Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

AP MACROECONOMICS > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Barter System

A

Goods and services are traders directly. No money or currency exchanged.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Barter system issues

A

Before trade could occur each trader had to have something the other wanted. This is called the “double coincidence of wants”

Some goods cannot be split. If one goat is worth 5 chickens how do you exchange if you want 1 chicken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Money

A

Anything that is generally accepted in payment for goods and services. NOT the same as wealth or income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Wealth

A

Total collection of assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Income

A

Flow of earnings per unit of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

3 functions of money

A

1) medium of exchange
2) unit of account (money acts as a measurement of value)
3) Store of value ( money allows you to store purchasing power for the future.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Commodity money

A

Something that performs the function of money and has intrinsic value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Intrinsic

A

Essential/valuable on its on

Gold, cows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Representative money

A

Signifies ownership of valuable goods but have no intrinsic value
Ex) checks, treasury note

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Fiat money

A

Something that serves as money but had no other value or uses
Ex) paper money, coins, digital currency

IS NOT a source of intrinsic value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Inflation increases …..

Rapid inflation…..

A

Inflation increase decrease purchasing power

Rapid inflation decreases acceptability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Gold standard

A

Money is gold abandoned in Great Depression

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Liquidity

A

Ease with which an asset can be accessed and used as a medium of exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

M1

A

HIGHEST LIQUIDITY

  • currency in circulation (money in pocket)
  • checkable bank deposits (checking accounts)
  • travelers checks
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

M2

A

NEAR MONEYS

  • savings depositions
  • time deposits (COs =certificates of deposit)
  • Money market funds

-INCLUDES EVERYTHING INSIDE M1

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

M1 and M2 often hold…?

A

Little to no interest so the opportunity cost of holding liquid money is the interest you could be earning.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

MB (Monetary Base)

A

Sometimes Mo
MORE LIQUID THAN M1
-currency in circulation
-bank reserves

THIS IS WHAT THE FEDERAL RESERVE MANIPULATES TO GROW M1 OR M2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Financial Sector

A

Network of institutions that link borrowers and lenders including banks, mutual funds, pension funds, and other financial intermediaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Assets

A

Anything tangible or intangible that is owned

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Liability

A

Anything that is owed

21
Q

Loan

A

An agreement between a lender and a borrower usually at a fee called the interest rate

ASSET LENDER, LIABILITY BORROWER

22
Q

Fractional Reserve Banking

A

When banks hold only a small portion of deposits to cover potential withdrawals and then loans the rest of the money out

23
Q

Demand deposits

A

Money deposited in a commercial bank in a checking account

24
Q

Required reserves

A

Bank must hold 10% of money by law

25
Q

Excess reserves

A

Amount the bank can loan out

26
Q

Effects on money supply (change)

A

1) banks make more loans
2) fed reserve creates new reserves

MONEY POCKET TO BANK= NO CHANGE
MONEY BANK TO BANK= NO CHANGE

27
Q

Deposit expansion multiplier

A

1/rr

28
Q

Creation of new money (formula)

A

Excess reserves x multiplier

29
Q

Required reserves

A

Required Reserves x Deposits

30
Q

Who runs the fed reserve

A

The board of governors(14 year term)

Decisions are not sent to president or congress for approval.

31
Q

Bank run

A

When people lose faith in the security of the bank and rush to withdraw all their money at once
Lead to financial panics
People stop spending > loans hard to get>credit drys up, halting economy> bank runs out of people’s money

32
Q

As discount rate changes how does it effect money supply

A

Decreased rate, increased MS

Increased rate, decreased MS

33
Q

Opening market operations effect on money supply

A

Buying bonds, increase MS

Selling bonds, decrease MS

34
Q

Money market demand shifters

A

1) changes in PL
2) changes in income
3) changes in technology

35
Q

Transaction demand for $

A

People hold $ for everyday transactions

36
Q

Asset demand for $

A

People hold $ since it’s less risky than other assets

37
Q

If Interest rates increase the want to hold money (cash) will…

A

Decrease

38
Q

Relationship between interest rates and investment spending

A

Inverse

39
Q

Increasing the money supply during a recession…

A

EXPANSIONARY

increases AD, interest rates fall

40
Q

Decreasing money supply….

A

Temporary shortage of money will occur at 5% interest. This shortage will cause interest rates to rise to 10%
This decreases AD

41
Q

Real interest rate

A

% increase in purchasing power that a borrower pays (adjusted for inflation)

42
Q

NoMinsk interest rate

A

% increase in money that the borrower pays not adjusted for inflation

Real interest rate + expected inflation

43
Q

Loanable funds market demand shifters

A

1)Change in perceived business opportunities
a) consumer confidence in economy
b) tax credits
2)Changes in govt borrowing
(Budget deficit or surplus)

Inverse relationship between real interest rate and quantity loans demanded

44
Q

Loanable funds market supply shifters

A

1) change in savings
2) changes in foreign investments
3) change in expected profitability
a) gov taxes on interest
b) fed buy/sell bonds

Direct relationship between interest and quantity loans supplied

45
Q

What if gov increases deficit spending

A

Real interest rates cause CROWDING OUT

Investments fall

46
Q

Quantity theory of money

A

M x V = P x Q

M=supply of money
V= velocity of money
P= PL
Q= output/RGDP/Y

47
Q

Short run Phillips curve

A

Inverse relationship
Dot moves along line (SRPC)
Shift left: increase AS
shift right: decrease AS

Stagflation: SRPC curve moves right

48
Q

Long run Phillips curve

A

Shift left

  • decrease Un
  • gov investment in human capital decrease

Shift right

  • increase natural rate of unemployment (Un)
  • gov investment in human capital increase

AP MACROECONOMICS (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions