Macro Flashcards
(109 cards)
1
Q
Sole Proprietorship
A
a person who owns and acts as the legal face of a business
2
Q
Partnership
A
two or more entities have a contract with each other
3
Q
Corporation
A
a legal fiction that exists to coordinate and simplify business relations
4
Q
Limited liability companies
A
5
Q
Cooperative
A
6
Q
Articles of incorporation
A
acts as a constitution for the corporation
7
Q
Stocks/shares
A
8
Q
Legal personhood
A
9
Q
Board of directors
A
10
Q
Chief Executive Officer (CEO)
A
11
Q
Initial public offering (IPO)
A
12
Q
Hostile takeover
A
outsiders start buying up shares with intent to replace the board
13
Q
Corporate raids
A
when a hostile takeover is done to squeeze the share value higher
14
Q
Liquidating
A
ending a corporation and selling its assets
15
Q
Greenmail
A
buying back shares to stop the takeover
16
Q
Franchising
A
when someone buys the right to use a corporation’s model and brand
17
Q
Financial instruments
A
tradable debt contracts that can be modeled with supply and demand
18
Q
Debt
A
trade of goods over time
19
Q
Risk aversion
A
people usually dislike risk
20
Q
Time preference
A
euphemism for impatience referring to the idea that people usually want things sooner rather than later
21
Q
High time preference
A
impatient, need a bigger payout to wait
22
Q
Low time preference
A
patient, will accept a smaller payout to wait
23
Q
Lifetime savings cycle
A
people usually want to smooth consumption over their lifetime
24
Q
The general pattern
A
young people borrow, middle aged people pay off debt and save, old people live off savings
25
Futures contracts
tradeable contracts promising to sell a fixed amount at a fixed price in the future
26
Gross domestic product (GDP)
the measure of an economy’s size
27
Included in the calculations of GDP
consumption, investment, government spending, net exports
28
Consumption
goods purchased by consumers for their use
29
Investment
capital purchased by producers to produce other goods
30
Not included in the calculations of GDP
double counting, home production, illegal production
31
Nominal GDP
default GDP
32
Real GDP
GDP adjusted for inflation
33
Purchasing power parity
GDP adjustment accounting for cost of living
34
GDP per capita (PPP)
GDP/population shows standard of living
35
Productivity
GDP/hours worked shows efficiency
36
Gross national product (GNP)
the measure of an economy’s wealth
37
Currency
something in circulation as a means of exchange
38
Trade
occurs when one person’s marginal benefit of a good exceeds another person’s marginal/opportunity cost of providing it
39
Barter
direct exchange of goods
40
Double coincidence of wants
person A must have something person B wants and person B must have something person A wants
41
3 functions of currency
medium of exchange, unit of account, store of value,
42
Medium of exchange
providing a common measure of the value of goods and services being exchanged
43
Unit of account
a standard numerical monetary unit of measurement
44
Store of value
money must hold its value over time
45
Numeraire
a good that you measure all other goods by
46
Commodity currencies
a means of exchange that derive their underlying value from being an actual product with inherent value
47
Specie
precious metals, gemstones, coins
48
Coin-clipping
a type of counterfeiting specie: shave off the edges, melt it, and make a new coin
49
Debasing
a type of counterfeiting specie: mixing in less valuable metals
50
Paper currency
bills issued by banks and govt and backed by specie
51
Fiat currency
currency with nothing backing it, depending entirely on faith
52
Cryptocurrency
Bitcoin; uses a blockchain to limit production
53
Fractional reserve banking
creates money by loaning out more than the bank reserves
54
Money multiplier
multiplies the amount of money in circulation (1/RR)
55
Bank run
the withdraws exceed the reserves, so the bank can’t pay out
56
Inflation
an increase in the general price level caused by an increase in the money supply relative to real output
57
Hyperinflation
when inflation occurs too quickly for a currency to serve its three functions
58
Money supply
all currency in use
59
Amount of money being spent
(M)(V) = (P)(Y) (M = money supply, V = velocity, P = prices, Y = output)
60
Money supply
M = (MB)/(RR) (M = money supply, MB = monetary base, RR = reserve ratio)
61
Equation
(MB)(MM)(V) = (P)(Y)
62
Long run (inflation)
inflation is neutral because the money has a
chance to circulate through the whole economy and the neutrality of money
63
Short run (inflation)
inflation benefits the money creator at everyone else’s
expense and as ripple effects of increased demand
through an economy
64
Velocity of money
the amount of times a dollar can change hands in a given period
65
Neutrality of money
changes in the money supply only affect nominal variables (prices, wages, and exchange rates) and not real variables (employment, real GDP, and real consumption)
66
Price confusion
mistakes caused by using outdated opportunity costs
67
Sticky prices
some prices can’t change as fast as others
68
Menu costs
literal costs of changing the prices
69
Disinflation
a reduction in the inflation rate
70
Deflation
decrease in the general price level
71
Seigniorage
the profits a money creator takes from inflation
72
Geary-Khamis dollar
a common currency across time and space (US dollars)
73
Human Development Index (HDI)
74
The Gini Coefficient
75
Sen Social Welfare Function
76
Business cycle
an empirical regularity that economies tend to grow and shrink like a wave function
77
Recession
when economies shrink
78
Depressions
particularly severe recessions
79
Boom
Dramatic growth
80
Miracles
very massive booms
81
Austrian business cycle theory (Hayek)
blames cycles on cheap credit causing malinvestment (cheap credit encourages risky investment, risky investment accumulates, domino effect of failures when systemic risk gets too high)
82
Keynesian model (Keynes)
explains the cycle as being driven by shocks to
aggregate demand
83
Aggregate demand (AD)
the set of all combinations of inflation rate and real growth rate that can equal a given growth rate of the money supply
84
Long run aggregate supply (LRAS)
a (perfectly inelastic) curve that shows the relationship between price level and real GDP that would be supplied if all prices were fully flexible
85
Short run aggregate supply (SRAS)
model that shows the positive relationship between the aggregate price level and amount of aggregate output supplied in an economy
86
Positive shock to AD
87
Negative shock to AD
88
Paradox of thrift
one small negative shock spirals into a very large
one
89
Animal spirits
90
Irrational exuberance
91
Stimulus
Keynes' solution for when people are suffering and they’re desperate for a cure
92
Can we make recessions shorter?
there are two main approaches: monetary policy and fiscal policy. both prioritize manipulating aggregate demand to counteract short-term shocks
93
Monetary policy
focuses on manipulating the money supply. conducted by the central bank (banker’s bank) with leadership appointed by both govt and private banks. The Fed can buy T-bills (govt bonds) with money it magics out of thin air. The Fed can sell T-bills (govt bonds) it has. arguably causes future recessions through malinvestment.
94
expansionary monetary policy
increasing money supply (inflation)
95
contractionary monetary policy
decreasing money supply (unemployment)
96
Fiscal policy
focuses on manipulating demand directly through taxes and govt spending. conducted by legislatures. artificially lift AD by spending more govt money called a stimulus. Will raise inflation, but you end the recession faster. You can also cut taxes to raise the aggregate demand. How effective fiscal policy is going to be depends on two multipliers, like our money multiplier, and both are consequences of the paradox of thrift.
97
Contractionary fiscal policy
taxes up, spending down (AD falls)
98
Expansionary fiscal policy
taxes down, spending up (AD rises)
99
Spending multiplier
the total amount of new commerce
100
Tax multiplier
the total amount of commerce restricted
101
Solow
found that depreciation and diminishing returns meant economies had a maximum size for a technology level. poor nations catching up and rich nations on the cutting edge.
102
Solow growth model
production requires capital and labor. per capita production is what we care about. production grows proportionally when the factors are well-
proportioned. go higher in one category and you get diminishing returns. per capita output increases with diminishing returns.
103
Solow growth model implications
1. there’s a limit (steady-state) to how big you can get
2. the less capital you have, the faster you grow
3. if you somehow get more capital than your steady-state, you’ll just decay back to the steady-state
104
Schumpeter
explored how technological entrepreneurship creates and destroys, how it sets up winners and losers
105
Acemoglu
combined creative destruction with his ideas of extractive and inclusive institutions to explain why authoritarian societies breed stagnation
106
Public choice
political science done using economics
107
Growth
long-term macroeconomics, why are nations rich or poor?
108
Catching up growth
countries start out below the steady-state and are working to catch up
109
Cutting edge growth
countries invent new technologies, increasing output at all capital levels
