Endterms Flashcards
Private goods
excludabe and rival
Public goods
nonexcludable and nonrival
Free rider
Someone who enjoys the benefits but doesnt pay the share of the costs
Forced rider
Someone who pays the shared costs but doesnt enjoy the benefits/dislikes them
Club goods
excludable but nonrival
Common resources
non-excludable but rival
tragedy of the commons
overexploitation and undermaintenance of goods
Public choice
the study of political behaviour usint the tools of economics
rational ignorance
the benefits of being informed are less than the cost of doing so
GDP
the market value of all final goods and services within a country within a year
Intermediate goods
goods and services sold to firms them bundled/processed for sale
GDP per capita
GDP divided by the country’s population
National wealth
entire stock of assets within a nation
Nominal variables
haven’t been adjusted for changes in price
Nominal GDP
calculated using the prices at the time of sale
Real variables
adjusted for changes in price (inflation)
Real GDP
is determined using the same prices in all years
Recession
significant and widespread decline in employment and GDP
Business fluctuations/cycles
short run movements in real GDP around its long term trends
Consumption
private spending on final goods and services
Investments spending
private spending on capital goods used for future output
Government purchases
spending by all levels of government on final goods and services (transfers not included)
Net exports
value of exports and imports
Catching up growth
growth due to capital accumulation, using already existing technologies and ideas
Cutting edge growth
growth due to new ideas
Marginal product of capital
the increase in output caused by one additional unit of capital
Conditional convergence
the tendency for poorer countries to grow faster than richer ones and thus converge
unemployed workers
people with no jobs looking for work
unemployment rate
the percentage of people without a job (unemployed/employed+unemployed)*100
labour force participation rate
the percentage of adults in the labour force
Discouraged workers
people who have given up looking for work but are willing to work
underemployment rate
people who have given up looking for but are willing to work, part time workers who would work full time
Frictional unemployment
short term unemployment caused by the difficulties of matching employees to employers
Structural unemployment
persistent long term unemployment caused by long lasting shocks or permanent features of the economy
cyclical unemployment
the regular ups and downs of the business cycle
medium wage
the wage that one half of all workers earn above and below the median
union
association of workers that bargains collectively with employers
unemployment at will doctrine
states that an employee can leave or be fired for any reason whenever
employment protection laws
create insurance for full time workers and makes the market more flexible and dynamic
inflation
increase in the average level of prices
Inflation rate
increase in the average level of prices measured in percentage ((P2-P1)/P1)*100
Consumer Price Index
measures the average price for a basket of goods in a country’s population
GDP deflator
ratio of nominal GDP multiplied by 100
PPI (Producer price indexes )
the average price received by producers, uses intermediate and final goods aswell
Real price
price corrected for inflation
Velocity of money
the average number of times a dollar is spent on final goods and services in a year
Deflation
decrease in the average level of prices
Disinflation
reduction in the inflation rate
Money illusion
people mistaking changes in nominal instead of real prices
Real rate of return
the nominal returns minus the inflation rate
Nominal rate of return
the rate of returns not accounting for inflation
Fisher effect
the tendency of nominal interest rates to rise with expected inflation rates. interest rate = expected inflation rate + real interest rate
Monetizing debt
is when a government pays off debt by printing money
Business fluctuations
fluctuations on the growth rate of real GDP around its trend growth rate
Recession
significant widespread decline in real income and employment
Aggregate demand curve
shows all combinations of inflation and real growth, given a specific growth rate (m+v)
Solow growth rate
the economy’s potential growth rate, the rate of economic growth that would occur given flexible prices and the existing real factors of production
Long run aggregate supply curve
vertical at the solow growth rate
Real shock
any shock that increases/decreases the potential growth rate
Short-run aggregate supply (SRAS) curve
upward sloping, shows the positive relationship between inflation rate and real growth when prices are sticky.
Aggregate demand shock
rapid unexpected shift in the Aggregate Demand curve (spending)
Nominal wage confusion
happens when workers respond to the number on the paycheck instead of real buying power of their wage.
intertemporal substitution
allocation of consumption work and leisure time to maximize well being
irreversible investments
have high value only under specific conditions, cannot be easily moved, adjusted or reversed
Labour adjustment costs
the costs of shifting workers from declining to growing sectors
Time bunching
the tendency for economic activities to be coordinated at common time points, making buying and selling more efficient, but spreading shocks throughout time
Collateral
valuable asset pledged to the lender to secure a loan. If the borrower defaults, the ownership of it is transferred
COllateral shock
reduction in the value of a collateral
Federal resever
the bankers bank, It can issue money to banks
Liquid asset
can be used for payments quickly or converted to do so
Fractional reserve banking
banks only holding a fraction of deposits in reserve, lending the rest
Reserve ratio
ratio of reserve to deposit
Money multiplier
the amount the money supply expands with each dollar increase in the reserve
Quantitative easing
Fed buying longer term government bonds or securities
Quantitative tightening
Fed selling longer ternm government bonds or securities
Federal Funds rate
the overnight lending ratefrom one major bank to another
Lender of last resort
loans money to banks and financial institutuions when no one else will
Discount rate
the interest rate paid by the bank borrowed directly from the Fed
Solvency crisis
occurs when banks become insolvent
Insolvent bank
has liabilities greater than assets
Liquidity crisis
occurs when banks become illiquid
Illiquid bank
has short term liabilities greater than its short term assets, but overall has assets greater than liabilities
Systematic risk
the risk that one financial institutons failure can bring down others
Moreal hazard
financial institutions taking too much risk in hopes of the Fed and regulators bailing them out
Disinflation
significant reduction in the rate of inflation
Deflation
decrease in prices, a negative inflation rate
Marginal tax rate
the tax paid on an additional dollar of income
Average tax rate
total tax divided by total income
Progressive tax
tax that rates higher on people with higher incomes
Flat tax
constant tax rate
Regressive tax
tax that rates higher on people with lower incomes
National debt held by the public
all federal debt held by individuals, corporations etc. other than the U. S . federal government
Deficit
the annual deficit between federal spending and revenues
trade deficit
the value of a countrys imports exceed its exports
trade surpus
the value of a countrys exports exceed its imports
balance of payments
yearly summary of all transactions between residents of a country and the rest of the world
Capital surplus
when the onflow of ferign capital is greater than the outflow of domestic capital
Capital account
measures changes in foreign ownership of domestic assets
FDI Foreign direct investment
foreigners constuct new business operations in the U S
Portfolio investment
ferigner buying U.S. stocks bonds or other asset claims
Other investment
usually movement of bank deposits
Appreciation
increase in the price of one currecny in terms to another
Nominal exchange rate
the rate of exchange of a currency for another
Real exhange rate
the rate of exchange of one countrys goods and services for another’s
Purchasing power parity theorem
the real power of a currency should be about the same whether spent domestically or in foreign countries. An application of the law of one price
Law of one price
if trade was free, then identical goods would go for identical prices
Floating exchange rate
is determined primarily by market forces
Fixed, pegged exchange rate
a government or central banks promise to convert a currency at a fixed rate
Dirty or managed float
a currency whose value is not pegged but a government intervenes to keep it within a range
