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EC1506 > Yes > Flashcards

Yes Flashcards

1
Q

GDP

A

The total monetary value of all goods and services produced within a country’s borders in a specific period of tine, usually a year.

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2
Q

Components of GDP

A

Consumption (C): the purchase of clothing by households
Investment (I): company buys a new machine
Government Spending (G): government builds a new highway
Net Exports (NX): country exports more than it imports resulting in a positive net balance

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3
Q

Nominal vs. Real GDP

A

Nominal GDP is a measure of economic output that uses current prices, while Real GDP adjusts for inflation.

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4
Q

GDP per capita

A

GDP per capita is a measure of a country’s economic output per person, calculated by dividing the country’s GDP by its total population.

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5
Q

Inflation rate

A

The rate at which the average price level increases over time.

Inflation rate = [(Price index in year 2 - Price index in year 1)/(Price index in year 1)] X 100

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6
Q

National Income and Products (NIPA)

A

Used to:
Measure the nation’s economic performance
Compare a nation’s income and output to that of other nations
Track the economy’s condition throughout the business cycle

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7
Q

Circular flow diagram

A

Learn it!

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8
Q

Business Cycle

A

Learn it!

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9
Q

Recession

A

Periods of economic downturns when output and employment are falling

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10
Q

Depression

A

A very deep and prolonged downturn

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11
Q

Expansions (aka recoveries)

A

Periods of economic upturns when output and employment are rising

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12
Q

Business-cycle peak

A

The point at which the economy turns from expansion to recession

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13
Q

Business-cycle trough

A

The point at which the economy turns from recession to expansion

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14
Q

Self-regulating economy

A

(Pre-1930 conventional wisdom) Problems such as unemployment are resolved without government intervention through the working of the invisible hand

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15
Q

Keynesian economics

A

(Post 1930s conventional wisdom) Economic slumps are caused by inadequate spending, and they can be mitigated by government intervention

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16
Q

Included and not included in calculating GDP

A

Included:
- domestically produced final goods and services (including capital goods)
- new construction of structures
- changes to inventories

Not included:
- intermediate goods and services
- used goods
- financial assets like stock and bonds
- foreign-produced goods and services

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17
Q

Gross National Product

A

GNP is defined as the total factor income earned by residents of a country. it EXCLUDES factor income earned by foreigners and INCLUDES factor income earned by residents aboard.

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18
Q

GDP per worker

A

a measure of income per head of the working population

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19
Q

Market basket of goods and services

A

Refers to a collection of items that are commonly purchased by consumers

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20
Q

price index

A

The ratio of the current cost of the market basket to the cost in a base year, multiplied by 100

Price index in a give year = [(Cost of market basket in a given year)/(Cost of market basket in base year)]X100

21
Q

Consumer Price Index

A

CPI is the most common measure of the aggregate price level and typically used to measure inflation. It measures the cost of the market basket of a typical family

22
Q

Producer price Index

A

PPI measures the average change over time in the prices domestic producers receive for their output

23
Q

GDP deflator

A

Measure the price level by calculating the ratio of nominal GDP to real GDP

GDP Deflator = (Nominal GDP/Real GDP) X 100

24
Q

Inflation vs deflation

A

Inflation is a rising aggregate price level. Deflation is a falling aggregate price level.

25
Q

Real income

A

Gives a measure of the amount of goods and services that we can consume with a given nominal income.

26
Q

Business cycle SR vis LR

A

In the SR, movements in inflation are closely related to the business cycle. In the LR, the overall level of prices is mainly determined by changes in the money supply.

27
Q

Disinflation

A

The process of bringing the inflation rate down

28
Q

Nominal vs real interest rates

A

Nominal: the interest rate expressed in dollar terms
Real: nominal interest rate minus the rate of inflation

Formula: Real interest rate = Nominal interest rate - Inflation rate

29
Q

Fisher effect (interest rates)

A

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

30
Q

Planned Vs Actual Spending

A

Planned: saving or investment is the intended actions of households and firms
Actual: saving or investment is the realised outcome resulting from actions of households and firms.

31
Q

Full employment

A

When those people who want to work at the going rate are able to find a job

32
Q

SR equilibrium of the economy

A

Where aggregate (planned) expenditure [E = C + I + G + NX] crosses the actual spending [45 degree line] curve. Where Actual = Planned

33
Q

Deflationary gap

A

Look at diagram!!!!!

The difference between full employment output and expenditure when expenditure is less than full employment output

34
Q

Inflation gap

A

Look at diagram!!!!!!

The difference between full employment out and actual expenditure when actual expenditure is greater than full employment

35
Q

Multiplier effect

A

Refers to the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.

Government purchases are said to have a multiplier effect on AD.
- a euro of government purchases can generate more than a euro of AD

Formula:
Multiplier = 1/(1 - MPC)
Multiplier - 1/MPS

36
Q

Accelerator principle

A

Relates the rate of change of AD to the rate of change in investment.

37
Q

MPC

A

Marginal Propensity to Consumer is the fraction of extra income that a household consumes rather than saves

38
Q

MPS

A

Marginal Propensity to Save is the fraction of extra income that a household saves rather than consumes

39
Q

Autonomous expenditure

A

Spending that is not dependent on income/output

40
Q

Money Supply

A

The total value of financial assets in the economy that are considered money

41
Q

Function of money

A

Medium of exchange;
- an asset that individuals acquire for the purpose of trading rather than for their own consumption
Store of value:
- enables people to save the money they earn today and use it to buy the goods and services they want tomorrow
Unit of account:
- money provides a yardstick for measuring and comparing the values of a wide variety of goods and services

42
Q

Monetary aggregate

A

M1: included only the most liquid forms of money
M2: includes near-money financial assets that can’t be directly used as a medium of exchange but can readily be converted into cash or checkable bank deposits

43
Q

Bank reserves

A

The currency that banks hold in their vaults plus their deposits at the Central Bank

44
Q

How banks create money

A
  • purpose of financial markets and institutions: act as a bridge between lenders and borrowers
  • accepting deposits and making loans -> able to create money
  • when money is deposited, part of it goes in the bank’s vault
45
Q

Excess reserves

A

A bank’s reserves over and above its required reserves. ASSUME bank’s don’t want this

46
Q

Money Supply curve

A

LOOK AT THE DIAGRAM!!!

Represents the relationship between the quantity of money supplied in the economy and the interest rate.
- vertical curve as it is fixed by the central bank

47
Q

Money demand

A

Downward slowing

48
Q

Effect of increase in money supply

A
  • shift Ms curve to the right
  • lead to a lower value of Mooney as more money is circulating in the economy
  • lead to an increase in Price level (inflation)

EC1506 (1 decks)

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