Econ Ch 1 Flashcards
Microeconomics
Study of households + firms making choices, now they interact W/ markets & how govtries to influence choices
Macroecon
Study of economy as a whole ( inflation, unemployment, & economic growth)
Short-Run - business cycle
Alternating periods of economic expansion & recession
Long run- Lr Econ growth
The process of which increasing productivity raises standard of living
Long run - labour productivity
Quantity of goods services that can be produced by one worker or by 1 hr of work
What is one determinant of growth?
→ ability to expand& fund operations
Real GDP
→ market value of final goods & services adjusted for the price level
Lr Econ.. Growth is measured by.
Real GDP product /person
Real GDP calculation
Original price x quantity
Labour force
Sum of employed & unemployed workers
Unemployment rate
% Of labour force that is unemployed
Inflation rate
% Increase in price level from year to year
Deflation
Sustained decrease in price level
Monetary policy
Actions by central banks to manage
→ supply
→ interest rates
That are intended to achieve macroeconomic policy objectives
Fiscal policy
Changes in gov taxes + purchases that are intended to achieve macroeconomic policyobjectives
Financial crisis
Involves significant disruption in flow of funds from lenders to borrowers
Best ways to analyze macroeconomic issues
① gather data
② form models capable of analyzing data
Economic variables
Something measurable that can have diff values [ rate of inflation ]
Endogenous variable
Explained by an economic model
Exogenous variable
Taken as given & not explained by model
Positive analysis
→ concerned W/ “what is”
~ examines from objective POV
~ measures costs & benefits of different course ofaction
~ Econ about + analysis
Normative analyses
“What ought to be”
Quantitative easing
Purchases [ or sales ] of long term gov assets
Forward guidance
Announcement by central bank that interestrates will remain low for extendended period of time
Automatic stabilizer
Mechanisms impacting taxes & spending when in a recession
Great Recession - policy response
① fiscal policy used ② higher gov spending ③ automatic stabilizers ④ active & automatic fiscal policies raised by gov deficit & debts ⑤ debt ofmany countries exploded ⑥ increased debt caused problems
Common features of financial crises
① asset price boom & bust ② insolvencies@ financial institutions ③ falling confidence
The TED spread measures _
Perceived credit risk of banks
What happened to the severity of the business cycle since 1950?
There has been greater economic stability W/ smaller fluctuations in real GDP, longer expansions & shorter recessions
Most periods of high inflation have been during _. In the last 40 years periods of deflation have been _
① late 1970 & early 1980’s,② uncommon
a country like china is more open than Belgium bc it is larger has a higher total value of importsand exports
Openness is defined by the ratio of foreign trade to GDP
Leverage=
Assets ÷[ assets-liabilities ]
How can nominal GDP & real GDP be used to calculate a price index?
=[ nominal ÷ real ]* 100
