Macro Quiz 3 Flashcards
Stopler Samuelson Theorem
Free trade results in higher return of abundant resources for goods and lower return on its scarce resources for goods
How do banks create money?
By loaning out money
What is an example of a Trade Adjustment program?
Training unemployed unskilled workers for jobs that require greater skill like coding
Speculative Demand
Holding money instead of buying bonds that can lose value
What is an example of an automatic stabilizer?
When the economy is in recession, unemployment increases.
This results in an increase in government spending because they pay for unemployment benefits
Structural Deficit
Deficit exists even if economy is at potential output
Government Budget Deficit
Spent more than we budgeted for
Fiscal Austerity
Taxes ⬆️ Government spending ⬇️. Therefore, the deficit ⬇️
Discount rate
Interest rate that the Fed charges loans to other banks
Transactional Demand
Having money to pay for normal expenses
Store of Value
Can save money and use it at a different time
Heckscher-Ohlin Theorem
We export goods we have many resources for and import goods when we have scarce resources
What are the 2 methods of Fiscal Policy?
Taxes
Government Spending
Federal Reserve
Central bank of U.S. controls monetary policies such as interest rates and reserve requirements
What are the 3 functions of money?
Medium of Exchange
Unit of Account
Store of Value
What are the 3 components of demand for money?
Transactional Demand
Precautionary Demand
Speculative Demand
What are 3 things the U.S. Exports?
Oil
High Skilled Labor
Technology
What is the relationship between government budget deficit and national debt?
Government Budget Deficit- debt of a current year
National debt- Accumulation of budget deficits
Why do tariffs hurt trade?
Act as a barrier from trade occurring which decreases efficiency
Medium of exchange
Used to pay for goods and services
Precautionary Demand
Saving money to have for emergencies
Why is trade beneficial for countries?
It increases efficiency by allowing both countries to benefit
Automatic Stabilzers
Any government program or policy that will counteract the business cycle without any new government action
Federal Funds Rate
Interest rates charged by banks for another bank to borrow money
Unit of Account
Used to value goods and services
Crowding Out
Reduction in consumption due to interest rates, when the government increases spending
Trade Adjustment Program
Helping out workers who are unemployed due to trade
What happens to the value of bonds if interest rates increase?
i ⬆️
Bond value ⬇️
What are the 3 tools for Monetary Policy?
Reserve Requirements
Discount Rate
Open Market Operations
Why is the Federal Reserve politically independent?
The goal is to help the economy in the best way which is not making decisions based on politics.
- it is what decision is best for the economy
In order to decrease the government budget deficit using fiscal policy what 2 things can we do?
Raise taxes to increase revenue
Cut spending to control deficit
What are 2 things the U.S. import?
Machinery
Vehicles
