Macro 2 Flashcards
The fraction of change in an income that is spent on consumption divided by the change in income that caused it
Marginal propensity to consume
The relationship between consumption and income
Consumption function
The fraction of a change in income that is saved, the change in income that caused it
Marginal propensity to save
The relationship between saving and income
Saving function
The value of assets minus liabilities
Net wealth
Young people borrow, middle ages pay off debt, in order people draw from their savings: on average net savings over a lifetime or small
Lifecycle model of consumption and saving
The relationship between the price level and out put the firms are willing to supply
Aggregate supply
Dollars of the current year
Nominal wage
Dollars of the constant purchasing power
Real wage
The output produced when there are no surprises about the price level
Potential output
The unemployment rate when the economy produces its potential output
Natural rate of unemployment
And macro economics, a period during which the resource prices, especially those of the labor, Are fixed by explicit or implicit agreements
Short run
A curve that shows a direct relationship between the price level in the real GDP supplied in the short run
Short run aggregate supply curve
The price level and real GDP that occur when aggregate demand curve intersects the short run aggregate supply curve
Short run equilibrium
The amount by which output in the short run exceeds the economies potential output
Expansionary GDP
And macro economics, A period. During which wage contracts and resource price agreement can be renegotiated: there are no surprises about the economies actual price level
Long run
The price level in real GDP that occurs when the actual price level equals the expected price level, the real GDP supplied equals potential output, and the real GDP supplied equals the real GDP
Long run equilibrium
The amount by which the actual output in the short run fall short of the economies potential output
Contractionary GDP
A vertical line at the economies potential output: aggregate supply when there are no surprises about the price level and all resource contracts can be re-negotiated
Long run aggregate supply curve
A situation in which workers and employers failed to achieve an outcome they would all prefer
Coordination failure
Unexpected events that affect aggregate supply, sometimes only temporarily
Supply shocks
Unexpected events that increase aggregate supply, sometimes only temporarily
Beneficial supply shocks
Unexpected events that reduce aggregate supply sometimes only temporarily
Adverse supply shocks
The theory that the natural rate of unemployment depends and a part of the recent history of unemployment, high unemployment rates increase the natural rate of employment
Hysteresis
During economic expansion and recession
Progressive income tax
During economic expansion, the system automatically increases the flow of unemployment insurance taxes from income stream to the unemployment insurance fund moderating aggregate demand
Unemployment insurance
The 1960s, golden age of Keynesian and economics Pres. Kennedy proposed a federal budget deficit
Pres. Johnson: cut taxes
Golden age to stagflation
Hi unemployment high inflation resulting from a decrease in aggregate supply and demand management policies weren’t working
1970s stagflation
To traders are willing to exchange their products directly
Double the coincidence of wants
Anything that is generally excepted in exchange for goods and services
Money
Anything that facilitates traded by being generally excepted by all parties
Medium of exchange
Anything that serves both as money and as a commodity
Commodity money
A common unit for measuring the value of each good and service
Unit of account
Anything that remains it’s purchasing power over time
Store of value
People tend to trade away inferior money and hoard the best
Greshams law
The difference between the face value of money and the cost of supplying it: the profit from issuing money
Seigniorage
Money who’s face value exceeds the cost of production
Token money
A written order interaction the bank to pay
Check
A bank account the permits direct payment to a third-party: for example to check or debit card
Transaction account
Only a portion of the bank deposits it’s bank by reserves
Fractional reserve banking system
Originally, papers promising a specific amount of gold and silver to anyone who presented them issuing banks for redemption: today Federal Reserve notes are paper money
Banknotes
Banknotes that exchange for a specific commodity such as gold
Representative money
Money not redeemable for any commodity: its status as money is conferred initially by government but eventually by common experience
Fiat money
United States currency that constitutes a valid in legal offer of payment of debt
Legal tender
Institutions that serve as go-betweens, excepting funds from savers and lending them to borrowers
Financial intermediaries
Commercial banks and thrift institutions: financial institutions that except deposits from the public bank
Depository institutions
Depository institutions that historically make short term loans primarily to businesses
Commercial bank
Savings banks and credit unions depository institutions that historically lent money to households
Thrift institutions
A collection of short-term interest earning assets purchased with funds cooled from many shareholders
1972 Merrill Lynch
Purchases of sales of government securities by federal reserve an effort to influence the money supply
Open market operations
12 member group that makes decisions about open market operations
Federal open market committee
Deposits and financial institutions against which checks can be written in ATM or debit cards can be applied
Checkable deposits
Measures the economy’s money supply
Money aggregates
The narrowest measure of money supply, consisting of currency, and coins held by the nonbanking public, checkable deposits, and travelers checks
M1
Deposits that earn interest but have no specific maturity date
Savings deposits
The money aggregate consisting of animal one plus savings deposits and money market deposit accounts: a small denomination time deposits
M2
Cards that talk directly to the bank account to fund purchases
Debit card
A situation in which one side of the market has more reliable information then the other side
Asymmetric information
Assets minus liabilities
Net worth
A financial statement that shows assists, liability, and net worth at a given point in time
Balance sheets
Anything of value that is owned
Assets
Anything that is owed to another individual or institution
Liability
The dollar amount of reserves the bank is obligated by regulation to hold
Required reserves
Obligation by regulation to hold
Required reserve ratio
Bank reserves exceeding required reserves
Excess reserves
A measure of the ease which an asset can be converted into money without significant loss of value
Liquidity
A market for overnight lending and borrowing of reserves among banks, the market for reserves on account at the Fed
Federal market funds
The interest rate charged and the federal market, the interest rate banks charge for one another for overnight borrowing: the feds target interest rate
Federal funds rate
The multiple by which the money supply increases as a result of an increase in the fresh reserves in the banking system
Money multiplier
Conducting banking transactions over the Internet
Electronic banking or E banking
Purchases and sales of government bonds for the purpose of altering bank reserves
Open market operations
A certificate of knowledge Ing a debt and the amount of interest to be paid each year until repayment: an IOU
Bond
The rate of return on a bond: the annual interest rate payment divided by the bonds price
Yield
Purchasing of US government bonds by the Fed to increase the money supply
Open market purchases
Federal Reserve lending of reserved to profit banks
Discounting
The interest rate of the Fed charges that borrow reserves
Discount rate
The relationship between the mound business is plan to invest and the economy’s income
Investment function
A term that means independent
Autonomous
The amount of investments that firms plan to undertake during a year
Planned investment
Amount of investment actually undertaken
Actual investment
A relationship showing a given price level planned spending each income or real GDP
Aggregate expenditure line
A relationship between aggregate income in aggregate spending that determines or a given price level where that amount of people plan to spend equals the amount produced
Income expenditure model
Structural features of government spending and taxation that reduced fluctuation and disposable income and us consumption over the business cycle
Automatic stabilizer
deliberate manipulation of government purchases taxation and transfer payments to promote macro economic goals such as full employment priced ability and economic growth
Discretionary fiscal policy
The ratio of it change in the GDP demanded to the initial change in the Automous net taxes that brought it about
Simple tax multiplier
An increase in government purchases decrease in taxes or some combination of the two aimed at increasing aggregate demand enough to return the colony to his potential output
Expansionary fiscal policy
