BJU Economics Unit 5 (chap 13 & 14)

Nominal GDP

2018 production in 2018 prices

Real GDP

2018 production in base year prices; to compare fairly from year to year the accurate way to talk about business cycle over time

By investing other peoples money. Charging higher interest rates than their borrowing interest rates. The difference between the two is their profit.

How do banks earn a profit?

reduces purchasing power

How does inflation affect the purchasing power of money?

no double coincidence of wants/ money is generally accepted form of exchange

How does money reduce transactions costs?

currency, checkable deposit, debit card; M1

What makes up our supply of money? That is, what counts as money in our society?

Banks create money under the supervision of the federal reserve; by lending out their excess reserves

Who creates money? How?

they don't trust the government/no inflation

Why do some people want to return to the gold standard?

there is a lot of uncertainty in economy

Why is inflation a problem?

already has been counted

Why should we not count intermediate goods in the calculation of GDP?

Final Good

a good sold to final users

Intermediate Good

a good that is used as an input to some other good or resold

recession

a time in which GDP is declining (rate of growth reduces) unemployment grows, inflation decreases

provides retailing services; not all included

In what way are the sellers of used goods productive? How do their actions affect GDP?

Monetary Policy

M1 is a way of keeping track of ____________

larger

M2 = everything in M1 + other liquid assets; therefore M2 is always __________ than M1

Federal Reserve

Monetary Policy is the responsibility of the __________

open market operations

buying and selling US Bonds

investing other peoples money

commercial banks earn profit by...

low rate of time preference

consume less, save more

Macroeconomics

deals primarily with the whole economy

M1

focuses on money as it is used in transactions; bills + coins - currency (non bank public) checks - legal authorization for movement of deposits debit cards essentially some (checkable deposits) NOT CREDIT CARDS

expansionary monetary policy

improving the economy by increasing the amount of the amount of money in circulation. Happens with deposits. As production rises so do prices.

Reserves

in open market operations, bank receives what from from federal reserves?

Bonds

in open market operations, federal reserves purchase what from banks?

Consumption

in the equation GDP=C + I + G + NX, the C stands for ________. and means anything purchased by a household (makes up 70% of US GDP)

Government

in the equation GDP=C + I + G + NX, the G stands for ________. and means purchased by government. (makes up 20% of US GDP)

Investment

in the equation GDP=C + I + G + NX, the I stands for ________. and means purchased by a business (capital) {makes up 20% of US GDP}

Net Exports

in the equation GDP=C + I + G + NX, the NX stands for ________. Net spending (difference between exports and imports) {makes up -10%}

FIAT

money because someone says it will be, means "Let it be so"

productive resource

money is a __________

unemployment

most troubling consequence for lower GDP in general public

unemployed

not working, but looking for work

money

on the micro scale-- an example of an institution to reduce transaction costs

confidence in gov, hyper inflation

primary concerns in fiat systems

Inflation

purchasing power decreases

high rate time preference

shift to the left (supply ) consume more, save less

discouraged worker

someone who would like to work but has given up working

unemployment

the percentage of the LABOR FORCE that doesn't have a job (NOT THE POPULATION)

Gross Domestic Product

the total dollar value of all FINAL goods and services PRODUCED in a country in a year (inconsistent growth rate, tends to increase)

Gross National Product (GNP)

the total value of all final goods BY a country in a year

M1 and M2

the two ways to measure money supply

Stagflation

time period in which there is both recession and inflation

double coincidence of wants

two parties each hold an item the other wants so no monetary exchange is needed. (this is necessary in every barter transaction; not needed with money )

labor force

unemployed + employed

Inventory Investment

unsold goods are considered to be apart of a country's __________.

GDP Deflator

used to measure changes in price levels

free market, industrialized

what is common theme in the top GDP countries

financial markets - banks rate of time preference

what makes up credit markets ?

by lending out their excess reserves

How do banks create money?

per capita GDP

GDP divided by the total population

Expansion

GDP growing, unemployment getting smaller, inflation increases

-national income (value of production) - expenditures (spending)

GDP is helpful use of Data

C + I + G + NX

GDP=

inventory investment

How are unsold goods accounted for in GDP calculations?

Federal Reserve System-

The independent central bank of the United States that regulates the % of money a bank must have in order to lend out their reserves

household savings channeled through banks (intermediaries)

What comprises the supply of credit (loanable funds)?

Values consumption now more than consumption in the future.

What is a positive rate of time preference?

money is generally acceptable for goods and services

What is the essential characteristic of money?

unemployment

What is the most troubling consequence of reductions in GDP for the general public?