Macro Midterm Flashcards

Terms Definitions
an educated guess
aggregate income = aggregate expenditure
Union Cons
Drives wages above equilibrium 
Causes unemployment
principle 4
people respond to incentives
nominal GDP
the production of goods/services valued @ current price
What is the definition/equation for Monetary Base?
relationship between consumption and disposable income
consumption function
financial innovation
process of developing new financial products
Informational Efficiency
Each stock price reflects all available information about the value of the company.
Move right along consumption income line
income increase
law of demand
the negative relationship between price and quantity demanded; as price rises, quantity demanded decreases; as price falls, quantity demanded increases.
This category includes those who were not employed, were available for work, and had tried to find employment during the previous 4 weeks. It also includes those waiting to be recalled to a job from which they had been laid off.
equlibrium quantity
the quantity demanded and quantity supplied at the equilibrium price in com. market
is defined as the property of distributing economic prosperity fairly among the members of society.
income approach
measures GDP by summing the incomes that firms pay households for the factors of production they hire
economic efficiency
the concept of all markets producing the socially optimal quantity of a good
. When attempting to control the money supply (MS), the Fed cannot control the amount of money households hold as deposits.
transfer payments
cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments.
Savers Purpose
Supply money to the financial system with the expectation that they will get it back with interest.
The change in net national income that results when both government expenditures and taxes change in the same direction and by the same amount
efficiency wage
firm pays a higher-than-market wage in order to increase efficiency
Understand the material
-only you know what you know
-know pieces
-understand the relation
aggregate expenditure model
focuses on short run relationship between total spending and real GDP assuming that the price level is constant
unemployment categories
1 without work but has made specific efforts to find a job within the previous four weeks
2 waiting to be called back to a job (laid off)
3 waiting to start a new job within 30 days
normative economic principle
a principle that says how people should behave
A decrease in the value of a currency as measured by the amount of foreign currency it can buy.
budget deficit
a shortfall of tax revenue from gvnt spending
As Real interest rate Rises...
Consumption Goes down since:a.)Costs more to borrowb.) More incentive to Save
how are goods allocated in the market?
supply and demand
Growth Policies
Human Capital - Education, Health and Nutrition
-Increase education = increased skills
Improve healther & nutrition of workers
change in imports/change in DPI
MPM (marginal propensity to import)
Define: Aggregate Demand Curve
Curve showing the relationship between aggregate price level and quantity of aggregate output demanded by households, firms, government and the rest of the world.
Value of a share
Present value of any dividends the stock will pay + Present value of the price you get when you sell the share.
natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates
Life Cycle Hypothesis
People spend when they are young, Save when they are in thier mid-years,and spend when they are older-Gives a predictable line of consumption over a lifetime.
year = CPI
What would a $10,000 salary in 197 be worth in 1993, if your salary kept up with inflation?
1993 = 144.5/ 1977 = 60.6 =2.38
2.38 x $10,000 = $ 23,800
consumer price index
- chose a year as a base year
- choose a representative set of quantities of items that are purchased by consumers
- determine how much those quantities cost using the prices that existed during various years
- ex) p0q0, p1q0, p2, q0
interest rates and investments
higher interest rate = less investment spending
. What are the four key variables that influence consumption spending? Which has the largest impact on C?
wealth,expectation,interest rate, disposable income C:D.I.
Small open economy
the economy is a small part of the world market, and can only have a negligible effect on the worlds interest rate. but the residents have full access to the worlds financial markets
Scientific Meathod of Economics
1. Select some topics to study
2. make some assumptions
3. create a model or theory
4. test
economic growth is measured by he inflation rate
false: inflatinoin is measured by GDP
Main Purpose of the Economic System
Move scarce resources from savers to borrowers. 
they prevent buyers and sellers from realizing some of the gains from trade
why do taxes cause deadweight losses
What does the Laffer Curve say about the relationship between tax rates and tax revenues?
As taxes increase Tax Revenue decreases. there is an optimal level for tax rate and tax revenue

Which is a determinant of the demand for housing?

A) The price of lumberB) Wages for electriciansC) The price of housingD) Changes in the expected future price of housing
D) Changes in the expected future price of housing
The Money Supply curve (MS) is an upward sloping curve; as the interest rate rises, the quantity supplied of money will also rise.
False: Ms is a vertical curve, as interest rises the quantity of money supplied will not rise

The "G" term in C + Ig + G + Xn includes all of the following except:

A) state government purchases of new computersB) Social Security checks received by retireesC) salaries received by members of the militaryD) local government expenditures for buil
B) Social Security checks received by retirees
labor force
a certificate of indebtedness
supply curve
A curve illustrating supply.
unemployment insurance
inadvertantly increases unemployment by giving people money when they are unemployed therefore decreasing the will and haste to search for a job.
combination of inflation and recession, resulting from a supply shcok
financial intermediaries
financial institutions through which savers can indirectly provide funds to borrowers
all manufactured aids used in producing consumer goods and services
-the core element in economics
-when it is present we must make choices.
thrift institutions
savings and loan associations savings banks and credit unions
Shoeleather Costs
The resources wasted when inflation encourages people to reduce their money holdings.
the willingness and ability to buy specific quantities of a good at alternative prices in a given time period
Increase in AGD shifts curve to the...
Price of Stock
Determined by supply and demand. 
Demand is people's perception of future profitability.
something that induces a person to act.
marginally attached worker
currently neither working nor looking for work but has indicated that he or she wants and is available for a job
a situation in which the prices of most goods and services are falling over time so that inflation is negative
. When you voluntarily cook dinner for your family every Sunday night, the value of that service is included in gross domestic product (GDP).
job search
the process by which workers find appropriate jobs given their tastes and skills
What shifts The AGD curve?
Government PoliciesChanges in ExpectationsChanges in foreign Variables
Debt Finance
The sale of bonds to raise money.
Frictional Unemployment
"search and wait" - type of unemployment caused by workers taking time to find a job that matches their skills and tastes
producer price index - average of the prices received by firms at all stages of production process
shifters for demand
1. income
2. tastes and preferances
3. prices of related goods
4. expectations of future
5. number of potential buyers
high interest rate w/consumption
reward for savings is increased
households SAVE more
households spend LESS
inflation rate
inflation rate = money growth rate - real GDP growth rate
unattainable point
a combination of goods that cannot be produced using a person's current resources and productivity
wealth/net worth
total value of what a household earns minus what they owe
budget surplus
an excess of tax revenue over gvnt spending
"final" GDP
only include the market value of the final good, otherwise there would be double counting
ex. car with GPS system- only include value of the car b/c the price of the car captures the value of the entire gps system
Loanable Funds/Crowding out
G increase - Intrest increase - Investment decrease
Elasticity (definition)
The measure of how much buyers and sellers respond to a change in prices
quantity demanded
amount people are willing to buy at one particular price in a given time period
a stone tool about 1 ft. (30 cm) long.
Medium of exchange
An item buyers give to sellers when they want to purchase goods and services.
present value
the amount of $ today that would be needed, using prevailing interest rates, to produce a given future amount of $
Price Levelas it goes up...
Wealth goes down, Consumption Goes down
Interest Rate Effect
impact on total spending caused by the direct relationship between the price level and interest rate
major macroeconomic goals: employment act of 1946
- full employment
- price stability
- economic growth
- provide for the disadvantaged
- redistribute income via taxes and transfer payments
producer price index
ave of prices received by producers of goods and services at all stages of production process
GDP (gross domestic product)
the market value of all final goods and services produced within a country in a given period of time
what is arbitrage?
the buying of one good in a cheap market and selling it in an expensive market. shoes in cola, then sell in chas town.
to collect revenues or to affect behavior
why do policymakers levy taxes

"Because of unusually good growing conditions, the supply of strawberries has substantially increased." This statement indicates that:

A) the demand for strawberries will necessarily riseB) the equilibrium quantity of strawberries will fallC) the
C) the amount of strawberries that will be available at various prices has increased
In the simple keynesian model, budget defecits have no affect on the economy. why?
budget defecits effect interest rates (loanable funds model) and effects are assumed away.
the level attained by a perfectly competitive market
a benevolent social planner cannot increase total surplus above
How does the government expand Monetary Base?
The fed buys bonds, which is called expansionary
If banks hold all money in reserves
Banks do not influence the supply of money.

You should decide to study an extra hour tonight

A) if the marginal cost of studying an extra hour exceeds its marginal benefitB) if the marginal benefit of studying an extra hour exceeds its marginal costC) if you got a lower than expected grade on
B) if the marginal benefit of studying an extra hour exceeds its marginal cost
. If one point on the graph is (80 bil, 40 bil) and a second point is (84 bil, 42 bil), what is the marginal propensity to consume (MPC)?
MPC/Slope:(y2-y1)/(X2-X1) (42-40)/(84-80)::1/2
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