exam 3 Flashcards
what is the measure of the standard of living?
real GDP per capita (ability of a country to produce goods and services)
productivity
quantity of goods and services produced from each unit of labor, key determinant of growth of living standards
main drivers of economic growth
increase in working population and improvement of worker productivity
four factors that enhance productivity
- physical capital
- human capital
- technology
- natural recources
examples of physical capital
equipment, tools, machines, materials
examples of human capital
training, skills, education
technology
process to convert inputs to outputs (research, development)
decomposition of population (16+)
employed, unemployed, not in labor force
employed
employee, self-employed, non-paid in family business, part and full time
unemployed
doesn’t have a current job but has actively searched in the last four weeks
not in labor force
not working and not searching for work; students, retired, disabled
unemployment rate
percentage of labor force that is unemployed -
(unemployed/labor force) x 100
labor force
total number of workers, including both employed and unemployed
labor force participation rate
percentage of adult population in the labor force -
(labor force/population 16+) x 100
cyclical unemployment
deviation of unemployment from its natural rate, associated with short-run fluctuations in economic activity
frictional unemployment
results because it takes time for workers to search for the jobs that best suit their tastes and skills, short-term for most workers (transition b/w jobs)
structural unemployment
results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one, usually long-term
unemployment insurance
increases frictional unemployment
money
set of assets in an economy that people regularly use to buy goods and services
three functions of money
- medium of exchange
- a unit of account
- a store of value
medium of exchange
item that buyers give to sellers when they want to purchase goods and services (e.g., cash at a store)
unit of account
yardstick people use to post prices and record debt (e.g., price tags in dollars)
store of value
item that people can use to transfer purchasing power from the present to the future (e.g., saving money in a bank)
liquidity
the ease with which an asset can be converted into the economy’s medium of exchange
commodity money
money that takes the form of a commodity with intrinsic value (e.g., gold coins)
fiat money
money without intrinsic value that is used as money by government decree (e.g., the U.S. dollar)
M1 includes…
currency, demand deposits at banks, checking and saving accounts (most liquid assets)
M2 includes…
everything in M1, time deposits, money market funds
what determines money supply?
- federal reserve
- bank lending
- private cash
reserves
deposits that banks have received but not loaned out
if the reserve ratio increases…
the money supply and money multiplier decreases
federal reserve
board of governors & 12 regional banks
FOMC
federal open market committee
open market operations
purchase and sale of U.S. government bonds by the fed
open market purchase
to increase money supply, the FED buys government bonds (securities)
open market sell
to decrease money supply, FED sells gov. bonds to public
federal reserve board of governors
7 members, 14-year term, appointed by president, confirmed by senate
federal chair
4-year term, appointed by president, confirmed by senate
functions of the 12 regional federal banks
- regulate banks (financial conditions & transactions)
- bank’s bank
- lender of last resort
- controls the money supply
currency
paper bills and coins in the hands of the public
demand deposits
balances in bank accounts; depositors can access on demand by writing a check
100-percent-reserve banking
holds 100% of deposits as reserves, does not influence the supply of money
money supply =
currency + deposits
fractional-reserve banking
banking system in which banks hold only a fraction of deposits as reserves (have a reserve ratio)
reserve ratio
fraction of deposits that banks hold as reserves
money multiplier
the amount of money that results from each dollar of reserves
discount rate
interest rate on loans that the fed makes out to banks
the higher the discount rate…
the smaller the money supply
