Macroeconomics Vocab Flashcards

Terms Definitions
Merchandise Balance
gross investment
total investment expenditures
the results of production
Expansionary Fiscal Policy
Increases aggregate demand
1960s: Vietnam
increase in defense spending
widely accepted means of payment1. currency-paper bills and coins2. total reserves held by the banks at the Fed3. Checkable deposits- your checking or debit accont
4. Savings deposits, money mkt mutual funds and small-time deposits
crowding out
-classical argument that indicates that expansionary fiscal policy will not work well
Components of GDP
consumption, investment, government purchases, net exports
Describe the characteristics of the aggregate demand curve

Chapter 12
fiscal policies worsen rather than correct recession or inflation
Goods and services sold to international buyers.
transfers of goods or services
in-kind transfers
structure of economic activity in an organization
keynes economics
government can interfere, don't want unemployment
Unemployment Rate
Unemployment expressed as a percentage of the labour force, denoted U.
Gross domestic product (GDP) isa. the total value of all goods and services produced for the marketplace during a givenperiod, within a nation's bordersb. the total value of all final goods and services produced for the marketplace during a givenperiod, b
marginal benefit
the additional benefit above what you've already derived
Illustrate how raising or lowering the discount rate can increase or decrease the money supply

Chapter 16
The amount someone can produce w/ certian resources
d: net taxes
total government revenue minus government transfer payments

t= total tax revenue- transfers
Household purchases of final goods and services except for new residences, which count as investments
raising an exchange rate within a fixed exhange rate system
a procedure in which values are assigned for some category of products, usually using values of related products or inputs
an economy with a foreign sector
open economy
Budget Deficit
A shortfall of tax revenue from government spending
inflation reduces economic efficiency through all of the following channels
-distorting incentives through interaction with the tax laws-obscuring information transmitted by prices-inducing people to minimize cash holdings-interfering with long term planning
equilibrium price
known as market clearing price. number of units buyers wish to purchase equals number of units sellers wish to sell
Exchange Rate
The number of units of domestic currency required to purchase one unit of foreign currency
Rational-expectations hypothesis
Decisions are made by weighing all possible evidence including current and future economic situations.
the market value of all final goods and services produced within a country in a given period of time.
Suppose total deposits in the First Bank of Commerce are $100,000 and required reserves are $10,000. based on this information, the required reserve ratio is:
0.10 (10000/100000)
enables people to transfer purchasing power from the present to the future
store of value
final goods
Goods and services destined for the ultimate user.
A subset of economics that analyzes the way the economy actually operates
Positive economies
Crowding-Out effect?
Large Public Debt results in higher real interest rates and reduced private investment spending
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
a situation of rest, in which there are no forces that create change
analysis that does not take into account the passage of time
static analysis
a resource is scarce when there's not enough of the resource available to satisfy all the various ways a society wants to use it
Reserve ratio
The fraction of bank deposits that a bank holds as reserves.
Fed wants to decrease economic growth rate
increase reserve requirements
government purchases
1) 3rd largest spender in the US economy at appx 19%2) purchases: health care, defense, roads, edu, etc
A large # of buyers and sellers are present for every product
equilibrium quantity
the amount bought and sold at the equilibrium price
Keep an example of the effect of the multiplier on any increase in aggregate demand

Chapter 12
medium of exchange
usable for buying and selling goods and services
d: fiscal policy
change in government purchases or net taxes designed to change total output
The value of exports minus the value of imports.
net exports
a restriction on the quantity of a good that can be imported or exported
trade quota
the interest rate that banks charge their most trusted commercial borrowers
prime bank rate
committing to letting the money supply grow at a fixed percentage rate per year
money supply rule
a measure of inequality, based on the Lorenz curve, that goes from 0 (perfect equality) up to 1 (complete inequality)
Gini ratio
The Vietnam War Era
Temporary tax implements were set to slow the overheating economy. Tax was not very effective because consumers went about spending as they did after the taxation took place. Did not change their spending habits.
if supply is inelastic
the quantity supplied is not very sensitive to changes in price
net exports equals
1) NX=X-M2) x is exports3) m is imports
real gdp vs. nominal gdp
real controls price change, while nominal gdp doesn't
Which of the following is LEAST likely to increase potential output?
Increased aggregate demand.
conditions that Make the Fed’s Conventional Monetary Policy Less Effective
Changing interest rate spreads
The zero lower bound
Financial crises
market equilibrium
occurs in a market when all buyers and sellers are satisfied with their respective quantities at t he market price
a physical place where there is a reasonable expectation of finding both buyers and sellers for the same product or service
market (first meaning)
a phrase that people often use to mean an abstract situation of pure exchange or a global system of exchange relationships
"the market"
a shift of the demand curve in response to some determinant other than the item's price
change in demand
purchasing power parity (PPP) method
calculate the cost of purchasing a specific bundle of goods and services in each country and uses this measure to conver he incomes of different countres to a common currency so that they may be more accurately compared
The movement from line A to line A' represents a change in
the intcept only
how is unemployment measured?
the BLS conducts a random survey of 60,000 people
ways to increase physical capital
1) decrease in the budget deificit would lower IR and allow for more people to borrow money for college
2) income tax reductions
the impact of a change in a lump sum tax on economic equilibrium, expressed mathematically as (change in Y) / (change in absolute value of T) = -(mult)(mpc)(10)
tax multiplier
If L3 is big...
elastic, flat MD and LM curve. takes small change in r to get to equilibrium.
unemployment in some industries can often be reduced through tariff protection, but by the same token infficiency typically increases
this is because when imports raise the price then there is a greater demand for US goods; thus demanding for more laborers. This shift in domestic employment ususally means less workers in export industries and more in domestic industries. this shift implies a less efficient use of resources in export companies or ineffient in the domestic country because resources are inifinially allocated.
how does the government make investment spending more profitable for firms (increase the demand for loanable funds, increase planned investment)
1) reduce the corporate profits tax
2) elimination of investment tax credit (subsidizes corporate investment)
3) decrease the budget deficit would increase planned investment
a system in which exchange rates are determined by the forces of supply and demand
flexible (floating) exchange rate system
What are the three primary measures that we use to judge macroeconomic performance?
1. GDP growth rate2. Inflation rate on CPI or PCE3. Unemployment rate
Three things that limit the measure of GDP
1. Some productio not counted
2. Underground Economy
3. Quality, Variety
If specific time (like 'per week' is not stated?
Cannot tell whether demand for product is large or small
What are the two roles of the Federal Reserve?
1- to regulate the banking system
2- control monetary
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