Test 3 Flashcards
participation rate
percentage of the labor force that is trying to work
unemployment
frictional
structural
cyclical
frictional unemployment
someone is between jobs
structural unemployment
some kind of change in society (using robots instead of workers on an assembly line)
cyclical unemployment
happens because of business cycle (economy slowing down)
normal rate of employment
frictional + structural
why is AD graph downward sloping
real balances, foreign purchases, interest rate effect
why might AD change
change in C- income, taxes, wealth
change in I- belief about how much we can earn by buying real assets
change in X- other countries income, exchange rates
exchange rate
price of one currency in another country
how to get aggregate supply to change
change in resources change in productivity regulation input pries taxes
what happens to economy equilibrium when gov’t increases money supply?
interest rate falls
PT (precautionary transactions)
demand for money
SP (speculative)
savings in the form of money
objections of government economic policy
economic growth- the more growth the more peoples income (enhances quality of life)
stable price levels
less unemployment
exchange rates- if foreign countries buy too much of US goods price will rise
redistribution of income- “fair” “equitable”
economic growth goals
stable prices
stable exchange rates
low unemployment
economic growth tools
change taxes change gov't spending change rd change discount rate buy/sell securities
good target
measurable- identify easily
controllable- gov’t policy has to affect target more than other things affect target
important- when changes actually affect the goal
3 prominently mention targets
1) money supply problems- hard to measure
2) total credit- how much people are borrowing
3) interest rate
discretionary policy
look at numbers and decide what you’re going to do then you do it
-should only work when you surprise people
advantage of a money rule
1) lags avoided
by the time they do it their data will be old
2) avoid mistakes
changing things too early when it doesn’t happen
3) avoid politics
no political pressure because everyone knows you are going to change policy and for how long you will do it
public goods
if we let market be in charge society will not produce enough (underproduce)
what government can do to intervene
1) direct production- produce it themselves
(military, law enforcement, roads)
2) mandate- require that we have to buy
someone will sell because they already have an audience
(auto insurance, health insurance)
3) incentives- incentive for purchasing a public good
(FNMA, FHMLC, child care, education expenses)
social engineering
government uses tax code to try to get you to change your behavior
labor force
people who have jobs or want them
