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Econ 203 > Final Notes > Flashcards

Final Notes Flashcards

1
Q

balance of payment

A

sum of all transactions that take place between a country’s residents and the residents of all foreign nations
overall BoP = 0

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2
Q

credits vs debits

A 
credits = cash inflows
debits = cash outflows
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3
Q

current account

A

reflects payments arising from trade in goods and services and income flows due to foreign investment
CUR = BoT + BoS + NFII

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4
Q

balance of trade (BoT)

A

value of exported goods – value of imported goods

exports = credits; imports = debits

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5
Q

balance of services (BoS)

A

value of exported services – value of imported services

includes tourism and business services

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6
Q

net foreign investment income

A

profits, dividends, and interest accruing to residents of country X due to investment abroad – profits, dividends, and interest accruing to foreigners due to investment in country X
FII inflows = credit; FII outflows = debit

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7
Q

capital accounts

A

reflects payments arising from non-resident purchases of assets
purchases of foreign assets create debit
purchases of domestic assets create credit

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8
Q

short-term capital flow (STCF)

A

highly liquid assets; sensitive to short-term interest rate changes

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9
Q

long-term capital flow (LTCF)

A

more permanent investments
direct investment = changes in non-resident ownership
portfolio investment = minority holdings of shares

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10
Q

changes in official international reserve (OIR)

A

holdings of foreign currencies by the central bank; very important in a fixed exchange rate system

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11
Q

BoP surplus in a fixed XR system =

A

gain OIR

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12
Q

BoP surplus in a flexible XR system =

A

currency gains value

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13
Q

demand for cdn$ increases

A

cdn$ appreciates

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14
Q

supply of cdn$ increases

A

cdn$ depreciates

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15
Q

if the interest rate of one country increases compared to Canada, what happens to cdn$?

A

demand decreases, supply increases, cdn$ depreciates

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16
Q

if there is a BoP surplus, what happens to cdn$?

A

excess demand, currency undervalued

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17
Q

if there is a BoP deficit, what happens to cdn$?

A

excess supply

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18
Q

terms of trade (ToT)

A

quantity of imported goods obtainable per unit of exported goods
(export price index / import price index) x 100

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19
Q

aggregate demand

A

quantity of goods and services that economic agents want to buy at each price level

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20
Q

interest rate effect

A

a higher price level increases money demand and the interest rate, reducing I and C

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21
Q

wealth effect

A

a higher price level makes consumers feel less wealthy, encouraging PS and reducing C

22
Q

real exchange rate/foreign purchases effect

A

a higher price level makes domestically produced items less attractive, reducing X and encouraging M (decreasing NX overall)

23
Q

biggest factor affecting consumption

A

income

24
Q

what causes shifts in AD?

A

caused by anything that results in more or less spending at any price level
(ex. currency appreciation decreases AD)

25
Q

aggregate supply

A

quantity of goods and services that firms choose to produce and sell at each price level

26
Q

long-run aggregate supply

A

production depends on supply of resources and available technology; vertical at the natural rate of output

27
Q

short-run aggregate supply

A

output produced and price level move in the same direction; tends to steepen as output increases

28
Q

unit cost theory

A

in order to increase production, firms may have to pay overtime or use less efficient factors; if unit cost goes up, need higher prices to justify production

29
Q

sticky wage theory

A

nominal wages do not adjust immediately to the price level, so higher prices make production more profitable and output increases

30
Q

Keynesian aggregate supply

A

in a depression, supply accommodates demand; horizontal

31
Q

increases in AD

A

creates boom, increases inflation rates, increased prices push inflation

32
Q

decreases in AS

A

creates recession, factor prices decrease

33
Q

average propensity to consume

A

fraction of total income that is consumed; apc decreases as income increases
apc = consumption / income
apc + aps = 1

34
Q

marginal propensity to consume

A

how much extra consumption increases given an increase in income

35
Q

marginal propensity to save

A

proportion of extra income money consumers decide to save

36
Q

multiplier effect

A

relationship between changes in spending and change in GDP

37
Q

marginal propensity to import

A

proportion of extra income that consumers spend on imports

38
Q

tax multiplier

A

if people are taxed one less $, they will not generally spend the whole $

39
Q

closing the output gap

A

moving the economy to the natural rate of output (Yn)

^Y = Yn – Y

40
Q

if ^Y > 0

A

economy needs a boost

41
Q

in a recession, what should AD do?

A

want to increase AD by increasing G or decreasing T

42
Q

in a boom, what should AD do?

A

want to decrease AD by decreasing G or increasing T

43
Q

crowding out of investment

A

expansionary fiscal policy will boost income, raise Md and r, and lower I and AD

44
Q

crowding out of net exports

A

under flexible XRs, expansionary fiscal policy will boost interest rates, which will cause currency appreciation, and lower NX and AD

45
Q

recognition lag

A

long for both fiscal and monetary policy

46
Q

decision lag

A

long for fiscal policy, short for monetary policy

47
Q

impact lag

A

can be short for fiscal policy, long and uncertain for monetary policy

48
Q

revesibility

A

difficult for fiscal policy, possible for monetary policy

49
Q

visibility

A

fiscal policy is well understood by public, monetary policy is not well understood

50
Q

influences on fiscal and monetary policy

A

fiscal: domestically controlled
monetary: influenced by foreign monetary policy

51
Q

targets of fiscal and monetary policy?

A

fiscal: can be targeted
monetary: cannot be targeted

Econ 203 (2 decks)

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