Macroeconomics Midterm 3 Flashcards

Terms Definitions
See workbook
see workbook
imports are

savings and taxes
Output per unit of Input
the pleasure, happiness, or satisfaction obtained from consuming a good or service
Prices are __________ to money supply.
GDP deflator
-constructed using market basket consisting of all goods produced inside out borders, making it a larger market basket than that used for CPI-used to convert nominal GDP into real GDP
The Full Employment and Balanced Growth Act of 1978 set the target unemployment rate for the UnitedStates economy at 4 percent.a. Trueb. False
Mexico can produce vine-ripened tomatoes at a lower opportunity cost than firms in the United States. Through negotiations the United States lifted quotas limiting the import of tomatoes from Mexico. Some firms in Florida, in the face of this new competit
Structural unemployment
organization that employs resources to produce goods/services for profit and operates one or more plants
Government spending and taxation policy to achieve macroeconomic goals of full employment without inflation
Fiscal Policy
the allocation of products and resources among people
economists who emphasize the role that the supply of money plays in determining nominal income and inflation
Unemployment Insurance
A government program that partially protects workers incomes when they become unemployed, 50% of wages for 26 weeks.
Specialization of Labour
The specialization of individual workers in the production of particular goods or services
Nominal Income
The current-dollar amount of a person's income.
Seasonal Unemployment
Unemployment caused by annual changes in the weather or other conditions that prevail at certain times of the year
Chapter 1

Use a budget line to illustrate trade-off in opportunity costs
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
saving function
The relationship between total saving and disposable income.
• The time interval between deciding on an appropriate policy and the execution of that policy.
Administrative lag
the study of how economic activities at all levels create a national (and global) economic environment
a financial instrument that, in return for the loan of funds, commits its seller to pay a fixed amount every year (called the coupon amount), as well as to repay the amount of principal (called the bond's face value) on a particular date in the future (ca
an international agency charged with promoting economic development, through loans and other programs
World Bank
to ship commodities to another country for sale, exchange, etc.
finished goods
is consumed by the end user. intermediate goods are used to produce final goods
occurs when there is an increase in purchasing power relative to another currency
scientific method
A systematic set of procedures through which knowledge is created
Social Science
the scientific study of human society and social relationships. (Economics and politics.)
natural rate of unemployment
Includes frictional and structural unemployment, but not cyclical unemployment.
Blue Collar Worker
Industrial or factory worker who received a wage rather than a salary
Normative Statements
Claims that attempt to prescribe how the world should be
statement of assets and claims on assets that summarizes the financial position of the bank at a certain time
balance sheet
resource market
the place where resources or the services of resource suppliers are bought and sold
investment that is independent of the level of income
Autonomous investment
marginal cost
the increase in total cost that results from carrying out one additional unit of an activity
in the BOP account, the national account that tracks inflows and outflows arising from international trade, earnings, and transfers
current account
loose or expansionary monetary plicy intended to counteract recessionary tendencies in the economy 11
accommodating monetary policy
in contrast to an accounting identity, a behavioral equation reflects a theory about the behavior of one or more economic agents or sectors. The variables in the equation may or may not be observable.
behavioral equation
aggregate demand curve
the domestic product demanded at each price level
equilibrium interest rate
-determined by money supply and money demand
financial system
is the system of financial markets and financial intermediaries through which firms acquire funds from households to make investments
real interest rate
the interest rate expressed in dollars of constant value(forinflation) and equal to the nominal interest rate less the expected rate of inflations
economic desicion rule
if the marginal benefits of doing something exceed the marginal costs, do it. if the marginal costs of doing something exceed the marginal benefits, dont do it
When a bank makes a loan, the money supply:
Unit of Account?
A tool for measuring the relative worth of a wide variety of G+S+Resources
d: expenditure multiplier
the amount by which equilibrium real GDP changes as a result of one dollar change in autonomous consumption, investment spending, government purchases, or net exports
Aggregate Income
The sume of all income earned by resource suppliers in an economy during a given period
For modeling purposes, a level of output that is assumed to correspond to a case of no excessive or burdensome unempoyment, but the likely existence of at least some transitory unemployment
"full-employment output" (Y*)
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
a law preventing the import or export of goods or services
trade ban
the sector including all entities concerned with producing goods and services for profitable sale. It also includes business serving nonprofit organizations and government enterprises.
business sector (BEA definition)
Federal Funds Rate
The rate banks charge each other for overnight loans.
The rate falls when the Fed buys Treasury securities (loosens money supply), and rises when Treasury securities are sold (tightens money supply).
Money supply is loosened if recession is expected and tightened to ward off inflation.
Commodity Money (cons) (3)
1. Value of resources is not stable 
2. Resources could be put to better use
3. Limits the amount of money that can be printed
Execution Lag
The time that it takes to put policies in place after a decision has been made
Human capital
are the skills a worker has as a result of education, training, or experience that can be used in production.
Comparative Advantage
The ability to produce a good at a lower opportunity cost than another producer.
freedom of choice
enables owners to employ or dispose of their property and money as they see fit
Real Gross Domestic Product (Real GDP)
The economy's aggregate output measured in dollars of constant purchasing power
when interst rates are so low that the central bank finds it impossible to reduce them further
liquidity trap
a measure of the responsiveness of quantity supplied to changes in price
price elasticity of supply
the use of monetary policy tools to increase the money supply, lower interest rates, and stimulate a higher lvevel of economic activity
expansionary monetary policy
crowding out effect is large if
supply of capital is interest inelastic if policy is perceived as irresponsible
Individualism and Self Interest

(A primary driving force of Capitalism)
Try to maximize ______ or minimize _______
Try to get _________ for product or ________for rent if you own property
Want to get highest______as a laborer
Try to get _________ as
Try to maximize profit or minimize losses
Try to get highest price for product or highest price for rent if you own property
Want to get highest income as a laborer
try to get lowest price as a consumer
As a business, maximize the utility of a product
Our second model: the production possibilities frontier
-this model shows all possible production combinations (ex: computers, cars)
-outcome efficient if economy is getting all it can from scarce resources available (points ON frontier)
-trade-offs: only way to produce more of one is to produce less of the other (ex: opportunity cost of each car is 2 computers- slope of frontier)
-higher slope = higher opportunity cost
-can change over time (technological advance) -> economic growth (production moves to new frontier)
d: loanable funds market
the market in which savers make their funds available to borrowers
Whats is relative price?
price of one good compared to other goods
Compare and contrast the president’s proposed budget deficit, the actual budget deficit, and the structural deficit.
-proposed budget deficit is made in February and is based on estimates by Office of Manpower and budgeted for federal tax revenues-actual budget deficits are made at the end of September, fiscal year, and is authored by Congress for tax legislation, spending appropriation, economic conditions, and the behavior of taxpayers-structural deficits are based on full employment, and are lower during expansion and higher during recession
increasing the stock of capital while holding the labor force constant will...
increase output at a decreasing rate
what does autonomous consumption spending tell us
how much we would spend if the disposable income were zero
a person who is not employed, but who is actively seeking a job and who is immediately available for work
unemployed person (BLS definition)
what would cause in increase in aggregate demand in the short run
an increase in the supply of money
In the short-run macro model, an open-market purchase of bonds by the Fed will
lower the interest rate, increase spending, and increase output
In the short-run macro model, an open-market purchase of bonds by the Fed will
a. raise the interest rate, reduce spending, and increase output
b. raise the interest rate, reduce spending, and decrease output
c. lower the interest rate, reduce spending, and decrease output
d. lower the interest rate, increase spending, and decrease output
e. lower the interest rate, increase spending, and increase output
Why must exports be included in GDP?
they are goods produced in the economy so they increase economic activity
the per capita incomes of countries in the quartile with the most economic freedom were
8 times those of the quartile of countries with the leas economic freedom
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