Chapters 17-26 Flashcards
(102 cards)
1
Q
What is included in microeconomics?
A
Firms, households, a single market
2
Q
What is included in macroeconomics?
A
Big level economics, unemployment, inflation
3
Q
When is a tax considered efficient?
A
When deadweight loss is less than tax revenue
4
Q
What does the Gaffer curve show?
A
The optimal tax level
5
Q
What is a progressive tax rate?
A
Marginal tax rate>average tax rate
6
Q
What is a regressive tax rate?
A
Marginal tax rate<average tax rate
7
Q
What are the principles for taxes?
A
A goal of economic efficiency, ability to pay, horizontal equity, benefits received principle
8
Q
When is a tax considered economically efficient?
A
When dwl<tax revenue
9
Q
What is horizontal equity?
A
People in the same economic situation should be treated the same
10
Q
What is the benefits received principle?
A
Since taxes are for obtaining social objectives, you should only pay for what you’re going to use
11
Q
What does GDP measure?
A
All final goods and services bought at market value within a country in a period of time (usually a year)
12
Q
Why does comparing nominal GDP work across different years?
A
Inflation
13
Q
What is the biggest component of GDP?
A
Consumption
14
Q
Who contributes to consumption in the economy?
A
Households
15
Q
What is a nondurable good?
A
Cheaper goods consumers buy that typically don’t last longer than two years
16
Q
What is a durable good?
A
Goods that are typically more expensive/need to be financed that last longer than two years
17
Q
Who contributes to investment in the economy?
A
Firms
18
Q
Why do firms invest?
A
To grow their business or increase their inventory
19
Q
What are the phases of the business cycle?
A
Recession and expansion
20
Q
Who measures GDP?
A
The national bureau of economic research
21
Q
Does government spending include transfer payments?
A
No
22
Q
How do you calculate net exports?
A
Exports-imports
23
Q
What is the formula for GDP?
A
GDP=C+I+G+NX
24
Q
What are some things that are not included when calculating GDP, but affect wellbeing?
A
Household production, the underground economy, the value of leisure, pollution, crime/social problems, and distribution of income
25
Why is household production important to consider when considering wellbeing?
If a household does not hire a nanny, for example, they are contributing what would be that nanny's wage, without being paid, so not being in GDP altogether
26
What is the formula for nominal GDP?
Q(current) x P(current)
27
What is the formula for real GDP?
Q(current) x P(base)
28
What is the formula for GDP deflator?
Nominal GDP/Real GDP (x100 to make a percentage)
29
What is inflation?
When average price levels go up
30
What is deflation?
When average price levels are going down
31
What is the weakness of using GDP deflator to measure inflation?
It doesn't account for different goods
32
What is potential GDP?
The capacity GDP at full employment
33
What is considered full employment?
4% unemployment rate
34
What happens during a recession?
Real GDP
35
What happens during expansion?
Real GDP>Potential GDP, unemployment goes down, inflation goes up
36
What is the CPI?
A measure of inflation that finds the prices of the typical basket of goods for an urban family of four
37
What is the formula for CPI?
Current year expenditures/base year expenditures
38
What are some ways measuring CPI is flawed?
Substitution bias, increase in quality bias, new product bias, outlet bias
39
What is substitution bias?
If buying habits of consumers change, the basket of goods does not change to reflect that
40
What is outlet bias?
The prices changing depending one where you buy from
41
What is frictional unemployment?
You have skills and there are jobs, but you don't want that job, want a different offer, etc.
42
What is structural unemployment?
Your skills don't match jobs on the market
43
What is cyclical unemployment?
You don't have a job because of the cycles of the economy
44
What is considered the working age population?
The number of people above 16
45
What is the labor force made up of?
The employed and the unemployed
46
What is the unemployment rate?
unemployed/labor force (x100 to make a percentage)
47
What are some reasons working age people may not be in the labor force?
They are not available for work (retirees, full time students, people in jail, those in armed forces) or they are available for work, but not looking (discouraged workers or can't afford to work)
48
How can unemployment numbers be skewed?
They rely on self-reporting
49
What is the formula for labor force participation?
labor force/working age population (x100 to make a percentage)
50
What is the formula for employment-population ratio?
employed/working age population (x100 to make a percentage)
51
What is the formula for real GDP per capita?
% change in real GDP/capita
52
What is the rule of 70 for doubling rate?
70/growth rate = number of years it takes for GDP/capita to double
53
Where does economic growth come from?
Capital, technological change, property rights
54
What is the formula for private savings?
S(private)=Y-T+TR-C
55
What is the formula for public savings?
S(public)=T-TR-G
56
What is it called when S(public)=0?
A balanced budget
57
What is it called when S(public)<0?
A budget deficit
58
What is it called when S(public)>0?
A budget surplus
59
What is the formula for firms investments?
I=Y-C-G or I=S(private) + S(public)
60
What is the multiplier effect?
How many times over the change in expenditure will real GDP change
61
What is the formula for aggregate expenditure?
AE=C+I+G+NX
62
What is the difference between GDP and AE?
AE is what is planned, while GDP is what actually is
63
What does Y-AE equal to?
The unplanned change in inventory
64
What period of the business cycle is it when Y
Expansion
65
What period of the business cycle is it when Y>AE?
Recession
66
What is it called when a change in AE is independent of GDP?
Autonomous expenditure
67
What is multiplier effect equal to?
change in y/change in autonomous expenditure
68
What is national income?
Disposable income +taxes
69
What is the formula for consumer income?
Y=C+S+T
70
What is the formula for multiplier effect?
1/1-MPC or 1/MPS
71
Are economies with more savers (higher MPS) or spenders (higher MPC) better for the economy?
Spenders are better in the short run while savers are better in the long run
72
What is it called when AD=SRAS?
A short run equilibrium, where real GDP and price level are
73
What is aggregate demand?
The relationship between price level and real GDP demanded by households/government
74
What is short run aggregate supply?
The relationship in the short run between price level and real GDP supplied by firms
75
What is the long run macroeconomic equilibrium?
LRAS=AD=SRAS
76
What is the part of the business cycle when real GDP is less than LRAS?
Recession
77
What is the part of the business cycle when real GDP is greater than LRAS?
Expansion
78
What can shift AD?
Interest rates change (up, AD down), government spending and taxes (G up, T down, AD up), expectations of future profits by firms (up, AD up), household expectations of future income (up, AD up), US GDP growth > foreign country GDP growth or foreign currency exchange(imports up> exports up, NX down, AD down)
79
What can shift AS?
LRAS/SRAS: labor force (up, AS up), capital stock (up, AS up), productivity (up, AS up) SRAS only: expected future price level (up, SRAS down, adjusting to underestimation of price (up, AS down), P predicted %< P actual % (AS down)
80
What does a supply shock lead to?
Stagflation
81
What is stagflation?
A recession with an increase in price level
82
What happens to SRAS and AD in a recession?
AD decreases, leaving a short run equilibrium below the long run equilibrium, SRAS decreases because firms are slow to react, and GDP can only increase in certain ways(LRAS), until LR equilibrium is reached again
83
What is M1?
The narrowest definition of money supply: sum of currency in circulation, checking account deposits, and the holdings of traveler checks
84
What is M2?
A broader definition of money supply: includes M1, as well as savings accounts, small-denomination time deposits, balances in money market deposit accounts, and non-institutional money market fund shares
85
What are reserves?
Deposits a bank keeps as cash in its vault or on deposit with the federal reserve
86
Do reserves cover all of a bank's deposits?
No
87
What is required reserve ratio?
The amount of money commercial banks have to keep with the federal reserve (currently about 20%)
88
What happens to money supply when banks gain reserves?
The banks can make new loans, so money supply increases
89
What happens to money supply when banks lose reserves?
The banks reduce loans, so the money supply goes down
90
What happens when depositors lose confidence in their bank, and try to withdraw all their money at once, greater than the amount in reserve?
A bank run
91
What happens when many banks go through bank runs?
A bank panic
92
Why is the federal bank sometimes called the lender of last resort?
They can be the last option a bank has to prevent a bank run/panic
93
What is open market operations?
When the feds buy and sell treasury securities to control the money supply, if they want money supply to increase, they buy securities, and the other way around
94
What is discount policy?
When the feds change the discount rate (the interest rate for banks to borrow from the feds). If discount rate goes down, borrowing increases, and money supply goes up)
95
What is the effect of a change in reserve requirements?
Reserve ratio goes down, loans increase, money supply increases
96
What is hyperinflation?
When inflation rates exceed 100%, usually caused by central banks increasing money supply beyond the growth rate of real GDP
97
What is monetary policy?
The actions the fed takes to manage money supply and interest rates to pursue macroeconomic policy goals
98
What are the goals of the fed?
Price stability, high employment, stability of financial markets and institutions, and stable economic growth
99
What is the federal funds rate?
The interest rate the banks charge each other for overnight loans
100
How does the fed affect federal funds rate?
By affecting the supply of bank reserves through open market operations (more money in economy, higher supply of loans, lower interest rates)
101
Can the fed completely offset recessions?
Obviously no, but they can hope to make recessions milder and shorter
102
What happens when monetary policy is poorly timed?
It can create an even more severe recession
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