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macroeconomics > final 2.0 > Flashcards

final 2.0 Flashcards

(96 cards)

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1
Q

opportunity cost

A

what you give up to gain something. the highest benefit obtained from opportunities forgone.

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2
Q

law of demand

A

as prices increase, QD decreases.
as prices decrease, QD increases.

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3
Q

demand curve slope

A

slopes downward; as prices increase, QD decreases

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4
Q

events that shift the demand curve

A
  1. income
  2. prices of related goods
  3. taste
  4. expectations
  5. number of buyers
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5
Q

how income affects demand curve

A

normal goods & inferior goods

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6
Q

how prices of related goods affects demand curve

A

substitutes & compliments

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7
Q

law of supply

A

as prices increase, QS increases. (b/c it makes production more profitable)
as prices decrease, QS decreases.

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8
Q

supply curve slope

A

slopes upward; as prices increase, QS increases

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9
Q

events that shift supply curves

A
  1. input prices
  2. technology
  3. expectations
  4. number of sellers
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10
Q

how input affects supply curve

A

decreases in input prices, increases QS

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11
Q

how technology affects supply curve

A

new technology lowers costs so QS increases

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12
Q

GDP

A

the MARKET VALUE of all FINAL GOODS produced IN A COUNTRY in a PERIOD OF TIME

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13
Q

what is included in GDP

A

final goods, produced in a country, in a given period of time

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14
Q

what is not included in GDP

A

intermediate goods, used goods, financial transactions (stocks and bonds), illegal activities, unpaid household chores

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15
Q

market value

A

price x quantity (P x Q)

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16
Q

nominal GDP

A

CURRENT PRICES, reflects DOLLAR VALUE of all goods/services

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17
Q

real GDP

A

CONSTANT PRICES (base yr.), reflects PHYSICAL QUANTITY of all goods/services

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18
Q

real GDP calculation

A

price (base yr.) x quantity (current)

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19
Q

total spending components

A

consumption, investment, government spending, net exports
(C+I+G+NX)

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20
Q

consumption

A

total spending my household (excludes new housing)

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21
Q

investment

A

business spending on equipment, investments, and structures (includes new housing)

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22
Q

government spending

A

EXCLUDES social security, medicare, and national debt interest payments

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23
Q

net exports

A

exports minus imports

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24
Q

CPI

A

measures overall price level for goods/services bought by a typical consumer (baskets)

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25
CPI calculation
current expenditure / base expenditure
26
expenditure calculation
price x FIXED quantity
27
measurement biases
1. substitution 2. new goods 3. quality improvement/changes
28
substitution bias
ignores consumer switching to cheaper alternativies
29
new goods
increases choices
30
inflation calculation given CPI
(new CPI - old CPI) / old CPI x 100
31
delflating
converting nominal values to real values to account for inflation
32
real rate caluclation
nominal value - inflation rate
33
indexing
adjusting payments according to CPI to maintain purchasing power
34
bonds
debt instrument where the issuer (borrower) promises to pay interest and princial
35
stocks
ownership of a company, enlisting the holder to a share of profits (dividends)
36
saving
income not spent on constumption
37
saving calculation
current income - spending for current need
38
two types of saving
private and public
39
private saving
1. personal/household (life cycle, precautionary, bequest) 2. corporate (profit, retained earnings, for future investment)
40
private saving calculation
(production - tax) - consumption (Y - T) - C
41
public saving calculation
(tax revenue - gov't spending) (T - G)
42
tax revenue > gov't spending
surplus
43
tax revenue < gov't spending
defecit
44
factors affecting bond interest rate
1. credit risk 2. term to maturity 3. tax treatment 4. inflation protection
45
credit risk
higher the risk, higher the interest rate
46
term to maturity
longer-term bonds, higher the interest rate
47
tax treatment
tax-exempt (municipals), lower interest rate
48
inflation protection
prices increase, payments increase proportionally
49
measure of standard of living
real GDP per capita (per person)
50
drivers of economic growth
1. increase in working population 2. improvement of worker productivity
51
factors that enhance productivity
1. physical capital 2. human capital 3. technology 4. natural resources
52
physical capital
equipment, tools, machines, materials
53
human capital
training, skills, education
54
technology
converts inputs to outputs (research, development)
55
decomposition of population 16+
1. employed 2. unemployed 3. not in labor force
56
employed
employee, self employed, non paid in family business, part and full time
57
unemployed
no current job but has actively searched in the last 4 weeks
58
not in labor force
no job and has not searched in last 4 weeks (student, disabled, retired)
59
unemployment rate calculation
(unemployed/labor force) x 100
60
labor force
total number of employed and unemployed
61
labor participation rate calulcation
(labor force/population 16+) x 100
62
types of unemployment
1. structural 2. frictional 3. cyclical
63
cyclical unemployment
deviation of unemployment from its natural rate, associated with short-run fluctuations in the economy
64
structural unemployment
results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one, usually long-term
65
frictional unemployment
results because it takes time for workers to search for the jobs that best suit their tastes and skills, short-term for most workers (transition b/w jobs)
66
functions of money
1. medium of exchange 2. unit of account 3. store of value
67
medium of exchange
item that buyers give to sellers when they want to purchase goods and services (e.g., cash at a store)
68
unit of account
yardstick people use to post prices and record debt (e.g., price tags in dollars)
69
store of value
item that people can use to transfer purchasing power from the present to the future (e.g., saving money in a bank)
70
M1
currency, demand deposits, checking and saving accounts (most liquid assets)
71
M2
M1 + time deposits, money market funds
72
what controls the money supply
the federal reserve
73
federal reserve
board of governors + 12 regional banks
74
open market purchase
increases money supply, fed buys government bonds
75
open market sell
decreases money supply, fed sells government bonds to the public
76
money supply =
(cash + reserve) / reserve-deposit ratio
77
100% reserve banking
holds 100% of deposits as reserves, does not influence money supply
78
fractional reserve banking
banks hold a fraction of deposits as reserves (reserve ratio)
79
reserve ratio
fraction of deposits banks hold as reserves
80
discount rate
interest rate on loans that the fed makes out to banks
81
as discount rate increases, what happens to money supply
money supply decreases
82
price of money
1/P
83
what happens to the price of money when price level increases
price of money decreases (inverse relationship)
84
classical dichotomy
separation of nominal variables and real variables
85
nominal variables
given in dollar amounts, aka monetary units
86
real variables
adjusted for inflation, in terms of goods and services
87
do changes in the money supply affect output?
no because money supply is nominal and output is real
88
monetary neutrality
long-run, nominal variables are influenced by developments in the economy's monetary system, but real variables are not
89
quantity theory of money
(money stock x velocity) = (price x real GDP) MV = PY
90
what variable is constant in the quantity theory of money
velocity
91
what variable changes if money stock changes
price (and vice versa)
92
what typically happens during a recession
1. irregular (can't predict it) 2. real GDP decreases, unemployment increases 3. investment spending decreases
93
aggregate supply
total production
94
aggregate demand
total spending (C+I+G+NX)
95
what happens when aggregate demand decreases (AD shock)
a recession, when AD decreases, production is LOWER than its potential, and prices decrease
96
what happens when aggregate supply decreases (AS shock)
when AS decreases, production is lower than its potential, and prices increase

macroeconomics (5 decks)

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