Final

Question 1

Inflation

Answer 1

A rise in the overall levels of prices in the economy and therefore a fall in the purchasing power of money (⬆️⬇️)

When prices go up, you can’t buy as much with the money you have

Question 2

Deflation

Answer 2

The fall in the overall level of prices and therefore a rise in the purchasing power of money (⬇️⬆️)

As things become less expensive, people can buy more with the money they have

Question 3

Efficiency

Answer 3

The optimal production and allocation of resources given existing factors of production

Question 4

Equity

Answer 4

How resources are distributed throughout society

Question 5

Vertical equity

Answer 5

Concerned with the relative income and welfare of the whole population
Ex: higher taxes for high income earners

Question 6

Horizontal equity

Answer 6

Treating everyone in the same situation the same

Ex: everyone earning the same amount should pay the same amount of taxes

Question 7

Indexing

Answer 7

When payments are automatically adjusted with changes in the price level

Question 8

Nominal value

Answer 8

The face value

Question 9

Real value

Answer 9

Underlying true value

Question 10

Aggregate demand

Answer 10

The sum of all goods and services that individual consumers and private enterprises and governments are prepared to purchase in a given year

Question 11

Aggregate expenditure

Answer 11

The total nominal amount that individuals and enterprises and governments plan to spend

Question 12

Aggregate expenditure equation

Answer 12

AE = C + I + G - T + X - M

Question 13

C, consumption

Answer 13

Total expenditures individuals make as consumers purchasing things (ex: clothes, food)

Question 14

I, investment

Answer 14

Total expenditures private enterprises make for items (ex: new buildings)

Question 15

G, government spending

Answer 15

Total amount government spends on roads, schools, military

Question 16

T, government taxation

Answer 16

Total funds the government takes out of the hands of individuals and enterprises in the form of taxes

Question 17

X, exports

Answer 17

Total amount of expenditures that domestic residents, enterprises, and government make for the products of other nations

Question 18

M, imports

Answer 18

Total amount of expenditures that domestic residents, enterprises, and governments make for the products of other nations

Question 19

Aggregate income

Answer 19

The amount of production in the economy,because the funds paid for that production become people’s income

Question 20

Current nominal aggregate income

Answer 20

How much was spent in the economy and therefore how much income was earned

Question 21

Consumption function

Answer 21

C = b(PY) + A

Question 22

PY

Answer 22

Nominal aggregate income

Question 23

b

Answer 23

Marginal propensity to consume

Question 24

A

Answer 24

Autonomous consumption

Question 25

Treasury department

Answer 25

Department of the executive branch under the president, it collects the federal taxes and pays the federal governments bills, if the governments tax revenues are not sufficient to pay those bills the government budget position is in deficit

Question 26

Financial system

Answer 26

The arrangement of institutions that coordinate the intentions of suppliers and demanders of financial capital

Question 27

Asset

Answer 27

Anything you have that has value in the market

Ex: a car

Question 28

Liability

Answer 28

A claim by others on your assets, if you gave a loan you have a liability

Question 29

Portfolio

Answer 29

All the assets and liabilities you have

Question 30

Liquid asset

Answer 30

An asset that can change form quickly without losing value

Question 31

Illiquid asset

Answer 31

As asset that cannot be changed quickly without losing value (will lose value)

Question 32

Fractional reserve system

Answer 32

Holding a fraction of assets as reserves and loaning out the rest to make a return, this allows financial capital to be constantly active

Question 33

Structural unemployment

Answer 33

Mismatch of skills, worker might have to retrain to be qualified

Question 34

Frictional unemployment

Answer 34

The in between period, there is a job and worker who is right for it, but they haven’t found each other yet

Question 35

Demand deficient unemployment

Answer 35

Excess supply of workers, not enough jobs for them

Question 36

Member of the FOMC

Answer 36

12 voting members: 1 NY district bank president, 4 rotating district bank presidents, and 7 members of the fed board

Question 37

Reserves

Answer 37

A banks liquid assets, a prudent bank will keep a portion of its assets as reserves and loan out the rest to make a return

Question 38

Fractional reserve system

Answer 38

A system in which banks hold a portion of assets as reserves and loan out the rest to make a return, thereby allowing capital to be constantly active

Question 39

Moral hazard

Answer 39

A situation in which people choose more risky behavior because they believe that they are protected from the consequences of the additional risk

Ex: people who take fewer precautions against auto theft because they’re covered by insurance