Term
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Definition
| overall price level goes up |
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Term
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Definition
| overall price level goes down |
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Term
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Definition
| rate of inflation has gone down |
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Term
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Definition
| total amount of goods and services produced in a country in a given time period |
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Definition
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Definition
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Term
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Definition
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Definition
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Term
| more exports leads to (2 things) |
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Definition
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Term
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Definition
| we're not producing it ourselves and unemployment rises |
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Term
| growth rate is a percent of... |
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Definition
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Term
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Definition
| goods produced but not sold |
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Definition
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Definition
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Definition
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Definition
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Term
| weak currency means exports are |
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Definition
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Term
| strong currency means exports are |
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Definition
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Term
| strong currency means imports are |
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Definition
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Term
| weak currency means imports are |
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Definition
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Term
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Definition
| government spending and taxes |
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Term
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Definition
| partial control of central bank over interest rates |
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Term
| central bank is _______ of the government |
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Definition
| "independent" (they make their own decisions) |
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Term
| (according to keynes) if the government spends more money... |
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Definition
| firms produce more, GDP is greater, and unemployment lowers |
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Term
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Definition
T - G
(taxes) - (government spending)
<0 budget deficit
>0 budget surplus |
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Term
| difference between real GDP and nominal GDP |
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Definition
real GDP - adjusted for inflation
nominal GDP - GDP before adjusting for inflation |
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Term
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Definition
firms produce more
GDP goes up
output goes up
more jobs (unemployment goes down) |
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Term
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Definition
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Term
| economic growth definition |
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Definition
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Term
| price index for gross domestic purchases measures |
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Definition
| prices paid by US residents |
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Term
| Aggregate Expenditure (AE)is always equal to |
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Definition
| national income. also equal to total spending |
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Term
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Definition
Y = C + I + G + X
or
Y = C + I + G + (Ex-Im)
GDP = Private Consumption + Investment (or spending on housing) + Government spending + (Exports - Imports) |
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Term
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Definition
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Term
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Definition
| Total consumers spending and showing disposable income. |
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Term
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Definition
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Term
| Spending balance or equilibrium |
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Definition
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Term
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Definition
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Term
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Definition
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Term
Trade deficit
Trade surplus |
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Definition
Capital inflows
Capital outflows |
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Term
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Definition
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Term
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Definition
Consumer Price Index - the average consumption basket
Each month calculate the basket cost – P x Q + P x Q… |
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Term
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Definition
| (new price - original price)/original price |
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Term
to measure nominal GDP
to measure real GDP |
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Definition
nominal - you do the same thing for CPI
REAL GDP - you use the base year for prices, to show EG. |
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Term
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Definition
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Term
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Definition
| nominal wage /// base CPI x 100 |
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Term
| price index and real wage |
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Definition
Price Index- Nominal GDP/Real GDP
Real Wage- Nominal Wage/Base CPI X 100 |
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Term
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Definition
| someone voluntarily quits their job |
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Term
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Definition
| mismatch between skills of workers and skills needed in the economy |
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Term
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Definition
| moves inverse to economic growth |
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Term
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Definition
| people have skills only useful during certain seasons |
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Term
| the amount firms produce depends on |
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Definition
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Term
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Definition
| determined within the model (we have to solve) |
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Term
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Definition
| the value is determined outside of what we are analyzing |
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Term
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Definition
marginal propensity to consume
change in consumption / change in income |
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Term
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Definition
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Term
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Definition
marginal propensity to save
change in savings / change in income |
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Term
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Definition
| Number of ppl unemployed / Labor Force X 100 |
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Term
| labor force participation rate |
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Definition
| Labor Force/Working Age Population X 100 |
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Term
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Definition
| Cost of CPI at current price/Cost of CPI basket at base period X 100 |
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Term
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Definition
| Nominal interest rate – inflation rate |
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Term
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Definition
(1)controls the money supply
(2)controls interest rates
(3)conducts monetary policy
(4)bank for commercial banks
(5)controls the interbank rate |
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Term
| who is in charge of monetary policy? |
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Definition
| Federal Open Market Committee |
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Term
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Definition
| The Federal Reserve Board of the United States switched to a so-called "Lombard facility," in which the discount rate is actually higher than the targeted federal funds rate, thus creating an economic incentive for banks to look elsewhere before asking to borrow from the Fed. |
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Term
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Definition
| debt contracts issued by government |
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Term
income goes up
income goes down
(what happens to imports) |
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Definition
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Term
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Definition
less borrowing
less spending
less investments |
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Term
| greater income leads to greater |
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Definition
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Term
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Definition
|
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Term
| how do you get greater PG? (Productivity growth) |
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Definition
1.More machines per worker
2.Better machinery
3.Increase in skills/knowledge
4.Increase human capital |
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Term
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Definition
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Term
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Definition
| real income goes up >> purchasing power increases >> the economy will spend more >> which makes aggregate demand greater |
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Term
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Definition
| price of exports goes down >> exports increase >> aggregate demand is greater |
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Term
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Definition
1.Decreases in interest rates
>Market forces
>Expansionary MP
2.Expansionary FP
>Taxes decrease
>Government spending increases
3.Exchange rates go down
4.Foreign economies expand- exports increase
5.Greater confidence of consumers |
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Term
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Definition
>revenue increases
>profit increases
>outputs increases
>real wage decreases and you hire more workers
>which leads to higher output |
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Term
| at maximum potential GDP, cyclical unemployment is |
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Definition
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Term
| Aggregate demand increases in the short run |
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Definition
o Price increases
Output increases and unemployment lowers |
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Term
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Definition
Contractionary MP= interest rates decrease
Contractionary FP= Taxes increases and government help decreases |
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Term
| problems with high unemployment |
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Definition
Expansionary MP = interest rates decrease
Expansionary FP = Taxes decrease, government help increases |
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Term
| if there is an increase in spending in the short run |
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Definition
| output increases which leads to economic growth and lower unemployment. Inflation can occur because of higher prices, and real wage goes down. Workers ask for an increase in nominal wage. |
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Term
| When AD increases such that output>potential output |
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Definition
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Term
| Overheating “Demand Pull Inflation” |
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Definition
| when strong spending leads to greater inflation. |
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Term
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Definition
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Term
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Definition
| EG=NREG and UN=NRU, full employment. Cyclical unemployment. |
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Term
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Definition
| EGNRU there is no worry about inflation. |
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Term
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Definition
| the fastest the economy can grow without greater inflation. |
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Term
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Definition
| Non Accelerating Inflation Rate of Unemployment. |
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Term
| too much EG supposedly leads to |
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Definition
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Term
| with slow EG, MP response is |
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Definition
| to lower interest rates, borrowing and spending will increase and EG will increase, and unemployment will lower. |
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Term
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Definition
| inflation rises and the MP response is to lower inflation. Borrowing and spending will decrease and output will decrease. EG will decrease. |
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Term
| Slow EG, liquidity trap and inflation. |
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Definition
| MP response is to lower inflation and no impact due to LT. |
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Term
| Slow EG, LT and deflation |
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Definition
| MP response decrease interest rate, no response due to LT |
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Term
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Definition
| a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available |
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Term
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Definition
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Term
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Definition
| the level of interest rates that neither expands nor contracts EG. |
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Term
| contractionary MP and Expansionary MP |
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Definition
| used to slow down the economy |
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Term
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Definition
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Term
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Definition
| ownership share of a company (equity) |
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Term
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Definition
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Term
| Keep net income as retained earnings. |
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Definition
| • Government has no retained earnings, they have to borrow. Use debt to pay for a budget deficit, or issue bonds and treasuries. |
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Term
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Definition
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Term
| higher interest rates (relation to bonds) |
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Definition
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Term
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Definition
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Term
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Definition
|
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Term
| interest rates are the ___ to firms |
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Definition
| Interest rates are the cost of debt for firms |
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Term
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Definition
| home owners borrow less, GDP goes down |
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Term
| The central bank can control ____ interest rates. |
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Definition
| The central bank can control short-term interest rates. |
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Term
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Definition
| new home buyers, corporations, consumers, and government (if budget deficit) |
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Term
| When foreign central banks are accumulating debt |
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Definition
| When foreign central banks are accumulating debt, you get lower interest rates. |
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Term
| government budget increases >> |
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Definition
| government borrowing increases. |
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Term
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Definition
| is the total amount of money available in an economy at a specific time. |
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Term
| medium of exchange handout |
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Definition
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Term
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Definition
| the name of the profit earned by the central bank producing money |
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Term
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Definition
| money used has to be equal to money received. |
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Term
| M (Money Supply) x V= Inflation + Real EG |
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Definition
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Term
|
Definition
| you don’t have a central bank, money is inputted into central bank |
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Term
|
Definition
things you own
oEquipment
oInventories
oProperty
oInvestments
oPatents
oCash |
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Term
| Liabilities + Stockholder Equity |
|
Definition
things you owe
oDebt
oEquipment owed
oAccounts payable
oTaxes owed |
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Term
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Definition
| % of deposits that must be kept as cash reserves. |
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Term
|
Definition
oCash reserves
oLoans
oStandard assets
oLoans to other banks |
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Term
| •Liabilities + Stockholder Equity for Bank |
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Definition
oAll the deposits
oBorrow from other banks
oStandard liabilities
oStandard equity |
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Term
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Definition
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Term
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Definition
|
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Term
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Definition
| Reserve Requirement+ Excess Reserve |
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Term
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Definition
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Term
| central bank responsibilities |
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Definition
oConduct Monetary policy
oAdminister money creation
oBank for commercial banks
oSupervision and regulation of banking sector
oLender of “last resort”
oOthers |
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Term
| Monetary policy instruments |
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Definition
o Reserve Requirement
o Traditional market operations
Buys securities – pays with money = Money goes up, interest rates goes up
Sell securities – low risk bonds. – Receive M= Money supply goes down and interest rates go up
o Lombard Fascity- Discount lending window- interest rates go up
o The interbank market and rate
Federal Funds Mkt
Federal funds rate
o Implicit promise of the fed in the fed funds met to any bank that wants to borrow 1%.
o Target OMO- open market operations
Central banks buy specific bonds to drive down that specific interest rate |
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Term
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Definition
| output is less than potential output |
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Term
|
Definition
| The FOMC controls monetary policy |
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Term
|
Definition
market determines exchange rate
Exchange rate is determined by supply and demand |
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Term
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Definition
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Term
strong dollar keeps ER low
this leads to |
|
Definition
oCheaper imports
oDomestic firms feel downward pressure on domestic prices |
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Term
|
Definition
price of imports go up and inflation occurs
o More expensive imports in CPI
o Domestic firms tempted to increase price |
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Term
| Regarding exchange rates, if supply/demand is lower than the exchange rate, |
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Definition
the government has to intervene. They have to buy Qsupply-Qdemand to make the market balance. To buy pesos for example, you must sell dollars.
•Also can use foreign reserves, which cause your FR to decrease |
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Term
| If the central bank prints too much money that can lead to ______. |
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Definition
| If the central bank prints too much money that can lead to inflation. |
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