Mystery Vault

Question 1

Income Formula for GDP

Answer 1

The reasoning is that the net income in the economy should be GDP as well.

GDP = W + I + R + P
W = Wages from j-bs
I = interest income, money earned from bank deposits
R = money earned from renting properties
P = profits in businesses

Question 2

GDP Deflator

Answer 2

Gets you from nominal to real when dividing. Deflate = divide. You must deflate the nominal.

RGDP = NomGDP / Deflator * 100

Question 3

GDP Growth rate

Answer 3

Percent change in GDP

Question 4

Labor Force

Answer 4

Willing and Able (non institutionalized, working)

Question 5

Money multiplier

Answer 5

1/RRR

Question 6

Quantity Theory of Money - Why does it make sense

Answer 6

MV = PY = nGDP

Money supply is how much money is in your economy. When money moves, it means transactions are being making and goods/services are occouring. Thuse M * V is related to your nominal GDP.

Question 7

Spending/Tax multiplier

Answer 7

1/MPS

-MPC/MPS

Question 8

Capital

Answer 8

Human made resources used to produce goods and servies. Human capital (goods, know-how) and physical capital (tools, factories)

Question 9

Classical Economic Theory

Answer 9

Laissez-Faire. Economy will self-correct in bad times.

Question 10

Stagflation

Answer 10

High inflation, low economic growth.

Aka cost-push inflation or adverse supply shock

Question 11

Crowing Out

Answer 11

Increase in rIR bc of gov. borrowing

Question 12

Balance of Payments

Question 13

Current Account

Question 14

Capital and Financial Account

Question 15

Devaluation

Answer 15

When a government intervenes to makes its currency weaker, typically through monetary policy that affects interest rates.

Question 16

FFR vs IOR

Answer 16

Federal funds rate is the overnight interest rate charged by banks on one another. It is what is targeted by the Feds.

the IOR is what the feds give to banks and is used to control the FFR

Question 17

Floating Exchange Rate System

Answer 17

Exchange rate controlled by free-market supply and demand

Question 18

Fractional Reserve Banking

Answer 18

System where banks only hold a fraction of money in reserves and lend a lot of money.

Question 19

Natural Rate of Unemployment

Answer 19

Structural + Frictional
Aka Full employment output

Question 20

GDP

Answer 20

Value of all final goods and services within a countries borders in a given time period.

Question 21

Inflationary Spiral

Answer 21

Demand-pull inflation -> higher PL -> cost-push inflation

Question 22

Interest Rate can be viewed as

Answer 22

The opportunity cost of money

Question 23

Law of increasing opportunity cost

Answer 23

Same as law of diminishing marginal returns. As you try to make more of something, you expend resources and it gets harder to make.

Question 24

M0

Answer 24

M0 is the total amount of paper money and coins in circulation, plus the current amount of central bank reserves.

Question 25

M1

Answer 25

M0 + demand deposits

Question 26

Monetarism

Answer 26

MS primary controller in change in output and price level

Question 26

Managed/Fixed Exchange Rate System

Answer 26

Exchange rate is fixed by government

Question 27

Monetary Policy

Answer 27

Central Bank controls MS to change IR.

Question 28

Rational Expectations Theory

Answer 28

When businesses and households expect monetary policy and change in a way that makes it ineffective.

Question 29

Wealth

Answer 29

Household assets- liabillities

Question 30

Money Demand Shifters

Answer 30

* National income aka rGDP per capita: More income, more things to buy, greedy lil monkeys need more money * Price Level: Inflation = more money demand. Deflation = less money demand * Changes in money technology. the demand for money is driven by the transactions motive (we want money so we can buy things). When new technologies make it easier to convert wealth into money, we keep less of it on hand.