cause
an increase in consumption spending
what is portfolio decision?
the choic of how/where to hold idle funds
Money supply grows too slow then
we hit recession because ppl don't want to sell goods at a lower price.
suppose the union leaders negotiate a significant increase in nominal wages. If the Federal Reserve holds the growth in the money supply constant, in the short run the aggregate supply curve will shift...
up, unemployment will increase, and prices will rise
what causes a shift of the consumption income line

(but doesnt work solely on autonomous consumption)
a decrease in taxes

(increases disposable income at each income level)
an action by central banks to buy or sell foreign exchange reserves in order to keep exchange rates at desired levels
foreign exchange market intervention
How can the Federal Reserve actually increase the money supply?
by purchasing more government bonds in the open market
What are the 5 fundamental questions of the market system?
1. What goods and services are produced
2. How will they be produced
3. Who will get goods and services
4. How will system be able to accommodate change and trends?
5. How will they accommodate progress?
Why do we use unemployment rate as a measure?
a measure of the uncertainty regarding the continuation of income
a measure of the total value of final goods and services newly produced in a country over a period of time (usually one year)
gross domestic product (GDP) (BEA definition)
4 questions need to be answer in an economic system
1) what will be produced 2) how will you produce it. 3) who gets it? 4) how will we accomadate change
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