2/12 lecture Flashcards
what are expenditures
everything that is produced must be consumed or spent by someone in some fashion
what are the four expenditures
consumption by HH or frms, investment by domestic furms, consumption/investment by govnt, and net exports
what are the three personal consumption expenditures
1)nondurables
2)durables)
3)services
what are non durables
like food and clothing
produce what you can, consume what you have (last three years)
what are durables
furniture, electronics, and cars
machines household vs. firms capital
what are services
education, healthcare, transport and banking
why are durables the most volatile
because they are non essentials buying it during recession will be put off
consumption function is
various factors that influence consumer sending
what are the factors that influence consumer spending
1)current income (increase)
2)accumulated nominal wealth/net worth (increase)
3)interest rates (decrease)
what happens to consumption when interest rates rise
it decreases
what does income do to consumption
buy and consume more, also translates to wealth
from the view of the government why it is important to anticipate consumers response to an increase in their income and net worth
for optimal policy design
what are the three gross provate domestic investment
1)non residential
2)residential
3)change in private inventories
example of non residential (domestic investment)
computers, machines
residential examples (domestic investment)
apartment houses
change in provate inventories (domestic investment)
cars, clothes
what is the investment fucntion
various factors that influence investment spending
what are the various factors that influence investment spending
1)consumer demand (Increase) demand good so forms will invest more
2) access to finance (increase) problem for firms b/c tey don’t sit on money
3)interest rates (decrease) = invest more
what are the three types of government expenditures
1)interest: expenditures associated with servicing accumulated debt
2)mandatory: dictated by prior law
3)discretionary: voted on in the annual appropriate process
what are the various factors that influence government soending
1) debt increase
2) unemployment (increase)
3) population againg (increase)
upward pressure on govnt expenditures
how do most econpmist feel about international trade
they like it
closed economy
both exports and imports are assumed to be zero
open economy is
alow for non zero exports and imports
tariffs make foreign goods more or less expensive
more
what are the various factors that influence net exports
1) exchange rate (EX dec IM inc)
2)tariffs (EX dec IM dec)
3)taste for variety (EX inc IM inc)
4)specialization (EX inc IM inc)
EX = export
IM- import
trade off
a decision featuring two or more competing options
opportunity cost
foregone benefits, nominal or real, associated with a particular choice when an alternate choice is made
absolute advantage
ability to perform a particular task more effectively/at a lower absolute cost
comparative advantage
ability to perform a particular task at a lower opportunity cost
what is autarky
no trade
what happens when a country runs a trade surplus/deficit
what happens to that currecny
whoever has a surplus accumulates the other country’s currency
1)currency stays abroad unused
2)currency circulates as money abroad
3)currency is used to invest in its country of origin (use it to buy bonds or capital)
US assets
foreign assets held by/within US
US ‘liabilities’
US based assets held abroad
is a persistently negative current account a problem
not necessarily, but it can be if it is a symptom of a persistent gov. deficit
