Macroeconomics Final Exam Flashcards

Terms Definitions
Private Saving
nodurable good
consumed when purchased
income that is not consumed
formula for NDP
GDP minus depreciation
Government policies designed to increase the skills of the work force shift the labor demand curve to the
right, increasing employment and total output.
True or False
two consecutive Quarters of negative GDPLasts > 6 months
Natural-Rate Hypothesis
Claim that unemployment eventually returns to its normal rate
Marginal propensity to save (MPS) equation
Chapter 3

Predict the effects of changes in supply on equilibrium price and quantity
certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits
Financial Intermediaries
Financial institutions through which savers can indirectly provide fund to borrowers. (banks)
analysis based in abstract thought
theoretical investigation
J = I + G + X
what happens to AD with an expansionary fiscal policy
Cydical Unemployment
unemployment caused by a business cycle (recession)
If private investment increased by $50 billion while GDP remained the same, which of the following couldhave occurred, all else being the same?a. consumption spending decreased by $50 billionb. exports increased by $50 billionc. imports decreased by $50 b
achieving a goal as cheaply as possible
Discuss why equilibrium in real GDP changes when the aggregate expenditure schedule shifts upward due to an increase in investment spending

Chapter 11
Allocative Efficiency?
Least-cost production of THOSE G+S that provide MAXIMUM SATISFACTION OF ECONOMY'S WANTS.

Full Employment
When there is no cyclical unemployment
when all unemployment is frictional, structural, and seasonal
Price Level
A composite measure reflecting the prices of all goods and services in the economyreletive to prices in a base year
the policy of encouraging domestic producers to make products thta can be used in place of imported goods
import substitution
selling products at prices that are below the cost of production
ownership of assets by nongovernment economic actors
private property
Price of bonds decrease
interest rate increases (vice versa)
P rises; fall in purchasing power of money
Factors that increase PPC
larger labor force, improved technology, greater access to natural resources, increase in number of capital goods, and increased productivity of resources
Measure of how much buyers and sellers respond to changes in market conditions
Positive Statement
A statement of fact or a hypothesis
potential output
the output that would materialize at the target rate of unemployment and the target rate of capacity utilization
Explain how it is possible for a banking system to create an amount of money that is a multiple of its excess reserves when no individual commercial bank ever creates money in an amount greater than its excess reserve

Chapter 15
In times of recession?
Increase Excess Reserves (Liquidity) and Withdraw as many loans as possible to prepare for Public Panic and Withdrawal
recessionary gap
The equilibrium output is less than the potential output.
Fiscal policy
can change equilibrium GDP in the short run
Natural Resources
The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.
the school of thought, named after John Maynard Keynes...
Keynesian economics
the trend in populatoin size that results from its age profile, in particular thenumber of women who are childbearing age or younger. For example, a population can continue to grow, in spite of having a fertility rate at or below replacement, if a large
population momentum
a changein the productive capactiy of an economy
supply shock
Real GDP
The price of all goods and services produced by the economy at price level adjusted (constant) prices. Inflation is eliminated.
LM curve shifts
Increase in MS: Down on LM curve
price index
comparison of prices for a wide range of goods for different time periods
planned investment (I)
those additions to capital stock and inventory that are planned by firms
unemployment rate
the percentage of the labor force that is unemployed
non simpole market
we have taxes (leckage in market). also government spending needs to be considered. however it does balence out because it interacts with both products and buinesses and households. also need to consider imports and exports
Define: economics
The study of how society manages its scarce resources
progressive tax system
the average tax rate rises with GDP
d: discovery based growth
economic growth primarily in advanced countries based on technological change from new discoveries
phillips curve
a curve that shows the short run tradeoff between inflation and unemployment
aids or loans provided with the announced intention of promoting development by the World Bank, regional development banks, or United nations agencies such as the United Nations Development Program
multilateral development assistance
a shorthand term for the broad goal of promoting the sustenance and flourishing of lie
in the BOP account, the account that tracks flows arising from international transactions in assets
financial account
assigning a monetary value to an environmental sersvice that is equal to the actual damage done when the service is withdrawn.
damage cost approach
creative destruction
firms will try to come up with new products and efficient ways of production to earn monopoly profits
interest rates represent
the cost to borrow $1 for 1 year
Balance of Payments Accounts
A summary record of a country's transactions with the rest of the world, including the buying and selling of goods, services and assets
the money multiplier tends to be greater when
individuals hold less cash
Law of Supply states?
As price level rises, the quantity supplied rises.
As price level drops, the quantity supplied drops.
2001: investment in new tech slows
spending on cap equipment decreases
National saving (saving)
The total income in the economy that remains after paying for consumption and government purchases.

(S=I in closed economy).
a good that is ready for use, needing no further processing
final good
a measure of national production above that needed to replace worn=out manufactured capital, found by subtracting depreciation from GDP
net domestic product (NDP)
a shift of the supply curve in response to some determinant otherthan the item's price
change in supply
income method of calculating GDP
compensation + interests + profits + rental income + proprietor's income
liquidity demand for money
the demand for money that arises so that individuals or firms can make purchases on quick notice
Comparative Advantage: The Driving Force of Specialization
-can have absolute advantage in both products (potatoes, meat), but not comparative advantage in both
-opportunity cost of one good is inverse of opportunity cost of the other
-trade can benefit society because it allows people to specialize in activities in which they have comparative advantage
-for both parties to gain from trade, price at which they trade must lie between 2 opportunity costs (one buys, one sells)
What are the Two Main Labor Market Indicators?
Unemployment Rate
Labor Force Participation Rate
the number of people age 65 and over for each hundred people aged 15-64
old-age dependency ratio
Minimum Wage Law does what?
Forces the wage to remain above the level that balances supply and demand, it raises the quantity of labor supplied and reduces the quantity of labor demanded; causing a surplus in labor (unemployment).
What is the Aggregate demand?
gives us total demand for good sand services in economy rom all sectors in the economy at different prices?
What are the 4 Basic economic questions?
What to produces?
How much to produce?
What production methods to use?
Who gets the production?
State of Technology and its effect on SRAS
Improvements in technology will shift curve left, a technological setback will shift it right
Law of Supply and Demand
The claim that the price of any good adjusts to bring the quantity supplied and the quantity for that good into balance.
a set of statistics compiled by the BEA concerning production, income, spending, prices and employment
National Income and Products Accounts (NIPA)
What caused the decline of banks and thrifts between 1980 and 2002?
Hint: Mutual Fund companies included with 3 others
More saving away from banks and thrifts and toward other financial institutions with higher rates of return (as a result of bigger participation in international stocks)
what is the formula for net domestic product?
NDP = GDP - consumption of fixed capital
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