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macroeconomics > final 2.0 > Flashcards

final 2.0 Flashcards

1
Q

opportunity cost

A

what you give up to gain something. the highest benefit obtained from opportunities forgone.

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2
Q

law of demand

A

as prices increase, QD decreases.
as prices decrease, QD increases.

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3
Q

demand curve slope

A

slopes downward; as prices increase, QD decreases

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4
Q

events that shift the demand curve

A
  1. income
  2. prices of related goods
  3. taste
  4. expectations
  5. number of buyers
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5
Q

how income affects demand curve

A

normal goods & inferior goods

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6
Q

how prices of related goods affects demand curve

A

substitutes & compliments

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7
Q

law of supply

A

as prices increase, QS increases. (b/c it makes production more profitable)
as prices decrease, QS decreases.

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8
Q

supply curve slope

A

slopes upward; as prices increase, QS increases

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9
Q

events that shift supply curves

A
  1. input prices
  2. technology
  3. expectations
  4. number of sellers
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10
Q

how input affects supply curve

A

decreases in input prices, increases QS

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11
Q

how technology affects supply curve

A

new technology lowers costs so QS increases

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12
Q

GDP

A

the MARKET VALUE of all FINAL GOODS produced IN A COUNTRY in a PERIOD OF TIME

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13
Q

what is included in GDP

A

final goods, produced in a country, in a given period of time

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14
Q

what is not included in GDP

A

intermediate goods, used goods, financial transactions (stocks and bonds), illegal activities, unpaid household chores

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15
Q

market value

A

price x quantity (P x Q)

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16
Q

nominal GDP

A

CURRENT PRICES, reflects DOLLAR VALUE of all goods/services

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17
Q

real GDP

A

CONSTANT PRICES (base yr.), reflects PHYSICAL QUANTITY of all goods/services

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18
Q

real GDP calculation

A

price (base yr.) x quantity (current)

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19
Q

total spending components

A

consumption, investment, government spending, net exports
(C+I+G+NX)

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20
Q

consumption

A

total spending my household (excludes new housing)

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21
Q

investment

A

business spending on equipment, investments, and structures (includes new housing)

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22
Q

government spending

A

EXCLUDES social security, medicare, and national debt interest payments

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23
Q

net exports

A

exports minus imports

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24
Q

CPI

A

measures overall price level for goods/services bought by a typical consumer (baskets)

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25
Q

CPI calculation

A

current expenditure / base expenditure

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26
Q

expenditure calculation

A

price x FIXED quantity

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27
Q

measurement biases

A
  1. substitution
  2. new goods
  3. quality improvement/changes
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28
Q

substitution bias

A

ignores consumer switching to cheaper alternativies

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29
Q

new goods

A

increases choices

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30
Q

inflation calculation given CPI

A

(new CPI - old CPI) / old CPI x 100

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31
Q

delflating

A

converting nominal values to real values to account for inflation

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32
Q

real rate caluclation

A

nominal value - inflation rate

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33
Q

indexing

A

adjusting payments according to CPI to maintain purchasing power

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34
Q

bonds

A

debt instrument where the issuer (borrower) promises to pay interest and princial

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35
Q

stocks

A

ownership of a company, enlisting the holder to a share of profits (dividends)

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36
Q

saving

A

income not spent on constumption

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37
Q

saving calculation

A

current income - spending for current need

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38
Q

two types of saving

A

private and public

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39
Q

private saving

A
  1. personal/household (life cycle, precautionary, bequest)
  2. corporate (profit, retained earnings, for future investment)
40
Q

private saving calculation

A

(production - tax) - consumption

(Y - T) - C

41
Q

public saving calculation

A

(tax revenue - gov’t spending)

(T - G)

42
Q

tax revenue > gov’t spending

A

surplus

43
Q

tax revenue < gov’t spending

A

defecit

44
Q

factors affecting bond interest rate

A
  1. credit risk
  2. term to maturity
  3. tax treatment
  4. inflation protection
45
Q

credit risk

A

higher the risk, higher the interest rate

46
Q

term to maturity

A

longer-term bonds, higher the interest rate

47
Q

tax treatment

A

tax-exempt (municipals), lower interest rate

48
Q

inflation protection

A

prices increase, payments increase proportionally

49
Q

measure of standard of living

A

real GDP per capita (per person)

50
Q

drivers of economic growth

A
  1. increase in working population
  2. improvement of worker productivity
51
Q

factors that enhance productivity

A
  1. physical capital
  2. human capital
  3. technology
  4. natural resources
52
Q

physical capital

A

equipment, tools, machines, materials

53
Q

human capital

A

training, skills, education

54
Q

technology

A

converts inputs to outputs (research, development)

55
Q

decomposition of population 16+

A
  1. employed
  2. unemployed
  3. not in labor force
56
Q

employed

A

employee, self employed, non paid in family business, part and full time

57
Q

unemployed

A

no current job but has actively searched in the last 4 weeks

58
Q

not in labor force

A

no job and has not searched in last 4 weeks (student, disabled, retired)

59
Q

unemployment rate calculation

A

(unemployed/labor force) x 100

60
Q

labor force

A

total number of employed and unemployed

61
Q

labor participation rate calulcation

A

(labor force/population 16+) x 100

62
Q

types of unemployment

A
  1. structural
  2. frictional
  3. cyclical
63
Q

cyclical unemployment

A

deviation of unemployment from its natural rate, associated with short-run fluctuations in the economy

64
Q

structural unemployment

A

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

65
Q

frictional unemployment

A

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)

66
Q

functions of money

A
  1. medium of exchange
  2. unit of account
  3. store of value
67
Q

medium of exchange

A

item that buyers give to sellers when they want to purchase goods and services (e.g., cash at a store)

68
Q

unit of account

A

yardstick people use to post prices and record debt (e.g., price tags in dollars)

69
Q

store of value

A

item that people can use to transfer purchasing power from the present to the future (e.g., saving money in a bank)

70
Q

M1

A

currency, demand deposits, checking and saving accounts (most liquid assets)

71
Q

M2

A

M1 + time deposits, money market funds

72
Q

what controls the money supply

A

the federal reserve

73
Q

federal reserve

A

board of governors + 12 regional banks

74
Q

open market purchase

A

increases money supply, fed buys government bonds

75
Q

open market sell

A

decreases money supply, fed sells government bonds to the public

76
Q

money supply =

A

(cash + reserve) / reserve-deposit ratio

77
Q

100% reserve banking

A

holds 100% of deposits as reserves, does not influence money supply

78
Q

fractional reserve banking

A

banks hold a fraction of deposits as reserves (reserve ratio)

79
Q

reserve ratio

A

fraction of deposits banks hold as reserves

80
Q

discount rate

A

interest rate on loans that the fed makes out to banks

81
Q

as discount rate increases, what happens to money supply

A

money supply decreases

82
Q

price of money

A

1/P

83
Q

what happens to the price of money when price level increases

A

price of money decreases (inverse relationship)

84
Q

classical dichotomy

A

separation of nominal variables and real variables

85
Q

nominal variables

A

given in dollar amounts, aka monetary units

86
Q

real variables

A

adjusted for inflation, in terms of goods and services

87
Q

do changes in the money supply affect output?

A

no because money supply is nominal and output is real

88
Q

monetary neutrality

A

long-run, nominal variables are influenced by developments in the economy’s monetary system, but real variables are not

89
Q

quantity theory of money

A

(money stock x velocity) = (price x real GDP)

MV = PY

90
Q

what variable is constant in the quantity theory of money

A

velocity

91
Q

what variable changes if money stock changes

A

price (and vice versa)

92
Q

what typically happens during a recession

A
  1. irregular (can’t predict it)
  2. real GDP decreases, unemployment increases
  3. investment spending decreases
93
Q

aggregate supply

A

total production

94
Q

aggregate demand

A

total spending (C+I+G+NX)

95
Q

what happens when aggregate demand decreases (AD shock)

A

a recession,
when AD decreases, production is LOWER than its potential, and prices decrease

96
Q

what happens when aggregate supply decreases (AS shock)

A

when AS decreases, production is lower than its potential, and prices increase

macroeconomics (5 decks)

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