Chapters 8-11 (Final Exam) Flashcards
Labor Supply Curve
represents relationship between quantity of labor supplied and wage
- upward sloping
labor demand curve
relationship between quantity of labor demanded and wage
- downward sloping
equilibrium
point of intersection between labor supply and labor demand curve
- all workers are able to work as many hours as they wish at this wage and all firms are able to hire as many hours of labor as they find profitable
Efficiency wages
wages above the lowest pay that workers would accept; employers use them to increase motivation and productivity
discouraged workers
someone who is unemployed and has given up looking for work in the last four weeks
no longer counted as unemployed
Money
asset people use to make and receive payments when buying and selling
- medium of exchange
- store of value
- unit of account
Demand deposits
funds that depositors can access on demand by withdrawing money from the bank, writing checks, or using their debit cards
funds “loaned” to the bank by depositors
inflation
rising prices
Inflation rate = growth rate of money supply - growth rate of real GDP
Credit demand curve
reports relationship between quantity of credit demanded and real interest rate
- as real interest rate rises, quantity of credit demanded falls
Labor Force
sum of all employed and unemployed workers
Foreign Aid
international transfer of capital, goods, or services from a country or international organization for the benefit of the recipient country or its population
Unemployment
does not have a job and is actively looking for work in the prior 4 weeks, and is currently available for work
Assets
anything owned by the bank
divided into 3 categories:
- reserves
- cash and cash equivalents
- long-term investments
Liabilities
4 categories:
- demand deposits
- short term borrowing
- long term debt
- stockholders’ equity
Wage ceiling
max limit on upper boundary set on wages
wage floors
minimum legal or agreed upon salary or hourly wage that employers are required to pay employees for their labor
Productivity Wages
workers are paid based on level of productivity
higher productivity = higher wages
hyperinflation
extreme inflation where prices double in 3 years
reserves
funds or assets held by financial institutions that are set aside to meet specific regulatory requirements or ensure financial stability
commercial bank
financial institution where people can deposit money, borrow money, and get financial services like loans and checking accounts
minimum wage
lowest amount of money employers are legally required to pay workers for their labor
property rights
legal rights of individuals or businesses to own, use, and control property
Worker’s marginal product
additional amount of goods or services produced by adding one more worker
unemployment rate
100% * (unemployment/labor force)
central banks
manages country’s money supply, interest rates, and overall economic stability
financial intermediaries
channel funds from suppliers of financial capital to users of financial capital
GDP
Gross domestic product
C + I + G + (X-M)
discount window
used by federal reserve to lend money directly to commercial banks and other institutions in need of short term funds
Federal funds market
banks lend reserves to each other to meet reserve requirements set by federal reserve
extractive institutions
removes resources from economy
causes of prosperity
Fundamental:
- geography
- culture
- institutions
Proximate:
- physical capital
- human capital
- technology
credit demand
need for loans or credit
credit supply
amount of money that lenders are willing to lend borrowers at various interest rates
Interest
additional payment that borrower makes
Loan
money that one party gives to another party with the agreement that it will be paid back, usually with interest
M1
liquid forms of money
- currency (coins or paper money)
- demand deposits
M2
includes M1
- money supply
- sum of currency in circulation
federal funds rate
interest rate at which banks lend money to each other overnight to meet reserve requirements
spot interest rate
current interest rate for a loan or investement that is settled immediately
subsidized interest rate
lower interest rate on a loan that is partially paid for by someone else
discount window interest rate
interest rate at which commercial banks can borrow money directly from federal reserve
nominal interest rate
i
annual cost of a $1 loan
real interest rate
r
annual real or inflation adjusted cost of a $1 loan
real interest rate = nominal interest rate - rate of inflation
wage rigidity
condition in which the market wage is held above competitive equilibrium level that would clear the labor market
wage stability
consistent and predictable level of wages over time
wage discrimination
differences in wages exist across different groups of workers even when they do same job or work of equal value
medium of exchange
can be traded for goods and services
unit of account
expresses relative prices
store of value
enables people to transfer purchasing power to the future
