Term
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Definition
| A phase during the business cycle in which RGDP, income and employment increases |
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Term
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Definition
| A phase during the business cycle in which RGDP, income, and employment decreases |
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Term
| Characteristics of Business Cycles |
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Definition
1. Cycles are irregular and unpredictable
2. Most economic variables actuate together during business cycles
3. As output falls, unemployment rises |
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Term
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Definition
| Prices don't change immediately |
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Term
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Definition
Oil Prices
Finance Crisis
-Subprime Lending
-Cheap Credit
-Over Leveraging |
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Term
| Aggregate Demand is composed of: |
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Definition
1. Consumer Expenditures, C
2. Investment Spending, I
3. Government Spending, G
4. New Exports (NX=X-M) |
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Term
Why is Aggregate Demand Curve downward sloping?
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Definition
1. Price level and consumption (Wealth Effect)
2. Price and investment (Interest Rate Effect)
3. Price and not exports ("The exchange rate effect")
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Term
Change in Aggregate Demand consists of 2 things:
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Definition
1. Change in C, I, G, NX
2. Multiplier Effect |
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Term
What things can cause a change in the determinants?
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Definition
1. Consumption (consumer wealth, expectations, borrowing, taxes)
2. Investment (Interest rates, expected returns)
3. Government Spending Changes
4. Net Export Spending (increase in foreign wealth |
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Term
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Definition
| Nominal prices in the short run are NOT CORRECT due to sticky prices |
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Term
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Definition
| Nominal prices are fully flexible and adjust to accurately reflect the economy |
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Term
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Definition
| The production of goods and services that an economy achieves in the long run |
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Term
| Causes of Changes in LR AS |
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Definition
1. Change in labor supply
2. Changes in capital
3. Changes in natural resources
4. Changes in technology |
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Term
| 3 Things that cause upward sloping AS |
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Definition
1. Sticky Wages: costs don't change to reflect changes in prices
2. Sticky Prices: Prices don't change to reflect in cost
3. Misconceptions: suppliers/consumers misinterpret changes in the aggregate market |
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Term
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Definition
| Stagnation/decrease in RGDP, which coincides with inflation |
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Term
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Definition
| Difference between the NRO and the short run equilibrium quantity |
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Term
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Definition
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Term
| Aggregate Demand Shifters |
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Definition
1. Change in C
2. Change in I
3. Change in G
4. Change in X and M |
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Term
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Definition
| Changes in government purchases and/or net transfers designed to achieve full employment and noninflationary domestic output |
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Term
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Definition
1. Change in G
2. Change in net transfers |
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Term
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Definition
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Term
| Expansionary Fiscal Policy |
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Definition
| Increase in G, or an increase in Net transfer for the purposes of increasing AD |
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Term
| Contractionary Fiscal Policy |
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Definition
| A decrease in G, or a decrease in NT for the purpose of decreasing AD |
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Term
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Definition
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Term
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Definition
| The additional shifts in AD that result from a change in spending in the output market |
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Term
| Marginal Propensity to Consume (MPC) |
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Definition
| The fraction of extra income a household consumes rather than saves |
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Term
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Definition
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Term
| Change in RGDP (equation) |
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Definition
| Multiplier x Change in ISOM (initial spending in the output market |
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Term
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Definition
Recognition Lag (3-6 Months)
Administrative Lag (1-6 Months)
Operational Lag (1 Month-2 Years) |
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Term
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Definition
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Term
| Optimal Fiscal Policy (what's up and what's down) |
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Definition
Taxes are down
G or Tr are up |
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Term
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Definition
| The total income that remains after paying for consumption and government |
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Term
| National Saving (Equation) |
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Definition
S=Y-C-G-T+T
S=(Y-C-T)+(T-G) |
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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
| Market for Loanable Funds |
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Definition
| The market in which those who want to save supply funds and those who want to borrow demand funds for private investment |
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Term
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Definition
| Decrease in investment then results from a decrease in public savings |
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Term
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Definition
| Payments for new additions to the nation's capitol stock, either public or private |
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Term
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Definition
| Buying/Building an asset in expectation of earning financial gain |
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Term
| Two Kinds of financial markets |
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Definition
1. Bond Market
2. Stock Market |
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Term
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Definition
| A loan, a company/country will sell a bond that states the amount it will pay at the maturity date (one type of financial market) |
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Term
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Definition
| A stock is a piece of ownership in a firm (one kind of financial market) |
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Term
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Definition
| Financial institution through which savers can indirectly provide funds to borrowers |
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Term
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Definition
| The amount of money that would be needed today (given interest rates) to produce a given future amount of money |
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Term
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Definition
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Term
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Definition
Yt
__________________
(1 + i) ^t |
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Term
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Definition
| [(prob of return)(1+i)+(prob of return)(1+i)]*initial investment |
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Term
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Definition
1. Diversifiable
2. Non-diversifiable |
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Term
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Definition
| A risk that can be reduced by diversification |
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Term
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Definition
| Risk that cannot be reduced by diversification |
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Term
| Efficient Market Hypothesis |
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Definition
| Asset prices reflect all publicly available information about the value of an asset |
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Term
| Money: Anything that performs the following functions |
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Definition
1. Medium of exchange
2. Unit of account
3. Share of value |
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Term
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Definition
| An item that buyers give to sellers when they want to purchase goods and services |
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Term
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Definition
| The measure people use to post prices and record debts |
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Term
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Definition
| An item that people can use to transfer purchasing power from the present to the future |
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Term
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Definition
| Currency, precious metals, livestock, property, shells, furs, beads, stones, cigarettes etc. |
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Term
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Definition
| Currency (coins/bills) and checkable deposits (excludes checkable accounts held by fed government, federal reserve and financial institution) |
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Term
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Definition
| M1 + saving deposits, small time deposits money, mutual funds, etc... |
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Term
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Definition
| The ease with which an asset can be converted into the economies medium of exchange |
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Term
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Definition
| Money that takes the form of a commodity with intrinsic value |
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Term
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Definition
| Money without intrinsic value that is used as money because of government decree (US Currency) |
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Term
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Definition
| 1. Money as an inherent value |
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Term
| Commodity Money (cons) (3) |
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Definition
1. Value of resources is not stable
2. Resources could be put to better use
3. Limits the amount of money that can be printed |
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Term
| People hold money for 2 reasons |
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Definition
1. To undertake transactions
2. As store of assets (Stocks and bonds not M1) |
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Term
| Fed when supervising banks |
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Definition
a. Lend Money
b. Check collection & cashing |
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Term
| Fed when controlling money supply |
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Definition
a. Issue currency
b. Set reserve requirement, hold reserves
c. Conduct open market operation |
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Term
| Reserve Requirement/Ratio (RR) |
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Definition
| The minimum percentage of checkable deposits that a bank must keep on deposit at the Federal Reserve Bank or as Federal Reserve Notes in its own vault |
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Term
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Definition
| The quantity of money a bank holds that exceeds its required reserves |
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Term
| Fractional Reserve Banking |
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Definition
| A banking system in which banks are only required to keep a fraction of deposits as reserves |
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Term
| Expansionary Monetary Policy |
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Definition
| Manipulates the money supply by increasing it, decreasing i, increasing employment, aggregate demand goes right |
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Term
| Contractionary Monetary Policy |
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Definition
| Money Supply goes down, i goes up, employment goes down, aggregate demand goes left |
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Term
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Definition
1. Open Market Operations (OMO)
2. Reserve Ratio
3. Discount Rate |
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Term
| Open Market Operations (OMO) |
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Definition
| Buying and selling of government securities by a Central Bank for the purpose of carrying out monetary policy |
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Term
| Three kinds of securities |
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Definition
1. Treasury Bill
2. Treasury Note
3. Treasury Bond |
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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
| The rate at which money changes hands |
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Term
| Velocity of Money (Equation) |
|
Definition
P (price) * Y (output/GDP)
______________________________
MS (Money Supply) |
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Term
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Definition
| A theory that the quantity of money available determines the price level, and the growth rate in the quantity of money determines inflation |
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Term
| Value of Money (equation) |
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Definition
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Term
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Definition
| The theoretical separation of nominal and real variables |
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Term
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Definition
| The proposition that changes in the money supply do not affect real variables |
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Term
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Definition
| The one-for-one adjustment of the nominal interest rate to the inflation rate |
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Term
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Definition
| Nominal i = Real i + inflation |
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Term
| Not a cost of inflation (1) |
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Definition
| 1. A fall in purchasing power |
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Term
Costs (6)
(See Lecture 26 for more details) |
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Definition
1. Shoeloather Cost
2. Menu Cost
3. Relative Price Variability & Misallocation of Resources
4. Confusion & Inconvenience
5. Redistribution of wealth from unexpected inflation
6. Inflation induced distortions |
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Term
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Definition
| The good a typical consumer buys |
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Term
| Consumer Price Index (CPI) |
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Definition
| The measure of the overall cost of goods and services purchased by the typical consumer |
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Term
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Definition
Price of basket in current year
_______________________________*100
Price of basket in base year |
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Term
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Definition
| The percentage change in the CPI between 2 dates |
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Term
| Inflation between year 1 and year 2 (equation) |
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Definition
CPI2-CPI1
___________________*100
CPI1 |
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Term
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Definition
| The curve that shows the run trade-off between inflation and unemployment |
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Term
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Definition
| No relationship between inflation and unemployment |
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Term
| Unemployment Rate (equation) |
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Definition
| NRU (Natural rate of output)+a(Actual Infl)-a(Expected Infl) |
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Term
| In LR does actual=expected? |
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Definition
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Term
| In SR does actual=expected? |
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Definition
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Term
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Definition
| The claim that unemployment eventually returns to its normal (or natural) rate |
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Term
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Definition
| The percentage of output lost by reducing inflation by 1% |
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Term
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Definition
| People use all information available, including information about public policies, when they form their expectations |
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