Waldonomics Exam Review xoxo
budget surplus
occurs when revenues exceed outlays. more funds flowing in than out.
employed workers
people currently holding a job in the economy, either full time or part time
Inefficient points on the PPF
points inside the PPF, unemployment, unused buildings. (D)
efficient points on PPF
points on the PPF curve (a,b,c)
Unattainable points on PPF
points outside the PPF (E)
calculating price index
price index = current basket price/basket price in base year x 100
a store of value
something that keeps its value if it is stored rather than used
full employment
4-6% unemployment (includes only frictional and structural)
labor force participation rate formula
(#labor force/# of working age population)100
examples of macroeconomics
Inflation, economic growth and productivity, unemployment, interest rates, aggregate demand and supply.
Scarcity
Limited quantities of resources to meet unlimited wants
responsibilities of Fed
Monetary policy:controls the size of the M. Central banking: is a banks bank Bank regulation: ensures the health of the banking system
Why is the PPF downward sloping?
Must give up one good to increase production of another
currency
Coins and paper bills used to buy services
expansionary fiscal policy
government increases spending or decreases taxes to stimulate or expand economy.
Microeconomics
individual units that comprise the economy.
current chairman of the Fed
Jerome H. Powell
absolute advantage (inputs)
can produce absolutely faster with the same inputs
Calculating Inflation Rate
index 2 - index 1/ index 1 x100
fiscal policy complications
lag times crowding out negative net export effect savings shifts
price floor
legally established minimum price for a good or service
commodity-backed money
money that can be exchanged for a commodity at a fixed rat. silver certificates, first half of the 20th century.
commodity money
money that is an actual physical commodity, such as gold, silver, or tobacco
fiat money
no value except as the medium of exchange. no intrinsic value.
labor force formula
# of employed + # of unemployed
unemployment rate formula
(#unemployed/#labor force)100
Total world exports of goods and services are now _______ about the size of world gross domestic product (GDP)
One-fourth
formulas for reserves
TR= RR+ER PMC= Mn x ER TMS= PMC + DD MM= 1/.RR
interest rate on the demand side
the cost of borrowing. higher interest rates mean a firm pays more to borrow.
opportunity cost
The highest-valued alternative that must be given up to engage in an activity.
Macroeconomics
The study of the broader economy.
discount rate
banks borrow from the fed
why treasury securities?
- Funds go directly into the market for loanable funds. - Can buy and sell large volumes daily ($500 billion)
Importance of the quantity of money
-Affects the ease of making purchases -Affects price level
important institutions for economic growth
1. Political stability and rule of law 2. Private property rights 3. Stable money and prices 4. Competitive markets 5. Efficient taxes 6. International trade 7. Flow of funds across borders
open market operations
The purchase or sale of bonds by a central bank. Fed buys securities to increase money supply, and sells securities to decrease the money supply. BUYING=BIGGER selling = smaller Fed typically buys and sells U.S. Treasury securities.
vault cash
the currency a bank has in its vault and cash drawers
Government budgets
a budget must have plans for both incoming and outgoing funds. government budget is a plan for both and spending and raising funds for the government.
PPF (Production Possibilities Frontier)
a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced
The phillips curve
a curve that shows the short-run trade-off between inflation and unemployment
disinflation
a decrease in the rate of inflation. example, inflation going from 3% one year to 1.5% the next year. still inflation just less of it.
fractional reserve banking system
a fraction of deposits are held in reserve, the rest is loaned out.
deflation
a general decrease in price level. our economy hadn't experienced deflation in over 60 years until 2008-2009.
inflation
a general increase in price level. expressed as a percentage change in the previous years price level.
demand curve
a graph of the relationship between the price of a good and the quantity demanded
loanable funds market
a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders
price ceiling
a legally established maximum price for a good or service
a unit of account
a means for comparing the values of goods and services
Causes of economic growth
additional resources new technology strong institutions
Law of Demand
all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.
Law of Supply
all other things equal there is a direct relationship between price and quantity supplied. direct: Two variables move in the same direction
money multiplier
also called the 'deposit expansion multiplier'. It is found by dividing 1 by the reserve ratio. (1/.RR)
medium of exchange
an item that buyers give to sellers when they want to purchase goods and services
price controls
attempt to set or manipulate prices through government involvement in the market. meant to ease perceived burdens of the population.
absolute advantage (outputs)
can produce absolutely more with the same inputs (more efficient)
movement along the supply curve
caused by a change in the price of the good, direct relationship between price and quantity supplied
shift in supply
caused by non price factors, entire supply curve will shift to the left or right.
producer surplus
difference between willingness to sell and the price actually received for that good.
willingness to sell determined by:
direct costs and opportunity costs
the federal reserve
established in 1913 as central bank of U.S
macroeconomics and GDP
gives us a measurement that we can use to analyze economic growth. can compare regions or nations. not perfectly straightforward, come qualities of life not easily captured by numbers.
budget deficit
occurs when outlays exceed revenues, more funds flowing out than in.
crowding out
occurs when private spending falls in response to increases in government spending. Implications: overall spending may not increase, government now has higher deficit and debt.
excess reserves
the $ value of reserves a bank holds above the required reserves.
required reserves
the dollar value of the percentage of deposits that must be held and not loaned out. (example: 10% of $100 is $10)
interest rate
the price of loanable funds.
quantity demanded
the amount of a good that buyers are willing and able to purchase
For country A, an import is a good produced in:
Country B and purchased by residents of country A
Quantity supplied
the amount of the good or service that producers are willing to sell at the current price
For country A, an export is a good produced in:
Country A and purchased by residents of country B
An economy that does not trade with the rest of the world is a(n):
Closed Economy
C+Ig+G+(X-M)=GDP
Consumption spending Investment spending (purchase of capital) Government purchases Exports Imports
M2 money supply
Includes all of M1 money supply plus most savings accounts, money market accounts, and certificates of deposit. = M1 + saving accounts.
examples of microeconomics
Individual choosing to take a job in Florida or California. Couple decides to start a family. Firm choosing to open another factory. Effect of government intervention on a single market.
Unemployed workers
Out of work but actively seeking work.
why are we unable to produce certain combinations
Scarcity and limited resources
supply shifters (stores)
Size of the market (#sellers) Technology Other goods (output alternatives Resource costs Exceptions of future price Subsidies, taxes and regulations
shifts in the SRPC and SRAS
The SRPC and LRPC are not static, they can shift left or right. SRPC is MARRIED to the SRAS curve on our AD/AS Model of the Economy. (Think mirrors) WHATEVER shifts the SRAS curve [RAP] causes the SRPC to shift as well. However they shift in OPPOSITE directions!!!
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
Consumer Price Index (CPI)
a measure of the price level based on the consumption pattern of a typical consumer. Goal: include everything purchased by a typical consumer to get a measure of the cost of living.
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
balance sheet
how a bank accounts for its debits and credits under assets and liabilities.
discouraged workers
jobless individuals who have given up looking for work.
reserve requirement
the % of DD that may not be loaned, must be held in reserve. (example: 10%)
Bureau of Labor Statistics (BLS)
the government agency that reports inflation and unemployment data. determines how much weight to put on certain consumer prices.
Contractionary fiscal policy
the government decreases spending or increases taxes to slow the economy. used to pay off government debt. keep economy from expanding beyond long run capabilities.
deadweight loss
the loss of consumer and producer surplus from a tax
Gross Domestic Product (GDP)
the market value of all final goods and services legally produced within a nations borders during a given year.
M1 money supply
the money supply measure composed of currency and checkable deposits. = currency + DD (demand deposits)
loanable funds "law of supply"
the quantity of savings rises when the interest rate rises. the interest rate is a reward for saving.
reserve ratio
the reserve requirement expressed in 'decimal' form (example: .10)
Economics
the study of how people allocate their limited resources to satisfy their unlimited wants. the study of how people make decisions.
market demand
the sum of all the individual quantities demanded by each buyer in the market at each price
total reserves
the total amount of cash a bank 'owns'. It is the vault cash plus the amount on reserve at the FED bank.
fiscal policy
the use of government spending and taxes to influence the economy. taxes and spending changes must be legislated and approved by congress and the president.
Real Gross Domestic Product (Real GDP)
the value of all final goods and services legally produced within a nations borders during a given year adjusted for inflation.
inverse
two variables move in opposite directions.
Frictional Unemployment
unemployment that occurs when people take time to find a job
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves