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Definition
| GDP/Pop (Y/Pop) or [Y/L * L/Pop] |
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| %Δ Y - %Δ Pop or %Δ Y/L + %Δ L/Pop |
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| not working + actively seeking + special circumstance |
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| not working, given up/no interest |
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Term
| Labor Force Participation Rate: |
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Term
| Official Unemployment Rate: |
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Definition
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Term
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Definition
| Temp (quit, fired, new to job market) |
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| Lost job due to economy is recession |
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Term
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Definition
Today’s Goods * Today’s Prices
Today’s Goods * Base Year Prices
*Cumulative CPI = CPI - 100
1) CPI Now - CPI Last Period
CPI Last Period
2) Inflation Rate = [w1 x %ΔP1] + [w2 x % ΔP2] ….
a. w1 + w2 +… = 100% or 1
b. % ΔP: whole number (20% = 20) |
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Term
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Definition
Nominal GDP $ Value of current output at current prices
Real GDP $ Value of current output at base year prices |
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Definition
| Net Exports (Export - Import) + Investment (Adding to K stock) + Gov Purchase + Consumption |
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Definition
Indirect Business Tax + Capital Consumption Allowance (Depreciation) + K Income + Labor Income
*National Income = K income + labor income |
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| GDP - (output of Foreigners in USA) + (Output of Americans and Firms in other countries) |
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Term
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Definition
Nominal GDP (Current output * current $) / Real GDP (Current output * base $) * 100
Cum inflation = GDP Deflator - 100 |
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Term
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Definition
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Term
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Definition
measured at one specific time, quantity existing at any point in time
Ex. GDP, Wealth, Saving |
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Definition
measured over a period of time, measured at "unit per time"
Ex. Check Account Balance, K stock, Investment |
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Definition
Current output of final products and exports
Household output (Non market activity) and output that takes place in Underground Economy not in GDP |
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Term
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Definition
1. Retained earnings
2. Borrow: from banks (small businesses)
selling bonds (large businesses)
3. Issuing common stock |
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Term
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Definition
1. Gross Tax - Transfer Payments - Gov. Purchases
2. Net Tax - Gov Purchases
2. |
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Term
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Definition
| Gross Tax - Transfer Payments |
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Term
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Definition
| Gov Purchases + Transfer Payments |
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Term
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Definition
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Term
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Definition
i = money earned / for every $100 saved in bonds
i = 5% on 30 year gov bonds |
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Term
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Definition
r = i - inflation rate
Inflation rate may = ΔCPI
* Rational people think only about r when making decisions about Sv or I |
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Term
| Demand for Loanable Funds (DLF) |
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Definition
DLF is I
DLF has a negative slope, because lest costly to borrow when r is low |
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Term
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Definition
SLF = Private Sv + Gov Budget + Net International Borrowing
SLF has a positive slope, because it pays greatly to save if r is high, much less incentive to Sv if r is low |
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Term
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Definition
Banks are afraid to lend all that they are legally allowed to lend
Last credit crunch is now!
SLF shifts left |
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Term
| People are afraid what happens to Graph |
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Definition
| Sv --> more, SLF shifts right |
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Term
| Businesses are afraid what happens to Graph |
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Definition
| Borrow less --> DLF shifts left |
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Term
| Net International Borrowing |
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Definition
Net Capital Flows (Net KF)
- if we lend
+ if we borrow |
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Term
| Graph equilibrium questions |
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Definition
| Sv + (Net Tax - G) + Net KF = I |
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Term
| Financial Intermediaries duties |
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Definition
Find borrowers for Sv
Asses risk
Reduce risk by making many loans |
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Term
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Definition
| Currency in Circulation + Check Accounts + Travelers Checks |
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Term
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Definition
| M1 + Saving Accounts + Small Time Deposits + MMMF's |
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Term
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Definition
1. Monitor the economy
2. Clear checks
3. Lend to banks |
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Term
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Definition
1. Change discount rate
2. Change required reserve ratio, rrr
3. Open Market operations |
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Term
| Fed changes interest rates |
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Definition
Lower "i" to stimulate borrowing and spending
Raise "i" to discourage borrowing and spending
Feb 2010 Fed increased rate by .5% |
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Term
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Definition
| Fed buys gov't bonds to increase money supply and spending |
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Term
| Money Supply Equation "Mo" |
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Definition
Mo = Coins/currency in circulation + (1/ rrr + er)*[total bank reserve]
Total Bank Reserve = Vault Cash + Bank reserves with the Fed
er = excess reserve ratio |
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Definition
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Definition
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Term
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Definition
Mo*(V) = P * Y
Mo - Nominal $ supply
V - velocity of $
P - GDP deflator
Y - Real GDP
P*Y - Nominal GDP |
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Term
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Definition
%ΔMo + %ΔV = %ΔP + %ΔY
%ΔP - inflation rate
&ΔV - may be constant = 0 |
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Term
| Business cycles since WWII ? |
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Definition
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Term
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Definition
Avg 4-5 years
Getting longer 1980's: 8-9 years
1990's 10 years |
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Term
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Definition
12-18 months
Getting shorter |
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Term
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Definition
| Unemployment Rate + Inflation Rate |
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Term
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Definition
| Inflation caused by AD increases |
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Term
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Definition
Inflation due to increase in costs
- Increase money wage rate
- Increase money prices of raw materials |
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Term
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Definition
WWII - 1960: high inflation 6%
1960's: Low inflation 2.5%
1970's: Highest inflation (P doubled) 1980-present: low 2-3% |
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Term
| When AD is moved to SR Equilibrium, Inflation type? |
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Definition
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Term
| When AD is moved from SR Equi. back to LR Equi, Inflation type? |
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Definition
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Term
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Definition
Moves SRAS curve up and left
Oil $ ↑ |
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Term
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Definition
Moves the AD down left
Fed ↑ interest rates |
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Term
| Real Business Cycle Theorem (RBC) |
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Definition
Business cycles caused mostly by (-)Demand Shock
Recession caused by (-)Supply Shocks
Economy always on LRAS therefore no recessions when AD shifts down
Official P never falls but actual P does
Y↓ only if Yp↓ --> LRAS Shifts left
Labor Productivity ↓ causing Yp↓ |
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Term
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Definition
| Firms keep valuable workers and utilize them less intensively output↓ > labor↓ therefore Y/L↓ |
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Term
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Definition
| %ΔMo + %Δ Velocity = %Δ Inflation + %Δ Gdp |
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Term
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Definition
Recessions caused by Labor Hoarding
Y↓ > L↓
Y/L↓ |
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Term
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Definition
Y=Yp
U=Un
Real wage remains constant (W/P)
P and W vary proportionately |
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Term
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Definition
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Term
| Long Run Aggregate Supply (LRAS) Shifts |
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Definition
Right(K↑, Labor↑, Tech↑)
Left(War, Famine, Opposite right shifts) |
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Term
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Definition
AD = C + G + I + NX
(-)Slope due to increase in price level resulting in a decrease in real wealth and consumption |
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Term
| Short Run Agg Supply (SRAS): |
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Definition
Fastened to LRAS (shifts with it)
P↑ -> Profit↑ -> Produce More;
(+)Slope Shift Up/Left (Wages↑, Production↑)
Shifts Up Left due to Wages↑ |
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Term
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Definition
Developed by Friedman
Reducing U below Un by keeping AD high -Only works in SR. Eventually P↑
--SRAS shifts bringing us back to LR: ---P↑ U↑, Y↓ |
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Term
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Definition
Demand creates supply
When AD shifts right and firms believe it's permanent, Yp↑ as LRAS shifts right because firms expand
Criticizes NRH |
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Term
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Definition
| Un = Frictional + Structural |
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Term
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Definition
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Term
| Appropriate Gov Policy when at recessionary gap: |
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Definition
Monetary Policy : Lower interest rates
Fiscal Policy : Purchase more goods and services |
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Term
| Marginal Propensity to Consume (MPC) = |
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Definition
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Term
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Definition
1 / (1 - MPC)
Provides insight to the magnitude of cyclical ups and downs
The required change in G to close an output gap |
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Term
| How much AD curve shifts and Direction = |
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Definition
Multiplier X Increase/Decrease in (G,I,Co)
Increase = Right Shift
Decrease = Left Shift |
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Term
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Definition
| Gap = Multiplier X Δ(G,NX,I,Co) |
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Term
| 2nd Way To Determine Multiplier |
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Definition
| ΔY / Δ(G,NX,Io,I) = Multiplier |
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Term
| Marginal Propensity to Save = |
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Definition
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Term
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Definition
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Term
| If Y changes, how much will people spend and save |
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Definition
MPC X ΔY = Consumption
MPS X ΔY = Saved
Consumption + Saved = ΔY |
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Term
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Definition
| Interest rate banks charge each other |
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Term
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Definition
| interest rate on short term |
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Term
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Definition
| interest rate the Fed charges banks |
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Term
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Definition
| interest rate that banks charge their least risky borrowers |
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Definition
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Definition
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Definition
P(# + #(Y) - #(I))
Y = actual |
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Term
| To calculate r (r = m) to close gap |
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Definition
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Term
To get required Δr:
Given ΔI = (# - # Δr) |
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Definition
1st We need to calculate ΔI (k ΔI = Gap)
2nd solve ΔI = - #Δr from given info |
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Term
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Definition
1st calculate ΔMo with actual y and i
2nd calculate ΔMo with Yp and [i + Δi]
ΔMo = 2nd ΔMo - 1st ΔMo |
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Term
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Definition
| r = .02 - .05(Okun Gap %) + .05(inflation rate) |
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Term
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Definition
| The Fed can’t make people borrow and spend; it can only make money available and keep interest rates low |
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Term
| Official Policy Objectives of Fed- |
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Definition
1. Keep inflation low
2. Reverse or prevent downswings |
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Term
| I↓ causing Econ growth ↓ only if? |
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Definition
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Term
| Fed is independent because : |
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Definition
| it has its own source of revenue (earn interest on gov bonds) |
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