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Macroeconomics > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

Recession

A

Periods when GDP and employment do badly

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2
Q

Inflation

A

A rise in overall level of prices

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3
Q

Deflation

A

A fall in overall level of pricesq

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4
Q

GDP

A

the total value of all final goods and services produced in an economy in a year

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5
Q

How to measure GDP

A

1) Add up the total value of the production of final goods and services in an economy

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6
Q

Real GDP

A

The total value of final goods and services produced in an economy in a year calculated as if prices had stayed at the level of some given a base year (Because prices affect GDP, we may want to do an adjustment if we want to track the
output of an economy over time.)

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7
Q

Labor force

A

Employment + unemployment

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8
Q

Unemployment rate

A

Number of unemployed workers / labor force

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9
Q

Real wage

A

Wage rate divided by price level

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10
Q

Real income

A

Income divided by price level

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11
Q

Shoe-leather costs

A

High inflation discourages you to hold money and you need to put effort in ways to avoid holding money

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12
Q

Monetary policy

A

Uses changes in the quantity of money to alter interest rates and affect overall spending

The Fed can set the interest rate by adjusting the money supply up or down

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13
Q

Fiscal policy

A

Uses changes in government spending and taxes to affect overall spending

taxes,
• government transfers,
• government purchases of goods and services
to shift the aggregate demand curve

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14
Q

Trade deficit

A

When the value of goods and services bough from foreigners is more than the value of goods and services it sells to them

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15
Q

what are : National income and product accounts

A

Keep track of the flows of money between different sectors of the economy

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16
Q

Government transfers

A

Payments by the government to individuals for which no good or service is provided in return

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17
Q

Disposable income

A

Equal to income plus government transfers minus taxes, is the total amount of household income available to spend on consumption and to save

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18
Q

Government borrowing

A

Is the total amount of funds borrowed by federal state and local governments in the financial markets

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19
Q

Governemnt purchases of goods and services

A

Are total expenditures on goods and services by federal state and local governments

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20
Q

Intermediate goods and services

A

Goods and services bough from one firm by another firm - that are inputs for productive or final goods and services

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21
Q

Aggregate spending

A

The sum of consumers spending, investment spending, government purcahses of goods and services, and exports minus imports is the total spending on domestically produced final goods and services in the economy

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22
Q

Value added (of a producer)

A

The value of its sales minus the value of its purchases of intermediate goods and services

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23
Q

What is included in the GDP

A

Domestically produced final goods and services, including capital goods, new construction of structures and changes to inventories

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24
Q

Aggregate output

A

The economies total quantity of output of final goods and services

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25
Q

Nominal GDP

A

The value of all final goods and services produced in the ceconomy during a given year, calculated using the prices current in the year in which the output is produced or just gdp

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26
Q

Chained dollars

A

Chained dollars is a method of adjusting real dollar amounts for inflation over time, to allow the comparison of figures from different years.

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27
Q

Aggregate price level

A

A measure of the overall level of prices in the economy

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28
Q

Market basket

A

A hypothetical set of consumer purchases of goods and services

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29
Q

Price index formula

A

Cost of market basket in given year/ cost of market basket in base year

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30
Q

Inflation rate

A

The percent change per year in a price index typically the consumer price index

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31
Q

Consumer price index (CPI)

A

Measures the cost of the market basket of a typical urban american family

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32
Q

Inflation rate formula

A

Price index in year 2- price index year 1/price index year 1

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33
Q

Jobless recovery

A

A period in which the real GDP growth rate is positive but the unemployment rate is still rising

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34
Q

Frictional unemployment

A

Unemployment due to the time workers spend in job search

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35
Q

Structural unemployment

A

More people are seeking jobs in a particular labor market than there are jobs available at the current wage range, even when the economy is at the peak of the business cycle

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36
Q

Efficiency wages

A

Wages that employers set above the equilibrium wage rate as an incentive for better employee performance

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37
Q

Natural rate of unemployment

A

The unemployment rate that arises from the effects of frictional plus structural unemployment (Structural + Frictional)

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38
Q

Cyclical unemployment

A

The deviation of the actual rate of unemployment from the natural rate due to downturns in the business

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39
Q

Real wage

A

The wage rate divided by the price level

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40
Q

Nominal interest rate

A

The interest rate expressed in dollar terms

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41
Q

Budget surplus

A

The difference between tax revenue and government spending when tax revenue exeeds government spending

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42
Q

Budget deficit

A

is the difference between tax revenue and government spending when government spending exeeds tax revenue

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43
Q

Budget balance

A

Is the difference between tax revenue and government spending

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44
Q

National savings

A

: the sum of private savings and the budget balance, is the total amount of savings generated withing the economy

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45
Q

Net capital inflow formula

A

NCI = Capital inflow - capital outflow or Imports - Exports

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46
Q

Loanable funds market

A

the interest rate is determined by the demand for and supply of loanable funds. The term loanable funds includes all forms of credit, such as loans, bonds, or savings deposits

a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders

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47
Q

Equilibrium interest rate

A

The interest rate at which the quantity of loanable funds supplied equals the quantity of loanable funds demanded

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48
Q

Crowding out

A

Occurs when a government budget deficit drives up the interest rate and leads to reduced investment spending

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49
Q

Fisher effect

A

An increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged

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50
Q

Real interest rate formula

A

Real interest rate = Nominal interest rate - inflation rate

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51
Q

Financial asset

A

A paper claim that entitles the buyer to future income from the seller

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52
Q

Loan

A

A lending agreement between an individual lender and an individual borrower

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53
Q

Loan backed security

A

An asset created by pooling individual loans and selling shares in that pool

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54
Q

Financial intermediary

A

An institution that transforms the funds it gathers fromm many individuals into financial assets

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55
Q

Mutual fund

A

A financial intermediary that creates a stock portfolion and then resells shares of this portfolio to individual investors

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56
Q

Pension fund

A

A type of mutual fund that holds assets in order to provide retirement income to its memberrs

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57
Q

Bank deposit

A

A claim on a bank that obliges the bank to give the depositor his or her cash when demanded

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58
Q

Efficient market hypothesis

A

Asset prices embody all publicly available information

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59
Q

Random walk

A

The movement over time of an unpredicted variable

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60
Q

Marginal propensity to consume (MPC)

A

The increase in consumer spending when disposable income rises by 1$

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61
Q

Marginal propensity to save (MPS)

A

The increase in household savins when dispoable income rises by 1$

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62
Q

Autonomous change in aggregate spending

A

: Is an initial change in the desired level of spending by firms, households, or governments at a given level of real gdp

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63
Q

Multiplier

A

How much extra income and spending is created from an initial change in spending

Ex. 100 Billion spent on home construction. This raises people disposable income –> Raises consumption of those people →firms produce more →more output.

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64
Q

Consumer function

A

is an equation showing how an individual households consumer spending varies with the households current disposable income.

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65
Q

Aggrecation consumer function

A

Is the relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending

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66
Q

Planned investment spending

A

Is the investment spending that businesses intend to undertake during a given period.

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67
Q

Accelerator principle

A

A higher growth rate of real GDP leads to higher planned investment spending, but a lower growth rate of real GDP leads to lower planned investment spending

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68
Q

inventory investment

A

Is the value of the change in total inventories held in the economy during a given period

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69
Q

unplanned inventory investment

A

: Occurs when actual sales are more or less than businesses expected, leading to unplanned changes in inventories

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70
Q

Actual investment spending

A

Is the sum of planned investment spending and unplanned inventory investment

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71
Q

Planned aggregate spending

A

Is the total amount of planned spending in the economy

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72
Q

INcome expenditure equilibrium

A

When aggregate output, measured by real GDP, is equal to planned aggregate spending

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73
Q

Income-expenditure equilibrium GDP

A

Is the level of real GDP at which real GDP equals planned aggregate spending

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74
Q

Aggregate demand curve

A

Shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government aned the rest of the world

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75
Q

GDP formula

A

C + I + G + X -IM

C= consumer spending

I = Investment spending

G = government purchases of goods and services

X = exports to other countries

IM = Imports

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76
Q

Wealth effect

A

Is the effect on consumer spending caused by the effect of a change in the aggregate price level on the purcahsing power of consumers assets

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77
Q

Interest rate effect

A

A higher aggregate price level makes households hold more money and leads to a rise in interest rates (and a fall in investment spending and
consumer spending).

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78
Q

Aggregate supply curve

A

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economie

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79
Q

Nominal wage

A

Is the dollar amount of the wage paid

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80
Q

Sticky wages

A

Are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages

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81
Q

Short run aggregate supply curve

A

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed

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82
Q

Long run aggregate supply curve

A

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

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83
Q

In the long run (inflation deflation)

A

Has the same effect as someone changing all prices by the same proportino. As a result, changes in the aggregate price level do not change the quantity of aggregate output supplied in the long run

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84
Q

Potential outupt

A

Is the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible

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85
Q

AD-AS model

A

The aggregate supply curve and the aggregate demand curve are used together to analyze the economic fluctuations

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86
Q

Short run macroeconomic equilibrium

A

When the quantity of aggregate supply supplied is equal to the quantity demanded

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87
Q

SHort run equilibrium aggregate price level

A

The aggregate price leevl in the short run macroeconomic equilibrium

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88
Q

Demand shock

A

An even that shifts the aggregate demand curve

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89
Q

SRAS curve

A

Short run aggregate supply curve

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90
Q

Supply shock

A

An even that shifts the short run aggregate supply curve

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91
Q

Stagflation

A

The combination of inflation and falling aggregate output

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92
Q

Long run macroeconomic equilibrium

A

When the point of short run macroeconomic equilibrium is on the long run aggregate supply curve

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93
Q

Recessionary gap

A

When aggregate outpput is below potential output

94
Q

Output gap formula

A

((Actual aggregate output - potential output) /potential output) x 100

95
Q

Output gap

A

The percentage difference between actual aggregae output and potential output

96
Q

Self correcting

A

When shocks to aggregate demand affect aggregate output in the short run, but not in the long run

97
Q

Stabilization policy

A

The use of government policy to reduce the severity of recessions and rein in exessive strong expansion

98
Q

Social insurance programs

A

Are government programs intended to protect families against economic hardship

99
Q

Expansionary fiscal policy

A

Is a fiscal policy that increases aggregate demand

ex.
an increase in government purchases of goods and services
• a cut in taxes
• an increase in government transfers

100
Q

Contradictionary fiscal policy

A

Is a fiscal policy that reduces aggregate demand

e.x.
a reduction in government purchases of goods and services
• an increase in taxes
• a reduction in government transfers

101
Q

Lump sum taxes

A

Taxes that dond depnd on the taxpayers income

102
Q

Automatic stabilizers

A

Are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economic contracts and automatically contractionary when the economy expands

103
Q

Discretionary fiscal policy

A

Is fiscal policy that is the result of deliberate actions by policy makers rather than rules

104
Q

Cyclically adjusted budget balance

A

Is an estimate of what the budget balance would be if real GDP were exactly equal to potential output

105
Q

Fiscal year

A

Runs from October 1 to September 30th and is labeled according to the calendar year in which it ends

106
Q

Public debt

A

Is government debt held by individuals and institutions outside the government

107
Q

Debt-GDP ratio

A

Is the government debt as a percentage of GDP

108
Q

Implicit liabilities

A

Are spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debtstatistics

109
Q

Checkable bank deposits

A

Are bank accounts on which people can write checks

110
Q

Medium of exchange

A

Is an asset that individuals acquire for the purpose of trading goods and servies rather than for their own consumption

111
Q

Sore of value

A

Is a means of holding purcahsing power over time

112
Q

Commodity-backed money

A

Is a medium of exchange with no intrinsic vlaue whose ultimate value is guaranteed by a promise that it can be converted into valuable goods

113
Q

Fiat money

A

Is a medium of exchange whose value derives entirely form its official status as a means of payment

114
Q

Near moneys

A

Are financial assets that cant be directly used as a medium of exchange but can be readily converted into cash or checkable bank deposits

115
Q

Reserve ratio

A

Is the fraction of bank deposits that a bank holds as a reserve

116
Q

Bank run

A

Is a phenomenon in which many of a banks depositors will try to withdraw their funds due to fears of a bank failure

117
Q

Reserve requirements

A

Are rules set by the federal reserve that determine the minimum reserve ratio for banks

118
Q

Discount window

A

Is an arrangement in which the Federal reserve stands ready to lend money to banks in trouble

119
Q

Exess reserves

A

Are banks reserves over and above its required reserve

120
Q

Monetary base

A

Is the sum of currency in circulation and bank reserves

121
Q

Central bank

A

An institution that oversees and regulates that banking system and controles monetary base

122
Q

Federal funds market

A

Allows banks that fall short of the reserve requirements to borrow funds from banks with exess reserves

123
Q

Commercial bank

A

Accepts deposits and is covered by deposit insurance

124
Q

Investment bank

A

Trades its financial assets and is not covered by deposit insurance

125
Q

Savings and loan (thrift)

A

Is another type of deposit taking bank, usually specialized in issuaing home loans

126
Q

Leverage

A

When a financial institution finances its investments with borrowed funds

127
Q

Sublime lending

A

Is lending to home buyers who dont meet the usual criteria for being able to afford their payments

128
Q

Securitization

A

A pool of loans is assembled and shares of that pool are sold to investors

129
Q

Short term interest rates

A

Are the interest rates on financial assets that mature within less than a year

130
Q

Long term interest rates

A

Are interest rates on financial assets that mature a number of years in the future

131
Q

Money demand curve

A

Shows the relationship between the interest rate and the quantity of money demanded

132
Q

–

A

–

133
Q

Target federal funds rate

A

Interest rates between banks

134
Q

Expansionary monetary policy

A

Is monetary policy that increases aggregate demand

135
Q

Contractionary monetary policy

A

Is monetary policy that decreases aggregate demand

136
Q

Taylor rule for monetary policy

A

Is a rule that sets the federal funds rate according to the level of the inflation rate and either the output gap or the unemployment rate

137
Q

Inflation targeting

A

Occurs when the central bank sets an explicit target for the finlation rate and sets monetary policy in order to hoit that target

138
Q

Zero lower bound for interest rates

A

Means that interest rates cannot fall below zero

139
Q

Monetary neutrality

A

Changes in the monetary supply have no real effect on the economy

140
Q

Paradox of thrift

A

The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving.

141
Q

Increase in government spending leads to

A

Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. It can also potentially lead to inflation

142
Q

A decrease in government taxation leads to

A

lowering taxes raises disposable income, allowing the consumer to spend additional sums, thereby increasing GNP. (gross national product)

143
Q

GDP Deflator

A

Simply put, the GDP price deflator shows how much a change in GDP relies on changes in the price level.

144
Q

GDP Deflator formula

A

Nominal GDP / Real GDP x 100

145
Q

Change in Real GDP formula

A

(GDPt1 - GDP t0)/GDPt0 x 100

146
Q

Why are both inflation and deflation considered undesireable

A

Inflation: Savings become worth less, prices need to be updated

Deflation: People wont want to spend their money –> lower GDP

147
Q

National accounts

A

Track spending of consumers, sales of producers, business investment spending, government spending etc.

148
Q

Marginally attached worker

A

Someone who would like to work, has looked for jobs, but not in the last months

149
Q

GDP doubling time (rule of 70)

A

70/growth rate %

150
Q

Labor productivity

A

Output per worker

151
Q

What leads to higher productivity

A 
Physical capital (buildings, machines)
Human capital (How educated is the workforce)
Technological progress
152
Q

The aggregate production function

A

How productivity depends on Physical capital, human capital and technological progress

1) If physical capital rises, The increase in real GDP per worker becomes smaller
2) If technology or human capital rises, that is not the case anymore

3)

153
Q

Convergence hypothesis

A

relatively poor countries should have higher rates of

growth of real GDP per capita than relatively rich countries.

154
Q

What is the impact of limited natural resources on long run economic growth

A

1) How large are the supplies of key natural resources
2) How effective will technology be at finding alternatives to natural resources
3) Can long run economic growth continue in the face of resource scarcity?

155
Q

Savings formula government

A

S = Tax revenues - Government transfers -government spending

156
Q

Investment spending formula

A

National savings + NCI = Private saving + budget balance + Exports - Imports

157
Q

What happens to demand for loanable funds when interest rate declines

A

Demand for loanable funds goes up

158
Q

What happens to the supply of loanable funds as interest rate goes up

A

Supply of loanable funds increases

159
Q

Factors that can cause the demand curve for loanable funds to shift

A

Changes in perceived business opportunities

Changes in government borrowing

160
Q

Factors that can cause the supply curve for loanable funds to shift

A

Changes in private savings behavior

Changes in net capital inflows

161
Q

Three tasks of a financial system

A

1) reducing transaction cost
2) Reducing risk (Financial risk, diversification)
3) Providing liquidity

162
Q

Marginal propensity to consume formula

A

Change in consumer spending/Change in disposable income

163
Q

Total increase in GDP formula (multiplier effect)

A

1/(1-MPC) x Autonomous change in aggregate spending

164
Q

Consumption function formula

A

c = a + MPC * yd

c = consumer spending
a= what a family would spend with zero income (constant)
yd = households disposable income
MPC = marginal propensity to consumer
165
Q

What causes a shift in planned aggregate spending

A

Change in interest rate or a change in wealth

166
Q

Interest rate effect

A

A higher aggregate price level makes households hold more money and leads to a rise in interest rates (and a fall in investment spending and
consumer spending).

167
Q

What shifts the aggregate demand curve

A

Change in expectation (optimistic shift right)
Change in Wealth (Rise –> shift right)
Change in Fiscal policy (Increased spending or less tax –> shift right

Change in Monetary policy (Increase quantity of money –> shift right)

168
Q

How do sticky wages affect SRAS

A

Profit per unit = Price per unit - Production cost per unit

A higher aggregate price level leads to higher profits and increases aggregate output in the short run

169
Q

What shifts the SRAS

A

When commodity prices fall –> shift right
When Nominal wages fall –> shift right
When workers become more productive –> shift right

170
Q

Inflationary gap

A

When potential output is below aggregate output

171
Q

What causes expansionary fiscal policy

A

-an increase in government purchases of goods and services
• a cut in taxes
• an increase in government transfers

172
Q

what causes a contractionary fiscal policy

A
  • a reduction in government purchases of goods and services
  • an increase in taxes
  • a reduction in government transfers
173
Q

Lags in fiscal policy

A

It takes time to:
1. realize the recessionary or inflationary gap by collecting and analyzing economic
data.
2. develop a plan.
3. implement the action plan (spending the money).

174
Q

shadow bank

A

Doesnt accept deposits and isnt covered by deposit insurance or regulations that make conventional banks safer (includes:)

  • investment banks
  • insurance companies
  • hedge fund companies
  • money market fund companies
175
Q

How does the Federal bank increase money supply

A

It will buy T-Bills

176
Q

How does the Fed bank decrease money supply

A

It will sell T-Bills –> Fewer resevers –> less loans by banks

177
Q

opportunity cost of holding money rises if:

A

The interest rates are rising

178
Q

–

A

–

179
Q

What shifts the money demand curve left/right

A

Decrease in money demand shifts left

Increase in money demand shifts right

180
Q

Money supply curve

A

shows how the nominal quantity of money supplied changes the interest rate

181
Q

circular flow diagram

A

A simple way of thinking about the Macroeconomy

182
Q

Four sectors of the economy

A

Government, households,firms and rest of word

183
Q

Households breakdown

A

ncome through factor markets (wage from working, interests from capital etc.)
→Households own factors of production (labor, land, physical capital, human capital, financial capital) and sell the use of these
to firms.

Pay taxes: income –taxes : disposable income

Disposable income is spent on consumption, what is left are
personal savings.

Personal savings are invested via financial markets (banks, stocks, etc.)

184
Q

Government breakdown

A

Has income through taxation and borrowing, spends by buying goods and services and through government transfers

185
Q

Firms breakdown

A

Are financed through financial markets

By inputs from factor markets engage in investment spending

186
Q

Rest of the world breakdown

A

A ountry is not closed our isolated. Goods and services are exported or imported. Countries can borrow and lend

187
Q

alternative ways of calculating gdp

A

Look at what has been spent on acquiring (domestically produced) total goods and services.

Adding up total factor income earned by households from firms in the economy.

188
Q

Producer price index

A

a typical basket of goods purchased by producers

189
Q

Labor force participation rate (formula):

A

labor force / population aged 16 and older) * 100

190
Q

Actual rate of unemployment formula

A

Natural + Cyclical = Structural + Frictional + Cyclical

191
Q

menu costs

A

updating prices costs time and effort

192
Q

Inflation has economic costs because of unit of account (definition)

A

it may become increasingly hard to use the currency as a unit of
account and makes various economic decisions less efficient, harder

193
Q

If inflation is high who benefits who loses

A

So if inflation is higher than expected, those who lend out lose and those who borrowed gain!

194
Q

What increases physical capital

A

Savings and investment spending

195
Q

What increases human capital

A

Education

196
Q

What increases technological capital

A

Research and development

197
Q

Tradgedy of the commons

A

an economics problem in which every individual has an incentive to consume a resource, but at the expense of every other individual—with no way to exclude anyone from consuming.

198
Q

Savings–investment spending identity

A

savings and investment spending are always equal for the economy as a whole

199
Q

Savings (gov) formula

A

T − TR − G

• T = the value of tax revenues, TR = the value of government transfers, G = the value of government spending

200
Q

Savings (national) formula

A

SNational = SGovernment + Sprivate

201
Q

Capital outflow

A

savings from people in home country go to investment abroad

202
Q

Capital inflow:

A

savings from abroad go to investment in home country

203
Q

Present value

A

the amount of money needed today to receive a given

amount of money at a future date given the interest rate.

204
Q

Present value formula (ex money needed)

A

PV = FV/1+r

205
Q

An increase for demand for loanable funds creates:

A

A rise in the equillibrium interest rate

206
Q

Global loanable funds market

A

arises when international capital flows are so large

that they equalize interest rates across countries.

207
Q

What changes the interest rate

A

Anything that shifts either the supply of loanable funds curve or the demand for loanable funds curve changes the interest rate.

208
Q

Three tasks of a financial system

A

Reducing transaction cost

Reducing risk

Providing liquidity

209
Q

Marginal propensity to save formula

A

1-MPC

210
Q

total increase in GDP due to multiplier formula

A

Total increase in real GDP = (1 + MPC + MPC2 + MPC3 + . . .) × $100 billion

211
Q

total increase in real GDP formula

A

1/1-MPC x 100Billion

212
Q

If ΔAAS = autonomous change in aggregate spending and
• ΔY = change in real GDP

dY formula

Multiplier formula

A

1/1-MPC *dAAS

Multiplier = dY/dAAS or 1/1-MPC

213
Q

Aggregate consumer function (disposable income consumer) + formula

A

the relationship for the economy as a whole between aggregate disposable income and aggregate consumer spending

c = a + MPC × yd

214
Q

what tends to drive the booms and busts in the business cycle.

A

Investment spending

215
Q

Two possible sources of a shift of planned aggregate spending line

A

Change in interest rate or wealth

216
Q

The aggregate demand curve shifts because of

A

expectations.
• wealth.
• size of the existing stock of physical capital.
• government policies.

Increase in aggregate demand shifts the curve to the right

217
Q

Short run aggregate supply curve shifts because of

A

commodity prices
• nominal wages
• productivity

Decrease in short run aggregate supply shift the cuve to the left

218
Q

short run equilibrium aggregate output

A

is the quantity of aggregate output produced in the short-run macroeconomic equilibrium.

219
Q

A widely used measure of fiscal health is the

A

Debt to GDP ratio

220
Q

Money must function as

A
  • a medium of exchange.
  • a store of value.
  • a unit of account.
221
Q

T-account

A

a tool for analyzing a business’s financial position by

showing the business’s assets and liabilities

222
Q

Bank reserves

A

the currency that banks hold in their vaults, plus their

deposits at the Federal Reserve

223
Q

Reserve ratio formula

A

the fraction of bank deposits that a bank holds as

reserves ($100,000/$1,000,000 = 10%)

224
Q

If the Fed wants to increase money supply it will

A

buy T bills

to pay for the T-bills, Fed electronically increases the reserves of the seller
• with more reserves, banks increase loans
• money supply increases as the loans/money creation process ripples through the economy

225
Q

If the Fed wants to decrease money supply they will

A

Sell T bills

• in exchange for the T-bills, Fed decreases the reserves of the seller
• with fewer reserves, banks decrease loans
• money supply decreases as the loans/money creation process ripples through
the economy in reverse

226
Q

what shifts the money demand curve?

A

Changes in aggregate price level
Changes in real GDP
Changes in Technology
Changes in institutions

227
Q

The liquidity preference model of the interest rate asserts:

A

that the interest rate is determined by the supply and demand for money.

228
Q

The money supply curve shows

A

how the nominal quantity of money supplied varies with the interest rate.

229
Q

Private savings formula

A

GDP−Taxes+Government transfers−consumption

230
Q

Investment spending formula

A

Privatesavings + Budgetbalance + Netcapitalinflow

Or

Nationalsavings+Netcapitalinflow

Macroeconomics (2 decks)

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