Ch 25 26 28 29 30 Flashcards
The knowledge and skills workers acquire through education training and experience
Human capital
The inputs into production that nature provides ie land and mineral deposits
Natural resources
Society’s understanding of the best ways to produce goods and services
Technological knowledge
As physical capital rises the extra output from an additional unit of physical capital falls
Diminishing returns
The property whereby poor countries tend to grow more rapidly than rich ones
Catch up effect
A capital investment ie a factory that is owned and operated by a foreign entity
Foreign direct investment
A capital investment financed with foreign money but operated by domestic residents
Foreign portfolio investment
Aim to raise living standards by a sounding interaction with other countries.
Ex: tariff
Inward oriented policies
Promote integration with the world economy
Outward oriented policies
Ways that population affects living standards
Stretching natural resources, diluting the capital stock, and promoting technological progress
The group of institutions that helps match the saving of one person with the investment of another
Financial systems
Institutions through which savers can directly provide funds to borrowers
Financial markets
A certificate of indebtedness
Bond
A claim to partial ownership in a firm
Stock
Institutions through which savers can indirectly provide funds to borrowers
Financial intermediaries
Institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds
Mutual funds
Tax revenue less government spending
Public saving
An excess of tax revenue over government spending
Budget surplus
A shortfall of tax revenue from government spending
Budget deficit
National savings
Supply
Demand
Investment
Increase in budget deficit causes fall in investment, gov borrows leaving less funds avail ale for investment
Crowding out
Paid employees, self employed and unpaid workers in a family business
Employed
People not working who have looked for work during previous four weeks
Unemployed
The total number of workers including employed and unemployed
Labor force
The normal rate of unemployment around which the actual employment rate fluctuates
Natural rate of unemployment
The deviations of unemployment from its natural rate, associated with business cycles
Cyclical unemployment
Occurs when workers spend time searching for the jobs that best suit their skills and tastes. Short term for most
Frictional unemployment
Occurs when there are fewer jobs than workers
Structural unemployment
Process of matching workers with appropriate jobs
Job search
Changes in the composition of demand across industries or regions of the country
Sectoral shifts
Provide info about job vacancies to speed up the matching of worker with jobs
Gov employment agencies
Aim to equip workers displaced from declining industries with the skills needed in growing industries
Public training programs
A gov program that partially protects workers incomes when they become unemployed
Unemployment insurance
A worker association that bargains with employers over wages benefits and working conditions
Union
Firms voluntarily play above equilibrium wages to boost worker productivity
Efficiency wages
Natural rate of unemployment consists of
Frictional unemployment and structural unemployment
The stock of equipment and structures used to produce goods and services
Physical capital
The market in which those who want to save supply funds and those who want to borrow invest funds
Market for loanable funds
The process by which unions and firms agree on the terms of employment
Collective bargaining
The exchange of one good or service for another
Barter
Unlikely occurrence that two people each have a good the other wants
Double coincidence of wants
An item buyers give to sellers when they want to purchase goods and services
Medium of exchange
The yardstick people use to post prices and record debs
Unit of account
An item people can use to transfer purchasing power from the present to the future
Store of value
Takes the form of a commodity with intrinsic value
Commodity money
Money without intrinsic money used as money because of gov decree
Fiat money
Balances in bank accounts that depositors can access on demand by writing a check
Demand deposits (part of money supply)
An institution that oversees banking system and regulates money supply
Central bank, fed reserve of US
Banks keep a fraction of deposits as reserves and use the rest to make loans
Fractional reserve banking system
Regulations on the minimum amount of reserves that banks must hold against deposits
Reserve Requirments
Fraction of deposits held as reserves, total reserves as percentage of total deposits
Reserve ratio
The amount of money each banking system generates with each dollar of reserves
Money multiplier
Reserves and loans, securities
Assets
Deposits funds from debt and equity
Liabilities
The resources a bank obtains by issuing equity to its owners
Bank capital
Use of borrowed funds to supplement existing funds for investment purposes
Leverage
Ratio of assets to bank capital
Leverage ratio
A gov regulation that specifies a min amount of capital intended to ensure banks will be able to pay off depositors and debts
Capital requirement
Banks with too little capital
Credit crunch
The purchase and sale of US gov bonds by the fed
Open market operations (buy increase sell decrease money supply)
Interest rate on loans Fed makes to banks
Discount rate
Interest rate on loan from bank to bank
Federal funds rate
Measured in monetary units
Nominal variables
Measured in physical units
Real variables
Price of one good relative to another
Relative price
Theoretical separation of nominal and real variables
Classical dichotomy
Proposition that changes in the money supply do not affect real variables
Monetary neutrality
Rate at which money changes hands
Velocity of money
Printing money causes inflation, which is like a tax on everyone who holds money
Inflation tax
Fisher effect
Nominal interest rate=inflation rate +real interest rate
The resources wasted when inflation encourages people to reduce their money holdings
Shoeleather costs
The costs of changing prices
Menu costs
Inflation changes the yardstick we use to measure transactions
Complicated long range planning and comparison of dollar amounts over time
Confusion and inconvenience
Firms don’t all raise prices at same time so relative prices can vary which distorts allocation of resources
Misallocation from relative price variability
Inflation makes nominal income grow faster than real income, taxes based on nominal
Tax distortion
Higher than expected inflation power from creditors to debtors, relay with dollars worth less and vice versa
Arbitrary redistribution a of wealth
