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Macroeconomics > Final Exam Review > Flashcards

Final Exam Review Flashcards

(63 cards)

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1
Q

Aggregate Expenditure Model

A

model that focuses on the SR relationship b/w total spending and rGDP (assume price level is constant)

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2
Q

Key idea of AE model

A

in any particular year, the level of GDP is determined mainly by the level of AE

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3
Q

4 Component of AE that together equal GDP

A

C
I (PLANNED)
G
NX

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4
Q

inventories

A

goods that have been produced but not yet sold (changes in inventories are included in investment spending)

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5
Q

Asset

A

part of household wealth (variable of Consumption)

- anything of value that is owned by a person/firm

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6
Q

Liability

A

anything owed by a person/firm

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7
Q

consumption function

A

relationship between C spending and disposable income

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8
Q

MPC

A

slope of Consumption function

amount by which C spending changes when disposable income changes

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9
Q

Corporate Income Tax

A

taxes on profits corporations earn, including profits from new buildings, equipment, etc

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10
Q

investment tax incentives

A

increase investment spending; provides firms with a tax reduction when they buy new investment goods

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11
Q

cash flow

A

difference between cash revenues received by a firm and cash spending by the firm

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12
Q

Autonomous expenditure

A

an expenditure that does not depend on the level of GDP

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13
Q

Multiplier

A

increase in equilibrium rGDP divided by increase in AE

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14
Q

Multiplier Effect

A

the process by which an increase in AE leads to a larger increase in rGDP

series of induced increases in C spending that results from an initial increase in AE

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15
Q

Spending Multiplier

A

measures how GDP increases or decreases when the gov increase/decreases spending in gov

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16
Q

Tax Multiplier

A

multiple by which GDP inc/dec in response to inc/dec in taxes charged by gov

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17
Q

Aggregate Demand Curve (definition)

A

curve that shows the relationship between the price level and quantity of rGDP demanded by households, firms and the gov

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18
Q

Define Money

A

Assets that people are generally willing to accept in exchange for g/s or for payment of debts

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19
Q

Seigniorage

A

profit made by a gov by issuing currency, especially the diff between the face value of coins and their production costs

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20
Q

Define Simple Deposit Multiplier

A

ratio of amount of deposits created by banks to the amount of new reserves

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21
Q

Open Market Operations (OMOs)

A

buying and selling of Treasury securities by the Fed Res in order to control money supply

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22
Q

discount policy

A

interest rate that banks pay to borrow money from Fed

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23
Q

Define Quantity Theory of Money

A

a theory about the connection between money and prices that assumes that the velocity of money is constant

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24
Q

Theory of Liquidity Preference

A

suggests that an investor demands a higher interest rate on securities with long-term maturities, which carry greater risk, because investors prefer cash/highly liquid holdings

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25
government-sponsored enterprises (GSE)s
privately-held entities by gov established to improve the flow of credit to specific sectors of the economy 1. Fannie Mae (Federal National Mortgage Association) 2. Freddie Mac (Federal Home Loan Mortgage Corporations)
26
Define Fiscal and Monetary Policy
Fiscal: changes in fed taxes and purchases that are intended to achieve macroeconomic policy objectives Monetary: actions the Fed Reserve takes to manage Money supply and interest rates
27
Define Budget Deficit/Surplus
deficit or surplus in the fed gov's budget if the economy were at potential GDP
28
Define Fed Gov Debt
national debt | total value of US treasury bonds outstanding (each year the fed budget is in surplus, the debt shrinks)
29
Define Short Run Aggregate Supply Curve
curve that shows the relationship in the short run between the price level and the quantity of rGDP supplied by firms
30
LRAS def
a curve that shows the relationship in the LR between price level and Q of the RGDP supplied
31
stagflation
combo of inflation and recession, usually resulting from a supply shock
32
supply shock
sudden increase or decrease in the supply
33
commodity vs fiat money
commodity: a good used as money that also has value independent of its use as money (gold) fiat: a paper currency used by a central bank (agency of gov that regulates the money supply) and does not have to be exchanged by the central bank for gold/other commodity money
34
reserves
loans | deposits that a bank keeps as cash in its value or on deposit with the Fed Reserve
35
Required reserves
reserves that a bank is legally required to hold, based on its checking account deposits
36
required reserve ratio
min fraction of deposits banks are required by law to keep as reserves
37
excess reserves
reserves that banks hold over the legal requirement
38
loan
asset to a bank because it represent s a promise by the person taking out the loan to make certified specified payments to the bank
39
bank run
situation in which many depositors simultaneously decide to withdraw money from a bank
40
bank panic
situation in which many banks experiences runs at the same time
41
discount laons
loans the Fed Res makes to banks
42
discount rate
interest rate the Fed Reserves charges on discount loans
43
FOMC
Fed Open Market Committee: committee responsible for OMOs and managing the Ms in the US
44
security
fin asset (stock or bond) that can be bought and sold in a fin market
45
securitization
process of transforming loans/other fin assets into securities
46
hyperinflation
rate of inflation that exceeds 50% per month
47
money market
brings together the D and S for money
48
expansionary monetary policy
Fed Res's policy of decreasing interest rates to increase rGDP
49
Contractionary monetary policy
Fed Res's policy of increasing int rates to reduce rGDP
50
Taylor Rule definition
rule developed by John Taylor that links Fed's target for the fed funds rate to economic variables
51
inflation targeting
framework for conducting monetary policy hat involves the central bank announcing its target level of inflation
52
stock market bubble
can form when prices of stocks rise above levels that can be justified by the profitability of the firms issuing the stocks
53
defaulted
stopped making payments on the loans
54
mortgage backed securities
investment banks began buying mortgages bundling large numbers of them together as bonds, and reselling them to investors
55
adjustable rate mortgages
allowed borrowers to pay a very low interest rate for the first few years of the mortgage and then pay a higher rate in alter years
56
crowding out
decline in private expenditures as a result of an increase in government purchases
57
expansionary fiscal policy
involves increasing gov purchases or decreasing taxes (rGDP and price level rise)
58
contractionary fiscal policy
decrease gov purchases or raising taxes (rGDP and price level fall)
59
tax wedge
diff between pretax and post tax return to an economic activity
60
supply side economics
these policy actions primarily affect AS rather than AD
61
marginal tax rate
fraction of each additional dollar of income that must be paid in taxes
62
capital gains
higher corp profits; it's the increase in the price of an asset (share of stock)
63
dividends
corps distribute some of their profits to shareholders in this form

Macroeconomics (2 decks)

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