Term
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Definition
| C+Ig+G+Xn - Consumer spending + gross investment + government spending + net exports |
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Term
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Definition
Instead of Ig or gross investment it uses In or NET investment -
it is GDP - depressiation or In = Ig-depreciation |
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Term
| Difference between real and nominal GDP |
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Definition
| Real GDP is adjusted for inflation and a better economic measurement than nominal GDP |
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Term
| How do you get Nominal GDP |
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Definition
| Output_per_the_year * Price_for_the_year |
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Term
| 4 phases of business cycle |
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Definition
| GROWTH - PEAK - RECESSION - TROUGH |
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Term
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Definition
| 1st economist to write shit down - said real value of something is equal to the amount of labor put into it - most things are not valued this way |
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Term
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Definition
| Focused on Long run economy causing business cycles |
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Term
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Definition
| capitalist economy is a self healing economy, supply creates its own demand, Government interaction not needed |
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Term
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Definition
GDP expenditure method comes from him
Completely demand driven
Multiplier effectt |
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Term
| Predicting Recession - 3 types of economic indicators |
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Definition
Leading indicators - Before new stage of business cycle
Coincidental Indicators - Happens during the business cycle
Lagging indicators - hange after the business cycle |
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Term
| Leading recession indicators |
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Definition
| Average hours worked per week, unemployment claims, stock prices, capital goods investment, consumer expectations, delivery time of goods |
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Term
| Coincidental recession indicators |
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Definition
| Payroll employment, industrial production, personel income |
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Term
| Lagging recession indicators |
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Definition
| Labor cost per unit of output, inventory to sales ratio, unemployment duration, consumer debt, outstanding commercial loans, Prime interest rate |
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Term
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Definition
Employed - all full time and part time workers
Officially unemployed - all people who are actively looking for jobs |
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Term
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Definition
| Offially_unemployed / total labor force |
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Term
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Definition
| people that have been unemployed for an extended period of time, cant find a job, giveu p and NOT part of the labor force |
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Term
| Three types of unemployment |
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Definition
1) Frictional - Most common - people in between or waiting to get jobs
2) Structural Unemployment - due to changes in structure of work place- automation or corporate downsizing
3) Cyclical - Unemployment due to recession (change in business cycle) |
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Term
| Natural Rate of unemployment |
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Definition
| frictional_unemployment + structural_uneemployment |
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Term
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Definition
| 100% - natural_unemployment |
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Term
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Definition
| What we can produce at full employment |
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Term
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Definition
| potential GDP - actual GDP |
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Term
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Definition
Social cost - Increase in suicide rate, divorce rate, prison population size
Lost production - |
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Term
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Definition
| Sustained increase in the average price level |
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Term
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Definition
| decrease in average price level |
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Term
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Definition
| Recession with inflation - Unemployment rate AND inflation rate both rising |
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Term
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Definition
Demand for goods and services increases - prices go up and output goes up
Most common reason for inflation |
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Term
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Definition
| Reduction in supply - business costs are going up, supply falls, price and unemployment rise |
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Term
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Definition
People on a fixed income
Savers worse off, value of money drops
Lenders or creditors lose from unexpected inflation |
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Term
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Definition
borrowers may win
Government may gain |
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Term
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Definition
Creeping inflation - average american inflation, single digit increase
Galloping - 2 digit increase per year
Hyper inflatino - >50% increase - Hungary was worst - hyperinflation always caused by government excessively printing money |
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Term
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Definition
| Money with no intrinsic value - nothing backing it but faith in it |
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Term
| Marginal Propensity to Consume |
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Definition
Change in consumer spending / change in consumer income
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Term
| Marginal Propensity to save |
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Definition
MPS + MPC = 1
If MPC = .7 MPS = .3 - what consumers save from each dollar increase |
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Term
| Expenditure Multiplier formula |
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Definition
1/(1-MPC) or 1/MPS
Means that each $1 change in spending, GDP changes by |
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Term
| How to find impact on GDP with the expenditure multiplier |
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Definition
| expenditure_multiplier * change_in_spending |
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Term
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Definition
| Average price of all goods and services demanded |
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Term
| Reasons why aggregate demand slope down |
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Definition
1) Wealth effect - Consumer spending higher at lower levels
2) Interest Rate effect - Spending is lower at higher interest rates
3) Foreign Purchases Effect - Import products get bought more during higher general price, and exports is lower at a higher general price |
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Term
| Determinants of aggregate demand |
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Definition
| Consumer spending, gross investment, government spending, and netexports |
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Term
| Determinants of Aggregate Supply |
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Definition
Resource prices, prices of imported resources, prices of raw materials, technology and productivity
(Same determinants from both long and short) |
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Term
| SRAS - Aggregate demand increases |
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Definition
Growth with inflation, unemployment down, aggregate supply up
Demand pull inflation |
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Term
| SRAS - Aggregate demand falls |
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Definition
| Real GDP is going down, unemployment rising, RECESSION |
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Term
| SRAS - Agg supply increase |
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Definition
| General price level drops, Real GDP is higher, falling unemployment, rise in productino growth or expansion and deflation |
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Term
| SRAS - Aggregate supply decreases |
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Definition
| Real GDP goes down, price levels drop, unemployment rises, Recession with inflatinon - STAGFLATION |
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Term
| LRAS - Agg Demand Increases |
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Definition
| Only thing affected general price level is higher |
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Term
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Definition
| Only thing here is average price level drops |
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Term
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Definition
| Government spending - tax_revenues |
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Term
| 3 Basic Budget Philosophies |
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Definition
1) Annually Balanced Budget
2) Cyclically Balanced Budget
3) Functional Finance |
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Term
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Definition
Requires government spending = tax revenues each year to balance up
Too strict at certain times, during a recession tax revenues drop but goverment spending rises |
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Term
| Cyclically balanced budget |
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Definition
Less strict than annually balanced budget
Good years pay for the bad years
Save up during good years |
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Term
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Definition
Don't worry about balancing, just whatever is necessary to keep economy growing
Focus on a growing economy and low unemployment |
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Term
| Major historical causes of debt |
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Definition
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Term
| Government debts result in what: |
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Definition
| Higher real interest rates |
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Term
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Definition
1) Crowding out effect - real interest rates go up, Business investments go down
2) Impact on net exports - Due to higher real interest rates, imports increase because cheaper to get out of country, which caused net exports to go down causing GDP to down |
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Term
| Can the federal government go bankrupt? |
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Definition
No
1) Debt never due, can rollover
2) Power to tax every year
3) Power to print money |
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Term
| Solution to Budget Deficit |
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Definition
| Requires less spending and more money coming in |
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Term
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Definition
1) Serves as basic medium of exchange
2) Way to store value, way of saving
3) Standard of value
4) Standard of deferred payment |
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Term
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Definition
M1 - Includes all money in checking accounts, checkable depoits, and money in circulation outside of banks
M2 - Includes everything in the M1, PLUS savings acounts, money market accounts, mutual founds - LARGER THAN M1 |
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Term
| Money Supply (controlled by who) |
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Definition
| Federal reserve controls it, the line is a vertical straight line |
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Term
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Definition
| Top left to bottom right curve - |
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Term
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Definition
1) Transactions demand - to buy stuff
2) Asset Demand - precautionary and speculative |
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Term
| Money Demand Increases or decreases |
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Definition
| Increases interest rates go up, decreases the opposite |
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Term
| If money supply increases or decreases |
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Definition
| Increases interest rate goes DOWN - decreases interest rate RISES |
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Term
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Definition
| Interest rates larger banks charge their larger/best customers |
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Term
Fractional Reserve banking:
Two types of reserves |
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Definition
Required Reserves: Percentage of deposit required to keep in bank as a reserve
Excess Reserve: amount left after required reserves reserved |
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Term
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Definition
| Interest rate federal reserve bank charges commercial banks for a loan |
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Term
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Definition
| Federal reserve buys and sells government Securities |
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Term
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Definition
| Loan rate commercial banks charge each other for an over night line, 1/2 point below discount rate and considered short term interest rate |
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Term
| Tools used by Feds to control money supply |
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Definition
1) Required Reserve ratio %
2) Discount Rate
3) Open market operations
4) Federal funds Rate |
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