exam 4 Flashcards
define employment
commonly relied upon measure of economic welfare
why is employment used instead of GDP
it is calculated more quickly
employment rate=
working / working+looking
labor force precipitation rate=
working + looking / population>16
unemployment rate=
looking/ working+looking
define natural rate of unemployment
includes the production parameters and GDP
what does the natural rate of unemployment do?
determines how many people can be employed without inflation rising
what type of correlation does unemployment rate and RGDP have
negative correlation
what can cause the demand of micro markets to shift down
diminishing marginal utility
income effects
substitution effects
what are aggregated demand represented by
CPI and RGDP
define income effect
decomposing GDP
define intrest rate effect
price of borrowing money
define negative correlation
as one good/supply increases, another decreases, or vice versa
describe and define short run
factors of production are fixed
set 1-2 years
define and describe long run
factors of production are variable
decisions are made 5+ years out
define shortage run aggregated supply
GPD deflator or CPI shows relationship;
describe long run aggregated supply
wages reflect work being put in
perfectly inelastic
Y1=
production possibility frontier
define production
productivity causes a shift
what are examples of key inputs
fuel, tech, transportation
what correlation is between unemployment and vacancy rates
negative
define disposable income
percent of income that isn’t used for rent, food, etc
define intrest rates
ability to borrow and invest
AD will be __________ if AS is __________
higher; lower
what can an increase in any front cause
an increase in LRAS
what are institutional changes
legal, transport, energy, and infrastructure
define fiscal
explicit taxing and spending on behalf of the government
define fiscal policy
how much money is taxed and how much is spent
what is the fiscal policy determined by
the executive and legislative branches
monetary policy is _____________
continuous
who plays a major role in fiscal theory/policy
John Maynard keynes
what did Keynes want
the gov to step in and lend aid in macroeconomic issues
what was Keynes book called
a general theory of employment interest in money
what type of system did Keynes what
a system of equations for employment fluctuation, interest rates, and money supplements
what combats classical economics
rationality
what is unemployment rate
a function of supply and demand
Smith:invisible hand as Keynes:_______ ________
animal spirits
what makes economics unstable
human nature
define classical theory
investment goes to firms with the greatest profit potential
what will people most likely invest in
what others think are the most profitable
what causes recessions
consumer pessimism
what does pessimism lead to
decreased spending
what would the control on interest rates do
discourage people from saving and instead invest
define monetary policy
actions that affect money supply that is determined by the federal reserve
describe the federal reserve
independent, central band of US
independent of taxpayer dollars and politics
what is the dual mandate
low unemployment
price stability
as interest rate goes down, what does aggregate demand do
go up
what does more income cause
more spending but also more inflation
wealth is not money itself, but…
what can be bought with money
how do banks get covered by FDIC
by doing what the Fed tells them
do banks hold all their money? why or why not
no, because they are lenders and lend out a portion of that bone y
what are the 3 tools of monetary policy
reserve requirements
open market operations
federal fund rates
define RRR
reserve requirement ratio
define RR
required reserve
define ER
excess reserve
Σloans=
1/RRR x loan1
describe government bonds
a low risk, low reward IOU system
define quantitative easing
the federal reserve buys bonds from the government which allows the government to pay back the fed
define federal fund rate
inters rate that banks charge each other to borrow or lend excess reserves
how does the fed effect the economy
by controlling interest rates
what is the fed constrained by
inflation and intrest rates
describe expansionary
decreased aggregate demand
expands RRR
buys bonds
lower federal fund rate
describe contractionary
increased aggregate demand
increases RRR
sells bonds
raises federal fund rate
