Macroeconomics 5 Flashcards

Terms Definitions
Profit Maximization
Calculating Opportunity Cost
Rise/Run=opp cost
the results of production
C=autonomous spending + MPCy
yeah nigga
EPR formula
total employment / population
Circular Flow Model
householdsfirmsgovernmentrest of the world
Only production that takes place within a country’s border
The current level of an activity
Chapter 7
List three types of expenditures included in personal consumption (C)
What are the 4 resource payments?
friedman and phels concluded that plicy makers do face a tradeoff btw inflation and unemployment but only a temporary one
-if policy makers use this tradeoff they loose it
a market for immediate delivery
spot market
The Government
Collect Taxes, supply G/S, Promote economic stability, enforce rulesSeven Responsibilities: 1. establish rules of the game2. promote competition3. regulate monopolies4. providing public goods5. externalities6. distribute income7. tax
opportunity cost
the value of the opportunities lost
Capital Stock
The aggregate quantity of capital goods.
Output per person rises whena. the population increases faster than real GDPb. the standard of living decreasesc. real GDP increases at the same rate as the populationd. real GDP rises slower than the populatione. real GDP rises faster than the population
net private investment
gross private domestic investment minus depreciation
Explain the meaning of a recessionary gap and calculate one when you're provided with data

Chapter 11
financial instruments issued by the Federal government to borrow money to finance expenditures that exceed tax revenues
U.S. securities
Altering period of economic expansion and economic recession.
Business Cycle
Any spending other than by households or any income other than from resource earings; includes investment, gov purchses, exports, and transfer payments
the study of the economic activities and interactions of indibiduals, households, businesses, and other groups at the sub-national level
an economic theory that emphasizes policies to stimulate production, such as lower taxes. The theory predicts that such incentives stimulate greater economic effort, saving, andinvestment, thereby increasing overall economic output and tax revenues
supply-side economics
the costs of arranging economic activities
transaction costs
Cost-push inflation
Per unit production costs increase - leads to higher prices charged to consumers. Tends to be self-limiting; as input costs rise, output falls and unemployment increases. As production costs rise and output falls, the economy falls into recession and loses the ability to charge higher prices. Aggregate demand shifts to the left creating a new (lower) market equilibrium.
Trade Policy
Import quotas increase the demand for dollars.
movement down the supply curve
decrease in quantity supplied
GDP Deflator
Takes into account both Nominal and Real GDP.(Nominal GDP/Real GDP) * 100
Crisis of 2008
1. Increase in mortgages loans extended.2. Commercial and investment banks had low reserves compared to mortgage holdings.3. Expansionary Monetary Policy: Interest Rates were too low.
Calculating CPI
fix the basket, find the prices, compute the basket's cost, chose a base year and compute the index, compute the inflation rate,
art of economics
the application of the knowlege learned in positive economics to the achievement of the goals one has determined in normative economics
Suppliers will supply more of a good when the price of that good rises because the opportunity cost of not producing that good has risen. T/F?
measures what the Federal budget or surplus would have been under existing tax rates and government spending levels if the economy had achieved its full-employment level of GDP (potential output); economists use this to adjust actual Federal budget defici
standardized budget
real GDP
GDP after being corrected for changes in the price system. Example: 3.2 billion in 1996 dollars
When banks create money, they
do not create wealth
intermediate goods
goods and services that are purchased for resale or for further processing or manufacturing
the change over time from a combination of high birth and death rates to a combination of low b irth and death rates
demographic transition
reductions in government spending or transfer payments, or increases in taxes, leading to a lower level of economic activity
contradctionary fiscal policy
the essential inputs for economic activity, including labor, capital, and natural resources
factors of production
key to a much better standard of living in wich people divide tasks among themselves and each person provides a good or service that other people want in return for different goods and services that he or she wants
Derive the four sector spending multiplier
Spending Multiplier is 2.78Consumption=0.63yInvestment=0.15yGovernment=0Exports=0Imports=N=0.14ychange=dincome=yFinal change in income=DyAutonomous change in income=Dady=da+dC+dI-dNdy=da+0.63dy+0.15dy-0.14dydy=da+0.64dy0.36dy=dady=2.78da
unemployment significant issue
on business cycle- at lowest point where limited growth or even a decrease in real GDP occurs. economy is producing reduced amount of output
where are prices collected
1) 87 metropolitan area2) 23,000 stores3) 50,000 landlords
Phillips curve
a curve that shows the short run tradeoff between inflation and unemployment
Production possibilities analysis
implies that an individual nation is limited ot the combinations of poutput indicated by the production possibilities curve
Why Economists Disagree: perception vs. reality (2/3)
Propositions about which most Economists agree:
5. US should not restrict employers from outsourcing work to foreign countries
6. US should eliminate agricultural subsidies
7. Local/state gov'ts should eliminate subsidies to professional sports franchises
8. If fed budget to be balanced, should be done over business cycle rather than yearly
9. Gap between social security funds and expenditures will become unsustainably large within next 50 years if current policies remain unchanged
Four Fundamental Questions?
What G+S will be produced?
How will they be produced?
Who will buy them?
How will the system used accomadate for changes in consumer tastes, resource supplies, and technology?
how to remember injections
"governments plan to invest in injections that can cure diseases"

government spending and planned investments are injections that are added to the economy
CPI = ?
(price of the most recent market basket of a particular year) / (price of the same market basket in a previous year[s]) x 100
the school that focused on the effects of monetary policy, and argued that governments should aim for steadiness in the money supply rather than play an active role
monetarist economics
the convention that says that an activity should be considered to be production if a person could buy a market replacement or pay someone to do the activity in his or her place
third person criterion
the interest rate that banks charge their most trusted commercial borrowers
prime bank rate
an index that measures production in one year relative to an adjacent year by using an average of the ratios that would be found by using first one year, and then the other, as the source of prices at which production is valued
Fisher quantity index
open market operations
the purchase or sale of US govt. securities by the Fed
according to theminiser of nigria
conditions with respect to goverance, public sector financial managmnt, monetary stability and economic gowth are improving rapidly
Stocks vs. Bonds risks
Stocks offer higher risks and higher rates of return, due to the fact that a stock's compensation depends on the wellbeing of the corporation.Bond holders also get paid before stock holders, due to their status as creditors.
medium of exchange
when money is accepted as payment for a good or service
Define: production possibilities frontier
graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
whats a household's quantity demanded for money
household’s quantity of money demanded is the amount of wealth that the household chooses to hold as money rather than other assets
Monetarists + Government =?
DO NOT MIX. Government influences are responsible for fluctuations in market price/output
an index measuring changes in prices of goods and services bought by households
consumer price index (CPI)
the level of output an economy would produce if every resource in the economy were fully utilized
maximum capacity output
in the United States, the government agency that compiles and publishes employment and unemployment statistics
Bureau of Labor Statistics
why do low income conutries remain poor
their institutional arrangement and policies discourage productive activity and reduce th potiential gains from specialzaion and exchang
What does the government use in reporting changes in "real wages" in the economy?
the buying power of wages
durable goods have a life of how long?
3 or more years
where do funds for research come from
loanable funds market (planned investment)
a tax which collects a larger share of the income from those most able to pay
progressive income tax
non interventionists say 3 things will happen with monetary policy
1. international capital flow will flow out (higher rates)2. Trade Balance (dollar is weakened)3. Potential for inflation
Federal Reserve Bank (Fed) aka U.S. central bank
the U.S. central bank whose liabilities (Federal Reserve notes) serve as cash in the United States;the bank that has the right to issue notes (IOUs)
what is the most straightforward way to measure living standards
real gross domestic product per capita
the agency in the United States in charge of compiling and publishing the national accounts
Bureau of Economic Analysis (BEA)
Where does the supply of $ come from?
Americans wishing to buy foreign financial assets must exchange their $ for foreign currency
the higher the interest rate available . . .
the less money people will
want to hold
how does the economy respond to demand shocks?
by changing output, because prices are inflexible, or "sticky"
If the hourly wages of German workers is $6, the hourly wage of Canadian workers is $10, and German workers produce half has much output per hour as Canadian workers, all else equal it would be efficient to locate production facilities in:
Canada, since the cost per unit of output would be lower.
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