ECN 222
How many Federal Reserve regional banks are there?
12
Inflation Rate
= (GDP deflator in current year - GDP deflator in previous year) / GDP deflator in previous year = ((new money supply - old money supply) / old money supply) x 100
Labor Force Participation Rate
= (labor force / adult population) x 100
GDP Deflator
= (nominal GDP / real GDP) reflects the prices of domestically produced goods and services
Unemployment Rate
= (number of unemployed / labor force) x 100
What is the Velocity Formula?
= (price level x quantity of output or real GDP) / quantity of money V = (P x Y) / M
CPI
= (total basket cost of current year / total basket cost of the base year) x 100
Spending Multiplier
= 1 / (1 - marginal propensity to consume)
GDP in Closed Economy
= C + I + G
National Savings
= GDP - consumption - government spending = Y - C - G = private savings + public savings = investment
Private Savings
= GDP - consumption - taxes = Y - C - T
Real GDP
= SUM(quantity x base year's price) IS corrected for inflation
Nominal GDP
= SUM(quantity x current price) NOT corrected for inflation
Reserves
= demand deposits - loans
Required Reserves
= demand deposits x required reserve ratio
Opportunity Cost
= explicit costs + implicit costs
Total Change in Demand
= initial change in spending x spending multiplier
Real Interest Rate
= nominal interest rate - inflation rate = ((new quantity - original quantity) / original quantity) x 100
Public Savings
= taxes - government spending = T - G
Labor Force
= unemployed + employed
Fiscal Multiplier
M = 1 / R money multiplier = 1 / reserve ratio
What is the Quantity Equation?
M x V = P x Y quantity of money x velocity = price level x quantity of output or real GDP
Foreign Direct Investment
a capital investment that is owned and operated by a foreign entity
Store of Value
a means of transferring purchasing power from the present to the future
Medium of Exchange
an accepted method of payment for goods and services
Foreign Portfolio Investment
an investment that is financed with foreign money but operated by domestic residents
Implicit Costs
any other sacrifices made
"Gains From Trade"
arise from specialization
Cyclical Unemployment
associated with business cycles (recessions/expansions)
CPI Overstates Inflation When It:
assumes the quality of a good doesn't change from year to year doesn't account for the benefits of new goods uses a fixed basket of goods
Money Neutrality
changes in the quantity of money only impact nominal prices, not production
Menu Costs
costs associated with changing price tags, price lists, website content, catalogs, and menus
Robert Fogel
economy historian best known for work suggesting that a significant factor in long-run economic growth is improvements in worker health from better nutrition
What Kinds of Policy Suffer From Lags?
fiscal and monetary policies
Intrinsic Value
has value outside of its use as money (anything with intrinsic value is a commodity)
When are Real and Nominal Variables Independent?
in the long-run aggregate supply and demand
When are Real and Nominal Variables Intertwined?
in the short-run aggregate supply and demand
What is the Source of the Demand For Loanable Funds?
investment
Why is the Federal Reserve an Independent Policymaking Body
members of the board of governors are appointed for 14-year terms
Explicit Costs
monetary amounts paid (wage)
Fiat Money
money whose value derives from government decree
Converting Money Formula
new = original (current year's CPI / original year's CPI)
Frictional Unemployment
occurs because job seekers and employers need time to find one another
Structural Unemployment
occurs because the number of jobs available is insufficient to provide jobs to everyone
What is On the Vertical Axis of a Short-Run Model of Aggregate Demand and Supply?
price level
Unit of Account
provides buyers and sellers a common reference point for valuing goods and services (units/dollars)
What is On the Horizontal Axis of a Short-Run Model of Aggregate Demand and Supply?
quantity of output
Classical Dichotomy
real and nominal variables are separate
"Business Cycle"
refers to the fluctuation in the amount of goods and services produced
Contractionary Policy
results in a decrease in aggregate demand
What is the Source of the Supply For Loanable Funds?
savings
GDP
the market value of all final goods and services produced by resources with the U.S. in a given year = C + I + G + (X - M)
Why is the Long-Run Aggregate Supply Curve Vertical at the Natural Rate of Output?
the price level has no bearing on the economy's long-run level of real output
What Does CPI reflect?
the prices of all goods and services bought by consumers
Nominal Variables
variables that are measured in monetary units nominal wage is $ per hour
Real Variables
variables that are measured in physical units real wage is 1/2 pizza per hour
Inflation Tax
when the government pays its debts by printing money
The Natural Rate of Unemployment Occurs When?
when there is 0% cyclical unemployment
