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Econ 110 > Macroeconomics Concepts > Flashcards

Macroeconomics Concepts Flashcards

(56 cards)

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1
Q

When does cost-plus pricing happen?

A

When firms don’t know the demand curve

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2
Q

What is odd pricing?

A

Pricing that often ends in 5 or 9 rather than 0

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3
Q

What is convenient pricing?

A

Prices that simplify and expedite transactions, reducing the time costs from physically making a transaction (vending machines, parking meter, food trucks)

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4
Q

Arbitrage

A

Buy a good in one market at a low price and resell it in another market at a higher price

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5
Q

Transaction costs

A

Costs involved in carrying out an exchange of goods

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6
Q

Price Discrimination

A

Charging different prices to different consumers for the same product when the price differences are not due to differences in cost. (cannot happen in the case of perfect competition)

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7
Q

Requirements to engage in price discrimination

A

1) firm has marketpower
2) identifiable differences in willingness to pay among consumers
3) arbitrage cannot be possible

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8
Q

Perfect Price Discrimination

A

Each consumer pays a price equal to their willingness to pay

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9
Q

Transfer Payments

A

Like social security where a person isn’t getting anything directly in return.

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10
Q

GDP

A

The market value of all final goods and services produced in a country in a period of time, typically one year.

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11
Q

Production and Income

A

Total Production is the same as total income.

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12
Q

Four components of GDP

A

1) Personal Consumption expenditures (spending on services, durable goods, nondurable goods)
2) Gross Private Domestic Investment (business fixed investment, residential investment, changes in business inventories)
3) Government Consumption & Gross Investment (spending by governments on new goods and services)
4) Net exports of goods and services (exports - imports)

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13
Q

GDP Formula (Y)

A

Y=C+I+G+NX

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14
Q

What production is not included in GDP?

A
  • Household Production: responsibilities of a homemaker

- Underground economy - drug trade, illegal activities, etc

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15
Q

GNP

A

Value of final goods and services produced by US residents.

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16
Q

National Income

A

GDP minus depreciation of machinery, equipment and buildings

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17
Q

Personal Income

A

national income minus earnings that corporations retain rather than pay to shareholders

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18
Q

Disposable personal income

A

personal income minus tax payments

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19
Q

Change in prices

A

1) price level - measure of average price of goods and services in the economy
2) inflation - increase in prices over time
3) nominal GDP - GDP using current year prices
4) Real GDP - GDP using base year prices.

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20
Q

Inflation rate

A

percentage change in the price level from one year to the next.

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21
Q

Consumer price index (CPI)

A

A measure of the average change over time in the prices that a typical urban family of four pays for the goods and services they purchase

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22
Q

Problems w CPI (4)

A

1 - substitution bias
2 - increase in quality bias
3 - new product bias
4 - outlet bias

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23
Q

Producer Price Index

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A

Average of the prices received by all producers of goods and services at all stages of the production process.

24
Q

Interest Rate

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A

The price of borrowing money - The cost of borrowing funds, usually expressed as a percentage of the amount borrowed.

25
Nominal Interest Rate
The stated interest rate
26
Real interest rate
nominal interest rate minus the inflation rate
27
Expansion
Total employment & total production are increasing
28
Recession
Total employment & total production are decreasing
29
GDP per capita
GDP divided by the total population
30
Potential GDP
Real GDP when all firms are producing at capacity .
31
The Financial System
A system of financial markets and dinancial intermediaries through which firms acquire funds from households. or Institutions through which firms acquire funds from households.
32
What is a bond
It is a loan you give to the government
33
Aggregate demand curve
the relationship between price level and quantity of real GDP demanded by household, firms and govt.
34
3 factors that change quantity demanded
1) wealth effect - rise and fall of prices moves along demand curve 2) interest effect - some savings go in bank, get interest, lower price of loanable funds, more investment spending - all from lower price. 3) international trade effect - lower relative price in US meant more US goods purchased thatn foreign goods
35
3 factors that change demand
1) expectations - optimism about future shifts demand to right. pessimism about future shifts demand to left. 2) govt policy - fed can change interest rates 3) foreign factors - economic situation in other countries can increase or decrease foreign demand for US goods.
36
Aggregate supply curve
the relationship between price level and quantity of real GDP supplied by firms
37
Factors that determine potential GDP
workers in the economy, capital stock, technology
38
factors that change supply
#workers, capital stock, technology, expectations for future prices, errors in past expectations, supply shock (unexpected change in price of important natural resources)
39
Roles of the Federal Reserve
1) lenders of last resort | 2) manages the US money supply
40
The discount rate:
the interest rate that the Fed charges to banks
41
Money
any asset that people are generally willing to accept in exchange for goods and services or for payment of debts
42
commodity money
a good that is used as money but also has value independent of its use as money
43
fiat money
money that is authorized by a government body and does not have to be exchanged for commodity money
44
Functions of money (4)
1) Medium of exchange - If you want to buy goods you use money to do so 2) unit of account - giving a single way of measuring the value of many things 3) store of value - keeps its value through time 4) standard of deferred payment - paying over time in smaller payments. Works in low inflation
45
M1 money supply
Sum of currency in circulation, checking account deposits in banks, holdings of traveler's checks.
46
M2 money supply
sum of M1 money supply, savings account deposits, small-denomination time deposits, money market mutual fund shares
47
Reserves
Deposits that banks keep on hand as cash in deposits with the federal reserve
48
Required reserve ratio (RR)
minimum fraction of deposits that a bank is required by law to keep as reserves
49
Velocity of Money
Average number of times that each dollar is used to purchase goods and services included in GDP (MxV=PxY)
50
Nominal exchange rate
the vlaue of one country's currency in terms of another country's currency
51
Implied exchange rate
also called the "purchasing power parity" exchange rate, used in big mac example where product is the same anywhere in the world.
52
Floating currency
demand and supply determine a country's exchange rate
53
Managed Float
Floating currency with occasional government intervention
54
Fixed
countries agree to keep exchange rates fixed for long periods of time.
55
Pegged exchange rate
A policy by which a country keeps fixed the exchange rate between its currency and another country's currency
56
Why peg an exchange rate?
1) Business planning - they can't set a maximizing price if the exchange rate changes every single day 2) encourage exports -

Econ 110 (3 decks)

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