macroeconomics Exam Vocab and Flashcards

Terms Definitions
Consumption Function
scarcity
objectivecannot be eliminatedless goods or resources than people would likeeven if there are large amounts produced there is not as much avilable in nature as people would want
Inflation
Economy's average price level increase
Money Economy
Trade money for stuff
Unions
Workers' associations that bargain with employers over wages, benefits
and working conditions
Stagflation
Inflation and falling aggregate output – negative supply shock.
Government Purchases
All government expenditure on currently produced goods and services, exclusive of government transfer payments. Represented by the symbol G.
Frictional Unemployment
Unemployment caused by workers changing jobs or waiting to go to new ones.
Chapter 5

show the gains from specialization and trade in an example
Finish
"Rational self-interest is the same as selfishness."
A) False
B) True
A) False
Religion
current
both beliefs and actions towards supernatural beings and forces
when the aggregate price level falls
deflation
commodity money
consists of goods possessing value aside from their role as money
fiscal policy tools
-changes in taxation-changes in government spending
economic growth
1) sustainable increase in productive capacity2) results from an increase in AS, and commonly we see a corresponding increase in AD due to new income and expectation changes
efficiency
the property of society getting the most it can from its scarce resources
protective tarrif
designed to shield domestic producers from foreign competition. although protective tariffs are usually not high enough to stop the importation of foreign goods, they put foreign producers at a competitive disadvantage in selling in domestic markets
Chapter 3

Graph the demand curve when you're given a demand schedule
Finish
M2
a more broadly defined money supply, equal to M1 plus non-checkable savings accounts, small time deposits, and individual money market mutual fund balances
Terms:

Job Leavers
someone who voluntarily quits a job
After tax income of households; personal income less personal taxes
disposable income
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
observation and recording of the specific phenomena of concern
empirical investigation
selling products at prices that are below the cost of production
dumping
Automatic Stablizers
taxes and transfer payments that help stabilize GDP without explicitly action taken by policymakers
Non-Diversifiable Risk
Risk that cannot be reduced by diversification
intermediate goods
essentially raw materials that will be used by a business in the production of another good
Rational Expectations
The theory that people understand how the economy works and learn quickly from their mistakes so that even though random errors may be made, systematic and persistent errors are not
Structural unemployment
Caused by worker whose skills aren't in demand by employers 
Skills aren't good enough to be hired
Can't move to where jobs are available
Law
A theory that has been subjected to even more testing and that has won virtually universal acceptance
Generalization
at any point in time, an econoimy achieving full employment and productive efficiency must sacrifice some of one good to obtain more of another good. Scarce resources prohibit such an economy from having more of both goods.
Explain how changes in the normal GDP and in the money supply affect the interest rate


Chapter 16
Finish
"invisible hand"?
The tendancy of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society.
• Typically, M1 money. The supply of currency, demand deposits, and traveler’s checks used in transactions.
Money supply
Crowding out
a decrease in investment that results from government borrowing.
a Latin phrase meaning "other things equal" or "all else constant"
ceteris paribus
a measure of the money supplyequal to currency, checkable deposits, and travelers checks
M1
a rise in the general level of prices
inflation
Recent Developments
- More control of banks and thrifts- Globalization of financial markets- Electronic Transactions
demand deficient unemployment
not enough jobs for all actively seeking employment. unhealthy economy
real balance effect
as price increase, purchasing power of cash and deposits held by consumers decreases causing them to purchase fewer goods and services
net exports (EX- IM)
The difference between exports (sales to foreigners of U.S. produced goods and services) and imports ( U.S. purchases of goods services from abroad) the figure can be positive or negative.
open market operations
the purchase and sales of US government bonds by the Fed
C = Cbar + c(Y + TRbar - TA)
Consumption
Classical economists believed that ...
a) the economy was naturally self regulating
b) falling wages could reduce high unemployment
c) flexible interest rates would equalize savings and investment
d) all of the above
d) all of the above
cyclical asymmetry
the ides that monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession
Terms:

Working-age Population
total number of people 16+ years and not institutionalized
buyers reservation price
the largest dollar amount the buyer would be wiling to pay for a good
a law preventing the import or export of goods or services
trade ban
the percentage of the labor force made up of people who do not have paid jobs, but who are immediately available and activelylooking for paying jobs
unemployment rate
the relationship between two variables if an increase in one is associated with a decrease in the other
negative (or inverse) relationship
the theory that an employer can motivate owrkers to put forth more effort by paying them somewhat more than what they could get elsewhere
efficiency wage theory
expectations of inflation
the belief held by the public about the likely path of inflation in the future
long run aggregate supply
-amount of all final goods and services that producers want to sell at various price levels after they have had enough time to adjust to a change in prices-resource prices change-vertical slope
net taxes (T)
taxes paid by firms and households to the government minus transfer payments made to the households by the government
movement along a demand curve
the graphical representation of the effect of a change in price on the quantity demanded
rationing function of prices
The ability of market forces in competitive markets to equalize quantity demanded and quantity supplied to eliminate shortages and surpluses via changes in prices.
Payments by the government to individuals for which the government does not receive a new good or service in return.
Transfer payments

- Included Social Security.
- Are not included in GDP.
explain a common expansionary fiscal policy
boost output, increase interest rates,
"crowd out" Private Investment.
(less capitol investment)
a system in which the overall quality and quantity of the resource base required for sustaining life and well-being do not erode
sustainable socioeconomic system
the number of times a dollar would have to change hands during a year to support nominal GDP
velocity of money
impact on equilibrium price and quantity is demand decreases
both price and quantity will decrease
principle of diminishing returns
as on input increases while the other inputs are held fixed, output increases at a decreasing rate
What are examples of land-intensive goods?
Wheat, wool, meat (Need suitable environment for optimal preparation)
What is the price ceiling?
The maximum amount that they can charge by the government.
the process of creating an environment that expands people's choices, allowing people to devlop their full potential and lead productive, creative lives in accord withtheir needs and interests
human development (United Nations Development Program)
to close the inflationary gap, the fed can...
1)increase the required reserve ratio2) increase the federal funds rate3) sell US bonds
What is Present Value of future income?
income discounted at the current interest
Congress created the Federal Deposit Insurance Corporation to
reimburse those who lose their bank deposits
when can GDP too high a measure
1) bads are counted too2) ecological costs included in prices and not netted out
Frictional unemployment is a result of:
People quitting a job just long enough to look for and find another one.
a set of statistics compiled by the BEA concerning production, income, spending, prices and employment
National Income and Products Accounts (NIPA)
how does the fed control the money supply
by using tools that control the interest rate
during normal times, risks are perceived as stable so the spread is somewhat constant, so the Fed can change ...
the Fed funds rate and see a change on the interest rates of long term loans
National Saving (Equation)
S=Y-C-G-T+T
S=(Y-C-T)+(T-G)
Fed notes
money, Fed's IOUs
Phillips Curve
-expresses relationship between inflation and unemployment -shows consistent inverse realtionship between inflation and unemployment
Chapter 7
Describe the relationship between expenditures and income approaches to GDP accounting
Finish
total government expenditures including spending on goods and services and transfer payments
government outlays
price floor
minimum price allowed by law
Escalator Clauses
Agreement that automatically adjusts money wage rates as price level rises.
Business Cycle
The short-run alternation between recessions and expansions.
Chapter 1

Use marginal analysis to define optimum allocation
Finish
The bottom of a business cycle
Trough
refraining from consuming in the current period
saving
CoIncident Economic Indicators
Number of nonfarm employees
Personal Income minus transfer payments
Level of industrial production
manufacturing and trade sales
who regulates fiscal policy
the president and congress
consumer surplus
-found below demand and above price-additional benefits obtained by buyers
Reasons for shift in supply (4)
Input prices
Technology
Taste/preferences
Number of sellers
example of bank assets
loans made to customers
Equity
The fairness of the distribution of well-being among the members of society.
Inferior Goods?
Goods whose demand varies INDIRECTLY with money income. (i.e Used clothing)
self-interest
the motivating force of the various economic units as they express their free choices
MPS is what for the savings function?
slope
Adam Smith
father of modern economics, introduced the
notion of the `invisible hand'
actions taken to increase the quantity or quality of a resource now, in order to make benefits possible inthe future
investment
resources are abundant to the extent that they exist in plentiful supply for meeting various goals 2
abundance
"animal spirits"
Bear - pessimistic - downward MEI shiftBull - optimistic - upward MEI shift
equilibrium price
the price at which the quantity demanded is equal to the quantity supplied
Scatter Diagram
A graph of statistical observations of paired values of two variables, one measured on the horizontal and the other on the vertical axis. Each point on the coordinate grid represents the values of the variables for a particular unit of observation
productivity growth
the growth rate of output per worker.
In the early 1980s, the United States experienced its most severe recession since the Great Depression. Theunemployment rate peaked at arounda. 7 percentb. 50 percentc. 11 percentd. 15 percente. 25 percent
C
As interest rates fall...
the price of bonds rises
M2
made up of M1 plus savings deposits, small-denomination time deposits, and money market mutual fund shares;the measure of money often most closely correlated with the price level and economic activity
normative economics
The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
break-even income
the income level at which households plan to consume their entire incomes
An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. (How they can be made better) **VALUE JUDGEMENTS**
Normative economics
What is productivity?
A measure of average (real) output.

Eg. Productivity of labor = (Real Output)/(Hours of Work)
a school that stresses the importance of history and uncertainty in determining macroeconomic outcomes
post-Keynesian macroeconomics
reserves that banks are required to hold by the Fed
required reserves
in the constant dollar method of estimating GDP, the year whose prices are chosen for evaluation production in all years. Real and nominal GDP are equal in the base year 5
base year
the value of what a producer sells less the value of the intermediate inputs it uses. This is equal to the incomes paid out by the producer
value-added
Comparative Advantage
producing a G/S at a lower opportunity cost
macro economics
a branch of economics that deals with performance, structure, behaviour and decision making of the entire economy.
What is one of the more volatile items of investment?
Monetary policy
Changes in the money supply, or the rate of growth of the money supply, to achieve particular macroeconomic goals.
in supply side economics, a decrease in the tax rate tends to increase the labor supply and...
increase aggregate output
What is real GDP?
production of goods and services valued at constant prices

sum of Pbase*Qcurrent
Assumes that the Fed has a 2% “target rate of inflation” that it is willing to tolerate
Taylor rule
learning by doing
firms that produce new products or pioneer new ways of doing business that experience increasing returns
aggregat expenditure line
a relationship showing, for a given price level, planned spending at each income, or real GDP; the total of C+I+G+X-M at each income or real GDP
Discuss open market ops
Fed buys/sells gov't securities to influence the federal funds rate
the number of units of one currency that can be exchanged for a unit of another currency
exchange rate
an illustration of how stocks can be changed, over time, by flows
stock-flow diagram
a medium of exhange used as money because a government says it has value, and people accept it
fiat money
the average number of deaths among a specific group
mortality rate
Identify the three Federal Reserve tools used to undertake a tight monetary policy.
Increase the required reserve ratio.
 
Increase the discount rate.
 
Sale securities in the open market.
Cross-sectional data
A set of observations made at the same time across several different units (such as households, firms or countries)
Fiscal Years
Run from October 1st to Sept. 30th and are named by the calender year in which they end
Near Money ===> Less Liquid
Us Govt. SecurtiesTime and Saving Accounts
mortgage debt crisis
the period beginning in late 2007 when thousands of homeowners defaulted on mortgage loans when they experienced a combination of higher mortgage interest rates and falling home prices
Which of the following is not another way of describing the marginal propensity to consume?
autonomous consumption spending
the rate of unemployment that would prevail in the absence of business cycles, according to some theories
"natural" rate of unemployment
when interst rates are so low that the central bank finds it impossible to reduce them further
liquidity trap
the level of output an economy would produce if every resource in the economy were fully utilized
maximum capacity output
Unit of account
A measure used to set prices and make economic calculations.
gross national product (GNP)
the total market value of all final goods and services produced within a given period by factors of production owned by a country's citizens, regardless of where the output is produced.
What is Open Market Operations?
(Fed tool)- buying and selling of gov't securities
d: conventional monetary policy
when the Fed guides the economy by controlling the fed funds rate
Gross domestic product (GDP)
the total market value of all final goods and services produced within a country in a given period of time.

Y = C + I + G + X or = C + I + G + NX
a tax which collects a larger share of the income from those most able to pay
progressive income tax
Free Entry / Free Exit
Nobody forces you to buy or not buy
 
Nobody forces you to produce or not produce
General Agreement on Tariffs and Trade (GATT)
The international agreement reached in 1947 in which 23 nations agreed to give equal and nondiscriminatory treatment to one another, to reduce tariff rates by multinational negotiations, and to eliminate import quotas. Now includes most nations and has become the WTO.
What is monetary policy?
use change in MS and r's to achieve economic goals
choice at the margin
A decision to do a little more or a little less of something
to determine how much the government should buy what formula do you use
ΔGDP = multiplier X ΔG

solve for the ΔG

example: recession of $100, the multiplier is 2.5
100= 2.5 X G
100/2.5= G
G=40
All of the following would cause an increase in the demand for private airplanes at a given price, except a(n):
 
A. Decrease in interest rates
B. Increase in consumer goods
C. Decrease in taxes on luxury goods
D. Decease in the costs of construct
D. Decrease in costs of constructing private airplanes
how can growth be shown graphically?
by a rightward shift in LAS the long run aggregate supply, or
an outward shift in the PPF, production possibility frontier.
what does the money supply line tell us
e. The Ms line tells us the amount of money that actually exists in the economy, tells us the amount of money that people are actually holding at any given moment
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