Econ final exam review

INSTITUTIONS

"THE RULES OF THE GAME" THAT STRUCTURE ECONOMIC INCENTIVES INCLUDE: LAWS,REGULATIONS, CUSTOMS, PRACTICES, ORGANIZATIONS, SOCIAL MORALS

IMPLIED RATE OF RETURN

(FACE VALUE - PRICE)/ PRICE *100

AREA OF A TRIANGLE

(HEIGHT * BASE)/ 2

FOUR MAJOR LIMITS TO FISCAL POLICY:

1. CROWDING OUT 2. A DROP IN THE BUCKET 3. A MATTER OF TIMING 4. REAL SHOCKS

MOST IMPORTANT ASSETS THAT SERVE AS MEANS OF PAYMENT IN THE US TODAY ARE:

1. CURRENCY- PAPER BILLS AND COINS 2. TOTAL RESERVES HELD BY BANKS AT THE FED 3. CHECKABLE DEPOSITS 4. SAVINGS, DEPOSITS, MONEY MARKET MUTUAL FUNDS, SMALL-TIME DEPOSITS.

3 MAJOR TOOLS THE FED USES TO CONTROL THE MONEY SUPPLY

1. OPEN MARKET OPERATIONS 2. DISCOUNT RATE LENDING AND THE TERM AUCTION FACILITY 3.PAYING INTEREST ON RESERVES HELD BY BANKS AT THE FED

THE CURRENT ACCOUNT IS A SUM OF THESE THREE THINGS:

1. THE BALANCE OF TRADE (EXPORTS-IMPORTS) 2. NET INCOME ON CAPITAL HELD ABROAD, INCLUDING INTEREST AND DIVIDENDS 3. NET TRANSFER PAYMENTS, SUCH AS FOREIGN AID

TWO DIFFICULTIES MAKE IT HARD FOR THE FED TO ADJUST AGGREGATE DEMAND THROUGH MONETARY POLICY

1. THE FEDERAL RESERVED MUST OPERATE IN REAL TIME WHEN MUCH OF THE DATA ABOUT THE STATE OF THE ECONOMY IS UNKNOWN 2. THE FEDERAL RESERVE'S CONTROL OF THE MONEY SUPPLY IS INCOMPLERE AND SUBJECT TO UNCERTAIN LAGS

IN THE TEXTBOOK, IT IS ESTIMATED THAT SUGAR QUOTAS COST THE US ECONOMY ABOUT:

1.32 BILLION

RELEVANT LAGS INCLUDE THE FOLLOWING:

1.RECOGNITION LAG 2.LEGISLATIVE LAG 3. IMPLEMENTATION LAG 4. EFFECTIVESNESS LAG 5. EVALUATION AND ADJUSTMENT LAG

In 2010, China's GDP per capita grew by approximately:

10%

HOW MANY FEDERAL RESERVE BANKS ARE THERE?

12

IN 2009, ABOUT ____ PERCENT OF CHILDREN AGED 5-14 AROUND THE WORLD WORKED FOR A SIGNIFICANT NUMBER OF HOURS

18

WHAT WAS THE AVERAGE INTEREST RATE ON THE US IN 2014?

2.4%

SOLOW CAME UP WITH THE FIGURE THAT IDEAS ARE RESPONSIBLE FOR ABOUT ____ OF THE US STANDARD OF LIVING?

3/4THS

T-BONDS

30 YEAR BONDS THAT PAY INTEREST EVERY 6 MONTHS

WHEN INVESTMENT IS _____ THAN DEPRECIATION WE HAVE ECONOMIC GROWTH

> GREATER THAN

ILLIQUID BANKS

A BANK WHOSE SHORT-TERM LIABILITIES ARE GREATER THAN ITS SHORT-TERM ASSETS BUT OVERALL HAS ASSETS GREATER THAN LIABILITIES.

INSOLVENT BANK

A BANK/FIRM WHOSE LIABILITIES ARE GREATER IN VALUE THAN ITS ASSETS

SPECULATIVE BUBBLE

A BUBBLE ARISES WHEN ASSET PRICES RISE FOR HIGHER AND MORE RAPIDLY THAN CAN BE ACCOUNTED FOR BY THE FUNDAMENTAL PROSPECTS OF THE ASSET

WHAT REDUCES INFLATION?

A DECREASE IN THE GROWTH OF THE MONEY SUPPLY

WHEN USING SUPPLY AND DEMAND TO ANALYZE TRADE, ONE CAN ASSUME THAT THE DOMESTIC MARKET BEING SMALL RELATIVE TO THE WORLD MARKET LEADS TO:

A HORIZONTAL WORLD SUPPLY CURVE

LENDER OF LAST RESORT

A LENDER THAT LOANS MONEY TO THE BANKS AND OTHER FINANCIAL INSTITUTIONS WHEN NO ONE ELSE WILL, OFTEN A CENTRAL BANK OR A COUNTRY'S TREASURY OF FINANCE DEPARTMENT

SOLOW MODEL

A PRODUCTION FUNCTION EXPRESSES A RELATIONSHIP BETWEEN OUTPUT AND THE FACTORS OF PRODUCTION, NAMELY IN THE EXACT WAY IN WHICH MORE INPUTS WILL PRODUCE MORE OUTPUTS.

AGGREGATE DEMAND SHOCK

A RAPID AND UNEXPECTED SHIFT IN THE AD CURVE (SPENDING)

DISINFLATION

A REDUCTION IN THE INFLATION RATE

TRADE QUOTA

A RESTRICTION ON QUANTITY OF GOODS THAT CAN BE IMPORTED: IMPORTS GREATER THAN THE QUOTA AMOUNT ARE FORBIDDEN

ALTERNATIVE MINIMUM TAX (AMJ)

A SEPARATE INCOME TAX CODE, BEGUN IN 1969 TO PREVENT THE RICH FROM NOT PAYING INCOME TAXES; NOT INDEXED TO INFLATION AND THUS HOW AN EXTRA TAX BURDEN ON MANY UPPER MIDDLECLASS FAMILIES

RECESSION

A SIGNIFICANT, WIDESPREAD DECLINE IN REAL INCOME AND UNEMPLOYMENT

STEADY STATE

A SITUATION IN WHICH THE CAPITAL STOCK IS NEITHER INCREASING OR DECREASING.

SOLVENCY CRISIS

A SITUATION THAT EXIST WHEN MANY BANKS ARE INSOLVENT; I.E. HAVE LIABILITIES GREATER THAN THEIR ASSETS

LIQUIDITY CRISIS

A SITUATION THAT OCCURS WHEN BANKS DO NOT HAVE ENOUGH LIQUID ASSETS TO MEET THEIR LIABILITY DEMANDS

ECONOMIES OF SCALE

ADVANTAGES OF LARGE-SCALE PRODUCTION THAT REDUCE AVG. COST AS QUANTITY INCREASES

AGGREGATE DEMAND CURVE

ALL COMBINATIONS OF INFLATION AND REAL GROWTH THAT ARE CONSISTENT WITH A SPECIFIED RATE OF SPENDING GROWTH (GROWTH IN MONEY SUPPLY + GROWTH IN VELOCITY OF MONEY)

LIQUID ASSETS

AN ASSET THAT CAN BE USED FOR PAYMENTS OR QUICKLY, WITHOUT LOSS OF VALUE, BE CONVERTED INTO AN ASSET THAT CAN BE USED FOR PAYMENT.

UNIONS

AN ASSOCIATION OF WORKERS THAT BARGAINS COLLECTIVELY WITH EMPLOYERS OVER WAGES, BENEFITS, AND WORKING CONDITIONS

SOLOW GROWTH MODEL

AN ECONOMY'S POTENTIAL GROWTH RATE, THE RATE OF ECONOMIC GROWTH THAT WOULD OCCUR GIVEN FLEXIBLE PRICES AND THE EXISTING REAL FACTORS OF PRODUCTION

PROGRESSIVE TAX

AN INCOME TAX WITH HIGHER TAX RATES ON PEOPLE WITH HIGHER INCOMES

FLAT TAX

AN INCOME TAX WITH THE SAME TAX RATE ON ALL LEVELS OF INCOME

REAL SHOCKS

ANY SHOCK THAT INCREASES OR DECREASES POTENTIAL GROWTH RATE

VELOCITY OF MONEY

AVERAGE NUMBER OF TIMES A DOLLAR IS SPENT ON FINAL GOODS AND SERVICES IN ONE YEAR

T-BILLS

BONDS WITH MATURITIES OF A FEW DAYS TO 26 WEEKS THAT ONLY PAY AT MATURITY

T-NOTES

BONDS WITH MATURITIES RANGING FROM 2 MONTHS TO 10 YEARS THAT ALSO PAY INTEREST EVERY SIX MONTHS

IMPLEMENTATION LAG

BUREAUCRACIES MUST IMPLEMENT THE PLAN

CHANGES IN THE MONEY SUPPLY=

CHANGE IN RESERVES * MM

AUTOMATIC STABALIZERS

CHANGES IN FISCAL POLICY THAT STIMULATE AD IN A RECESSION W/O THE NEED FOR EXPLICIT ACTION BY POLICY MAKERS; UNEMPLOYMENT INSURANCE FOR ONE EXAMPLE. ALSO WELFARE AND TRANSFER PROGRAMS

LEGISLATIVE LAG

CONGRESS MUST PROPOSE AND PASS A PLAN

THE EMPLOYMENT PROTECTION LAWS HAVE THE FOLLOWING EFFECTS:

CREATE VALUABLE INSURANCE FOR WORKERS W/ FULL TIME JOBS MAKE LABOR MARKETS LESS FLEXIBLE AND DYNAMIC INCREASE THE DURATION OF UNEMPLOYMENT INCREASE UNEMPLOYMENT RATES AMONG YOUNG, MINORITY, OR OTHERWISE "RISKIER" WORKERS

M1

CURRENCY PLUS CHECKABLE DEPOSITS

MONETARY BASE (MB)

CURRENCY+TOTAL RESERVES HELD AT THE FED

DEFLATION

DECREASE IN THE AVERAGE LEVEL OF PRICES

EVALUATION AND ADJUSTMENT LAG

DID THE PLAN WORK? HAVE CONDITIONS CHANGED?

WHAT IS THE SMALLEST SHARE OF THE TOTAL FEDERAL TAX RECEIPT?

EXCISE TAXES

THE CENTRAL BANK CAN HELP THE REAL GROWTH RATE TO IMPROVE AFTER A NEGATIVE SHOCK THROUGH:

EXPANSIONARY MONETARY POLICY

IF INTEREST RATES RISE THEN BOND PRICES WILL

FALL

IF THE FED RESPONDS TOO OFTEN IN THE WRONG DIRECTION OR WITH THE WRONG STRENGTH:

GDP VOLATILITY WILL INCREASE RATHER THAN DECREASE

MOST IMPORTANT DEDUCTIONS ARE:

HOME MORTGAGES, DONATIONS TO CHARITY, STATE AND LOCAL TAXES, AND VERY HIGH MEDICAL EXPENSES

RULE OF 70

IF THE ANNUAL GROWTH RATE OF A VARIABLE IS X%, THEN THE DOUBLING TIME IS 70/X YEARS

CAPITAL ACCOUNT

IN THE BALANCE OF PAYMENTS, THE ACCOUNT THAT MEASURES CHANGES IN FOREIGN OWNERSHIP OF DOMESTIC ASSETS LIKE STOCKS AND BONDS AS WELL AS PHYSICAL ASSETS

WHICH PROPERLY DESCRIBES FISCAL POLICY THAT COULD BE USED TO FIGHT A RECESSION?

INCREASING GOVERNMENT SPENDING

3 SOURCES ACCOUNT FOR MORE THAN 90% OF THE TAX REVENUE

INDIVIDUAL INCOME TAX, SOCIAL SECURITY AND MEDICARE TAX, CORPORATE INCOME TAX

IF THE FED IS ABLE TO USE MONETARY POLICY YO PERFECTLY OFFSET A NEGATIVE AGGREGATE DEMAND SHOCK AND END A RECESSION, ALL ELSE EQUAL. WHICH STATEMENT IS TRUE?

INFLATION EXPECTATIONS IN THE LONG RUN WILL BE THE SAME AS BEFORE THE RECESSION

POLICIES THAT CAN REDUCE STRUCTURAL UNEMPLOYMENT

JOB RETRAINING JOB SEARCH ASSISTANCE WORK TESTS EARLY EMPLOYMENT BONUSES

DISCOURAGED WORKERS

JOBLESS INDIVIDUALS WHO HAVE GIVEN UP LOOKING FOR WORK BUT WHO WOULD STILL LIKE TO FIND A JOB.

TECHNOLOGICAL KNOWLEDGE

KNOWLEDGE ABOUT HOW THE WORLD WORKS THAT IS USED TO PRODUCE GOODS AND SERVICES

WHAT DETERMINES LABOR FORCE PARTICIPATION RATE?

LIFECYCLE EFFECTS AND DEMOGRAPHICS INCENTIVES

QUANTITY THEORY OF MONEY

M * v=P *Yr

M2

M1 PLUS SAVINGS DEPOSITS, MONEY MARKET MUTUAL FUNDS, AND SMALL TIME DEPOSITS.

HOW DO MARGINAL TAX RATES TODAY COMPARE TO MARGIANL TAX RATES IN 1960?

MARGINAL TAX RATES ARE LOWER AND FLATTER THAN THEY HAVE BEEN IN THE PAST

CONSUMER PRICE INDEX

MEASURES THE AVERAGE PRICE FOR A BASKET OF GOODS AND SERVICES BOUGHT BY A TYPICAL AMERICAN CONSUMER, THE INDEX COVERS 80,000 GOODS AND IS WEIGHTED SO THAT AN INCREASE IN THE PRICE OF MAJOR ITEMS COUNTS FOR MORE THAN MINOR

PRODUCER PRICE INDEX

MEASURES THE AVERAGE PRICE RECEIVED BY PRODUCERS. UNLIKE CPI & GDP DEFLATOR, PPI MEASURES prices of intermediate as well as final goods. PPI EXIST FOR DIFFERENT INDUSTRIES AND ARE OFTEN USED TO CALCULATE CHANGES IN THE COST OF INPUTS

GROSS NATIONAL PRODUCT

MEASURES WHAT IS PRODUCED BY THE LABOR AND PROPERTY SUPPLIED BY THE US PERMANENT RESIDENTS, WHEREVER IN THE WORLD THAT LABOR OR CAPITAL IS LOCATED RATHER THAN WHAT IS PRODUCED IN THE US

THE AGGREGATE DEMAND CURVE IS __________ RESPONSIVE TO CHANGES IN GOVERNMENT SPENDING WHEN THERE IS A MULTIPLIER EFFECT THEN WHEN THERE IS NOT.

MORE

ECONOMIC POLICIES THAT FAILED

NATIONAL INDUSTRIAL RECOVERY ACT (NIRA) AGRICULTURAL ADJUSTMENT ACT (AAA)

WHAT ARE THE TWO WAYS OF SPLITTING GDP?

NATIONAL SPENDING APPROACH & FACTOR INCOME APPROACH

WHAT IS THE BEST INDICATOR OF A DEPRESSION?

NEGATIVE REAL GDP GROWTH

GDP DEFLATION

NOMINAL GDP/REAL GDP * 100

REAL INTEREST RATE

NOMINAL INTEREST RATE- INFLATION RATE

REAL RATE OF RETURN

NOMINAL RATE OF RETURN- THE INFLATION RATE

THE DEBT-TO-GDP RATIO FOR THE US IS:

NOT AS LARGE AS IT HAS BEEN IN THE PAST BUT RISING QUICKLY

STICKY

NOT PERFECTLY FLEXIBLE

MARKET CONFIDENCE

ONE OF THE FEDERAL RESERVES MOST POWERFUL TOOLS IS ITS INFLUENCE OVER EXPECTATIONS, NOT ITS INFLUENCE OVER THE MONEY SUPPLY.

WHAT GOODS ARE INCLUDED IN THE GDP?

ONLY FINAL GOOD

LABOR FORCE PARTICIPATION RATE

PERCENTAGE OF ADULTS IN THE LABOR FORCE

STRUCTURAL UNEMPLOYMENT

PERSISTENT, LONG-TERM UNEMPLOYMENT CAUSED BY LONG -LASTING SHOCK, OR PERMANENT FEATURES OF AN ECONOMY THAT MAKE IT MORE DIFFICULT FOR SOME WORKERS TO FIND JOBS

INSTITUTIONS OF ECONOMIC GROWTH

PROPERTY RIGHTS, HONEST GOVERNMENT, POLITICAL STABILITY, A DEPENDABLE LEGAL SYSTEM, COMPETITIVE AND OPEN MARKETS.

THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES LIMITS THE AMOUNT OF OIL IT EXPORTS TO:

RAISE PRICES AND REVENUES FROM SALE OF OIL

WHAT IS NOT A POTENTIAL EXPLANATION FOR THE STICKINESS OF PRICES AND WAGES IN THE SHORT RUN?

REAL SHOCKS

CREDIBLE

REFERRING TO A MONETARY POLICY WHEN IT IS EXPECTED THAT A CENTRAL BANK WILL STICK WITH THAT POLICY

FEDS MOST IMPORTANT FUNCTION

REGULATING THE US MONEY SUPPLY

MONETIZING THE DEBT

RESULT OF THE GOVERNMENT PAYING OFF ITS DEBT BY PRINTING MONEY

IF INTEREST RATES FALL THEN BOND PRICES WILL

RISE

LARGEST MEANS OF PAYMENT?

SAVINGS ACCOUNTS, MONEY MARKET MUTUAL FUNDS, SMALL-TIME DEPOSITS.

QUANTITY THEORY OF MONEY DOES TWO THINGS:

SETS OUT GENERAL RELATIONSHIP BETWEEN MONEY BETWEEN MONEY, VELOCITY, REAL OUTPUT AND PRICE

WHICH ACTIVITY IS NOT A WAY IN WHICH THE GOVERNMENT CAN AFFECT THE ECONOMY?

SETTING THE LONG RUN REAL GROWTH RATE OF THE ECONOMY

BUSINESS FLUCTUATIONS (BUSINESS CYCLES)

SHORT RUN MOVEMENTS IN REAL GDP AROUND ITS LONG-TERM TREND.

FRICTIONAL UNEMPLOYMENT

SHORT-TERM UNEMPLOYMENT CAUSED BY THE ORDINARY DIFFICULTIES OF MATCHING EMPLOYEE TO EMPLOYER

INDIVIDUAL INCOME TAX

SINGLE LARGEST SOURCE OF REVENUE FOR FEDERAL GOVERNMENT

QUANTITATIVE EASING

SITUATION THAT OCCURS WHEN THE FED BUYS LONGER-TERM GOVERNMENT BONDS OR OTHER SECURITIES

NOMINAL WAGE CONFUSION

SITUATION THAT OCCURS WHEN WORKERS RESPONDS TO THEIR NOMINAL WAGE INSTEAD OF THEIR REAL WAGE

FOUR MAJOR FACTORS THAT DETERMINE THE SUPPLY OF SAVINGS

SMOOTHING CONSUMPTION, IMPATIENCE, MARKETING PSYCHOLOGICAL FACTORS, INTEREST RATES.

ALMOST 2/3 OF THE FEDERAL BUDGET IS SPENT ON JUST FOUR PROGRAMS:

SOCIAL SECURITY, DEFENSE, MEDICARE, MEDICAID

FREE RIDE

SOMEONE WHO CONSUMES THE BENEFITS OF A PUBLIC GOOD W/O PAYING A SHARE OF THE COST.

FRACTIONAL BANKING RESERVE

SYSTEM IN WHICH BANKS HOLD ONLY A PORTION OF DEPOSITS IN RESERVE, LENDING THE REST

TARRIF

TAX ON IMPORTS

MARGINAL TAX RATE

TAX RATE PAID ON AN ADDITIONAL DOLLAR OF REVENUE

WHICH IS NOT AN EXAMPLE OF AN AUTOMATIC STABILIZER?

TAX REBATES LIKE THOSE PASSED UNDER BUSH

MULTIPLIER EFFECT

THE ADDITIONAL INCREASE IN AGGREGATE DEMAND CAUSE =D WHEN EXPANSIONARY FISCAL POLICY INCREASES INCOME AND THUS INCREASES CONSUMPTION AND INVESTMENT SPENDING

MONEY MULTIPLIER

THE AMOUNT THE MONEY SUPPLY EXPANDS WITH EACH DOLLAR INCREASE IN RESERVES; MM= 1/RR

OPEN MARKET OPERATION

THE BUYING AND SELLING OF GOVERNMENT BONDS BY THE FED

MENU COST

THE COST OF CHANGING PRICES CAN INCLUDE THE COST OF UPSETTING CUSTOMERS

CROWDED OUT

THE DECREASE IN PRIVATE CONSUMPTION AND INVESTMENTS THAT OCCUR WHEN GOVERNMENT BORROWS MORE; ALSO, THE DECREASE IN PRIVATE SPENDING THAT OCCURS WHEN GOV. INCREASES SPENDING.

TIME PREFERENCE

THE DESIRE TO HAVE GOODS SOONER RATHER THAN LATER (ALL ELSE BEING EQUAL)

PROTECTIONISM

THE ECONOMIC POLICY OF RESTRAINING TRADE THROUGH QUOTAS,TARRIFS, OR OTHER REGULATIONS THAT BURDEN FOREIGN PRODUCERS BUT NOT DOMESTIC PRODUCERS

MONEY ILLUSION

THE FALSE PERCEPTION THAT OCCURS WHEN PEOPLE MISTAKE CHANGES IN NOMINAL INCOME FOR CHANGES IN REAL INCOME

INITIAL PUBLIC OFFERING (IPO)

THE FIRST INSTANCE OF A CORPORATION SELLING STOCK TO THE PUBLIC IN ORDER TO RAISE CAPITAL

MORAL HAZARD

THE IDEA THAT PEOPLE WHO ARE INSULATED FROM RISK WILL TEND TO TAKE MORE RISK; IN MACROECONOMICS OCCURS WHEN BANKS AND OTHER FINANCIAL INSTITUTIONS TAKE ON TOO MUCH RISKS EXPECTING THAT THE FED AND REGULATORS WILL LATER BAIL THEM OUT

MARGINAL PRODUCTS OF CAPITAL

THE INCREASE IN OUTPUT CAUSED BY THE ADDITION OF ONE OR MORE UNITS OF CAPITAL. THE MARGINAL PRODUCT OF CAPITAL DIMINISHES AS MORE AND MORE CAPITAL IS ADDED.

WHICH SOURCE ACCOUNTS FOR MORE THAN 90% OF THE REVENUE THAT THE US GOVERNMENT COLLECTS?

THE INDIVIDUAL INCOME TAX+ CORPORATE TAX+ SOCIAL SECURITY+ MEDICARE TAXES

DISCOUNT RATE

THE INTEREST RATE BANKS PAY WHEN THEY BUY DIRECTLY FROM THE FED AT THE DISCOUNT WINDOW

MARKET FOR LOANABLE FUNDS

THE MARKET WHERE SUPPLIERS OF LOANABLE FUNDS (SAVERS) TRADE WITH DEMANDERS OF LOANABLE FUNDS (BORROWERS), THEREBY DETERMINING THE EQUILIBRIUM OF THE INTEREST RATE.

FEDERAL FUNDS RATE

THE OVERNIGHT LENDING RATE FROM ONE MAJOR BANK TO ANOTHER

EFFECTIVENESS LAG

THE PLAN TAKES TIME TO WORK

EMPLOYMENT AT WILL DOCTRINE

THE POLICY THAT AN EMPLOYEE MAY QUIT AND AN EMPLOYER MAY FIRE AN EMPLOYEE AT ANYTIME AND FOR ANY REASON; THE MOST BASIC US EMPLOYMENT LAW DESPITE MANY EXCEPTIONS TO IT

SHORT RUN AGGREGATE SUPPLY CURVE

THE POSITIVE RELATIONSHIP BETWEEN THE INFLATION RATE AND THE REAL GROWTH DURING THE PERIOD WHEN PRICES AND WAGES ARE STICKY

ARBITRAGE

THE PRACTICE OF TAKING ADVANTAGE OF PRICE DIFFERENCES FOR THE SAME GOOD IN DIFFERENT MARKETS BY BUYING LOWER IN ONE MARKET AND SELLING HUGH IN ANOTHER

RECOGNITION LAG

THE PROBLEM MUST BE RECOGNIZED

NOMINAL RATE OF RETURN

THE RATE OF RETURN THAT DOES NOT ACCOUNT FOR INFLATION

LEVERAGE RATIO

THE RATIO OF DEBT TO EQUITY D/E

GDP DEFLATOR

THE RATIO OF NOMINAL TO REAL GDP MULTIPLIED BY 100. GDP COVERS ALL FINAL GOODS.

RESERVE RATIO

THE RATIO OF RESERVES TO DEPOSITS

IF THE FED RESPONDS TO A NEGATIVE REAL SHOCK BY DECREASING THE MONEY SUPPLY:

THE REAL GROWTH RATE WILL BE LOWER THAN IF THE FED DID NOTHING

SYSTEMIC RISK

THE RISK THAT THE FAILURE OF ONE FINANCIAL INSTITUTION CAN BRING DOWN OTHERS

PHYSICAL CAPITAL

THE STOCK OF TOOLS INCLUDING MACHINES, STRUCTURES, AND EQUIPMENT

CONDITIONAL CONVERGANCE

THE TENDANCY- AMONG COUNTRIES WITH SIMILAR STEADY-STATE LEVELS OF OUTPUT-- FOR POORER COUNTRIES TO GROW FASTER THAN RICHER COUNTRIES AND THUS FOR POOR COUNTRIES AND RICH COUNTRIES TO CONVERGE IN INCOME.

FISHER EFFECT

THE TENDENCY OF NOMINAL INCOME INTEREST RATES TO RISE ONE TO ONE WITH EXPECTED INFLATION RATES

RICARDIAN EQUIVALENCE

THE THEORY ACCORDING TO WHICH PEOPLE UNDERSTAND THAT FOR A GIVEN LEVEL OF GOVERNMENT SPENDING, LOWER TAXES TODAY MEANS HIGHER TAXES IN THE FUTURE AND THEREFORE SAVE THE MONEY FROM A TAX CUT TO PAY FOR FUTURE TAXES

MEDIAN WAGE

THE WAGE SUCH THAT 1/2 OF ALL WORKERS EARN WAGES BELOW THAT AMOUNT AND 1/2 EARN ABOVE

SUPPOSE THE GROWTH RATE OF CONSUMPTION FALLS BY X PERCENT AND AN INCREASE IN GOVERNMENT SPENDING OF Y PERCENT IS ABLE TO EXACTLY OFFSET IT AND RESTORE AGGREGATE DEMAND TO ITS ORIGINAL LEVEL IF X EQUALS Y:

THERE IS NO MULTIPLIER EFFECT AT WORK

"KEYNESIAN" PERSUASION

THINK THAT CYCLICAL UNEMPLOYMENT IS CAUSED BY DEFICIENCIES IN AGGREGATE DEMAND

HUMAN CAPITAL

TOOLS OF THE MIND; THE PRODUCTIVE KNOWLEDGE AND SKILLS THAT WORKERS ACQUIRE THROUGH EDUCATION, TRAINING, AND EXPERIENCE.

AVERAGE TAX RATE

TOTAL TAX PAYMENT DIVIDED BY TOTAL INCOME

TARP

TROUBLED ASSET RELIEF PROGRAM, ALLOCATES UP TO $700 BILLION FOR THE PURPOSE OF AIDING BANKS

What is one cause of inflation?

The inability of production to keep up with spending in the economy

UNEMPLOYMENT RATE

UNEMPLOYED/ (UNEMPLOYED+EMPLOYED)

CYCLICAL UNEMPLOYMENT

UNEMPLOYMENT CORRELATED WITH THE BUSINESS CYCLE. CAUSED BY A MISMATCH BETWEEN THE AGGREGATE LEVEL OF WAGES IN AN ECONOMY AND THE LEVELS OF PRICES. THE WAGES DEMANDED BY WORKERS ARE OUT OF SYNC WITH THE LEVEL OF PRICES SO WORKERS ARE TOO EXPENSIVE TO HIRE FROM THE FIRMS POINT OF VIEW.

UNEMPLOYMENT BENEFITS INCLUDE:

UNEMPLOYMENT INSURANCE, HOUSING ASSISTANCE

PORTFOLIO INVESTMENT

WHEN FOREIGNERS BUY US STOCKS, BONDS, AND OTHER ASSET CLAIMS. UNLIKE FDI, THIS SWITCHES THE OWNERSHIP OF ALREADY EXISTING INVESTMENTS AND IT DOES NOT IMMESIATELY CREATE NEW INVESTMENT ON NET

FOREIGN DIRECT INVESTMENT (FDI)

WHEN FOREIGNERS CONSTRUCT NEW BUSINESS PLANS OR SET UP OTHER SPECIFIC AND TANGIBLE OPERATIONS IN THE US

LOWER GROWTH RATE IS USUALLY ACCOMPANIED WITH HIGHER UNEMPLOYMENT FOR 2 REASONS:

WHEN GDP IS FALLING, FIRMS OFTEN LAYOFF WORKERS, WHICH INCREASES UNEMPLOYMENT HIGHER UNEMPLOYMENT MEANS THAT FEWER WORKERS ARE PRODUCING GOODS AND SERVICES

NON-RIVALROUS

WHEN ONE PERSONS USE OF THE GOOD DOES NOT REDUCE THE ABILITY OF ANOTHER PERSON TO USE THE SAME GOOD, THE GOOD IS NONRIVAL.

WHERE IS EQUILIBRIUM IN THE MARKET FOR LOANABLE FUNDS?

WHERE SUPPLY OF LOANABLE FUNDS INTERSECTS WITH DEMAND

BUREAU OF LABOR OF STATISTICS (BLS) DEFINITION OF DISCOURAGED WORKERS

WORKERS WHO ARE AVAILABLE FOR WORK, AND WHO HAVE LOOKED FOR A JOB SOMETIMES IN THE LAT YEAR, BUT NOT IN THE LAST MONTH B/C THEY BELIEVE NO JOBS WERE AVAILABLE FOR THEM

NATIONAL SPENDING APPROACH

Y= C+I+G+NX

FACTOR INCOME APPROACH

Y= WAGES+ RENT+ INTEREST+PROFIT

When business firms become more pessimistic about the state of the economy, the:

demand to borrow shifts inward.

The "iron logic" of diminishing returns in the Solow model means that:

eventually capital and output both will cease growing.

When the U.S. government borrows, it sells:

federal paper, treasury bonds, and government stocks.

If the supply of loanable funds increases and the demand for loanable funds increases at the same time, interest rates will:

increase, decrease, or remain the same.

Which would be most effective in ensuring sustained long-term economic growth?

increasing human capital

Increases in real GDP are considered the best measure of increases in living standards, because they measure:

only increases in production

Relative to Japan, Argentina was _____ in 1950 and _____ in 2000.

rich; poor

Which of the following would be included in 2011s GDP?

the real estate agent's commission on the resale of a house built in 2005