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ECON 1102 > Exam 2 > Flashcards

Exam 2 Flashcards

0
Q

Prices of traded assets reflect all publicly available information

A

efficient market hypothesis

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1
Q

Warren Buffett

A

Genius investor (market genius)

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2
Q

to buy stocks and then hold them for the long run, regardless of what prices do in the short run

A

buy and hold

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3
Q

higher returns come at the price of higher risk

A

risk-return trade-off

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4
Q

adults who do not have a job but who are looking for work

A

unemployed workers

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5
Q

labor force

A

all workers

employed + unemployed

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6
Q

unemployment rate

A

the percentage of the labor force without a job

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7
Q

labor force participation rate

A

percentage of adults in the labor force

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8
Q

discouraged workers

A

workers who have given up looking for work but who would still like a job

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9
Q

underemployment rate

A

A Bureau of Labor Statistics measure that includes part-time workers who would rather have a full-time position and people who would like to work but have given up looking for a job.

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10
Q

Frictional unemployment

A

short-term unemployment caused by the ordinary difficulties of matching employee to employer

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11
Q

Structural unemployment

A

(persistent), long-term unemployment caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs

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12
Q

unemployment benefits

A

the most obvious labor regulation that can increase unemployment rates

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13
Q

median wage

A

the wage such that one-half of all workers earn wages below the median and one-half of all workers earn wages above the median

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14
Q

union

A

an association of workers that bargains collectively with employers over wages, benefits, and working conditions

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15
Q

The employment at-will doctrine

A

says an employee may quit and an employer may fire an employee at any time and for any reason. It is the most basic U.S. employment law.

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16
Q

active labor market policies

A

work test, job search assistance and job retraining programs focus on getting unemployed workers back to work

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17
Q

cyclical unemployment

A

unemployment correlated with the business cycle

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18
Q

natural unemployment rate

A

the rate of structural plus frictional unemployment

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19
Q

baby boomers

A

the people born during the high birthrate years, 1946-1964

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20
Q

inflation

A

an increase in the average level of prices

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21
Q

inflation rate

A

the percentage change in the average level of prices (as measured by a price index) over a period of time.

(P2 - P1)/ P1

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22
Q

Price that has been corrected for inflation. They are used to compare the price of goods over time.

A

real price

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23
Q

the average number of times a dollar is spent on final goods and services in a year

A

v, velocity of money

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24
Q

M

A

money supply

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25
Q

P

A

price level

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26
Q

v

A

velocity of money

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27
Q

Yr

A

real GDP

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28
Q

Quantity Theory of Money

A

When v and Y are fixed (indicated by a top bar), increase in M must cause increase in P

Mv=PY

29
Q

a decrease in the average level of prices (a negative inflation rate)

A

deflation

30
Q

a reduction in the inflation rate

A

disiflation

31
Q

when people mistake changes in nominal prices for changes in real prices

A

money illusion

32
Q

the rate of return that does not account for inflation

A

nominal rate of return

33
Q

Real rate of return

or (real interest rate)

A

(nominal rate - inflation rate)

34
Q

the tendency of nominal interest rates to rise with expected inflation rates

A

Fisher effect

35
Q

when the government pays off its debts by printing money

A

Monetizing the debt

36
Q

fluctuations in the growth rate of real GDP around its trend growth rate

A

Business fluctuations

37
Q

a significant, widespread decline in real income and employment

A

recession

38
Q

shows all the combinations of inflation and real growth that are consistent with a specified rate of spending growth (M+v)

` = arrow at the top

A

aggregate demand curve

39
Q

M + v = inflation + Real growth

A

Key equation for quantity theory

40
Q

An economy’s potential growth rate, the rate of economic growth that would occur given flexible prices and the existing real factors of production.

A

Solow growth rate

41
Q

real shock

A
  • aka productivity shock

- any shock that increases or decreases the potential growth rate

42
Q

aggregate demand shock

A

a rapid and unexpected shift in the AD curve (spending)

43
Q

short-run aggregate supply curve (SRAS)

A

shows the positive relationship between inflation and real growth during the period when prices and wages are sticky

44
Q

Nominal wage confusion

A

when workers respond to their nominal wage instead of their real wage

45
Q

menu cost

A

the cost of changing prices

46
Q

In the ________, unexpected inflation always turns into expected inflation and the SRAS curve shifts up and to the left.

A

long run

47
Q

The short-run aggregate supply (SRAS) curve is ______ sloping

A

upward

48
Q

The allocation of consumption, work, and leisure across time to maximize well-being

A

inter-temporal substitution

49
Q

They have high value only under specific conditions - they cannot be easily moved, adjusted, or reversed if conditions change.

A

Irreversible investments

50
Q

the cost of shifting workers from declining sectors of the economy to the growing sectors

A

labor adjustment costs

51
Q

the tendency for economic activities to be coordinated at common points in time

A

Time bunching

52
Q

A valuable asset that is pledged to a lender to secure a loan

A

Collateral

53
Q
  • a reduction in the value of collateral

- they make borrowing and lending more difficult

A

collateral shock

54
Q

Equity

A

value of the asset minus the debt

E = V - D

55
Q

money

A

a widely accepted means of payment

56
Q

An asset that can be used for payments or, quickly ad without loss o value, be converted into an asset that can be used for payments

A

liquid asset

57
Q

When banks hold only a fraction of deposits in reserve, lending the rest.

A

Fractional reserve banking

58
Q

reserve ratio RR

A

the ratio of reserves to deposits

59
Q

Money multiplier MM

A

the amount o money supply expands with each dollar increase in reserves

MM = 1/RR

60
Q

open market operations

A

when the Fed buys and sells government bonds

61
Q

Quantitative easing

A

When the Fed buys longer-term gov. bonds or other securities

62
Q

Quantitative tightening

A

when the Fed sells longer-term gov. bonds or other securities

63
Q

Federal Funds rate

A

the overnight lending rate from one major bank to another

64
Q

A lender of last resort

A

loans money to banks and other financial institutions when no one else will

65
Q

The interest rate banks pay when they borrow directly fro the Fed

A

Discount rate

66
Q

solvency crisis

A

occurs when banks become insolvent

67
Q

insolvent bank

A

Has liabilities that are greater than its assets

68
Q

Liquid crisis

A

occurs when banks are illiquid

69
Q

illiquid bank

A

Has shot-term liabilities that are greater than its short-term assets but overall has assets that are greater than its liabilities

70
Q

The risk that the failure of one financial institution can bring down other institutions as well

A

Systematic risk

71
Q

Occurs when banks and other financial institutions take on too much risk, hoping that the Fed and regulators will later bail them out

A

Moral hazard

ECON 1102 (1 decks)

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