Macro Flashcards

Terms Definitions
“consumption of fixed capital” gets “siphoned-off” GDP and “sent” right back to U.S. businesses…
the narrowest definition of money supply. includes currency, traveler's checks & checkable deposits
Micro or Macro, should commercial banks be required to provide loans in all areas of the territory from which they accept deposits
the bottom of a business cycle
Explain Microeconomics
Microeconomics is the part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices.
lack of enough resources to satisfy all desired uses of those rescources
Per Capita GDP:
Real GDP/Population measure standards of living.
underground economy
the unreported or illegal production of G&S in the economy that is not counted in GDP
Complementary Good
goods that are generally used together. when the price of one increases the demand for the other decreases ( ex:: sugar and coffee)
the study of how households and firms make decisions and how they interact in specific markets.
changes in federal taxes & spending that are intended to achieve macroeconomic policy objectives such as high employment, price stability & economic growth
fiscal policy
a bank has $100 mill of checkable deposits. it has total reserves of $6 mill, of which $2 mill are excess reserves. what is the required reserve ratio?
Barb is willing alone $10,000, and she can earn a real interest rate of 6% if inflation rate is 2% are should make the loan if the nominal interest rate is
A type of market economy based on private ownership of capital wage and labor, and production for profit.
Competition is Key
Aggregate Demand
the total quantity of goods and services demanded by households, firms, foreigners, and govts at varying price levels
transfer payments
income received but not earned (ex: welfare)
money supply
typically, M1 money. The supply of currency, demand deposits, and traveler's checks used in transactions
public debt
a total value of gvmt securities- treasury bills, notes, and bonds- held by individuals, businesses, other gvt agencies, and the Federal Reserves
Net Exports
the value of foreign purchases of US domestic producton minus US domesic purchases of foreign production.
Monetary base
the sum of currency in circulation and bank reserves
Unemployment rate =
unemployed divided by labor force time 100
factors of production
resource inputs used to produce goods and services:land labor capital entrepeneurship
Economic freedom
A condition in which people are able make personal choices or private property is protected and they are free to buy and sell the markets
a decrease in P implys a decrease in interest rate which encourages spending to increase on investment goods
-this increases Qd of G&S
M2 money
M1 money plus less immediate forms of money such as savings accounts, money market mutual funds, money market deposit accounts, repurchase agreements, and small denonmination time deposits.
margin requirement
the maximum percentage of the cost of a stock that can be borrowed from a bank or any other financial institution, with the stock offered as collateral
nondurable goods
goods expected to last less than a year.
Inferior good
a good for which an increase in income leads to a decrease in demand.
If In = 0then the stock of capital in the economy neither increases nor decreases
lowering the required reserve ratio causes...
the money multiplier to increase
The inflation rate increases then
Collation reduces potential GDP slows real GDP growth
federal deposit insurance corporation (FDIC)
a government insurance agency that provides depositors in FDIC- participating banks 100% coverage on their first $100,000 of deposits
customs duty
a sales tax applied to a foreign good or service
federal funds market
the market in which banks lend and borrow reserves from each other for very short periods of time, usually over night
Intermediate goods are...
goods that are produced by one firm to be further processed by another firm.
Actual real GDP =
potential real GDP (if is ON the production possibility curve and not below it(((inside the curve))
aggregate demand curve
a curve that shows the quantity of G and S that households, firms, and the govt want to buy at each price level
What are the characteristics of a good money form?
durability, portability, divisibility, homogeneity, and stability
Where do your taxes go, who collects income taxes.

Federal Government
Personal Income Tax: Main source of revenue
Payroll taxes
Corporate taxes, some sales and excise and tax

State government (50%)
Sales tax and Excise tax
Some personal income tax

Local Government
Property taxes (72%)
net exports as Xsubn
(aka X – M where X stands for exports and M stands for imports)
The velocity of circulation is equal to what
Price level* real GDP/quantity of money . V=(P*Y)/M
Keynesian revolution (answer to depression)
Active government may be needed to fix economic problems, behavior cannot just be explained by rational comparisons of costs to benefits
What is the Feds principle purpose?
yo provide the economy with an appropriate money supply consistent with a stable price level and issue the nation's currency and serce as the banker's bank.
national income accounting scheme, investment expenditure is spending on capital goods only (i.e. investment is spending on capital only
On Capital goods only by business = I (sub)g
Economists use the word capital mean, what
Capital or physical capital is the tools, instruments, machines, buildings other items that have been produced in the past that are used to produce goods and services. Inventories of raw materials, semi finished goods, and components are part of physical capital.
North American Free Trade Agreement (NAFTA)
a free trade area consisting of N. Amer. nations
Actual Real GDP falls short of Potential Real GDP (such as at point inside the possiblitty curve), there must be some cyclical unemployment
NR there will always be some of (frictional and Structual) but when actual GDP falls below Potential GDP then C>0
What is the shape of the aggregate supply curve when a change in the money supply affects real GDP but not the price level?
The segment of the aggregate supply curve over which aggregate demand shifts is horizontal
If the price is different than the market price when do you have a shortage and when do you have a surplus, calculate the sthortage or surplus?
You have a shortage when what is supplied- is less than what is demanded
You have a surplus when what is supplied- is more than what is demanded
In the long run an increase in the quantity of money leads to
the economy returns to its long-run equilibrium interest rate but at a higher price level
Why might the actual increase in the money supply be less than the maximum potential increase in the money supply?
Because there may not be a sufficient number of borrowers to take advantage of all the available loanable reserves in the banking system.
The debit card is, as it relates to money, is it or is it not money?
It is not money debit cards are like checks they are not money
excess in supply
taxes __ market activity
Net Investment
Gross Investment-Depreciation (dK) K=capital stock
potential real GDP-Actual GDP
labor market
input/factor market in which households supply work for wages to firms
Induced Expenditure
The components of aggregate expenditure that change when real GDP changes
a product of business-cycle fluctuations
cyclical unemployment
components of GDP
1. consumption
2. investment
3. government purchases
4. net exports
seller's surplus
the difference between the market price and the seller's reservation price
cost of market basket/cast of market basket in base year*100
Ockham's razor
the principle that irrelevant detail should be cut away
National Income
= Compensation of Employees + Proprietor’s Income + Corporate Profits + Rentail Income + Net Income
Classical Range
vertical segment of the aggregate supply curve, which represents an economy at full employment output
Conflict Theory 2
Conflict holds society together through different gropus holding different views
Social change is regular feature of social life
in other markets, what do governments do to sellers or buyers of a good
market value of the final goods and services produced within a country
vertical intercept
the value of the dependent variable when the value of the independent variable is zero
price ceiling
a maximum price that sellers may charge for a good- usually set by the government
Federal Reserve (Fed)
the central bank of the US
descriptive economics
the compilation of data that describe phenomena and facts
Reserve Ratio
The fraction of deposits that banks hold as reserves.
economizing problem
the need to make choices because economic wants exceed economic need
The Family/Nuclear Family
Social institution with beliefs about the ideal family, marriage and divorce, parenting, kinship structures, family obligations
Unit composed of a husband, a wife, and their children
consumption that does not depend on income
autononmous consumption
What is used to measure aggregate output?
real GDP
diminishing marginal utility
the extra utility a consumer obtains from the consumption of 1 additional unit of a good or service:equal to the change in total utility divided by the change in the quantity consumed.
Double Coincidence of wants
The unlikely occurrence that two people each have a good the other wants.
efficient markets hypothesis
the theory that asset prices reflect all publicly available info about the value of an asset
demand curve
a graph illustrating how much of a given product a household would be willing to buy at different prices
Inflationary Gap
A gap that exsist when real GDP exceeds potential GDP and that brings a rising price level
Final good
Any food that is not an intermediate good
when price level changes, interst taes change in some direction adn AE change i n opposite direction
interest rate effect
marginal buyer
the buyer who would leave the market first if the price were any higher
What is the Macro Model
Illustrates the interactions between and outcomes of the economy's willingness and ability to send final good and services and the economy's ability to produce goods and services in short run and long run c.p.
per capita GDP
the dollar value of GDP divided by total population; avg GDP
demand schedule
a table showing how much of a given product a household would be willing to buy at different prices
Difference between Stocks and Bonds
Stocks = ownership
Bonds = Owing shit
causes of aggregate supply shift
labor costs, raw material costs, import prices,
National Rate of Output
The production of goods and services that an economy achieves in the long run when unemployment is at its normal rate
Future Value
The amount the sum will be worth at a given future date, when allowed to earn interest at the prevailing rate.FV=PV(1+r)^n
what is the role of a bank?
holds money and loans money
as the price of a good rises, the quantity demanded of the good falls, vice-versa, ceteris paribus
law of demand
Law of one price
the notion that a good should sell for the same price in all markets.
Calculate Today's Salary compared To Salary of the past
Salary (earlier year) * (CPI current year / CPI earlier year)
Opportunity Coast
of any item is what you give up to get that item.
Real exchange rate or Terms of trade
the relative price of the goods between two countries. the rate at which we can trade the goods of one country for the goods of another.
. Which of the following would result in an increase in inventories?
b. When output is higher than aggregate expenditure.
if workers/firms expect prices to be 3% higher next year
the SRAS curve will shift LEFT to reflect expectations of rising costs
the slope of the supply curve and the slope of the demand curve
how the burden of a tax (tax incidence) depends on
Open Economy
ceteris paribus
all else equal
What minimizes liquidity
Low interest rates
consumption function
relationship between consumption spending and disposable income
Quantity responds "substantially" to a change in price
situation with no force or change
goods and services mush be exhcnaged directly for other goods and services
Net Capital Outflow
Domestic residents' purchases of foreign assets minus foreigners' purchases of domestic assets.
goods and services sold to foreign buyers
Financial Account
Measures Trade in assets(amount of capital coming in-Amount of capital leaving)=Net Capital Inflow
The equation that states Saving = Investment.
Doesn't apply on a personal basis but on the economy as a whole since investment is the purchase of new capital.
Accelerator Principle
The argument that induced investment is related to the rate of change in depand or output.
Marginal changes
small incremental adjustments to a plan of action
problems with unemployment
lost production and incomes
lost human capital
a situation in which in the inflation rate is extremely high
line shifts down
taxes in decrease, wealth decreases interest increases, pesemistic,(a)decreases
private setting
the income that households have left after paying for taxes and consumption
Savings affects----> which affects---->
Savings affects financial capital which affects Physical capital
Store of Value
Stocks, Bonds, Bank Deposits, Mutual Fund Deposits
Bank deposits are easiest to transfer through the writing of a check. 
Real GDP
GDP calculated using market prices in a base year
aggregate supply
total measure of output. equlibrium is when AD = AS, at this point there is full employment
things that you make to help you produce something else later.
marginal propensity to consume
slope of consumption function
= change in consumption/change in disposable income
federal funds rate
interest rate that the banks charge each other on overnight loans of reserves
attainable point
a combination of goods that can be produced using a person's current resources and productivity
theory of comparative advantage
theory that specialization and free trade will benfit all trading parties, even those that may be more efficient producers
deadwight loss
the fall in total surplus that results from a market distortion, such as a tax
fractional reserve banking
banking system where banks hold a fraction of deposits as reserves
If there is a recession, the government is most likely to use what fiscal policy
Expansionary fiscal policy
the value of the entire output produced annually within a country's borders
gross domestic product
3 unemployment sources
1 lose their jobs and search for another
2 leave their jobs and search for another
3 enter or re-enter the labor force to search
Velocity of Money
The rate at which money changes hands. V x M= P x Y, where V is the velocity, M is the money supply, P is the price level, and Y is the real GDP.
unemployment rate
the % of the labor force that is unemployed
International Trade effect
As price level goes up, real exchange rate goes up, cuases Net exports to go down and AG to go down as well
total expenditures
wages + rent + interest + profits + intermediate goods
economic policy: Fiscal policy- determined by? change?
(government actions to influence the economy)
- determined by: congress and the president
- change tax laws
- change government spending
gross domestic product
market value of all final goods and services produced in a country during a given time
CPI (consumer price index)
a measure of the overall cost of goods/services bought by a typical consumer
what is the quantity theory of money?
quantity theory of money states that inflation is increased when you print more money.
Germany 1923
the benefit a buyer receives from participating in a market
what does consumer surplus measure
  Refer to the above graph, which shows the market for chicken where D1 and D2 represent different demand curves. A change from E1 to E2 is most likely to result from:
A) A decrease in consumer incomes
B) An increase in the wages of chicken workersC)
A) A decrease in consumer incomes
What is the fiscal stimulus policy?
Government spending policy to make the economy grow.
1. increased governemnt spending
2. decreased taxes
3. transfer payment
increase in exchange rate (value of the dollar) relative to other countries
AD shifts LEFT
imports rise faster than exports
Unplanned or Involuntary Additions to Inventory
The excess of what businesses plan to produce over what households plan to consume.
What is a pegged exchange rate?
A pegged, or fixed system, is one in which the exchange rate is set and artificially maintained by the government. The rate will be pegged to some other country's dollar, usually the U.S. dollar. The rate will not fluctuate from day to day.
A government has to work to keep their pegged rate stable. Their national bank must hold large reserves of foreign currency to mitigate changes in supply and demand. If a sudden demand for a currency were to drive up the exchange rate, the national bank would have to release enough of that currency into the market to meet the demand. They can also buy up currency if low demand is lowering exchange rates.
  Refer to the above diagram, which shows three supply curves for corn. Which of the following would cause the change in the supply of corn illustrated by the shift from S1 to S3?
A) A decrease in the price of fertilizerB) An increase in the price o
B) An increase in the price of irrigation equipment
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