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Economics > Unit 4 > Flashcards

Unit 4 Flashcards

0
Q

GDP

A

Market value of all final goods and services produced in the nation during a given period usually a year

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1
Q

Liability

A

Legal obligation to pay any debts of the business

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2
Q

Consumption

A

Household purchases of final goods and services

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3
Q

Investment

A

Purchase of new plants new equipment new buildings new residences and net additions to inventories

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4
Q

Government purchases

A

Spending on goods and services by all levels of government

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5
Q

Net export

A

value of country’s exports minus value of its imports

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6
Q

Nominal GDP

A

Economy’s aggregate output based on prices at the time of the transaction
Current dollar GDP

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7
Q

Real GDP

A

economy’s aggregate output measured in dollars of constant purchasing power
GDP measured in terms of goods and services produced

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8
Q

Consumer price index

A

Measure of inflation based on the cost of a fixed “market basket” of goods and services purchased by a typical family

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9
Q

Business cycle

A

Economy wide fluctuations in production of economic activity over several months or years that occur around a long-term growth trend

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10
Q

Federal funds rate

A

Interest rate fed uses to loan each other money

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11
Q

Prime rate

A

Interest rate banks charge their most “credit worthy” borrowers
Historically set about 3% above ffr

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12
Q

Functions of money

A

Medium of exchange
Unit of account(defines taxes, worth of goods, and helps decision making)
Store of value

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13
Q

Value of money

A

Valued by resources that it will purchase:
•acceptability
•legal tender
•relative scarcity

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14
Q

M1

A

=Currency + check able deposits
•check able deposits of gov’t.
•money held by US treasury commercial banks federal reserve banks and thrift institutions

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15
Q

M2

A

Includes M1 and near monies (high liquid assets that are not directly mediums of exchange but can easily be converted into currency or check able deposits)

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16
Q

Near monies

A

Savings deposits

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17
Q

Bank T accounts

A

Bank assets(left side) and liabilities (right side)

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18
Q

Bank liabilities

A 
Demand deposits(cash deposits from public) 
Owners equity(stock shares)
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19
Q

Bank assets

A 
Required reserves 
Excess reserves 
Bonds
Loans
Bank property holdings
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20
Q

Securities

A

Federal bonds

Bank assets

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21
Q

Demand deposits

A

Cash deposits from public
Liability because they belong to depositor and can be withdrawn

=RR + ER

22
Q

Money multiplier formula

A

1/RR

23
Q

Money multiplier background

A

Rough estimate of the number of loan amounts created by any first loan

24
Q

3 parts of the federal reserve

A

Board of governors
Fomc
Reserve banks

25
Q

Board of governors

A

7 members headed by chairman appointed by president (current one in Ben Bernanke)
Predict economic trends
Oversee reserve system
Serve on fomc

26
Q

FOMC

A

12 members-governors, head of ny reserve and 4 other reserve heads that rotate
Make decisions about how to use monetary policy

27
Q

Reserve banks

A

12 around US
Provide financial services for banks
Contribute to monetary policy
Supervise and regulate banks in area

28
Q

Pushing vs. pulling off thread

A

Restrictive-mp can “pull” AD to left and have no limit on restricting money supply
Expansionary-mp may not “push” AD to right and expand excess reserve-may not work harder
Easy to pull string but hard to push it
Criticism of Keynesian policy

29
Q

Liquidity

A

Ability to convert an asset into cash

30
Q

Medium of exchange

A

Buying and selling of goods and services

Allows society to escape complications of a barter economy

31
Q

Recognition lag

A

Weakness of monetary policy

Takes time

32
Q

Operational lag

A

Weakness of monetary policy

Ineffective in severe recession

33
Q

Automatic stabilizers

A

Progressive tax and transfer payments

34
Q

Automatic fiscal policy

A

Nondiscretionary, happens automatically using the automatic stabilizers

35
Q

Discretionary fiscal policy

A

Using gov’t. revenue collection and expenditure to influence the economy
Designed to promote full employment, price stability, and economic growth

36
Q

Fractional reserve banking

A

Where loans come from

How banks “create” money by lending out deposits that are used multiple times

37
Q

Money demand

A

Demand for transactions plus demand for assets

Inverse relationship between int. rate and quantity of money demanded

38
Q

Money supply

A

Inelastic(set by fed)
Manipulated by fed
With demand gives us nominal interest rate

39
Q

Asset

A

Required reserves and excess reserves

40
Q

Progressive tax

A

Income tax
Increase during expansion to contribute to surplus
Decrease in recession to encourage more spending

41
Q

Transfer payments

A

Increase during recession

Decrease during expansion

42
Q

Recognition lag in fiscal policy

A

Time between recession beginning and knowing it’s happening

Time it takes to recognize price level has risen

43
Q

Operational lag in fiscal policy

A

Time between action being taken and desired affects taking place
Tax changes relatively fast hence commonly used
Spending changes like public works aren’t

44
Q

Crowding out

A

Critique and flaw of Keynesian politics that are applied to fight recession=expansionary policy
Counterproductive as it causes money curve to shift outward

45
Q

Recession

A

Two consecutive quarters of decline in real GDP

46
Q

Expansion

A

Two consecutive quarters of growth in real GDP

47
Q

Price level

A

Composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year

48
Q

Full employment

A

Occurs when there is no cyclical unemployment

49
Q

Inflation

A

Increase in the economy’s price level

50
Q

Nominal interest rate

A

Rate expressed in current dollars as a percentage of the amt. loaned
Interest rate on the loan agreement

51
Q

Real interest rate

A

Rate expressed in dollars of constant purchasing power as a percentage of amt. loaned
Nominal interest rate minus inflation rate

52
Q

Fiscal policy tools

A
  • when recessions occur-govt. spend
  • increase taxes and cut spending(AD)
  • automatic stabilizers are progressive tax, social security, unemployment insurance
  • in long run we are all dead
53
Q

Monetary policy

A

Banks can lower interest rates in recessions and raise them to deal with inflation
•bond sales and purchases

Economics (8 decks)

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