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econ 202 > 202 final > Flashcards

202 final Flashcards

1
Q

GDP

A

total money value of newly produced final g/s produce in a domestic economy in the course of a yr transaction through organized market

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2
Q

inflation equation

A

(CPI later - CPI earlier) / CPI earlier

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3
Q
A
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4
Q

adjusting wage equation

A

amount adjusting x (CPI of adjusting to / CPI adjusting from)

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5
Q

inflation

A

sustained increase in PL
- normal + common

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6
Q

deflation

A

sustained decrease in PL
- rare + dangerous

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7
Q

disinflation

A

slow down inflation rate
- rare + normal
ex:
1%
2
3
1
2

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8
Q

hyperinflation

A

excessively high rate
- never

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9
Q

stagflation

A

stag eco + inflation
- rare + normal)
ex: increase inflation + UE but stagnant or declining GDP

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10
Q

nominal statistic

A

unadjusted
- can change due to △ in output, price, or both

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11
Q

↑ NGDP

A
  1. ↑ out ←→ price
  2. ←→ out ↑ price
  3. ↑ out ↑ price
  4. outputs little ↓ x prices big ↑
  5. outputs big ↑ x prices little ↓
  • no deflation + recession = ↑
  • if RGDP ↑ , it’s not certain NGDP ↑
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12
Q

real statistic

A

adjusted for inflation
- ONLY △ due to △ in output

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13
Q

↑ RGDP

A

if NGDP ↑ , it’s not certain RGDP ↑

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14
Q

interest rate effect

A

influence on flations
1. inflation = ↓ IR
2. deflation = ↑ IR
3. disinflation = ←→ moderate change
4. stag = ↑ IR in stag eco

  • negative connection between PL and IR
  • positive connection between IR and risks
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15
Q

movement along vs shifts AD

A
  • movement along = change in PL lead to change in demand
  • shift = change in Q that change PL
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16
Q

1st reason why AD curve down

A

wealth effect/real balance effect

  • as PL ↓, purchasing power ↑ and so demand quantities ↑
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17
Q

2nd reason why AD curve down

A

interest rate effect

  • as PL ↓, purchasing power of any given amount of money ↑ , purchased quantities ↑ and some ppl save more
  • if interest rate ↓, ppl would buy more
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18
Q

3rd reason why AD curve down

A

Change in relative PL
if PL in US ↓, this cause ↑ spending on US G/S by foreign entities

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19
Q

Why AS curve up 1

A

employer misperception
- as PL ↑ some employers OVERESTIMATE their gains & they offer ↑ amount for sale

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20
Q

Why AS curve up 2

A

employees misperception
- as PL ↑ eventually wages are adjusted upward, some employee overestimate their gain & cause them to work harder.. allowing firm to ↑ amount for sales

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21
Q

Why AS curve up 3

A

sticky prices
“sticky” does not change
- as PL ↑, some firms are reluctant to increase their prices to menu costs
- when firm doesn’t ↑ price, ↑ in incurred sold quantity

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22
Q

Why AS curve up 4

A

Sticky Wage
- PL ↑ , wages are slow to adjust
- during this time, wage are not adjusted to real wage
- employer have lower real cost lead to higher real profits –> cause firm to offer ↑Q for sale

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23
Q

influences on C

A
  1. change in wealth
    wealth = accumulating of asset of value NOT INCOME
    ↑ wealth
  2. changes in tax rates
    ↓ tax rate
  3. change in interest rates
    ↓ interest rate
  4. changes in expected PL
    household EXPECTS higher PL
  5. change in expected national income
    household EXPECT ↑ national income
  6. changes in population (longterm)
    ↑ population
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24
Q

influence on I

A
  1. change in interest rate
    ↓ interest rate
  2. changes in tax rates
    ↓ tax rate
  3. changes in expectations of firms about future business conditions
    firm EXPECT IMPROVE business conditions( ↑ current)
  4. technological innovations (new product/improvement to existing product)
    ↑ techno innovation
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25
Q

influence on G

A
  1. changes in political agendas of congress & president
    if congress & president want to SPEND MORE
  2. status of the economy
    if eco needs a stimulus
  3. War vs peace
    transition from peace to war
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26
Q

1st influence on (x-m)

A
  1. change of status of the economy a trading partner
    if trading partner enjoys high rate of eco growth, (x ↑ - m ↓ )
  2. trade policy - deliberate action that is taken by a gov. to influence trade flows
    a) tariff: tax imposed on imported goods
    Impose tariff = x (net export) ↑ m ↓ AD→
    b) quota: restrictions on import units allowed into a country impose on the gov of importing country
    c) exports subsidy: gov prodivdes financial assistance to firm or industries to encourage export
    x ↑ = AD →
  3. changes in RELATIVE PL
    ↓ in relative PL of US, x ↑ m ↓ (ppl buy more from US, US also buys more from US)
  4. changes in exchange rate
    if US dollar ↓, ( x ↑ m↓)
    - cuz dollar is weaker
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27
Q

What happen to net export when USD appreciate

A

Import = increase
(buying foreign goods)

export = decrease
(foreign buy less from us)

net export = decrease

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28
Q

What happen to net export when currency depreciation

A

Import = decrease
(buying foreign goods)

export = increase
(foreign buy more from us)

net export = increase

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29
Q

given exchange rate, app or dep

A

depre: initial rate < new rate
app: initial rate > new rate

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30
Q

LRAS

A
  • where potential GDP lies
  • verticle cuz no stick wage/price or misperception
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31
Q

1st type of UE

A

frictional

short term UE occurs when ppl r transitioning between jobs
- most common + normal
- signal well functioning eco

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32
Q

2nd type of UE

A

structural

skills demanded by employers are different from the skills you have
- require re-training
- last longest-time (longterm)
- most serious

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33
Q

3rd type of UE

A

cyclical

occurs during downturns (recession) in the economy

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34
Q

What questions are in BLS survey

A
  1. r u currently employed?
    yes = in LB + employed
    no = move to 2nd questions
  2. are you expecting to return to work in the next month
    yes = LB + unemployed
    no = move to 3rd questions
  3. have u looked for work in the last 4 weeks
    yes = LB + unemployed
    no = NOT in LB |NOT unemployed | is a discourage worker
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35
Q

UE rate conceptual

A

of unemployed / # of ppl in labor force

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36
Q

labor force participation equation

A

LFPR = # of ppl in LB / # working age population

high LFPR = lots of ppl trying to find job n are in LB
low LFPR = ppl giving up

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37
Q

influences on interest rates

A
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38
Q

FP influences on AD →

A

expansionary:
↑ gov spending
↓ tax rate
↑ transfer

39
Q

MP influences on AD

A

↓ RRR/DR/IR
buy security

40
Q

auto (self) correction

A

eco can eliminate recessionary and inflationary gap automatically

  • moves AS curves
41
Q

3 FED structures

A
  1. board of governor (BOG)
  2. Federal Open Market Committee (FOMC)
  3. 12 regional banks
42
Q

BOG

A
  • looks at the big picture decision of MP
  • consist of 7 ppl
  • appointed by the president w advice n consent of the senate
  • term: 14 yr 2 yr rotation
42
Q

BOG terms

A

normal term - 14 yrs 2yrs rotation
voluntary separation - leave voluntarily
death
mental incapacity - person adjudicated by 3 panel position claiming you arent fit for the job
fraud

43
Q

who is the most important person of BOG

A

there’s 1 person who acts as “the chair”
- makes decision + break ties
- 4 yrs term n can be renominated

44
Q

FOMC

A

details of MP
- 12 ppl
(7 BOG + NYC FED president + 4 other regional bank presidents)

45
Q

2 themes regarding the fed

A
  1. dispersion of power
  2. FED acts slowly and in small steps
46
Q

6 functions of the FED

A
  1. conduct MP
  2. FED serves as bank for US gov
  3. regulates bank industry
  4. responsible for clearing checks
  5. serves as an agent of US treasury
  6. lender of last resorts
47
Q

monetary policy

A

set of tools used to influence the economy

48
Q

1st FED functions

A

conduct MP (adjust the supply of money)
- use 4 tools

49
Q

1st tool

A

change in required reserve ratio (RRR)
- if FED wants expansionary MP, ↓ RRR
↓ RRR means bank has more to loan, which grows the eco

50
Q

Required reserve ratio

A

% of deposit that bank must keep in cash or on file w the fed
- if % is not met, bank shut down

51
Q

2nd tools

A

change in discount rate
- if FED want expansionary MP = ↓ discount rate
(this will let bank have more money to loan out, growing eco

52
Q

discount rate

A

interest rate charged by the fed on loans it makes to the bank
- THE ONLY INTEREST RATE THAT THE FED CAN SET

53
Q

federal fund rate

A

interest rate that is charged by banks on loans they lend to other banks
- ↑ ↓ rate depends on supply n demand

54
Q

prime rate

A

Interest rate bank charge their best customers

55
Q

3rd tool

A

change in interest paid to banks on their excess reserve deposited w the fed
- if fed want expansion MP = ↓ interest paid to bank on excess reserve

56
Q

4th tools

A

open market operations
- if fed want expansion, fed BUYS US gov security
(when fed buys, the security goes to the fed but the bank will gain money
↑ monay = ↑ loan and ↓ interest rate

  • MOST USED
57
Q

open market operations

A

fed buy/sell US gov security
- all banks own security bc
1. make them trustworthy (safe financial institute)
2. pay good interest
3. highly liquidity

58
Q

2nd FED functions

A

fed serves as the bank for the US gov

59
Q

3rd FED functions

A

FED regulates the bank industry
3 list of regulations that no longer exit
1. min contact hrs: fed tell banks to be open for a certain amount of time
2. hold time on deposit: money can’t be automatically spent
3. vault checks: ensure RRR is met

60
Q

4th FED functions

A

fed is responsible for clearing check

61
Q

6th FED functions

A

Fed is the lender of last resorts
- the idea that bank go to the FED last if they need a loan

  • why?
    1. other banks would have lower IR than the fed
    2. reluctant for scrutiny from FED (bank borrowing money from FED kinds of set off a suspicious alarm)
62
Q

5th FED functions

A

FED serves as an agent of the US treasury
- controls the circulation of money (when to release printed bills into eco)

63
Q

Is national debt a problem? Yes

A

argues that when debt is repaid, this will bankrupt future generation as debt repayment is basically transfer of wealth outside the US eco

64
Q

Is national debt a problem? No

A

argues that to the extent the debt is owe to ppl in US, repayment will be a transfer of wealth from 1 segment of society to another
- gov can pay debt at any time

65
Q

FED + Target

A
  • must choose either target money or interest rates
  • forfeit one when choosing the other
66
Q

When does FED target interest rates

A
  • when it’s concerned with unemployment or RGDP
  • change federal fund rates

if interest rate is not at target, FED either contract or expand market
- move AD for expand
- move AS for contract

66
Q

When does FED target money

A
  • target money if concerned w inflation
  • change M1/M2
67
Q

M1

A

liquid money that is easily spent / converted

SIZE - 19 trillion
- more liquidity than M@

68
Q

what does M1 consist of

A

cash/coin from:
1. outside of banks
2. amount in bank’s checking account
3. amount in non-bank checking account
- statefarm
4. amount in travelers check

69
Q

M2

A

broader measure of money that consist of M1 + some less liquid asset

21 trillion

70
Q

what does M2 consist of

A
  1. all of M1
  2. amount in saving account
  3. amounts in money market mutual funds (MMMP)
  4. amounts in money market deposit accounts (MMDA)
  5. amount in certificates of deposit (CDS)
71
Q

deposit creation multiplier

A

total deposit = initial deposit x (1/RRR)

  • RRR in decimals
72
Q

deposit creation multiplier

A

how bank create money

73
Q

problem with deposit creation multiplier

A
  • assumes bank hold only RRR, and all excess reserves are loaned out, and any loaned amount is subsequently redeposited into the banking system
  • problem cuz actual multiplier is smaller than indicated
74
Q

progressive income tax
(tax system)

A

tax rate ↑ as income ↑

75
Q

regressive income tax
(tax system)

A

tax rate ↓ as income ↑
- no country currently has regressive income tax

76
Q

flat income tax (proportional)
(tax system)

A

tax rate is constant at all income level
- some country has it

77
Q

AS/AD + Phillips

A

AS = left + right
AD = up + down

if AS move left or right, Phillip’s point will move the opposite
- left = right

if AD move up or down, Phillip’s will move the same direction

78
Q

monetizing

A

central bank buys debt of its own government

79
Q

problem w monetizing

A
  1. cause central bank to respond bc they have target on IR w excessive borrowing
  2. cause separation between FP and MP to disappear
  3. since FP+MP are expansionary, this add inflationary pressure
  4. gov adding to debt by ↑ borrowing
80
Q
A
81
Q

Conservative vs liberal

A

conservative want smaller role for gov
- rec gap = ↓ tax rate
- in gap = ↓ gov spending

liberal want bigger role for gov
- rec gap = ↑ gov spending
- in gap = ↑ tax

82
Q

indexing

A

method to cope w inflation
- periodic adjustment to wages/benefits base on measuring change in PL

83
Q

1st problems with indexing

A

lag between occurrence of inflations + when wages/benefits are adjusted

  • indexing happen once per yr
  • ex: inflation in 2022 but benefits comes after
84
Q

2nd problems with indexing

A

inflation may not be measured accurately
- BLS can make mistakes

85
Q

3rd problems with indexing

A

may reduce incentives to control inflations
- since you’re getting “benefits” they might not want to resolve it

86
Q

4th problems with indexing

A

disruptive to international trades

87
Q

quantity theory of money

A

works w equation of exchange and develop assumption:
if v is constant then ↑ M can ↑ py (nominal GDP)
- its actually P that ↑ not py
- change in m will change p

v = velocity
m = money
p = price
y = real gdp

88
Q

influence on velocity of money

A

-affect by
1. how frequently ppl are paid
- more payment = ↑ V
2. efficiency of banking system
- more efficient = ↑ V
3. change in interest rate
- ↑ interest = ↑ V
4. change in PL
- ↑ (or positive) change = ↑ V

89
Q

adaptive expectation

A

ppl form their expectation based SOLEY on past info

  • ex:
    inflation goes from
    1
    2
    4
    what would be the next rate?
    if you say 8 by following the pattern then that’s adaptive
90
Q

calculate using rule of 72

A

growth rate x time = 72

2 times that = 72

91
Q

influences on eco growth

A

productivity (biggest factor)

what ↑ productivity?
1. physical capital per worker
- ex: machines, building, equip
2. natural resources per worker
- ex: land, oil, fossils
3. human capital per worker
- ex: skills, education, health
4. technical knowledge
- awareness of best way to do things

92
Q
A

econ 202 (5 decks)

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