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Macro Economics > Prelim 2 > Flashcards

Prelim 2 Flashcards

1
Q

M1

A

highly liquid: currency, checkable deposits, saving deposits

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2
Q

M2

A

broader measure of money in economy, contains M1, credit cards aren’t considered

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3
Q

working age population

A

individuals over 16 who aren’t in the military, retired, or institutionalized

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4
Q

labor force

A

employed + unemployed

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5
Q

frictional unemployment

A

unemployment due to the time it takes for employers to search for workers and workers to search for jobs

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6
Q

structural unemployment

A

occurs because labor supply and demand aren’t in equilibrium

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7
Q

cyclical unemployment

A

unemployment linked to downturns in the economy

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8
Q

efficiency wages

A

higher wages to encourage productivity, lowers total labor costs

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9
Q

U6 unemployment

A

(official unemployment +MA+PT)/(labor force +MA)

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10
Q

consumption function

A

C=C0 + MPC x Y

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11
Q

saving function

A

S=-C0 + MPS x Y

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12
Q

flow variables

A

represent values in a specific period (eg: new savings in a given year)

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13
Q

stock variables

A

represent levels that have been reached over time (eg: all savings)

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14
Q

consumption smoothing

A

maintaining a steady/smooth path of consumption spending and borrowing over time

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15
Q

permanent income hypothesis

A

consumption is driven by permanent income rather than current income

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16
Q

hand to mouth consumption

A

individuals who are forced by economic conditions to spend all their current income

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17
Q

Consumption shifters

A

real interest rates, confidence/expectations, taxes

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18
Q

drivers of saving

A

changing income over life cycle, changing needs over life cycle, bequests, precautionary saving

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19
Q

macroeconomic investment

A

spending on new capital that increase the economy’s productive capacity

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20
Q

present value

A

= (future value in t)/(1+r)^t

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21
Q

valuation formula

A

present value of payment streams = (next years profit) / (interest + depreciation)

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22
Q

user cost of capital

A

(r+d)(cost of capital)

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23
Q

investment line

A

lower interest rates lead to a higher level of investment

24
Q

market for loanable funds

A

x axis: q loanable funds
y axis: interest rate
supply(savings)
demand(investment)

25
Q

shifts in supply of loanable funds

A

change in personal saving, gov saving, foreign savings

26
Q

crowding out

A

decline in private spending/investment that follows from a rise in government borrowing

27
Q

shifts in demand of loanable funds

A

technological advancements, expectations for stronger future profits, taxes, lending standards

28
Q

bonds

A

promise to pay back loan with interest

29
Q

default risk

A

risk of not getting paid (issuer)

30
Q

term risk

A

arises from uncertainty about future interest rates

31
Q

liquidity risk

A

risk of not being able to sell quickly and receive a good price

32
Q

price to book ratio

A

firms stock price relative to book value per share
(price per share) / ((total assets -total liabilities) / shares)

33
Q

price to earnings

A

earnings per share
(price per share) / (last year’s earnings per share)

34
Q

random walk

A

when stock prices follow an unpredictable path

35
Q

speculative bubble

A

when the price of an asset rises above what appears to be fundamental value

36
Q

greater fool theory

A

people buy an investment when they expect other people to buy it from them at a higher value

37
Q

trade balance

A

spending on exports - spending on imports

38
Q

financial inflows

A

investment by foreigners in the U.S

39
Q

financial outflows

A

investment by Americans in foreign countries

40
Q

foreign direct investment

A

foreigners invest in domestic physical assets

41
Q

portfolio investment

A

foreigners purchase U.S stocks/bonds

42
Q

causes of financial globalization

A

fewer capital controls, deregulation, institutional investors looking to diversify, better technology

43
Q

exchange rates

A

nominal exchange rate = (# of foreign currency) / (# of dollars)

44
Q

currency appreciation

A

imports become cheaper, exports are more expensive

45
Q

currency depreciation

A

imports become more expensive, exports are cheaper

46
Q

foreign exchange market

A

x axis: quantity $
y axis: exchange rate
supply dollars (U.S. imports)
demand dollars (U.S exports)

47
Q

shifts in demand (Exports)

A

strength of global economy, barriers to trade, domestic innovation, foreign prices, domestic prices

48
Q

shifts in demand (financial inflows)

A

interest rate differentials,
business profitability, political risk, expected exchange rate movements

49
Q

shifts in supply (imports)

A

strength of economy, trade barriers, foreign innovation, prices

50
Q

shifts in supply (financial outflows)

A

interest rate differentials, business profitability, political risk, expected exchange rate movement

51
Q

real exchange rate

A

(domestic price) / (foreign price / nominal interest rate)

52
Q

current account

A

tallies income flows into and out of a country

53
Q

current account balance

A

income from exports - income spent on imports

54
Q

financial account

A

tallies changes in ownership of assets

55
Q
A

Macro Economics (3 decks)

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