Macro 3 Flashcards

Terms Definitions
before trade
ex ante
positive analysis is __
spenging on capital equipment, inventories, including the purchase of new housing
change as GDP changes
Coincident Indicators
Automatic stabilizers will cause the impact of spending changes on the economy to be less than one would expect when using the expenditure multiplier.
Public Saving
= Y - T -C
prolonged perios of severe economic contraction
abstractions of real world; simplified version of reality
total surplus
the difference between the buyer's reservation price and the seller's reservation price
As the real wage increases, more people will want to work.
the branch of economics that examines the economic behavior of aggregates- income, employment, output, and so on- on a national scale.
Deposits that banks have received but not loaned out.
GDP Deflator
N.GDP / R. GDP x 100
Social condition in which norms are conflicting or entirely absent
price takers
another word for buyers and sellers
crowding out effect
tendency for a government budget deficit to raise the real interest rate and decrease investment
a value in an equation that is fixed
aggregate behavior
the behavior of all households and firms together
the org withdrawal of labor from a firm by a union
a period of very rapid increases in the overall price level
Fiat Money
Money without intrinsic value that is used as money because of government decree.
sole proprietorship
business owned and operated by one person
( high libablity)
Generalized Other
Ability to take roles will increase until children can learn to take the role of an abstract entity such as a peer group, school, community, and eventually society as a whole
domestic prices change while foreign prices stay same, leads to a change in exports
international trade effect
Define: Recessionary Gap
When aggregate output is below potential output.
substitute goods
Products or services that can be used in place of each other.
Adverse Selection
A high risk person benefits more from insurance, so is more likely to purchase it.
the set of assets in an economy that people regularly use to buy goods/services from other people
A point on the Aggregate demand Curve is called...
Aggregate Expenditure
Trade Surplus
we are net lenders in the world market- we are exporting more than we import
Price Elasticity
The measure of how much buyers and sellers respond to a change in prices
Real GDP rising and ffalling is known as
business cycle
producer surplus
amount received by sellers - cost to sellers =
Define: Interest Rate effect
Effect on consumer spending and invvestment spending caused by the effect of a change in the aggregate price level on the purchasing power of consumer' and firms' money holdings.
seller's reservation price
the lowest price that the seller is willing to recieve for a given quantity of a good
economic growth
an increase in the total output of an economy
Unemployment- sectoral shift
when the demand for products shift, so does the labor demand for those product, causing shifts of unemployment.
what does aggregate demand curve show?
aggregate demand curve shows relationship between price level and level of aggregate expenditure
an increase in price level causes a reduction in consumption, investment and NX. decrese in price level leads to higher equilibrium real GDP.
a change in a price
causes a change in quantity supplied- along the supply curve
Jobs of The Fed
1. Regulate banks and ensure health of the banking system.
2. Control the supply of money that is available in the economy.
aggregate expenditure and four components
total amount of spending in the economy. four components: C, Planned investment, G, NX
. What is the critical assumption (regarding markets) of the classical long run model?
Markets clear(prices adjust until Qs=Qd
Market for Loanable Funds
The market in which those who want to save supply funds and those who want to borrow to invest demand funds.
market demand for a product
the sum of all the individual demands for the product
How will the following things affect the moeny supply?
1. A reduction in the discount rate?
2. An increase in the reserve requirements?
3. purchase by the FED of 100 mil in US governmeny bonds from citibank?
4. an insurance company buys a million doll
1. MS increases w/ reduction of discount rate
2. MS decreases in an increase of reserve req.
3. MS increases w/ buying bonds
4. nothing happens to the MS
5. transfer of funds
. List and define the 3 main policy tools of the Fed.
open market operations, reserve requirements, discount rate
Why is the aggregate demand curve downward sloping?
Because of the wealth effect of a change in the aggregate price level and the interest rate effect of a change in the aggregate price level.
Quantity theory of money
M x V = P x TT- the # of times in a year that goods or services are exchanged for moneyP - number of dollars exchangedM - quantity of moneyV- velocity of money- measures the rate at which money circulates in the economy.
labor productivity
real gdp/labor
Coupon rate of interest
spending by households on goods/services with the exception of purchases of new housing
anything from which individuals receive disutility or dissatisfaction
American society and its organizations are increasingly adopting the 4 principles of rationalization that guide the operations of McDonald's restaurants
an allocation of resources is efficient if it maximizes total surplus, where total surplus is the sum of consumer surplus and producer surplus
government expenditure
governments buy goods and services from firms
where buyers and sellers engage in exchange
structural unemployment
unemployment that results because the # of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
GDP deflator equation
nomin GDP/real GDP x 100
when someone is actively searching for a job and is not employed
per-capita income in the U.S. equals about __ times per-capita income in Nigeria
business cycle
alternating periods of expansion and recession that US economy experiences since early 19th century
value of all the things that people own
NCO > 0
Domestic Purchases of foreign assets exceed foreign purchases of domestic assets.
income transfers
payments to individuals for which no current goods or servieces
corporate bonds
promissory notes issued by firms when they borrow money
government expenditures
spending on goods and services by local, state, and federal government
% change in quantity divided by % change in price
decision making characterized by weighing the additional benefits of a change against the additional costs of a change with respect to current conditions
decisions at the margin
- a cost of benefit that AFFECTS PEOPLE NOT INVOLVED in an activity or transaction and is therefore IGNORED BY THE INDIVIDUALS INVOLVED IN THE ACTIVITY or market transaction
a statement about how the world works and the consequences of a particular action
gross national profit
val of final goods/services produced by US residnts even if production takes place outside of US
medium of exchange
any object that is generally accepted in exchange for goods and services
nominal quantity
a quantity that is measured in terms of its current dollar value
What are the three main macroeconomic goals? VERY BRIEFLY explain why each is important
1.economic growth2.Full employement3.Stable prices(standard of living)
industrial revolution
the period in England during the late 18th and early 19th centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population for the countryside to the cities.
Collective Bargaining
The process by which unions and firms agree on the terms of employment.
command system
the government owns the all property and resources andmake all economical deciscion for a specific country(russia)
multiplier equation
1/(1-MPC). mult will be higher if MPC is higher. income tax will decrease the multiplier. larger countries tend ot have larger multipliers
two goods for which an increase in the price of one leads to an increase in the demand for the other
what makes up the financial system
banks and stock markets
store of value
can be held and exchanged later for goods and services
change of a price
leads to change in quantity demanded- moves along the curve

In 2007, Maxine's nominal income increased by 3% while the price level rose by 1%. Consequently, Maxine's real income:

A) rose by approximately 4%B) fell by approximately 1%C) rose by approximately 2%D) fell by approximately 2%
C) rose by approximately 2%
gdp deflator vs. cpi
1. CPI uses a fixed basket
GDP deflator basket changes each yr
3. CPI includes non domestically produced goods
Unemployment rate
the # unemployed / # of people in labor force x100
willingness to pay
the maximum amount that a buyer will pay for a good

You read that "the United States had a large trade deficit in recent years." This quote would be an example of a(n):

A) Value judgmentB) Economic goalC) Positive economic statement
D) Normative economic statement
C) Positive economic statement
When the fed decreases the money supply
the equilibrium interest rate rises
shifts in aggregate demand curve
1. changes in gov policies
2. changes in expectation of firms/households
3. change in foreign variables

In calculating GDP:

A) both exports and imports are addedB) neither exports nor imports are addedC) exports are added and imports are subtractedD) imports are added and exports are subtracted
C) exports are added and imports are subtracted
how much of one thing is given up for how much of something else
terms of trade

If consumption and disposable income are equal at a particular level of income:

A) the MPC must be one at this pointB) the MPS must be zero at this pointC) the APC must be less than one at this pointD) saving must be zero at this point
D) saving must be zero at this point
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
2 Reasons wages are fixed in the short run
1. Incomplete Knowledge
- workers unaware of inflation in the short run
2. Fixed Wage Contracts
explain how free trade can result in wage equalization across countires?
US buys cars from Mexico which causes the Demand to increase in Mexico. the US sells the cars in the US. The supply increases in the US. So the wages go up in Mexico and the prices go down in the US.
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