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ECON 202 FINAL > ECON 202 FINAL > Flashcards

ECON 202 FINAL Flashcards

Practicing final

1
Q

What is macroeconomics?

A

The study of the performance of the national economy.

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2
Q

What is the business cycle referring to?

A

The fluctuations in real GDP and the two phases of expansion and recession.

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3
Q

Recessions

A

Phases of persistent decline in production.

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4
Q

Business Cycle Peak

A

turning point between expansion and recession

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4
Q

Expansions

A

phases of persistent increase in production

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5
Q

Business Cycle Trough

A

turning point between recession and expansion

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6
Q

Business Cycle Sequence

A

Expansion - Peak - Recession - Trough

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7
Q

Inflation

A

Increases in the overall level of prices

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8
Q

Deflation

A

Decreases in the overall level of prices

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9
Q

Nominal GDP

A

The market value of all the final goods and services produced within a country in a given time period.

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10
Q

Market Value

A

The price for which a good of service is sold in a market.

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11
Q

Final Goods and Services

A

A good or service that is purchased by its final user.

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12
Q

Intermediate Goods and Services

A

Items that are produced by one firm, brought by another firm, and used as a component of a final good or service.

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13
Q

Expenditure Approach (to measure GDP)

A

Measure total expenditures on final goods and services produced within a country in a given time period.

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14
Q

Income Approach (to measure GDP)

A

Measure total income received by factors of production operating within a country in a given time period.

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15
Q

Personal Consumption Expenditures (C)

A

Spending by domestic households on consumer goods and services.

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15
Q

Gross Private Domestic Investment (I)

A

Spending by domestic firms on new capital goods and additions to inventories. (also expenditure on new homes by households).

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15
Q

Capital Goods

A

Goods that are used to produce other goods and services, but are not completely used up in the production of these other goods and services.

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16
Q

Additions to inventories

A

Goods that are produced but are not sold to their final user inside of the period we are measuring GDP.

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16
Q

Government Expenditure on Goods and Services (G)

A

Purchases of goods and services by the domestic federal, sate and local governments.

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16
Q

Transfer Payments

A

Cash transfers from governments to households and firms such as social security benefits, unemployment compensation, and subsidies.

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16
Q

Imports (M)

A

Purchases of goods and services by the domestic economy from the rest of the world.

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17
Q

Net Exports of Goods and Services (X-M)

A

The value of exports minus the value of imports

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17
Q

Exports (X)

A

Sales of goods and services by the domestic economy to the rest of the world.

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17
Q

Net Exports

A

Exports - Imports = X - M

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18
Q

X - M is negative

A

trade deficit

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18
Q

X - M is positive

A

trade surplus

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19
Q

GDP

A

=C + I + G + X -M

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20
Q

Stock of Capital Goods (Or Capital Stock)

A

The total amount of capital goods currently operating in the economy

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21
Q

Deprecation

A

The decrease in the existing stock of capital goods that results from wear and tear and obsolescence

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22
Q

Net Private Domestic Investment

A

Gross Private Domestic Investment minus Deprecation (note - capital stock will increase if Net Private Domestic Investment is positive)

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23
Q

Net Domestic Product

A

GDP - Deprecation

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24
Q

How are goods and services produced?

A

Using factors of production (labor, capital equipment, land, entrepreneurship)

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25
Q

Compensation of Employees

A

Payment for labor services

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26
Q

Corporate profits

A

Profits earned by corporations

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27
Q

Proprietor’s income

A

Income of the non-incorporated self-employed

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28
Q

Rental Income

A

Payment for the use of land and other rented resources

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29
Q

Real Gross Domestic Product (real GDP)

A

measure the market value of production in all years using a fixed set of market values from some common year, called the base year.

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30
Q

Household Production

A

Goods and services that are produced for personal use.

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31
Q

Underground Economy

A

Market transactions for goods and services where the market value isn’t observed

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32
Q

Standard of living

A

A comprehensive state of economic well being, including things such as income levels, quality of housing and food, medical care, educational opportunities, transportation, communications, and other measures.

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33
Q

Real GDP per person

A

real GDP divided by the population of the nation

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34
Q

CPI for year T

A

= (Total cost of CPI basket in the prices of the year T / Total cost of CPI basket in the prices of base year) x 100

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35
Q

GDP Deflator for year T

A

= (Nominal GDP for year T / Real GDP for year T) x 100

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36
Q

Inflation Rate for year T

A

= [(Price level for year T - Price Level for year (T-1))/(Price Level for year (T-1))] x 100

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37
Q

Real Wage Rate for year T

A

= (Nominal wage for year T / Price Level for year T) x 100

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38
Q

Unemployment Rate

A

The unemployment rate is the number of people who can’t find a job, expressed as a percentage of all those who either have a job or are actively looking for one.

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39
Q

Current Population Survey

A

A monthly survey of 60,000 households conducted by the US Census Bureau

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40
Q

Working-Age Population

A

The total number of people aged 16 years and over who are not institutionalized

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41
Q

Employed

A

To be considered employed, you must either have a full or part-time job

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42
Q

Unemployed

A

To be considered unemployed you must fall under one of the three categories:
1) You have made specific efforts to find a job within the previous four weeks.
2) You are waiting to be called back to a job from which you have been laid off.
3) You are waiting to start a job within 30 days.

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42
Q

Not in the Labor Force

A

Those who are in the working-age population but are not employed or unemployed.

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43
Q

Labor Force

A

The sum of the number of employed and unemployed persons.

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44
Q

Unemployment Rate:

A

(Number of Unemployed / Labor Force) x 100

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45
Q

Marginally Attached Workers

A

A person who currently is not working and has not looked for work in the previous four weeks, but has indicated they want and are available for work and have looked for work sometime in the recent past.

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46
Q

Discouraged Worker

A

A marginally attached worker who has stopped looking for a job because of repeated failures to find one

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47
Q

Economic Part-Time Workers

A

Workers who hold part-time jobs but wish to have full-time jobs.

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48
Q

Structural Unemployment

A

Unemployment that exists when changes in the economy change the skills needed to perform jobs or change the location of jobs.

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49
Q

Frictional Unemployment

A

Unemployment that arises from “normal labor market turnover” (includes: people re-entering the labor force, because of the ongoing creation and destruction of jobs, and from people voluntarily leaving jobs to search for other ones)

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50
Q

Cyclical Unemployment

A

Fluctuations in unemployment caused by the business cycle.

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51
Q

Natural Unemployment Rate

A

The unemployment rate that exists when all unemployment is either frictional unemployment or structural unemployment.

51
Q

Full Employment

A

The aggregate number of hours of work done by workers in an economy when the unemployment rate equals the natural unemployment rate.

52
Q

Demand for Labor

A

The relationship between the aggregate quantity of labor demanded by firms and the real wage rate. Firms will hire more hours of labor if the real wage rate declines.

53
Q

Supply for Labor

A

The relationship between the aggregate quantity of labor supplied by workers. Workers will supply more hours of labor if the real wage rate increases.

54
Q

Labor Market Equilibrium

A

Occurs when the amount of labor demanded is equal to the amount of labor supplied.

54
Q

Potential Real GDP

A

The quantity of Real GDP produced at full employment

55
Q

What does the output gap show?

A

The distance between real GDP and potential real GDP.

56
Q

Output Gap

A

= Real GDP - Potential Real GDP

56
Q

Labor Productivity

A

The quantity of the real GDP produced by an hour of labor

57
Q

The Stock of Capital Goods

A

How many and what type of capital goods are in the economy

58
Q

Human Capital

A

The knowledge and skill that people obtain from education, on-the-job training, and work experience.

59
Q

Where does Growth in Labor Productivity come from?

A

Growth in the Stock of Capital Goods, Growth in Human Capital, Technological Advances (both human capital and capital goods are influenced by technological advances)

60
Q

Growth Rate of Real GDP

A

The annual percentage growth rate of Real GDP

61
Q

Economic Growth

A

The growth of potential real GDP

62
Q

Growth Rate of Real GDP Per Person in year Z

A

= (Real GDP per person in year Z - Real GDP per person in previous year / Real GDP per person in previous year) x 100

63
Q

Rule of 70

A

Tells us that the number of years it takes any variable to double is approximately 70 divided by the annual percentage growth rate of that variable.

64
Q

Money

A

Any commodity or token that is a Medium of Exchange, meaning it is generally acceptable as a means of payment.

65
Q

Means of Payment

A

A method of settling a debt.

66
Q

Barter

A

An economic system in which goods and services must be exchanged directly for other goods and services.

67
Q

Double Coincidence of Wants

A

For an exchange of goods or services to occur in a barter system, both sides must want the other good or service that the other is offering

68
Q

Unit of Account

A

The agreed upon measure for stating the prices of goods and services

69
Q

Store of Value

A

Something that can be held and exchanged later for goods and services.

70
Q

M2

A

The primary monetary aggregate in use today

70
Q

Monetary Aggregates

A

Official measures of the amount of money in the US

71
Q

Liquid Assets

A

Assets that are easily convertible into a means of payment without a loss in value

72
Q

What does M2 consist of?

A

Currency owned by individuals and businesses, Checking Deposits, Other Liquid Deposits, Time Deposits, and Deposits with Money Market Mutual Funds

73
Q

Depository Institution

A

A financial firm that takes deposits from households and firms and makes loans to other households and firms. There are different types of depository institutions, including; Commercial Banks, Savings and Loan Associations, Savings Bank, Credit Unions, and Money Market Mutual Funds.

74
Q

Federal Reserve System

A

The central bank of the US

74
Q

What types of Assets do Depository Institutions own?

A

1) Reserves: Currency in the bank’s vaults and deposits held with the Federal Reserve.
2) Other Cash Assets: Primarily loans to other banks. These earn interest at an interest rate known as the Federal Funds Rate.
3) Securities: This includes very low risk investments in the US government Treasury bills and corporate bills, as well as higher risk investments in the US government treasury and corporate bonds and mortgage-backed securities.
4)Loans: Loans made to businesses and individuals.

74
Q

What are the 3 primary goals the central bank of an economy has?

A

1) Serves as a bank for depository institutions.
2)Regulates depository institutions.
3)Conducts monetary policy: adjusting the amount of money in the economy and influencing interest rates.

74
Q

What are the primary goals in conducting the monetary policy of the Federal Reserve?

A

Keep inflation low and maintain full employment.

74
Q

What are the three components of the Federal Reserve System?

A

Board of Governors, Regional Federal Reserve Banks, Federal Open Market Committee or “FOMC”

75
Q

What comprises the Board of Governor’s?

A

There are 7 members, and each member is appointed by the president and confirmed by the senate for a 14 year term. One of the board members serves as their Chair of the Board of Governors.

76
Q

Jerome Powell

A

The current chair of the Board of Governors.

76
Q

Federal Open Market Committee (FOMC)

A

The component of the Federal Reserve System that is in charge of conducting monetary policy. There are 12 voting members of the FOMC, including the 7 members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four presidents of the other 11 regional Federal Reserve banks on a rotating basis.

76
Q

Open Market Operation

A

The purchase or sale of financial assets (usually US government Treasury Bills and Bonds) in the open market

76
Q

Regional Federal Reserve Banks

A

There are 12 regional Federal Reserve Banks that provide services to local depository institutions.

77
Q

Open Market Purchase

A

Increases deposits in depository institutions and thus the quantity of money in the economy.
Increase the level of bank reserves.

78
Q

Open Market Sale

A

Decreases deposits in depository institutions and thus the quantity of money in the economy.
Decrease the level of bank reserves.

79
Q

When do we say a bank has Unplanned Reserves?

A

If bank reserve has above its Desired Reserves

80
Q

Monetary Base

A

The sum of currency and bank’s deposits of reserves with the Federal Reserve

80
Q

Real Money Supply

A

the money supply divided by the price level

80
Q

Money Multiplier

A

= (change in quantity of money / change in monetary base)

80
Q

Unplanned Reserves

A

Can be used by banks to make additional loans

80
Q

Money Multiplier

A

Gives the multiple for the change in the quantity of money that results from a change in the monetary base

80
Q

Money Supply

A

The amount of money in the economy at a particular point in time also known as Nominal Money Supply

80
Q

Real Money Demand

A

the amount of real money that people choose to hold as part of their real wealth

80
Q

Real Wealth

A

Wealth divided by the price level

81
Q

Wealth

A

the sum of values of the assets that people own

82
Q

Nominal Interest Rate

A

The annual interest received by the provider of financial capital, expressed as a percentage of the amount of funds provided

82
Q

Real Interest Rate

A

The annual real interest received by the provider of financial capital, expressed as a percentage of the of the real amount of funds provided

82
Q

When the nominal interest rate rises:

A

people wish to hold less real money and more bonds

82
Q

Real Interest Rate equation

A

nominal interest rate - inflation rate

82
Q

When the nominal interest rate falls:

A

people wish to hold more real money and less bonds

83
Q

Equation of Exchange

A

(Nominal Money supply * Velocity) = (Price Level * Real GDP)

83
Q

Bond

A

A promise by an organization (such as a firm or the government) to make specified payments on specified dates. There is an implicit interest rate associated with a bond. Higher bond prices mean lower nominal interest rates for the bond.
Lower bond prices mean higher nominal interest rates for the bond.

83
Q

equilibrium real wage rate

A

the real wage rate that ensures that the quantity of labor supplied equals the quantity of labor demanded

83
Q

Velocity

A

The average number of times a dollar of money is used annually to buy the goods and services that make up nominal GDP

83
Q

After-tax disposable income

A

income minus taxes plus transfer payments

83
Q

Aggregate Supply / Aggregate Demand (AS/AD) model

A

a graphical model of how real GDP and the price level are determined in an economy over the shorter run and the transition into the longer run

83
Q

Quantity of Real GDP Demanded definition:

A

= Real Personal Consumption Expenditures + Planned Real Gross Private Domestic Investment + Real Government Expenditure on Goods and Services + Real Net Exports on Goods and Services

83
Q

Quantity of Real GDP Demanded

A

The total amount of final goods and services produced inside the US that people, businesses, and the government and foreigners plan to buy

84
Q

When do firms accumulate unwanted inventories?

A

When Real GDP > Quantity of Real GDP Demanded

84
Q

Aggregate Demand Curve

A

shows the relationship between the aggregate price level in the economy and the quantity of real GDP demanded

84
Q

Quantity of real GDP supplied

A

the total quantity of final goods and services that firms pan to produce. the quantity of real GDP supplied is always equal to real GDP.

84
Q

Real wage rate

A

Money wage rate divided by the price level

84
Q

Nominal wage rate

A

number of dollars that an hour of labor earns

84
Q

Fiscal Policy

A

The governments attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services

84
Q

Potential real GDP

A

the level of real GDP produced when the economy is operating at full employment

85
Q

macroeconomic “long run”

A

a period of time long enough for the labor market to adjust to the equilibrium and for real GDP to to equal potential GDP

86
Q

macroeconomic “short run”

A

a period of time shorter than the long run for which real GDP can differ from potential GDP

87
Q

Long-Run Aggregate Supply Curve

A

shows the relationship between the aggregate price level in the economy and the quantity of real GDP supplied in the long run (when real GDP is equal to potential GDP)

88
Q

Short-Run Aggregate Supply Curve

A

shows the relationship between the quantity of real GDP supplied and the aggregate price level in the short-run when the money wage rate and potential real GDP remain constant

89
Q

short-run macroeconomic equilibrium

A

occurs at the intersection of the SAS and AD curves
This intersection determines a short-run equilibrium price level and a short-run equilibrium level of real GDP

90
Q

long-run macroeconomic equilibrium

A

occurs at the intersection of the SAS, LAS, and AD curves
This intersection determines a long-run equilibrium price level
The long-run equilibrium level of real GDP is potential real GDP

91
Q

Below full-employment equilibrium

A

A short-run macroeconomic equilibrium in which potential GDP exceeds real GDP

92
Q

Above full-employment equilibrium

A

A short-run macroeconomic equilibrium in which real GDP exceeds potential real GDP

93
Q

Stagflation

A

the simultaneous occurrence of a recession and increased inflation

94
Q

Demand Pull Inflation

A

inflation that occurs when aggregate demand increases, which shifts the AD curve to the right

95
Q

Cost Push Inflation

A

inflation that occurs when the cost of production increases, which pushes producers to raise their prices

96
Q

Federal Budget

A

An annual statement of the outlays and receipts of the US government, together with the laws and regulations that approve and support them.

97
Q

Receipts

A

How much revenue the federal government collects

98
Q

Outlays

A

How much the government spent

99
Q

fiscal policy

A

the use of tax policy and spending decisions to achieve desired macroeconomic objectives

100
Q

Employment Act of 1946

A

requires congress to use fiscal policy to “promote maximum employment, production, and purchasing power”.

101
Q

When do we say that the government has a budget deficit?

A

When the receipts are less than the outlays

102
Q

fiscal stimulus

A

a fiscal policy activity that attempts to push real GDP back toward potential real GDP

103
Q

automatic fiscal policy

A

fiscal stimulus that happens automatically in a recession

104
Q

discretionary fiscal policy

A

fiscal stimulus that requires an act of Congress
(ex: American Recovery and Reinvestment Act of 2009, the CARES Act of 2020, and the ARPA Act of 2021)

105
Q

Recognition Lags

A

We don’t observe exactly what is going on in the economy in real time. One of the factors that causes a delay when using fiscal stimulus.

106
Q

Law Making Lags

A

Even after we know a recession has started, it takes time for Congress to debate and pass discretionary fiscal policy legislation. One of the factors that causes a delay when using fiscal stimulus.

107
Q

Impact Lags

A

Even after fiscal stimulus is implemented, it can take time before its effects on the economy are felt. One of that factors that causes a delay when using fiscal stimulus.

ECON 202 FINAL (1 decks)

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