1/31 module 1 notes Flashcards
how do many macroeconomists view/think of economy
circular flow
circular flow
capture interactions between a macroeconomics two most important agents: households and firms
how do firms flow to households
goods, services and income
how do HH flow to firms
capital labor and expenditures
what does circular flow also feature
government and foreign countries
what are the two types of institutions macroecon consists of
agents and markets
what falls under agents
HH and firms
what falls under markets
goods, factors
what is an asset
good/what you own (we like this)
liability
what we owe (isn’t always bad but still not as good as asset)
assets vs
liabilities
money vs
other assets
debt vs
equity
what is liability often equated to
debt
what is equity (residual)
residual because can calculate as different between assets and debt
Residual equity formula
E= A (assets) - D (debts)
do you want a large difference between Asset and debt for residual equity
because large difference with more asset, so their is more equity
demands under households
goods and services (in exchange for money)
supplies under HH agent
labor (in exchange for wages) and capital (in exchange for interest and/or profits)
what do you want to be small in terms of net-worth under liability
credit card debt, student loans, mortgage
example of financial asset
stocks/bonds
is labor same for everyone
yes, because people have same time to work but capital is different because people will work different jobs
demands under firm agent
labor (in exchange for wages) and capital (in exchange for interest and/or profits)
supply under firm agent
goods and services (in exchange for money)
market is
place of interaction sellers and buyers will meet for a particular good or service
what are two canonical assumptions about econ
law of supply and law of demand
law of supply
we typically assume that a markets supply is increasing in the price
law of demand
we typically assume that a markets demand is decreasing in the price
under macro econ what is supply and demand
agreggate supply and demand
aggregate supply represents
firm
aggregate demand represents
household
what happens to HH when interest rates are high
HH save more money because they are less inclines to take out loans and therefore spend less money
N stands for
labor
do firms want to employ a lot of ppl
no because they want to spend less on labor so they don’t hire as many workers
what happens when Q2 is larger than Q1 on a graph
excess supply (surplus) so price will decrease
equilibrium
a state of balance between opposing forces or actions
what are the two well known types of equilibrium
walrasian/market/clearing and nash
walrasian/market-clearing
supply is equal to demand
Nash is
a strategic state in which no agent has an incentive to deviate from their current action
equation aggregate demand and aggregate supply are given by
AS = P
AD = 10-P
(set them equal to each other)
what are secondary agents
Fed, treasury, and banks
who is responsible for setting interest rate
Fed
does Fed make money
yes, they make money they do not spend it (so cash is placed on right side of balance sheet)
what is the federal reserve
central bank responsible for managing the currency and monetary policy in the US
dual mandate
promote effectively the goals of max employment, stable prices, and moderate long term interest rates
what is reserves
money is system for banks
what is gov. deposits
Fed is bank for government
what do most macroeconomists want to avoid
deflation, last time it happened we faced recessions
What is the US treasury
US finance department
US treasury is liability because?
US gov debt it owes people
what is GSE
gov sponsored enterprises
what is net position
equity position of US gov
banks
financial institutions with the access to the fed
when banks make a loan it also initates
a deposit
why are deposits a liability for banks
bank deposits are a liability for banks, for HH it is an asset (it is what banks owe ppl)
