macro: ch.13 & 14 Flashcards
(32 cards)
what is marginal propensity to consume?
measures the degree to which a consumer will spend or save in relation to aggregate raise in pay.
MPC formula
△consumption / △disposable income
what is your MPC if you have a higher income?
lower MPC b/c consumption needs are satisfied which allows higher savings
what is your MPC if you have a lower income?
higher MPC b/c a higher percentage of income may be directed towards daily living expenses
Government Purchases Multiplier formula
1/(1-MPC)
GPM definition
the effect that increase in government spending leads to increase of private spending
tax multiplier formula
-MPC/(1-MPC)
tax multiplier definition
measures the factor by which a change in taxes will alter GDP
how are consumer spending and taxes related?
they are inversely related
what are the roles of money?
medium of exchange, store of value, unit of account
what are checkable bank deposits used to write checks/debit cards considered?
money
what are the types of money?
commodity and fiat
what is fiat money?
has no intrinsic value (USD)
what is commodity money?
has intrinsic value (gold coins)
what is the money supply?
the quantity of money in an economy
what is monetary policy?
an attempt by the government to stabilize the economy by altering money supply`
Who conducts monetary policy in the US?
the central bank, Federal Reserve
What are the money supply measures?
m1 and m2
what is M1 made up of?
currency + demand deposits + savings accounts
What is M2 made up of?
M1 + Small time deposits + small items
what are the tools of the Fed?
open market operations, change in reserve requirements, quantitative easing
What is the Federal Funds interest rate?
the interest banks charge other banks for short term loans
what is the discount rate?
the interest the Fed charges banks for short term loans?
what is quantitative easing?
the purchase of assets by the Fed typically when short term interest are zero
