chapter 1 and 2

Question 1

five most important ideas of econ

Answer 1

Every choice involves an opportunity cost
Choices are based on self interest
Comparative advantage-trade creates wealth
Prices transmit important information
Institutions matter

Question 2

Gross Domestic Product

Answer 2

The market value of all final goods and services produced within a country over a given year
-value added
-expenditure
-income

Question 3

GDP or national output is a

Answer 3

a countries budget constraint

Question 4

balance of trade

Answer 4

EX-IM

Question 5

factors of production

Answer 5

labor, capital, efficiency

Question 6

Supply Siders

Answer 6

increase the factors of production so as to increase output
Lower tax rates: so people have incentives to contribute to these things

Question 7

key point for a country…

Answer 7

the long-term constraint on consumption and investment is the amount of output that can be produced

Question 8

Keynes

Answer 8

explained what he thought happened and what to do. Psychology and expectation (animal spirits), price rigidities, demand matters and the government should manage it

Question 9

Rothbard

Answer 9

expansionary monetary policy in the 1920’s, H. Hoover’s wage rigidities. Government printed a lot of money.

Question 10

money =

Answer 10

= Claim on future output. It is worthless
its is worthless without any output

Question 11

investment is

Answer 11

renouncing to consumption to instant gratification to have a better future- if you don’t save there is no way to invest

Question 12

savings come in three different ways

Answer 12

private, government, and foreign

Question 13

heart of macoeconomics

Answer 13

national output

Question 14

why run a trade surplus

Answer 14

They expect to get back additional output from their trading partners in the future

Question 15

when they import more than export

Answer 15

the country must borrow from foreigners to finance the difference

Question 16

current account

Answer 16

Current transactions such as exports and imports of goods and services are recorded in the

Question 17

financial accounts

Answer 17

Financial transactions including sales of stocks and bonds to foreigners are recorded in the

Question 18

david ricardo

Answer 18

first articulated comparitive advantage

Question 19

manage demand

Answer 19

actual output can fall short of potential output when demand falters

Question 20

Current output that is intended to increase future output is called

Answer 20

investment

Question 21

main role of money

Answer 21

facilitate exchange

Question 22

inflations, exchange rates and interest rates are all

Answer 22

prices of money

Question 23

interest rate

Answer 23

price of holding money or consuming today

Question 24

Why is lowering the interest rate a common policy in response to recessions?

Answer 24

because more people are spending money to get the economy moving. price of money is lower so people spend

Question 25

exchange rate

Answer 25

the price of one currency in terms of another (appreciation favors imports and depreciation favors exports)
-$ gets more expensive/stronger- appreciates; depreciation- $ gets weaker/ cheaper, helps exports.

Question 26

inflation

Answer 26

means the aggregate price level is increasing. Inflation, therefore, lowers the value of money . money is worth more when inflation is low cause you can buy more with it

Question 27

monetary policy

Answer 27

Central Bank can increase money supply by printing more currency and injecting it into the economy
-Consequence is inflation
-Interest rates fall, exchange rate depreciates, price level rises

Question 28

monetary policy (decrease supply)

Answer 28

Can also decrease the money supply by selling T-bills
-Bonds issued by government- debt- loaning money to the government
-Too much cash? They do this
-Interest rates rise, exchange rates appreciates, price level falls

Question 29

nominal gdp

Answer 29

quantity * price, uses prices today (this year)

Question 30

real gdp

Answer 30

uses prices from a different year, uses prices that are normal (base year is updated by bureau of statistics- chain link method)

Question 31

GDP Deflator

Answer 31

nominal gdp / real gdp
-Measure of inflation

Question 32

real interest rates=

Answer 32

nominal interest rates- expected inflation

Question 33

real interest rates…

Answer 33

represents the effective rate of interest on a loan after controlling for inflation

Question 34

appreciates and favors imports

Answer 34

If $ becomes more expensive, than your $ is appreciating and you want to buy japanese calculator

Question 35

% change in real exchange rate

Answer 35

% change nominal exchange rate - (japan inflation %- US inflation %)

Question 36

Why would the nominal exchange rate depreciate when there is an increase in money supply?

Answer 36

Currency becomes less valuable so nominal exchange rate goes down

Question 37

money multipliers

Answer 37

I / proportion of leakage

Question 38

bank runs or bank panics

Answer 38

When a lot of people go to the bank to withdraw money at the same time.

Question 39

three basic tools of monetary policy

Answer 39

discount rate, open market operations, reserve requirments

Question 40

discount rate

Answer 40

Rate at which banks can borrow from the federal reserve
Decreasing the discount rate– A way to expand money supply

Question 41

open market operations

Answer 41

buying and selling treasury bills, buying treasury bills will increase the money supply because you buy them with cash. Too much money you sell the t bills to get money back. Most important

Question 42

reserve requirements

Answer 42

banks keep 10% of all deposits for reserve. Increases to 20% then money supply decreases because the bank has it.