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Econ 110 > Macroeconomics Concepts > Flashcards

Macroeconomics Concepts Flashcards

1
Q

When does cost-plus pricing happen?

A

When firms don’t know the demand curve

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2
Q

What is odd pricing?

A

Pricing that often ends in 5 or 9 rather than 0

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3
Q

What is convenient pricing?

A

Prices that simplify and expedite transactions, reducing the time costs from physically making a transaction (vending machines, parking meter, food trucks)

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4
Q

Arbitrage

A

Buy a good in one market at a low price and resell it in another market at a higher price

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5
Q

Transaction costs

A

Costs involved in carrying out an exchange of goods

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6
Q

Price Discrimination

A

Charging different prices to different consumers for the same product when the price differences are not due to differences in cost. (cannot happen in the case of perfect competition)

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7
Q

Requirements to engage in price discrimination

A

1) firm has marketpower
2) identifiable differences in willingness to pay among consumers
3) arbitrage cannot be possible

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8
Q

Perfect Price Discrimination

A

Each consumer pays a price equal to their willingness to pay

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9
Q

Transfer Payments

A

Like social security where a person isn’t getting anything directly in return.

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10
Q

GDP

A

The market value of all final goods and services produced in a country in a period of time, typically one year.

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11
Q

Production and Income

A

Total Production is the same as total income.

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12
Q

Four components of GDP

A

1) Personal Consumption expenditures (spending on services, durable goods, nondurable goods)
2) Gross Private Domestic Investment (business fixed investment, residential investment, changes in business inventories)
3) Government Consumption & Gross Investment (spending by governments on new goods and services)
4) Net exports of goods and services (exports - imports)

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13
Q

GDP Formula (Y)

A

Y=C+I+G+NX

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14
Q

What production is not included in GDP?

A
  • Household Production: responsibilities of a homemaker

- Underground economy - drug trade, illegal activities, etc

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15
Q

GNP

A

Value of final goods and services produced by US residents.

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16
Q

National Income

A

GDP minus depreciation of machinery, equipment and buildings

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17
Q

Personal Income

A

national income minus earnings that corporations retain rather than pay to shareholders

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18
Q

Disposable personal income

A

personal income minus tax payments

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19
Q

Change in prices

A

1) price level - measure of average price of goods and services in the economy
2) inflation - increase in prices over time
3) nominal GDP - GDP using current year prices
4) Real GDP - GDP using base year prices.

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20
Q

Inflation rate

A

percentage change in the price level from one year to the next.

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21
Q

Consumer price index (CPI)

A

A measure of the average change over time in the prices that a typical urban family of four pays for the goods and services they purchase

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22
Q

Problems w CPI (4)

A

1 - substitution bias
2 - increase in quality bias
3 - new product bias
4 - outlet bias

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23
Q

Producer Price Index

A

Average of the prices received by all producers of goods and services at all stages of the production process.

24
Q

Interest Rate

A

The price of borrowing money - The cost of borrowing funds, usually expressed as a percentage of the amount borrowed.

25
Q

Nominal Interest Rate

A

The stated interest rate

26
Q

Real interest rate

A

nominal interest rate minus the inflation rate

27
Q

Expansion

A

Total employment & total production are increasing

28
Q

Recession

A

Total employment & total production are decreasing

29
Q

GDP per capita

A

GDP divided by the total population

30
Q

Potential GDP

A

Real GDP when all firms are producing at capacity .

31
Q

The Financial System

A

A system of financial markets and dinancial intermediaries through which firms acquire funds from households.

or

Institutions through which firms acquire funds from households.

32
Q

What is a bond

A

It is a loan you give to the government

33
Q

Aggregate demand curve

A

the relationship between price level and quantity of real GDP demanded by household, firms and govt.

34
Q

3 factors that change quantity demanded

A

1) wealth effect - rise and fall of prices moves along demand curve
2) interest effect - some savings go in bank, get interest, lower price of loanable funds, more investment spending - all from lower price.
3) international trade effect - lower relative price in US meant more US goods purchased thatn foreign goods

35
Q

3 factors that change demand

A

1) expectations - optimism about future shifts demand to right. pessimism about future shifts demand to left.
2) govt policy - fed can change interest rates
3) foreign factors - economic situation in other countries can increase or decrease foreign demand for US goods.

36
Q

Aggregate supply curve

A

the relationship between price level and quantity of real GDP supplied by firms

37
Q

Factors that determine potential GDP

A

workers in the economy, capital stock, technology

38
Q

factors that change supply

A

workers, capital stock, technology, expectations for future prices, errors in past expectations, supply shock (unexpected change in price of important natural resources)

39
Q

Roles of the Federal Reserve

A

1) lenders of last resort

2) manages the US money supply

40
Q

The discount rate:

A

the interest rate that the Fed charges to banks

41
Q

Money

A

any asset that people are generally willing to accept in exchange for goods and services or for payment of debts

42
Q

commodity money

A

a good that is used as money but also has value independent of its use as money

43
Q

fiat money

A

money that is authorized by a government body and does not have to be exchanged for commodity money

44
Q

Functions of money (4)

A

1) Medium of exchange - If you want to buy goods you use money to do so
2) unit of account - giving a single way of measuring the value of many things
3) store of value - keeps its value through time
4) standard of deferred payment - paying over time in smaller payments. Works in low inflation

45
Q

M1 money supply

A

Sum of currency in circulation, checking account deposits in banks, holdings of traveler’s checks.

46
Q

M2 money supply

A

sum of M1 money supply, savings account deposits, small-denomination time deposits, money market mutual fund shares

47
Q

Reserves

A

Deposits that banks keep on hand as cash in deposits with the federal reserve

48
Q

Required reserve ratio (RR)

A

minimum fraction of deposits that a bank is required by law to keep as reserves

49
Q

Velocity of Money

A

Average number of times that each dollar is used to purchase goods and services included in GDP
(MxV=PxY)

50
Q

Nominal exchange rate

A

the vlaue of one country’s currency in terms of another country’s currency

51
Q

Implied exchange rate

A

also called the “purchasing power parity” exchange rate, used in big mac example where product is the same anywhere in the world.

52
Q

Floating currency

A

demand and supply determine a country’s exchange rate

53
Q

Managed Float

A

Floating currency with occasional government intervention

54
Q

Fixed

A

countries agree to keep exchange rates fixed for long periods of time.

55
Q

Pegged exchange rate

A

A policy by which a country keeps fixed the exchange rate between its currency and another country’s currency

56
Q

Why peg an exchange rate?

A

1) Business planning - they can’t set a maximizing price if the exchange rate changes every single day
2) encourage exports -

Econ 110 (3 decks)

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