OA _Micro_and_Macro_Economics Flashcards
(41 cards)
Discount Rate (Macro)
The interest rate the Federal Reserve charges banks for short-term loans. Example: The Fed lowers the discount rate to encourage borrowing and stimulate the economy.
Federal Reserve (The Fed)
The central bank of the U.S., responsible for controlling the money supply and regulating banks. Example: The Fed raises interest rates to combat inflation.
Income Elasticity of Demand
Measures how much demand changes when income changes. Example: Luxury goods like diamonds have high income elasticity.
Monetary Policy
The Fed’s use of tools to influence the economy by managing money supply and interest rates. Example: Buying bonds increases the money supply.
Market Demand Curve
Shows the total quantity demanded by all buyers at each price. Example: If three people buy 2, 3, and 5 units at $10, the market demand is 10 units at $10.
Multiplier Effect
When initial government spending leads to increased income and further spending. Example: Building a road provides jobs → those workers spend → more jobs.
Quantity Supplied Increase
Occurs as a movement along the supply curve when price increases. Example: Price of tomatoes rises, so farmers supply more.
Demand Shifter: Income (Normal Good)
Demand for a normal good increases when income rises. Example: More income leads to increased demand for gasoline.
Functions of Money
Medium of exchange, store of value, unit of account. Example: Buying groceries (exchange), saving cash (store), price labels (unit).
Determinants of Elasticity of Demand
Include substitutes, time horizon, necessity, % of income, and market definition. Example: Bread = inelastic; luxury bag = elastic.
Price Elasticity of Supply
Measures how much quantity supplied changes with price. Example: Tomato farmers quickly grow more when price rises = elastic supply.
Surplus in Market
Occurs when quantity supplied exceeds quantity demanded. Example: At $35, 800 units are supplied, 400 demanded = surplus of 400.
Fiscal Policy
Government use of spending and taxes to influence the economy. Example: Tax cuts to stimulate demand in a recession.
Cross-Price Elasticity of Demand
How demand for one good changes with price of another. Example: If Coke price rises, demand for Pepsi increases (positive elasticity).
Law of Supply
Price increases → quantity supplied increases. Example: Higher coffee prices = more coffee supplied.
Open Market Sale
Fed sells government bonds to decrease money supply. Example: Selling bonds raises interest rates and slows inflation.
Luxury Goods and Elasticity
Luxury goods have elastic demand. Example: If yacht prices rise, quantity demanded falls significantly.
Net Exports Increase & Fed Response
Fed may decrease money supply to stabilize output. Example: Strong exports → Fed tightens policy to prevent overheating.
Elastic Demand Curve Shape
More elastic demand curves are flatter. Example: A small price change leads to a large quantity change.
Federal Open Market Committee (FOMC)
Fed group that sets monetary policy. Example: FOMC votes to raise interest rates to control inflation.
Demand Increase Impact
Shifts demand right → price and quantity increase. Example: More buyers for gas raises both price and sales.
Shifter of Aggregate Demand
Government spending increases shift AD right. Example: Infrastructure bill boosts overall demand.
Excess Supply of Money
Causes interest rates to fall → investment increases. Example: Too much money in the system = easier credit.
Movement Along Demand Curve
Price change → quantity demanded changes. Example: Price drops from $10 to $8 → more units bought.
