Macro Midterm Flashcards
Diminishing return
If one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually diminish.
The catch-up effect
Countries that start off poor tend to grow more rapidly than countries that start off rich.
Financial system
Made up of financial institutions that coordinate the actions of savers and borrowers, match one person’s savings with another person’s investments.
Stock market
Represent a claim to partial ownership in a firm and has therefore a claim to the profits that the firm makes.
A piece of the company.
Bond market
A bond is a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond.
When lend money to a company/ country
Budget surplus
When the government receives more money than it spends
Budget deficit
When the government spends more money than it receives in tax revenue
Government debts
The accumulation of past budget deficits
Crowding out
When governments borrowing to finance its budget deficits it reduces the supply of loanable funds available to finance investment by households and firms.
Diversification
The reduction to risk achieved by replacing a single risk with a large number of smaller unrelated risks.
Idiosyncratic risk
The risk that affects only a single person, firm or project.
Aggregate risk
The risk that affects all economic actors at once, the uncertainty associated with the entire economy.
Natural rate of unemployment
Unemployment that does not go away on its own even in the long run.
The amount of unemployment that the economy normally experiences.
Cyclical rate of unemployment
Refers to the year-to-year fluctuations in unemployment around its natural rate.
It is associated with short-term ups and downs of the business cycle.
Why is inflation important?
A slowly increasing price level keeps businesses profitable and prevents consumers from waiting for lower prices. It is crucial for the economic growth.
Countries with the highest standard of living
Nordic countries
Canada
Australia
Switzerland
Countries with the highest nominal GDP
USA Japan Germany France UK
Countries with the highest GDP per capita
Qatar Luxembourg Singapore Norway Switzerland
The strongest currency
Kuwait dinar
Omani rial
Swiss franc
They are strong because:
Interest rate
Economic policies
Stability
Governmental policies that raises productivity
Encourage saving and investment
Encourage investments from abroad
Encourage education and training
Establish secure property rights and maintain political stability
Promote free trade
Promote research and development
Invest more current resources in the production of capital
Factors of production
Physical capital
Human capital
Natural resources
Technological knowledge
Productivity
The amount of goods and services produced each hour of a worker’s time.
A nations standard of living is determined by the productivity.
Nominal interest rate
The interest rate usually reported and it is NOT corrected for inflation
(The rate bank pays)
Real interest rate
The nominal interest rate that is corrected for the effects of inflation
GDP deflator
Reflects the prices of all goods and services
Produced domestically
The consumer price index (CPI)
Reflects the prices of all goods and services bought by consumers
GDP deflator calculation
Nominal GDP/ real GDP x 100
Problems with CPI
Substitution bias
Introduction of new goods
Unmeasured quality changes
Calculate CPI
Fix the basket Find the prices Chose a base year Compute the cost of the basket - calculate the cost of the things in the basket at different times - compare to the base year
Inflation
The percentage change in the price level
Real GDP
Values the production of goods and services at CONSTANT prices
Nominal GDP
Values the production of goods and services at CURRENT prices
The calculation of GDP
C+I+G+NX
Consumption
Investment
Government purchases
Net export
GDP
A measure of a countries income and expenditure
The market value of all goods and services produced within a country in a given period of time.
