Combo with "Combo with "BYU Econ Review #3" and 20 others" and 21 others

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

laissez faire?

"let them do" (as they please); the idea that individuals left alone try to better themselves

Money Wage Rate (MWR)

# of $ an hour of labor earns

Unemployment rate

# of unemployed/ labor force x100

the public debt of the U.S. federal government at the end of fiscal year 2011 equaled

$10.1 trillion

(Scenario: Monetary Base and Money Supply) How much are required reserves?

$50 billion

(Table: Kenya's Economy in 2010) Aggregate output per capita in Kenya at the beginning of 2010 was:

$775

sales tax

% tax added to almost all goods excluding food

EPA

(Environmental Protection Agency) Regulates the environment

EEOC

(Equal Employment Opportunity Commission) Enforces laws to prevent unfair treatment on the job due to sex, race, color, religion, national origin, disability, or age.

FCC

(Federal Communications Commission) regulates the television and radio industry, grants licenses to television and radio stations, and blocks monopolies.

FDIC

(Federal Deposit Insurance Corporation) Insurance for people's bank accounts.

FICA

(Federal Insurance Contribution Act) represents the taxes people pay for Social Security and Medicare.

FDA

(Food and Drug Administration) The agency that is responsible for determining if a food or drug is safe and effective enough to be sold to the public.

Gross Domestic Product

(Gross Domestic Product) The sum total of the value of all the goods and services produced in a nation

GNP

(Gross National Product) The sum of all goods and services produced in a nation in a year

IRS

(Internal Revenue Service) Governmental agency responsible for collecting federal taxes, issuing regulations, and enforcing tax laws

IMF

(International Monetary Fund) GIves loans to developing countries

NAFTA

(North American Free Trade Agreement) Allows open trade with US, Mexico, and Canada

OSHA

(Occupational Safety and Health Administration) A government agency in the Department of Labor to maintain a safe and healthy work environment

how is inflation rate calculated

(P2 - P1) P1

SEC

(Securities and Exchange Commission) A government commission created by Congress to regulate the securities markets and protect investors.

UAW

(United Auto Workers) a labor union which represents workers in the United States, Canada, and Puerto Rico. Founded in order to represent workers in the automobile manufacturing industry

WB

(World Bank) Gives out loans

socialist

(n) one who believes that communities and not individuals should own and control the community's land, work force, and wealth

excess supply

(surplus) quantity suppliers is greater than quantity demanded

Compliments

(usually plural) a polite expression of desire for someone's welfare

How do controls on interest rates, i.e. usury laws, affect the quantity of savings and investment within an economy

(usury laws are laws that set a maximm ceiling on the interest rate. it creates shortages of credit and will reduce savings and investment because it will cause interest rates to be below the market equilibrium

Cost of Inflation

- "noise" in the price system - distortions of the tax system - "shoe-leather" costs, which are the real resources that are wasted as people try to economize on cash holdings - unexpected redistribution of wealth - interference with long-term planning **Because of these costs, economists agree that the most economic growth will occur when inflation is low

Policies to take under inflationary shock

- FED respond to the increase in inflation by following the monetary policy rule and increasing the real interest rate; the increase in the real interest rate - the FED's accommodating policy is to allow inflation shock to decrease output in the short run and inflation in the short run and long run

Policies to take under Demand Shock

- First, Congress and the president can undertake expansionary fiscal policy through a combination of government spending increases and tax cuts - this will increase planned spending directly (through the increase in gov't spending) and indirectly (through increased consumption induced by lower taxes and increase disposable income) - Second, the Federal Reserve can apply expansionary monetary policy - this will lower interest rates, stimulate increased investment spending, and increase planned spending and output

Measuring Money

- M1: narrow measure of money, includes currency and checking accounts - M2: broader measure of money, includes all assets in M1 plus additional assets that are somewhat less convenient to use in transactions

Invisible Hand

- The interaction of buyers and seller, motivated by self-interest and regulated by competition, all happen without a central plan , this phenomenon

Factors about the quantity theory of money

- V is stable - A change in M causes nominal GDP ( P x Y) to change by same % - A change in M does not effect Y: Y is determined by technology $ real factors of production - P changes at same rate as m - rapid money supply growth causes rapid inflation

When does fiscal policy work best?

- When the economy needs a short-run boost. evan at the expense of the long-run - When the problem is a deficiency in AD rather than a real shock - When many resources are unemployed

Demand for Labor

- a firm will employ a worker only if the worker's value of marginal product exceeds the real wage they pay; same as the extra revenue the worker generates for the firm exceeds the wage the firm pays - the lower the real wage, the more workers the firm will find it profitable to employ

Should countries adopt a fixed or flexible exchange rate?

- a flexible rate actually strengthens the imacct of monetary policy on aggregate demand - a fixed rate prevents policymakers from using monetary policy to stabilize the economy because they must instead use it to keep the exchange rate's market equilibrium value to its official value

Bond

- a legal promise to repay debt, usually including both the principal amount and regular interest, or coupon, payments - the prices of existing bonds decline when interest rates rise

Recession

- a period in which the economy is growing at a rate significantly below normal - period during which real GDP falls for at least two consecutive quarters - tend to be followed by a decline in inflation and are often preceded by an increase in inflation

Okun's Law

- a relationship between cyclical unemployment and the output gap - an extra percentage point of cyclical unemployment is associated with about a 2 percent decrease in GDP

Money and Functions of Money

- any asset that can be used in making purchases Three Main Functions Medium of Exchange - an asset used in purchasing goods and services Unit of Account - a basic measure of economic value, meaning using a common symbol such as the dollar to make easy comparisons Store of Value - an asset that serves as a means of holding wealth

Monetary Policy

- can be changed quickly by the Federal reserve's federal open market committee - more flexible and responsive than fiscal policy because fiscal can only be changed by Congress - used more actively to stabilize the economy

Discount money lending (discount rate)

- commercial banks borrowing money from the FED with an interest rate - loans of reserves from the FED directly increases the reserves in the banking system, this leads to an increase in bank deposits and an increase in the money supply

Money Supply

- controlled by central banks through open market transactions - buying government bonds from the public will increase it which puts money into circulation

What changes AD?

- demand shocks: a positive demand shock will shift right and a negative demand shock will shift left - consumer confidence increased will shift it right, vice versa - the gov't cutting taxes and increasing spending will increase AD

Supply and Demand of Dollars

- dollars are demanded in the foreign exchange market for foreigners who seek to purchase U.S. goods - dollars are supplied by U.S. residents who need foreign currencies to buy foreign goods

Consumption Function

- equation for relationship between consumption and disposable income - C = c + (MPC) (Y-T) - little c is the autonomous expenditure because it does not react to changes in disposable income

Economic Growth

- even at a modest growth rate, if sustained over a long period of time, can lead to large increases in the size of the economy - governments can promote it by: adopting policies that encourage creation of human capital, promote saving and investment, investing in public infrastructure, support research and development in basic sciences, support private sector activities - costs: sacrifice current consumption to achieve a high rate of investment in new capital goods, extra work effort and the cost of research and development

Why does the AS curve slope upward?

- firms meet the demand for their products at present prices in the short run - inflation inertia: inflation remains constant as long as the economy is at potential output and there are no external shocks

A matter of timing

- fiscal policy is intended to correct short-term problems - By the time fiscal policy is in place, economic conditions have often changed

What is not included in GDP?

- goods and services that are not sold in markets, such as unpaid house work - intermediate goods, which are used in the process of production

Stabilization Policies

- government policies that are used to affect PAE, with the objective to eliminate output gaps - there are two major tools: monetary and fiscal policy

Key factors in determining Average Labor Productivity in a country

- human capital - quantity and quality of physical capital - availability of land and other natural resources - sophistication of the technologies applied in production - effectiveness of management and entrepreneurship - broad social and legal environment

Open Market Transactions

- if the FED wants to lower the interest rate, they must increase the money supply through purchasing government bonds from the public - if they want to raise the interest rate, the FED must decrease the money supply by selling government bonds

An increase in the real exchange rates

- implies that domestic goods are becoming more expensive relative to foreign goods, which tends to reduce exports and stimulate imports - a decline in the real interest rates leads to an increase in net exports

Basic Keynesian Model built on key assumption

- in the short run, firms meet the demand for their products at present prices - firms do not respond to every change in the demand by changing their prices

What will increase/decrease the expenditure line?

- increase: when autonomous expenditure increases - decrease: when autonomous expenditure decreases (if it drives below potential output then in a recession)

Why does inflation adjust very slowly?

- inflation expectation, if you expect inflation o be high, it will lead to a high rate of actual inflation - long-term price contracts, union contracts are usually set for years and they have built in wage and price increases that depends on inflationary expectations

Expansionary Policies

- intended to increase PAE and output - use this when in a recession

Prices of existing bonds

- inversely related to the interest rate - the higher the interest rate, the lower the cost of government bonds

What is included in GDP?

- newly produced final goods - only goods and services produced within a nation's boarders - only goods and services produced during the current year

FED can control money supply by:

- open market transactions - discount window lending (discount rate) - directly affecting bank reserves

Aggregate Demand - Aggregate Supply model

- provides a framework for evaluating the possible recessions - two distinct advantages over the Keynesian model 1) it analyses fluctuations in both output and inflation rate 2) applies to both short and long run, instead of just short run

Fiscal Policy

- refers to the decision about how much the government spends and how much tax revenue it collects - gov't purchases directly affect PAE, the more they spend, PAE will increase - remember that T equals total taxes, transfer payments, gov't interest payments; a tax cut will increase PAE - if the government spends more they are increasing the deficit, which reduces investment, and it effects both PAE and potential output - the government has to weigh the effects of short term and long term effects

What are some of the Fed's duties

- regulate other banks and lend money to other banks - maintain bank account of us treasury + manages their borrowing - regulating the u.s. money supply

Money Demand Curve

- relates to the aggregate quantity of money demanded to the nominal interest - because an increase in the nominal interest rate increases opportunity cost of holding money, which reduces the quantity of money demanded, graph slopes downward

Business Cycle

- short-term flucuations in GDP and other variables - unemployment is a key indicator of short-term fluctuations, rises during recession and recovers during expansions - KNOW WHAT THE GRAPH LOOKS LIKE AND HOW TO READ IT

AD

- shows the amount of output consumers, firms, government, and consumers want to purchase at each inflation rate - slopes downward because an increase in the inflation rate causes PAE to fall

Reserve deposit ratio

- the FED can set a minimum for commercial banks called reserve requirements - to increase the money supply the FED lowers this

Federal Reserve

- the FED is the central bank in the US - two responsibilities: to conduct monetary policy and to oversee the regulation of financial markets

Demand for money

- the amount of wealth and individual chooses to hold in the form of money - the opportunity cost of it is the nominal interest rate

Output Gap

- the difference between the economy's actual output, relative to potential output, at a point in time = ((Y-Y*) / Y*) x 100%

Income expenditure multiplier

- the effect of one unit increase in autonomous expenditure on the short run equilibrium output

What are two reasons why gov't doesn't monetize its debt

- the fisher effect, if lenders expect that the government will do this they will only charge higher nominal rates of interest - to keep voters happy. b/c bond buyers are usually voters and they wouldn't appreciate zero returns

Price Level

- the higher the prices of goods and services, the more dollars needed to make the transaction - so a higher one is associated with a higher demand for money

Short run equilibrium output

- the level of output at which output equals PAE - the level of output that prevails during the period i which prices are predetermined

Natural Rate of Unemployment

- the part of the total unemployment that is attributable to frictional and structural unemployment - occurs when cyclical unemployment is zero

National Saving

- the saving of a nation as a whole - the sum of public saving and private saving** S = Y - C - G (Y = GDP, C = consumption spending, G = gov't purchases)

Public Saving

- the saving of the government - equals the gov't budget surplus - when the gov't budget is in surplus, gov't saving is positive - when the gov't budget is in deficit, gov't saving is negative S public = T - G (T = net tax payments, G = gov't purchases)

Private Saving

- the saving of the private sector S private = Y - T - C (Y = GDP, T = net tax payments, C = consumption spending)

Money

- the set of assets, such as cash and checking accounts, that are usable in transactions - it is also a store of value, like stocks, bonds or real estate, type of financial asset - a way of holding wealth

Wealth Effect

- the tendency of changes in asset prices to affect household's wealth and thus their consumption spending - Ex. a fall in home prices or stock prices that made consumers feel poorer will be less inclined to spend money which will decrease little c

What are some examples of automatic stabilizers

- welfare and transfer programs: they increase income and consumption and therefore AD - Consumption smoothing: people draw on savings during an economic downturn, credit cards can help

What are 3 things that affect the velocity of money

- whether workers are paid monthly or biweekly - how long it takes to clear a check or electronic transaction - how easy it is to find an ATM, place to pull out money The velocity of money gives us some indication of how often each dollar is being spent

Changes in demand for dollars

- will increase if an increase in preference for the US goods by foreign customers - an increase in the real GDP abroad, which implies higher incomes abroad

Changes in supply of dollars

- will shift right if an increased preference in foreign goods, an increase in US GDP, increase real interest on foreign goods, decrease in the real interest rate of US assets

Supply of Labor

- willing to supply labor if the real wage that is offered is greater than the opportunity cost of the individual's time - generally, the higher the real wage, the more people are willing to work

Frictional Unemployment

-(college students graduate and have to wait until firms are hiring) -temporarily between jobs & looking for best opportunity

List and define Types of efficiency:

-Production efficiency:the economy is utilizing all of its resources efficiently. -Distributive efficiency:when goods and services are consumed by those who need them most. -allocative efficiency: economy/producers produce only those types of goods and services that are more desirable in the society and also in high demand.marginal benefit =marginal cost.

Cyclical unemployment

-business cycle -not working bc firms dont need them (downturn in economy)

how to increase productivity

-division of labor -buy needed capital goods -educate (work force) -fire unnecessary employees

Structural unemployment

-jobs arent around anymore Ex: no milkman, no blacksmith -unemployed people who lack skills or do not have sufficient education for available jobs

Seasonal unemployment

-lifeguarding -halloween store workers

Classical

-market will adjust, let it roll

Business cycle

-peak -trough -expansion -contraction

Unemployment rate

-percentage of people in an economy who are both able to and looking for work but who cannot find jobs

Discouraged worker

-quit looking for work -no longer in labor force!!!!

Not counted in GDP

-second- hand products -"black" market products -intermediary goods -transfer payments: -welfare -social security - gov. Grants & aids -stocks & bonds

three way money serves people

-standard value -medium of exchange -way to save for future

draw and label a supply and demand graph and table

...

Types of unemployment

..., Frictional (Fired/Quit), Structural (Jobs Move Overseas), Cyclical (Recession Layoffs), Seasonal (Census Workers, Holiday Workers)

Trade barriers

..., government-imposed regulations that increase the cost and restrict the number of imported goods

10. Normative perspective

...study or presentation of "what ought to be" rather than what actually is. Based more on judgments than actual facts

how much is the CPI overstated annually?

.9%

Solow's 1/3 Rule

1% increase in K/L brings a 1/3% increase in Y/L (T is fixed)

Parts of the Business Cycle

1) Peak is a positive uptrend in business activity. The business is making a profit, employing laborers, and doing well. 2) Recession exists when there is an overall downturn of many economic indicators, such as employment and production. 3) In order for a depression to occur, the economy must be declining for at least twelve months straight. In a depression, business activity and employment decline severely. 4) Expansion is a fast upward growth spike—lots of money flowing, jobs created, and positive activity. 5) Contraction is the opposite, a period of economic slowdown; money doesn't come in as fast, and indicators like unemployment rise. 6) A trough is the bottom of the downward trend, the point where the contraction turns the corner and begins to again expand.

Components of the GDP

1) The GDP only measures final products. 2) The GDP only measures legal transactions. 3) The GDP does not measure all transactions. 4) The GDP is not a measure of the well-being of the economy.

Monopolistic Competition Requirements

1) There must be many buyers and sellers in the marketplace, and none of them can be large enough to influence price. 2) There is freedom of entry and exit with the market. The barriers to entry are low, and firms are able to establish themselves in the marketplace quickly. 3) Buyers and sellers are fully informed. 4) There are differentiated products offered for sale. In other words, there are many brands of the same product available.

Perfect Competition Requirements

1) There must be many buyers and sellers in the marketplace. None of the buyers or sellers can be large enough to influence price. 2) There is freedom of entry and exit into and out of the market. The barriers to entry are low. 3) Firms earn only a normal profit, the bare minimum profit necessary to keep them in business. If firms earn more than that, other firms will enter the market and drive price level down. 4) Buyers and sellers are fully informed. 5) Products are homogeneous. All suppliers supply goods that are perfect substitutes. This means there is no distinction between goods.

GK yield

1) the annual income earned on a stock, bond, or other investment secuirty. It is usually expressed as a percentage of its market price. 2) the total income earned on a loan 3) the total interest income paid on a bond if the bond is held by the purchaser until its maturity.

What are the four limits to fiscal policy

1. Crowding out: the increase in AD is reduced or neutralized if government spending reduces private spending 2. A drop in the bucket: the economy is so large that government can rarely increase spending enough to have a large impact 3. a matter of timing: it can be difficult to time fiscal policy so that the AD curve shifts at just the right moments 4. Real shocks: shifting AD doesn't help much to combat real shocks

How will the following affect price level? 1. Inc in velocity? 2. Decrease? 3. Increase in Real gdp? 4. Decrease in real GDP?

1. Increase in price level, inflation 2. Decrease in price level, deflation 3. Decrease in price level 4. Increase in price level

Name two ways that the government can finance its spending

1. Raise taxes to finance fiscal policy 2. Sell more bonds to finance fiscal policy

What are the two general categories of fiscal policy used to fight a recession?

1. The government spends more money 2. The government cuts taxes, giving people more money to spend

5 fundamental question every economic system must answer

1. What goods does the economy produce? 2.How does the economy produce the chosen goods? 3. Who gets the goods that are produced by the economy? 4. How does the economic system accommodate change? 5. How does the economic system promote progress?

the law of supply is based on two phenomena

1. at higher prices, existing suppliers supply more 2. at higher prices, new suppliers enter the market

law of demand is based on

1. at lower prices, existing demanders buy more 2. at lower prices, new demanders enter the market

economic reality's three forces

1. economic forces 2. social and cultural forces 3. political and legal forces

Through what channels do open-market purchases stimulate the economy

1. higher money supplies and lower interest rates 2. in a sense, the increase in the money supply increases the supply of loans and the lower interest rates increase the quantity of loans demanded

What are the three major tools the fed uses to control the money supply

1. open market operations: the buying and selling of US government bonds on the open market 2. discount rate lending and the term auction facility: federal reserve lending to banks and other financial institutions 3. Paying interest on reserves held by banks at the fed

specific roles of Govt.

1. providing a stable set of institutions and rules 2. promoting effective and workable competition 3. correction for externalities 4. ensuring economic stability and growth 5. providing public goods 6. adjusting for undesirable market results

what the PPC demonstrates

1. there is a limit to what you can achieve, given the existing institutions, resources and technology. 2. every choice you make has an opportunity cost. you can get more of something only by giving up something else

economy's 3 main coordination problems

1. what and how much to produce 2. how to produce it 3. for whom to produce it

Possibility Curve Shifters

1.) change in quantity or quality of resources 2.) change in technology

Shifters of Demand

1.) preferences 2.) # of consumers 3.) price of related goods 4.) income 5.) expectations

Shifters of Supply

1.) price of resources 2.) # of producers 3.) technology 4.) taxes & subsidies 5.) expecations

Tariff

1.A Tax on imported goods or services 2.Higher revenue for domestic producer and lower revenue for foreign producers 3.Higher prices 4.Tax revenue for government

What are Tariffs, product Quotas, and embargoes?

1.tax on imports 2. a limit on the quantity of a good that can be produced abroad and sold domestically 3.An official ban on trade or other commercial activity with a particular country.

(Table: Market for Butter) Look at the figure Market for Butter. If the government imposes a price floor of $0.90 per pound of butter, the quantity of butter actually purchased will be

10 million pounds

how many federal reserve districts are there?

12

what is underemployment rate?

16.7

Wagner Act

1935, also National Labor Relations Act; granted rights to unions; allowed collective bargaining

(Figure: The Production Possibilities for Two Countries) Look at the figure The Production Possibilities for Two Countries. The opportunity cost of producing 1 radio in Indonesia is:

2 tires

what was the average inflation rate in us between 2000-2010

2.5%

when did the fed start paying interest on reserves

2008

what how for whom

3 basic questions of economics

what has been avg inflation since 1950

3.7%

What is a t-bond

30 year bond that pays interest every 6 months and is issued by the US treasury

(Table: Production of Good Z and Good X in Urbanville) Look at the table Production of Good Z and Good X in Urbanville. If this represents the production possibility frontier and Urbanville is currently producing at combination F, what is the opportunity cost of a move to combination E?

5 of Z

what is current estimate of the natural unemployment rate?

6%

how many board of governors?

7

FED-structure

7 board directors

What is minimum wage in Ohio

7.85

The rule of 70

70/x (where x is the growth rate *100) gives the approximate number of years to double income

(Figure: The Labor Market) Refer to the accompanying figure on the labor market. What will be the level of employment if firms decide to pay an efficiency wage of $16?

80,000

Bank Deposits

= bank reserves / reserve-deposit ratio - as the reserve ratio increase, the money supply decreases because more money needs to be put into reserves - a low interest rate encourages spending, while a high interest rate reduces spending

Social Security

A 1935 law passed during the Great Depression that was intended to provide a minimal level of sustenance to older Americans and thus save them from poverty.

Nonexcludable

A Characteristic of public goods in that their benefits cannot be kept from persons who do not pay for the goods provision in private market

Indivisible

A Characteristic of public goods in that they are impossible to divide into units sufficiently small to be sold in private markets

Demand Curve

A Graph showing the quantites that consumers are milling to buy at alternative prices during a specified time period

Cost-benefit Analysis

A Study that compares the costs and benefits of a policy or programs

What is a zero-coupon bond?

A bond that pays only a maturity

Partnership

A business in which two or more persons combine their assets and skills

partnership

A business in which two or more persons combine their assets and skills

Partnership

A business owned and operated by two or more individuals. Business decisions can be made almost as easily as in sole proprietorships. Also, partners can specialize—that is, they can contribute specific but different talents and skills to the successful operation of the business. Partnerships still face the problem of unlimited liability.

Sole Proprietorship

A business owned by a single person. The owner is responsible for all aspects of operation, including accounting, financing, production, and distribution. Sole proprietorships are easy to establish because they usually involve little government interference.

Sole Proprietorship

A business owned by one person

sole proprietorship

A business owned by one person

Corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts

corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts

unlimited liability

A business owner is responsible for all losses experienced by the business.

Certificate of Deposit

A certificate issued by a bank to a person depositing money for a specified length of time. Higher Rate then Regular Savings

income effect

A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.

Nonrivalrous

A characteristic of public goods in that use by one person does not prevent use by others

Closed Shop

A company that hires only union members

Deflation

A continuing decrease in the average price of goods and services.

Franchise

A contract that gives a single firm the right to sell its goods within an exclusive market

Spillover

A costs or benefit of a private market activity that is shifted onto society at large. Alternatively called an externality

Injunction

A court order to stop a strike

supply curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

what is deflation

A decrease in the average level of prices

Dividends

A distribution of the net income of a business to its owners

Patent

A document granting an inventor sole rights to an invention

Variable

A factor that can change

Medicare

A federal program of health insurance for persons 65 years of age and older

security deposit

A fee that a renter must pay in advance to cover any damage he or she might later cause to the property or if the rent is not payed

Worker's Compensation

A form of insurance paid by the employer providing cash benefits to workers injured or disabled in the course of employment.

Cartel

A formal organization of producers that agree to coordinate prices and production

Inflation

A general and progressive increase in prices

inferior good

A good for which the demand increases as income falls and decreases as income rises

normal good

A good for which the demand increases as income rises and decreases as income falls

Substitute in Production

A good that can be produced instead of the good you are producing.

Complement

A good that is bought along with another good.

Complement in Production

A good that is produced along with another good.

Inferior Goods

A good which consumers buy less of when they earn more money and more of when they earn less money.

Normal Goods

A good which consumers buy more of when they earn more money and less of when they earn less money.

Subsidy

A government payment that supports a business or market

Price Ceiling

A government regulation that sets the maximum legal price that can be charged for a product. A price ceiling has to be set below the equilibrium price in order to impact the economy.

Subsidy

A grant given by the government to producers to encourage production of a good or service

demand curve

A graph of the relationship between the price of a good and the quantity demanded

supply curve

A graph of the relationship between the price of a good and the quantity supplied

Supple Curve

A graph showing the quantities that suppliers are willing to sell at alternative prices during a specified time period

mutual funds

A group of investments held in common by many individual investors

Board of Directors

A group of persons elected by the stockholders to manage a corporation.

Medicaid =

A joint federal-state medical insurance program for low income persons.

franchise

A legal agreement that gives an individual the right to market a company's products or services in a particular area.

inventory

A list of possessions or goods on hand.

Perfect competition =

A lrge number of well informed independent buyers and sellers who exchange identical products.

Monopoly

A market dominated by a single seller

Pure Competition

A market in which many producers sell a standardized (identical) product to many buyers

Monopoly

A market structure composed of one company selling a product for which there is no good substitute. Monopolies offer a large economics of scale. Monopolies usually have large profits that can be used to invest in technological improvements and better products. Monopolies are production inefficient. They are also allocation inefficient, meaning they can restrict their output and thus charge higher prices.

Oligopoly

A market structure in which a few large firms dominate a market

Monopolistic competition

A market structure in which many companies sell products that are similar but not identical

Elasticity of Demand

A measure of how consumers react to a change in price

Elastic demand

A measure of how consumers respond to price changes

Elasticity of supply

A measure of the way quantity supplied reacts to a change in price

Insurance

A mechanism for protection against disaster

caucus meetings

A meeting of political party members to conduct party business

comparison shopping

A method of judging the benefits of different products by comparing several factors, such as quality, features, and cost.

subsidy

A money payment or other form of aid that the government gives to a person or organization.

geographic monopoly

A monopoly based on the absence of other sellers in a certain geographic area.

Federal Reserve

A national banking system, established in 1913, that controls the U.S. money supply and the availability of credit in the country.

Advertising

A paid form of communication sent out by a business about a product or service.

joint venture

A partnership created by two or more companies for a specific purpose over a set period of time

Depositor

A person who deposits money in a bank

Producer

A person, company, or country that makes, grows, or supplies goods or commodities for sale

Budget

A plan for making and spending money

Commodity

A product that is the same no matter who produces it, such as petroleum, notebook paper, milk

Positive Question

A question that can be answered using available information or facts.

Normative Question

A question that is based on societal beliefs on what should or should not take place

What is a "real price"

A real price is a price that has been corrected for inflation. they are used to compare the prices of goods over time

Inflation

A rise in the average price level in the economy

Market Basket

A sample of goods and services consumers purchase for everyday living.

collateral

A security pledged for the repayment of a loan in case then loan is unable to be payed back.

Stock

A share of ownership in a corporation.

stock

A share of ownership in a corporation.

Free-rider problem

A situation in which individuals that do not pay their share for a good or service nevertheless enjoy its benefits

Shortage

A situation in which quantity demanded is greater than quantity supplied

shortage

A situation in which quantity demanded is greater than quantity supplied

surplus

A situation in which quantity supplied is greater than quantity demanded

Unemployment

A situation in which resources are not fully used in productiong

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Shortage

A situation where the quantity demanded is greater than the quantity supplied.

Surplus

A situation where the quantity supplied is greater than the quantity demanded.

What is a bond

A sophisticated IOU that documents who owes how much and when payments must be made

Equilibrium

A state of balance between opposing forces or powers.

What is stock?

A stock is a certificate of ownership in a corporation

bait and switch

A store advertises bargains that do not really exist to lure customers in, in hopes that they will buy more expensive merchandise.

diversification

A strategy of increasing sales by introducing new products into new markets

Resource

A substance in the environment that is useful to people, is economically and technologically feasible to access, and is socially acceptable to use.

Pension

A sum of money paid regularly by a company to someone who has retired or has a disability

Economic Growth

A sustained increase in production, represented by an outward shift of the production possibilities curve

Socialism

A system in which government owns and controls the means of production.

checks and balances

A system that allows each branch of government to limit the powers of the other branches in order to prevent abuse of power

demand schedule

A table that shows the relationship between the price of a good and the quantity demanded

supply schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied

Excise Tax

A tax on the production or sale of a good

Excise tax

A tax on the production or sale of a good

Arbitration

A third party makes the decision

Franchises

A type of business where a company is authorized to sell another company's goods or services in a specific area in exchange for a franchise fee. Basically an established business authorizing another owner to open that same business. Franchises are easy to open and do not require original ideas. The lack of control is a significant disadvantage of franchises.

What determines rGDP in the short run Keynesian model of the economy?

AD

In short-run equilibrium (AD-AS)

AD and AS intersect at a level of GDP above or below potential

In long-run equilibrium (AD-AS)

AD and AS intersect at potential GDP, the inflation rate in this situation is called expected inflation rate

When the government decreases government spending, the:

AD curve will shift to the left

durability

Ability of an item to last a long time

Entrepreneur

Ability of individuals to start new businesses.

Free Riding

Accepting benefits with out paying you share of the costs of providing them

entrepreneurship

Accepting the risk of starting and running a business.

services

Activities performed by people, firms or government agencies to satisfy economic wants for a fee

Services

Activities such as haircuts, healthcare, and education that are consumed (used) by consumers

Federal trade commision

Administers antitrust and consumer protection legislation for free competition

Easy to start and end, few regulations, unlimited personal liability, limited access to resource, lack of performance

Advantages from sole proprietorship

Economically successful if they meet their needs

Advantages of traditional economy

what is NAFTA?

Agreement between Mexico, U.S, and Canada which reduced or eliminated tariffs and embargoes between these countries.

Perfect pure competition

All buyers and sellers are well informed and no elements of monopoly exist

assets

All items to which a business or household holds legal claim

land

All natural resources

Land

All natural resources used to produce goods and services

Law of Supply

All other things remaining the same, the higher the price, the larger the quantity supplied. Another way to state this is that the quantity supplied correlates directly with price.

Law of Demand

All other things remaining the same, the higher the price, the smaller the quantity demanded. Another way to state this is that the quantity demanded varies inversely with price.

What does the Aggregate demand curve tell us?

All the combinations of inflation and real growth that are constant with a specific rate of spending growth

Resources

All things used in producing goods and services Natural or Corporate

john hancock

American revolutionary patriot who was president of the Continental Congress

revenues

Amounts earned from selling products or services to customers.

What is the difference between an IPO and a secondary stock

An IPO is the first time a stock is sold

Collusion

An agreement among firms to divide the market, set prices or limit production

trade-off

An alternative that we sacrifice when we make a decision

Wage

An amount of money paid to an employee at a specific rate per hour worked.

Lockout

An attempt by management to put pressure on unions by temporarily closing the business

recession

An economic slowdown of the economy which results in rising unemployment, increased business failures, declining economic growth and higher personal bankruptcies.

capitalism

An economic system based on private ownership of capital

Mixed economy

An economic system combining private and public enterprise

free enterprise system

An economic system in which individuals depend on supply and demand and the profit margin to determine what to produce, how to produce, how much to produce, and for whom to produce. The quest for improvement financially and materially motivates consumers and producers.

Command economy

An economic system in which the gov makes all decisions

command economy

An economic system in which the government controls a country's economy.

Traditional exonomy

An economic system that relies on habitat or rival

mixed economy

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

traditional economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

How does a change in demand for loanable funds affect the quantity of savings/borrowing and the equilibrium interest rate?

An increase in demand will increase interest rate and quantity. a decrease in demand will decrease interest rate and quantity

How does a change in the supply of loanable funds affect the quantity of savings/borrowing and the equilibrium interest rate?

An increase will shift the interest rate down and increase the quantity. A decrease in demand will decrease interest rate and quantity

Consumer Price Index

An index of the cost of all goods and services to a typical consumer

Moral Hazard

An individual does not bear the cost of additional risk

Asymmetric information

An individual possesses more information then the other

what are some examples of things that would inc/dec the demand of loanable funds?

An investment tax credit shifts demand up, it acts as a subsidy and gives them an incentive to borrow more

Union

An organization of employees that is formed to promote the welfare of its members.

Craft Union

An organization of skilled specialists in a particular craft or trade.

cost benefit analysis

Analysis done to compare and quantify the financial and non-financial costs of making a change or implementing a solution compared to the benefits gained.

Barrier to entry

Any factor that makes it difficult for a new firm to enter a market

Public Property

Any good that is owned by the government.

Capital

Any human made resource that is used to create other goods or services

Capital

Any human made resource that is used to produce other goods and services

Copyright

Any written document is copyrighted

Money

Anything generally accepted in exchange for goods and services; has an agreed upon value

Substitute goods

Are goods that are used in a place of another

Complementary goods

Are two goods that are bought and used together

Efficient market hypothesis

Argument that stocks are always priced about right ,and that bargins are so hard to find because they are closely watched by so many investors

law of supply

As a price increases the quantity of the good provided increases, as the price of a good decreases, the number provided decreases.

law of supply

As the price increases producers produce more

Ceteris paribus

Assumption used in economics (and other disciplines as well), where other relevant factors or variables are held constant.

Why do people use lenders to funnel their savings to borrowers instead of performing this function themselves?

B/c it would take a lot more time for each individual person to evaluate the risk of certain decisions then if they were to allow the bank to do it. It also allows them to spread their risk out more.

How do banks play the role of a financial intermediary

Banks receive savings from many individuals, pay them interest, and then loan their funds to borrowers or investors

Why is the demand for loanable funds downward sloping?

Because it is an inverse relationship. At higher rates, firms will not want to borrow as much money but as rates fall companies are willing to borrow more money

Why does inflation act like a tax

Because it transfers real resources from citizens to the government

Why is money neutral in long run?

Because the increase in money leads to people buying more and therefore people producing more. yet when they go to buy more they realize they don't have anymore purchasing power so they go back to their original level.

Why wil unemployment benefits increase the unemployment rate?

Because they are influencing people to not try as hard to find a job

Bonds are less risky than stocks why?

Bond holders get paid first and if a company files for bankruptcy stock holders get nothing.

Municipal bonds =

Bonds issued by states and local governments. highways, etc.

What is a T Bill

Bonds with maturities of a few days to 26 weeks that pay only at matuity

What is a T-note

Bonds with maturities ranging from 2-10 years that pay interest every 6 months issued by the US treasury

Technology

Branch of knowledge dealing with engineering, applied science, etc.

Sherman anti trust act

Breaks up monopolies

Bull and Bear Markets

Bull: rising Bear: falling

Implementation lag

Bureaucracies must implement the plan

Goods (Products) market

Business firms sell goods and services to households

Sole proprietorship

Business owned and managed by a single individual

Partnership

Business owned by two both share liability and pay

Stock Exchange

Buy and sell stocks

Open market operations used by Fed to control MS

Buy bonds = increase MS Sell bonds = decrease MS

Conspicuous Consumption

Buying expensive services and products in order to flaunt your wealth.

what is the law of the Invisible Hand?

By Adam Smith " the market process is an invisible hand which allows producers and consumers to buy and produce.

How does the PPCurve shift towards the unattainable margin?

By creating more capital goods

How do you calculate Gross domestic Product(GDP)?

C + Ig + G + Xn Consumer goods, gross investments, Government expenditures, and Exports Net

Induced consumption

C in excess of autonomous consumption, characterized by an increase in YD

Formula for figuring out multiplier effect

CHange in Y = 1/(1-MPC) + G

Price Index: Consumer price index

CPI reports on price changes for about 80,000 items in 364 categories.

Investments

Can be short term or long term in the form of interest on bonds and notes or dividends on shares of stock

Government

Can regulate either market w laws, taxes, subsidies

Discretionary policy

Changes in taxes or spending that are the result of deliberate changes in government policy

Merger

Combination of two or more companies into a single firm

merger

Combination of two or more companies into a single firm

Horizontal Merger

Combination of two or more frms producing the same kind of product.

Monopoly

Complete control of a product or business by one person or group

macroeconomics

Concentrates on the operation of a nation's economy as a whole

barriers to entry

Conditions that keep new businesses either from entering an industry or succeeding in that industry.

Corporations

Considered legal entities, which means they are separate from the people who own them.

Investment in GDP

Construction of new house

Name the determinants

Consumer income Consumer tastes # of consumers price of related goods consumer expectations

Demand

Consumer willingness and ability to buy products; what you want

substitution effect

Consumers ability to substitute other products for the focal brand and increase price elasticity of demand for the focal brand

Law of demand

Consumers will buy more of a good when its price is lower and less when its price is higher

The Largest part of PAE

Consumption PAE = C + G + I + NX

Expenditures approach

Consumption + Investment + Government + Net Exports

Federal Reserve System

Controls the amount of money in supply

Multinationals

Corp. producing and selling without regard to national boundaries and whos business activities are located in different countries.

Who issues bonds

Corporations

Menu costs

Cost of changing a listed price

Unit of account costs

Cost of having a less reliable unit of measurement

Externalities

Cost or benefits to others that decision makers do not take into account when making decisions

Fixed Expense

Costs that do not change from month to month.

Variable Expense

Costs that vary in amount and type, depending on the choices you make.

How do volatile and unpredictable inflation affect the labor market?

Could cause them to make wage agreements at the wrong level leading to too high of wages or too low of wages. Could lead to firms going under or unproductively if wages aren't high enough

Absolute advantage

Country's ability to produce more of a given product than another country.

Federal Reserve notes

Currency issued by the fed that eventually replaced all other types of currency.

CPI (Price Index)

Current year totals/ base year totals x100

Lorenz curve

Curve showing how actual distribution of income varies from equal distribution

Market economy

Decision on the three key economic questions are based on invisible hand is self interset snd competiton on the regulate the marketplace

Recession

Decline in real GDP lasting two quarters or more

Increased Competition

Decrease Costs, Increases quality, More option for consumers

What are two things the government could do if it wants to implement contractionary fiscal policy and what would these policies do to affect AD

Decrease government spending or increase taxes, which will therefore shift the AD curve in

How do insecure property rights affect the quantity of savings and investment within an economy

Decreses the amount of savings and investment

Demand-pull

Demand increases--cost up

Inelastic demand

Demand that is not very sensitive to price changes

rule by few

Describe the form of government known as an oligarchy:

Disequilibrium

Describes any price or quantity not at equilibrium

Inelastic

Describes demand that is not very sensitive to a change in price

Elastic

Describes demand that is very sensitive to change in price

Consumer Sovereignty

Describes the role of the consumer as sovereign, or ruler, of the market.

Production Possibilities

Diagram representing maximum combination of goods and services and economy can produce when all active resources are fully employed

Evaluation and adjustment lag

Did the plan work? have conditions changed?

...

Disadvantages of sole

Relatively small, no wide variety of goods

Disadvantages of traditional Economy

Shortage

Disparity b/w the ammount demanded and amount supplied

Djia

Dow Jones Industrial average, stats of 30 rep. stocks used to monitor price changes on NYSE

Under what conditions will the tax rebate have a limited effect on the economy?

During a recession. if consumers incur debt, then the one-time tax rebate is used to pay off the debt ->> no change in AD

Income

Earnings from work or investment

Four Sectors of the Economy

Economists view the economy as being divided into four sectors: government (G), investment (I), consumers (C) and net exports (NX). The GDP is measured by calculating the expenditures of each sector.

Entrepreneurs

Entrepreneurs combine land, labor, and capital to produces goods and services. They absorb the risk of being in business, including the risk of bankruptcy and other liabilities associated with doing business. Entrepreneurs receive profits for this effort.

Fairness

Equaity

Why do firms sell stocks?

Equity financing

How does money contribute to economic efficiency?

Establishes a price value

rise

Even if a bond has substantial initial current yield, its return can be negative if interest rates ___; sell the bond before it reaches maturity

Public goods and externalities give an example

Ex. If public schools weren't offered less children would go to school because of the costs.

Circular flow with government

Example: public goods and services are provided by government to households because they are not excludable and solves the free rider problem, and do not rival in consumption. Government to businesses: provides infrastructure( goods and services).

Federal Deficit

Excess of federal expenditures over tax and revenue collections

Monopoly

Exclusive control of the supply or trade in a commodity or service

Seasonal Unemployment

Exists because of the changing seasons. Seasonal unemployment affects people whose jobs depend a lot on the season.

Technological Unemployment

Exists when new technology replaces existing jobs. Jobs are eliminated because of the improvement, and this results in technological unemployment.

Fixed and variable costs

F: cost of production that doesn't change when output does. V: production cost that varies as output changes ; raw materials, labor, energy.

What information do you need to calculate the FV of an asset?

FV = PV x (1+i)^n I = interest paid by the investment N = number of periods the investment will be held.

What cause demand to shift (either right or left)

Factors that cause an increase or rightward shift in Demand 1) decrease in the price of compliments 2) increase in the price of substitutes 3) increase in income (for a normal good) 4) increased preference by demanders 5) increase in the population of potential buyers 6) expectations of higher prices in the future ** When these factors move in the opposite direction, demand will shift LEFT**

What cause supply to shift (either right or left)

Factors that cause an increase or rightward shift in Supply 1) decrease in cost of materials, labor, or other inputs used in production 2) improvement in technology that reduce cost of production 3) improvement in the weather (agricultural goods) 4) increase in the number of suppliers 5) expectation of lower prices in the future **When these factors move in the opposite direction, supply will shift LEFT**

FED- history

Fed Reserve Act in 1913; banking system was a failure

FDIC

Federal Deposit insurance Corporation

antitrust legislation

Federal laws starting with the Sherman Act of 1890 that tried to prevent a monopoly from dominating an industry and restraining trade.

What is the FOMC

Federal open market committee. they determine the stance of monetary policy by controlling open market policy. MUST IMPORTANT AND INFLUENTIAL PART OF THE FED

Conglomerate

Firm with four or more businesses making unrelated products, with no single business responsible for majority of its sales.

Which type of police, monetary or fiscal, has a shorter effectiveness lag?

Fiscal policy, because they have the ability to stick money directly into the pockets of people while monetary policy can just stick more money into the economy as a whole

Business fluctuations

Fluctuations in the growth rate of real GDP around its trend growth rate

communist

Followers of communism; people who believe in an eventual revolution in which social, political, and economic equality will be attained for all.

Corporation

Form of business recognized as a separate legal entity

example of normative economics

France ought to undertake policies to make its labor market more flexible to decrease the unemployment rate

Mod. Free enterprise economy.

Free enterprise with some government involvement, same as mod private enterprise economy.

what makes up a larger share of unemployment? frictional or structural

Frictional

Collusion

From an economic perspective, is cooperation among firms to manipulate prices and otherwise increase their profits. Collusion among buyers or sellers reduces the level of competition in a market.

Factors that Shift AD Curve

Future expectations, Policy and World Economy

Real GDP

GDP adjusted for inflation

Nominal GDP

GDP measured at current prices

real GDP?

GDP that adjusts with inflation

real GDP

GDP that has been inflated/deflated to reflect changes in price levels

Real GDP =

GDP where the distortions of Inflation have been removed

Example of intermediate good or service?

Gasoline purchased by insurance agent to visit clients at their homes

Mediation

Gets laborers and management to work together

Exports

Goods and Services sold to other countries

Production efficiency

Goods and service are produced at their lowest resource (opportunity cost).

Imports

Goods and services bought domestically but produced in other countries

Public Goods and Services

Goods and services often provided by the government because their unique characteristics make it unlikely that the private market will provide them in sufficient quantity

Luxuries

Goods beyond necessities

Public Goods

Goods or services that are non rival and non excludable

Common Resources

Goods or services that are rival and nonexcludable

consumer goods

Goods produced for present consumption.

Private Goods

Goods produced or purchased by business firm and individuals

Capital Goods

Goods such as machinery and factories that are used produce other goods

Consumer Goods

Goods that are consumed (used) by the consumers

Buyers Set the Price

Goods would be fairly cheap. Since the prices would be so low, there would not be many suppliers willing to produce the goods.

Suppliers Set the Price

Goods would be very expensive because suppliers want to make as much money as possible. Since their prices would be so high, the demand would be fairly low and the suppliers would end up with many goods they could not sell.

Public Corporation

Government

Public Choice Theory

Government agents are still human! They use economic tools to deal with traditional problems of political science

Communism

Government owns all means of production

what is public spending

Government spending

Demand curve

Graphic representation of a demand schedule

Corporation

Groups who set up entity with legal ownership

Inflation helps/hurts:

Helps borrowers Hurts lenders!!!! (If at fixed rate)

Recession

High prices and high unemployment

What are the repercussions of raises taxes to finance fiscal policy?

Higher taxes reduce private spending, limits the impact of fiscal policy

Resource (factor) markets

Households sell resources to business firms

Five features of a market economy

Households, Firms, Factor Market, Profit, and Product Market

Law of supply

How a company will supply at particular prices

Credit

How much money you owe

Supply

How much of a good or service a producer is willing and able to produce at different prices; what you have

Efficiency

How well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost? This is the chief focus of efficiency.

Free Enterprise

How you do it; buy & sell

Means of Production

How you produce

labor

Human effort directed toward producing goods and services

5. Economic models

Hypothesis if proven become economic models however they must be continually tested due to the constant change of the economy.

When deriving AE curve using C, I, G, X and m what factors are fixed and what are not?

I, G, X and m are fixed C is not fixed

How does inflation affect the real return that lenders receive?

IF inflation > interest rate then lenders lose money. It decreases their returns

Why do we study unemployment?

IT IS THE SINGLE BEST INDICATOR OF HOW WELL THE LABOR MARKET IS WORKING IN BOTH THESE SENSES, but it is an incomplete indicator

Interchangeable Parts

Identical components that can be used in place of one another in manufacturing

capital gain

If a stock increases in value and is then sold for more than its original cost, a capital gain results.

capital loss

If interest rates rise and bond prices fall, there is a __ ___ if time to maturity is longer than the holding period

Under what conditions will the tax rebate restore the economy to its natural rate of growth?

If it is a permanent tax rebate it will be more likely spent than if it was temporary. UNLESS the government is taking on a lot of debt to finance the rebate then the ricardian equivalence will hold

Post hoc Ergo Propter hoc

If then, Because. Ex. Is something causes something like warm sunny days cause people to go to the beach.

Protective Tariff

Import tax; a tax on imported goods that raises the price of imports so people will buy domestic goods

Net Exports

Imports-exports

Double Taxation

In a corporation. The income of the corporation is taxed and its profits are taxed again when they are paid out to stockholders.

Unlimited Liability

In a sole proprietorship. Everything the owner has, and even more, is on the line.

limited government

In this type of government everyone, including all authority figures, must obey laws. Constitutions, statements of rights, or other laws define the limits of those in power so they cannot take advantage of the elected, appointed, or inherited positions.

Tragedy of the Commons

Incentives to maintain or conserve a resources are lacking; not enough resouces

Capital

Includes manufactured products such as tractors, welding equipment, and computers that are used to produce other goods and services. The payment to capital is referred to as interest.

Land

Includes natural resources such as mineral deposits, oil, natural gas, water, and land in the usual sense of the word. The payment to land as a resource is called rent.

Labor

Includes the mental and physical talents of the individuals who produce products and services. The payment to labor is called wage.

Savings

Income not spent

Savings

Income that is not spent on consumption goods. The source of the supply of loanable funds

What causes inflation if real GDP is fixed and velocity stable?

Increase in money supply

What are some examples of things that would inc/dec the supply of loanable funds

Increase in tax rate on savings income. Will decrease supply

Assume that marginal propensity to consume is 0.8 and potential output is $800 billion. If the actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?

Increase taxes by $12.5 billion.

How do changes in interest rates because of the selling of bonds affect investment

Increase them

Inflation

Increased prices for goods and services combined with the reduced value of money

What impact does gov. borrowing have on savings? consumption? Investment?

Increases savings Decreases investment and consumption

What impact does gov. borrowing have on the equilibrium interest rate?

Increases the interest rate

Techonogy

Increasing output per unit of input

Price index: Implicit GDP Price Deflator

Index of average levels of prices for all goods and services in the economy.

Private Corporation

Individual People and Business

Market Economic System

Individual people and businesses decide what,how, and how much they will produce and how the products will be distributed

market

Individuals make their own decisions about what to produce, how to produce it, and for whom to produce it.

Discount Rate

Interest rate charged by the Fed to commercial banks for the loaning of excess reserves

IRS

Internal revenue service collects taxes

How is national savings defined

It is the difference between income, consumption and government expenditures. S = Y - C - G. Savings(s) = Investment (I)

What is fiscal policy?

It is the federal government's policy on taxes, spending and borrowing that is designed to influence business fluctuations

When we say that an economy is closed, what do we mean?

It means that net exports (NX) is equal to zero. Therefore GDP Y = C + I + G

What happens when Governments borrow?

It shifts the demand curve to the right, increasing both interest rates and savings and borrowings

Supply Curve

It shows the quantity producers plan to sell at each price. The supply curve shows the relationship between the quantity of a good supplied and its price. The only factor that can create movement along the supply curve is price.

What happens if the fed pursues an expansionary monetary policy at the same time that congress and the president pursue an expansionary fiscal policy

It will lesson the effect of crowding out in the short-run

goods

Items purchased to satisfy needs and wants

What information do you need to calculate the PV of an asset

Just rearrange FV formula. FV i and N

Factors that Determine Quantity of AS

K-Human Capital (fixed in SRAS) T-Technology (fixed in SRAS) L-Labor

how is the labor force participation rate calculated? (LFPR)

LFPR = (unemployed + employed)/adult population all x 100

LFPR

Labor force/ population x100

factors of production

Land, Labor, Capital, Entrepreneurship, and technology. reasorces need to produce goods and services

Resources

Land, labor, machinery, and other inputs used to produce goods and services; natural resources, physical capital, and human capital

What are the factors that can increase structural unemployment?

Large, economy-wide shocks that occur relatively quickly. oil shocks, shifts from manufacturing to services, globalization and global competition, fundamental technology, labor regulations ( underemployment benefits, minimum wage, powerful unions, employment protection laws)

Charter

Legal document giving certain rights to a person or company

Keynesian

Lets fix this w policies!

Profit maximizing quantity of output

Level of production where marginal cost is equal to marginal revenue.

11. Scarcity

Limit # of goods and services can be produced because an economy has limited resources available.

Scarcity

Limited resources relative to wanted and needs

Monopolistic Competition

Located somewhere between perfect competition and a monopoly. It is not pure competition yet not quite a monopoly. Monopolistic competition is the most efficient market structure. It consists of many buyers and sellers who are all fully informed making decisions based on many factors. If advertising is not truthful, monopolistic competition will be in jeopardy

What is the quantity theory of money equation

M x V = P x Y m = money supply v = velocity of money p = price level y = real gdp

What does each side of quantity eqn represent

M x v = represents how many times each dollar in the money supply is being spent on the goods and services being produced p x y = represents the amount of spending

M2

M1 + time-realted deposits, savings deposits and mutual funds

Calculating GDP Multiplier

M= 1/ (1-MPC)

What are the three most important definitions of the money supply

MB: monetary base: curreny and total reserves held at fed M1: currency + checkable deposits M2: M1 + savings deposits, money market mutual funds, and small-time deposits. M2 is largest, MB is smallest

Nominal Interest Rate EQ

MD = MS

Relationship between MPC and MPS

MPC + MPS = 1

Automation

Machines

Profit

Make money, more than what you spend to make the product.

how do sticky wages and prices affect the shape of the SRAS curve?

Makes it flatter to the left of the SGC

Differentiation

Making a product different from other similar products

Monopolistic comp.

Market structure having all conditions of pure comp except for identical products.

Price Index: producer price index

Measures price changes paid by domestic producers for their inputs

What is the producer price index

Measures the average price received by producers. Unlike the CPI and GDP the PPI measures produce price indexes for both intermediate AND final goods

Labor force participation rate

Measures the labor force as a percentage of the total population at least 16 yrs (Percentage of people who are working and who want to work)

price elasticity of demand

Measures the responsiveness of demand following a change in price

carl levin

Michigan U.S. senator; democrat

debbie stabenow

Michigan U.S. senator; democrat

What definition of the money supply does the Fed have direct control over

Monetary base: MB

Tight Monetary Policy

Monetary policy that makes credit expensive in an effort to slow the economy

Loose Monetary Policy

Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation.

Which type of policy, monetary or fiscal, can be implemented quicker?

Monetary, because the federal reserve can act very quickly.. there is no legislative lag

What is price confusion and money illusion?

Money illusion is when people mistake changes in nominal prices for changes in real prices

Demand Deposit

Money in a checking account that can be paid out "on demand", or at any time

Commodity money

Money that has an alternative use as a commodity; gunpowder, flour, corn

Fiat Money

Money that has value because the government has ordered that it is an acceptable means to pay debts

Four types of Market Structures

Monopoly, oligopoly, perfect competition, and monopolistic competition.

Ethics

Moral codes or sets of moral principles that a person requires himself or herself to abide by. A business must be ethical in order to keep customers.

Shoe leather costs

More trips to bank bc of hyperinflation

Opportunity cost

Most desirable alternative given up as the result of a decision

Identify two free trade agreements

NAFTA- North American Free Trade Agreement APEC- Asia, Pacific, Economic Cooperation

New York Stock Exchange

NYSE New York Stock Exchange, which is one of the most organized stock markets in NYC

NASDAQ

National Association of Securities Dealers Automated Quotation, the worlds largest electronic stock market

Arguments for trade barriers

National Security, Infant industry, Retaliation

Collective Bargaining

Negotiation between an employer and trade union

price systems

Neutrality, Compromise, Can adjust to new circumstances

What counts in GDP?

New Products Durable and Nondurable Goods Goods and Service Produced within the US Final Goods and Services GDP = C + Ig + G + Xn Xn = Exports - Imports Both tangible and intangible products

What type of interest rate is in the market for loanable funds?

Nominal

Types of GDP

Nominal GDP is the current raw data not adjusted for inflation. Real GDP is adjusted for inflation and is measured in constant dollars.

what is the difference between nominal and real?

Nominal rates do not include the subtraction of inflation. To find real rates, you subtract nominal rate by inflation rate.

Services

Not tangible

Unemployment rate

Number of civilians at least 16 years who have been trying to find a job within the prior four weeks

4. Scientific method

Observe real world behavior and outcomes, Form a hypothesis, Test the outcomes to the predicted outcomes, hypothesis are accepted or rejected, must test hypothesis because of ever changing economy.

Cyclical Unemployment

Occurs because of the fluctuation of business cycles in the economy. Cyclical unemployment exists when there is not enough demand to employ all who are willing and able to work.

Ricardian equivalence

Occurs when people see that lower taxes today mean higher taxes later. They save their tax cut to pay future taxes. - Describes some people, but not all - Makes bond-financed tax cuts less effective in the short-run

1st continental congress

On September 1774, delegates from 12 colonies gathered in Philadelphia. After debating, the delegates passed a resolution backing Mass. in its struggle. Decided to boycott all British goods and to stop exporting goods to Britain until the Intolerance Act was canceled.

Oligopoly

One company exerts control over most of a market

Absolute advantage

One country can produce more of a good than another country.

Location

One critical factor that impacts the success of any of the four business models.

Limited Liability

Only lose what you put in

National Association of Securities Dealers Automated Quotation (NASDAQ)

Only measures stocks that are bought and sold "over-the-counter." It measures smaller stocks that are generally technology- and computer-related businesses.

Purchase or Sale of Bonds by the Fed to banks and/or the public

Open market operations

new jersey plan

Opposite of the Virginia Plan, it proposed a single-chamber congress in which each state had one vote. This created a conflict with representation between bigger states, who wanted control befitting their population, and smaller states, who didn't want to be bullied by larger states.

Scarcity

Our unlimited wants clash with limited resources, leading to scarcity. Everyone (rich and poor) faces scarcity because, at a minimum, our time on earth is limited. Economics focuses on the allocation of scarce resources to satisfy unlimited wants.

Per capita output

Output divided by total population

(Figure: Monetary Policy III) Refer to the information in the figure Monetary Policy III. Expansionary monetary policy will lead to an equilibrium price level of:

P4

Macroeconomics

Part of economics dealing with the economy as a whole

Microeconomics

Part of economics that deals with behavior and decision by making by small units such as individuals and firms

Market economy =

People and firms decide what, how, whom questions.. us

Rational Ignorance

People choose to be rationally ignorant when the cost of education one self on an issue exceeds the potential benefits the knowledge would provide

Who buys a bond

People of the public

Expansion

Period of growth real GDP; recovery from recession

Market Price

Point where supply and demand are equal.

Benefit principle of taxation

Principle belief that taxes should be paid according to benefits received regardless of income.

Recognition lag

Problem must be recognized. It can take 6/7 months to realize a recession

Mass Production

Process of making large quantities of a product quickly and cheaply

Assembly Line

Production method that breaks down a complex job into a series of smaller tasks

Resources

Productive resources include land (land and natural resources), labor (mental and physical talents of people), capital (manufactured products used to produce other products). and entrepreneurial ability (the combining of the other factors to produce products and assume the risk of the business).

Complements

Products that increase value of other prod; price of one goes up demand of both fall

what are progressive and regressive taxes?

Prog). As income goes up tax rate increases Reg). If income goes up marginal tax rate goes down

Private Property

Property owned by individuals or companies, not by the government or the people as a whole

standard of living

Quality of life based on ownership of necessities and luxuries that make life easier of a person individual group or a nation

RWR formula

RWR = MWR/P

Real GDP

Real GDP= nominal GDP/ deflator

in an economy that experiences a negative real shock, what happens to real growth and inflation if expansionary fiscal policy is implemented

Real growth will inc very little and inflation will inc a lot

Factors that Shift consumption and savings functions

Real interest rate wealth expected future income

If expected inflation < actual inflation what is true

Real rate of return < equilibrium real interest rate. therefore wealth will be redistributed from lenders to borrowers

if expected inflation > actual inflation what is true

Real rate of return > equilibrium real interest rate. therefore wealth will be redistributed from borrowers to lenders

Strike

Refusal by employees to work; union shuts down

Supply schedule

Relationship b/w product price and quantity

barb byrum

Representative.

The reserve requirement is 10% and Jack withdraws $5,000 from his checkable bank deposit to pay for a trip to New York City. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits

Reserves decrease by $5,000, and checkable deposits decrease by $5,000

Frictional Unemployment

Results from the day-to-day changes in the economy. Occurs because of the time and effort it takes to find a new job.

S & P 500

Satistical series of 500 stocks used to monitor prices on NYSE, American stock exchange and otc market.

Who supplied loanable funds?

Savers(lenders). Savings = income - consumption

Change in Wealth Equation

Saving + Capital Gains - Capital Losses

Exchange in Government

Scarcity exists in government, so agents find ways to trad for what they want

Social Security

Set up a payment plan for the old age, handicapped, delinquent children, and dependent

Change in RWR moves or shifts Ls?

Shifts

Shortage

Shortages occur when producers will not or cannot offer goods or services at current prices (short or long-term).

Which of the following would most likely be a microeconomic question?

Should I go to business school or take a job?

Production possibilities frontier

Shows the combinations of two goods that are possible for a society to produced at full employment. Points on or inside the PPF are attainable, and those outside of the frontier are unattainable.

The Production Possibilities Curve

Shows the maximum amounts of two different goods that can possibly be produced during any particular time using society scarce resources

Demand Curve

Shows the relationship between the quantity of a good demanded and its price. The only factor that can create movement along the demand curve is price.

Oligopoly

Similar to monopolies, except instead of one firm there are at least two. Since oligopolies are comprised of so few industries, the industries often work together to control the market. The firms are easily able to withstand economic downturns because they are able to cooperate and fix prices. The lack of competition and the fixing of prices force consumers to pay higher prices.

Shortage

Situation in which quantity demanded is greater than quantity supplied; also known as excess demand

Surplus

Situation in which quantity supplied is greater than quantity demanded; also know and excess supply

Surplus

Situation where quantity supplied is greater than quantity demanded at a given price

Underemployed

Skills dont match job

Disinflation

Slowing rate of inflation

Why do people borrow money?

Smooth their consumption and finance large investments

Why do people save money

Smoothing consumption, impatience, marketing and psychological factors, interest rates

1. What is economics

Social science concerned with the problem of using scarce resources and unlimited wants and needs.

Four types of businesses

Sole-proprietorships, partnerships, corporations, and franchises.

Need

Something essential for surviving

Collateral

Something of value that by agreement becomes property of the lender if the borrower defaults

Want

Something people desire

What is private spending?

Spending by households and firms

Discretionary spending

Spending for federal programs must receive annual authorization.

mike rogers

State Senator; Republican

law of diminishing marginal utility

States that as extra units of a variable factor are applied to a fixed factor, the output from each additional unit of the variable factor will eventually diminish.

Business Regulations

Step 1) Business structure and name Step 2) Business tax responsibilities Step 3) Business licenses and permits by business type Step 4) Business employer requirements

Define stocks and bonds

Stocks: a share in a company Bonds: a loan to either corporations or government.

james madison

Strict constructionist, 4th president, father of the Constitution, leads nation through War of 1812

the federalists

Strong federal government; supported Britain; loose interpretation of the Constitution; emphasized manufacturing, shipping, and trade; led by Alexander Hamilton; favored national bank and protective tariffs

Economics

Study of how societies decide what to produce, how to produce it, and how to distribute what they produce

economics

Study of how societies decide what to produce, how to produce it, and how to distribute what they produce

microeconomics

Study of individual consumers and businesses.

Number of Suppliers

Supply will increase when the number of suppliers increases. Supply will decrease when the number of suppliers decreases.

Characteristics of market economy

Supply, demand, and price allocate resources: same as free ent.

Cost push

Supply: - oil prices go up, suppliers supply less

Demand schedule

Table that lists the quantity of. A good a person eill buy at various prices in a market

Stockholders

Take out stocks

Sales Tax

Takes on what you buy (not food)

Goods

Tangible items

What are the political difference between the tax cuts and inc. gov spending?

Tax cuts: puts more money into private sector, bush (republican) favored tax cuts Spending: government grows, obama (Democrat) focused on spending

Excise Tax

Tax on luxuries

Income Tax

Tax on what you make

Property Tax

Tax on what you own

Law of Supply

Tendency of suppliers to offer more of a good at a higher price

Institutions

The "rules of the game" shape the incentives people face when making decisions

Opportunity Cost

The Best alternative forgone in order to produce or consume something else: what you give up to get something else

connecticut plan

The Connecticut Plan called for a two-house Congress in which both types of representation would be applied, and is also known as the Compromise Plan.

Microeconomics

The Study of individual areas of activity with in the total economy

greater

The YTM is ____ than the coupon rate when the bond price is below face value

Market Power

The ability of an individual firm to influence the market price of its product

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than others

Incorporation

The act of becoming a corporation. Allows firms to accumulate sufficient capital to make large-scale investments and achieve economies of scale. Corporations are typically large, and they are able to easily find persons with specialized skills to handle all the requirements of the business. Corporations also offer the advantage of limited liability. Corporations are very costly and time consuming to organize because of the many government regulations involved in gaining a corporate charter.

Trade off

The act of giving up one benefit in order to gain another greater benefit

Multiplier effect

The additional increase in AD caused when expansionary fiscal policy increases income and thus consumer spending

Trade-Off

The alternatives that we give up when we coose one course of action over another

Capital Gain

The amount by which the selling price of an asset exceeds the purchase price

Quantity Supplied

The amount of a good or service that producers plan to sell during a given amount of time at a particular price.

Demand

The amount of a good that consumers are willing and able to buy at a given price.

Quantity Demanded

The amount of a good that consumers plan to buy at a given price during a specific time.

Supply

The amount of goods available

Price

The amount of goods or money that must be given up in exchange for something.

Opportunity cost

The amount of other products that must be forgone or sacrificed to produce a unit of a product.

Who demands loanable funds?

The borrowers. i.e. FIRMS, GOVERNMENT

Macroeconomics

The broader issues in the economy such as inflation, unemployment , and national output of goods and services.

Arbitrage principle

The buying and selling of equally risky assets, ensures that equally risky assets earn equal returns

price; interest rate

The concepts of present value and yield to maturity are used to calculate the ___ of these debt instruments and/or their ___ ___ for comparative purposes

Overhead Expense

The cost for items such as rent, insurance, utility parments, mortgage payments, and the like that are continuing costs of doing business; fixed expense

Marginal Cost

The cost of producing one more unit of output.

Opportunity cost =

The cost of time or resources, when one choice is made rather than another.

Opportunity cost

The cost paid for one product in terms of the output (or consumption) of another product that must be forgone.

federal reserve system

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

Microeconomics

The decision making by individuals, businesses, industries, and governments.

Crowding out

The decrease in private consumption and investment that occurs when government borrows more

Barter

The direct exchange of one set of goods or services for another

Labor

The effort people devote to tasks for which they are paid

Labor

The effort that people devote to a task for which they are paid

Net Benefits

The excess of benefits over costs

Star-up costs

The expenses a firm must pay before it can begin to produce and sell goods

closing cost

The expenses incurred and paid at the time of settlement in the transferring of property.

Incentives

The factors that motivate individuals and firms to make decisions in their best interest.

Equity

The fairness of various issues and policies.

Profit

The financial gain made in transaction

bill of rights

The first ten amendments to the Constitution

U.S. constitution

The government of the United States. A set of principles (guidelines) that describe the duties and powers of the government.

Command Economic System

The government tells you what to do

What is the relationship between risk and the interest rate paid by the borrower?

The higher the risk, the higher the interest rate paid

deregulation

The lifting of restrictions on business, industry, and professional activities for which government rules had been established and that bureaucracies had been created to administer.

Price Floor

The lowest legal price that can be paid for a good or service.

Allocative efficiency

The mix of goods and services produced is just what the society desires.

lower

The more distant a bond's maturity, the ___ the rate of return that occurs as a result of an increase in the interest rate

greater

The more distant a bond's maturity, the ____ the size of the percentage price change associated with an interest-rate change

Perfect Competition

The most competitive market you can imagine. The only competition is price competition.

Gross Domestic Product (GDP)

The most important measure of economic activity. It is the market value of all final goods and services produced in the nation in a year.

What is a real return/real interest rate formula

The nominal rate of return minus the inflation rate

principal

The original amount borrowed in a loan

Effectiveness lag

The plan takes time to work -> multiplier effect takes tie

Equilibrium

The point at which quantity demanded and quantity supplied are equal

Equillibrium

The point at which the demand for a product or service is equal to the supply of that product or service

dividends

The portion of corporate profits paid out to stockholders

Consumer Soverignty

The power of consumers to decide what gets produced

negatively

The price of a coupon bond and the YTM are _____ related

Scarcity

The principle that limited amounts of goods and services are available to meet unlimited wants

What is fractional reserve banking?

The process of banks only holding a fraction of deposits in reserve and lending the rest

Production

The process of converting resources (factor of production) - land, labor, capital, and entrepreneurial ability - into goods and services.

Investment

The purchase of new capital, things like tools, machinery and factories. the source of the demand for loanable funds

What do we mean when we say that the economy has a potential growth rate?

The rate of economic growth that would occur given flexible prices and the existing real factors of production. I.e. solow growth rate

equals

The rate of return equals the YTM only if the hold period ____ the time to maturity

What is a nominal return/nominal interest rate

The rate of return that does not account of inflation

Unemployment Rate

The ratio of job seekers to the total labor force. Unemployment rate = (job seekers)/(workers + job seekers). High unemployment rates usually indicate a decreasing economy. A low unemployment rate usually indicates that the economy is doing well. The five types of unemployment include frictional, structural, cyclical, seasonal, and technological.

Structural Unemployment

The reason that full employment in a market economy does not mean "zero unemployment." It exists when a person is not qualified for any job because the most the person can contribute is less than the minimum wage for the job.

Beneficiary

The recipient of funds, titles, property, and other benefits

Deregulation

The removal of the some government controls over a market

Inflation

The rise in the overall price of goods and services. High inflation rates typically mean that consumers have less purchasing power, because consumers are not able to buy as much as they used to. This is usually an indicator of a slow economy. A low inflation rate usually indicates that the economy is growing.

Economic system

The structure of methods and principles that a society uses to produce and distribute goods and services

Economics

The study of how individuals, firms and society make decisions to allocate limited resources to many competing wants.

Economics

The study of how people seek to satisfy their needs and wants by making choices

Macroeconomics

The study of the total economy

What are the repercussions of selling more bonds to finance fiscal policy?

The supply of bonds increases, making bond prices fall and causing interest rates to rise. and because of higher interest rates more people will save rather than invest meaning lower private spending

Net national income

The total net value of all goods and services produced within a nation over a specified period of time, representing the sum of wages, profits, rents, interest, and pension payments to residents of the nation.

Business Cycle

The typical business cycle includes expansion, boom, bust, recession, and trough. The business cycle takes many years to complete, and it is never the same. The causes and length of business cycles are always different.

Opportunity costs

The value of the next best alternative; what you give up to do something or purchase something.

What is future value (FV)

The value that a sum of money today will be worth at some point in the future if invested for a return

rate of return

There is a distinction between an instrument's interest rate and its ___ ___ __

Law of Demand

There is a negative relationship between price and quantity demanded

Law of Supply

There is a positive relationship between price and quantity supplied

interest-rate risk

There is effectively no ___ ____ for any bond whose time to maturity matches the holding period

Why was the great depression caused?

There was a serius of shocks that hit the economy that shifted the AD curve down leading to a large decrease in consumption investment and the money supply declined leading to deflation which really hurt real gdp growth. Some of the real shokcs were bank failures. So a decreas In M lead to bank failures which led to reduction in productivity of financial intermediation which was a real shock

What happens to the allocation of resources when prices are difficult to interpret?

They are not efficiently allocated

What are the primary type of assets the fed buys and sells in order to control the money supply?

They buy and sell government bonds, usually short term bonds called treasury bills or T-bills(also called treasury securities or treasuries)

What are two things the government could do if it wants to implement expansionary fiscal policy and what would these policies do to affect AD

They can increase government spending or cut taxes, which will therefore shift the AD curve out.

What role do institutions play in driving economic growth?

They encourage it

Whats the relationship between interest rates and bond prices

They move in opposite directions

second continental congress

They organized the continental Army, called on the colonies to send troops, selected George Washington to lead the army, and appointed the comittee to draft the Declaration of Independence

What happens to the interest rates when the government sells bonds

They rise

What is a financial intermediary?

Things such as banks, bond markets, and stock markets. They reduce the costs of moving savings from savers to borrowers and investors

Necessities

Things that we need to live, such as food, water, and shelter

necessities

Things that we need to live, such as food, water, and shelter

mayflower compact

This document was drafted in 1620 prior to settlement by the Pilgrims at Plymouth Bay in Massachusetts. It declared that the 41 males who signed it agreed to accept majority rule and participate in a government in the best interest of all members of the colony. This agreement set the precedent for later documents outlining commonwealth rule.

magna carta

This document, signed by King John of Endland in 1215, is the cornerstone of English justice and law. It declared that the king and government were bound by the same laws as other citizens of England. It contained the antecedents of the ideas of due process and the right to a fair and speedy trial that are included in the protection offered by the U.S. Bill of Rights

wants

Those things which make our lives more comfortable but are not needed for survival

Consumers

Those who buy/consume something

Producers

Those who make something

What is the role of the financial system

To bring savers and borrowers together

Why do bonds have different ratings

To determine the risk, different bonds are tied to companies that have different credit ratings and therefore more/less risk than other companies

What will shift the money demand curve?

To the Left: any change that makes people want to hold their money and any change that makes people want to hold less money To the Right: when real output or price level increases

Gross Domestic Product (GDP)

Total output of an economy

Aggregate demand

Total quantity of goods and services demanded at different price levels.

Explain the difference between variable, fixed, and total costs

Total- fixed + variable Variable- cost that changes when the rate of buisness changes Fixed- total amount organization incurs

What does an unexpected decrease in the inflation rate do?

Transfers earth from borrowers to lenders

What does an unexpected increase in inflation rate do?

Transfers wealth from lenders to borrowers. B/c lenders will be lending money that is earning a return that is less than inflation therefore giving money to borrowers

Rent Seeking

Trying to gain benefits through political means

Discount Bond

US savings bonds and Treasury bills, and long-term zero-coupon bonds

How is the unemployment rate calculated?

Unemployed/(unemployed +employed)

Capitalism

Use money to make money

Underutilization

Use of fewer resources than an economy is capable of using.

Consumption

Use of product

What is not counted in GDP?

Used Products GNP used to measure production outside U.S. Intermediate Goods Household production Purely financial transactions Imports Private transfers Public transfers Underground economy

"Lemon" Law

Used cars must pass a certain test

Efficient

Using resources in such a way as to maximize the desired output

Choice

Variety of the same products

virginia plan

Virginia delegate James Madison's plan of government, in which states got a number of representatives in Congress based on their population

thomas jefferson

Virginian, architect, author, governor, and president. Lived at Monticello. Wrote the Declaration of Independence. Second governor of Virgina. Third president of the United States. Designed the buildings of the University of Virginia.

What is a real rage?

W/P, wage divided by price level. What the wage is worth

Two-tier Wage System

Wage scale paying newer workers a lower wage than others already on the job

Income approach

Wages + Rent + Interest +Profit

Payment for resources

Wages payment for use of labor Interestpayment for the use of capital Rent Payment for use of land

Balanced Budget

What you spend is what you make

law of diminishing returns

When additonal units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.

informative advertising

When buissnesses inform you about what their product has and what it does

Under what scenario will the government's spending have the biggest effect on the economy?

When people are afraid to spend their money. i.e. the MPC

coupon rate

When priced at face value, the YTM equals the ___ ___

Excess demand

When quantity demanded is more than quantity supplied

Excess supply

When quantity supplied is more than quantity demanded

What is crowding out?

When the government borrows more money and increases the interest rate they are decreasing investment because people are no longer willing to invest given the higher interest rates

What does 'monetizing the debt' mean

When the government pays off its debts by printing money

When is it best to use fiscal policy?

When there is an AD shock

gerrymandered

When voting districts are redrawn in such a way that they purposely favor a political party, they have been

Thinking at margins

When you decide how much more or less to do

Stock Market

Where stocks in corporations are bought and sold. The stock market reflects all aspects of the economy, and watching the stock market is a pretty good indicator of where the economy currently is.

Equilibrium Point

Where the quantity supplied equals the quantity demanded.

When is it best to use bond-financed expansionary fiscal policy?

Works best when the private sector is reluctant to invest or save

What is WTO?

World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade globally.

Productivity function

Y/L = K/L when T is fixed

Disposable income

YD = rGDP - net taxes

rGDP demanded

Yd = C + I + G + X - m

AD Curve

Yd in relation to P downward sloping, increase in P cause decrease in Yd

How do you compare the value of two different sums of money over time?

You use the discount rate. the opportunity cost that you have forgone when making a decision. it is the rate of return you could have received for an opportunity of equal risk.

opportunity cost

a benefit that is given up in order to achieve or gain something else ex. what did you give up to go to this class?

Municipal Bonds

a bond issued by a state or loan government or muniupalty to finance such improvement as high ways state building libraries part and schools

Sole Propietorship

a business owned and managed by a single individual

time deposit

a certificate of deposit from which withdrawals can be made only after advance notice or at a specified future date

Neo-Classical Growth Theory

a change in T increase Saving and Investment because income increases Y/L increase because T increase-->Saving and investment increase cause K/L to increase

market supply schedule

a chart that lists how much of a good all suppliers will offer at different prices

corporate charter

a charter issued by state that lets a buissness have limited liability

Stock (or equity)

a claim to partial ownership of a firm

Countries that engage in trade will tend to specialize in goods in which they have ________ and will ________ those goods.

a comparative advantage; export

fixed cost

a cost that does not change, no matter how much of a good is produced

injunction

a court order to stop something

Phillips Curve

a curve that shows the trade-off between inflation and unemployment

Stagflation

a decline in real GDP combined with a rise in the price level

Depreciation

a decrease in the value of a currency relative to other countries

charter

a document incorporating an institution and specifying its rights

oligopoly?

a few large firms dominate a market

Marginal Propensity to Consume (MPC)

a fixed number by which consumption rises when disposable income rises by $1

economic model

a framework that places the generalized insights of the theory in a more specific contextual setting

inflation

a general increase in prices

barter

a good for good trade

Price ceiling

a government imposed limit on how high a price can be changed

Demand Curve

a graph of the relationship between the price of a good and the quantity demanded

demand curve

a graphic representation of a demand schedule showing the relationship between the price of an item and the quantity demanded during a given period with all other things being equal

trust

a group of businesses in an industry that allows their firms to be controlled by one manager

industry

a group of businesses with common concerns

Non-Profit Corporation

a group of people who join to do some activity that benefits the public but no profit is earned by the company

usury law

a law restricting the amount of interest that can be charged for credit

Expenditure Line

a line showing the relationship between PAE and output

unsecured loan

a loan with no collateral

Junk Bonds

a lower- rated potentially higher-paying bond

describe monopoly

a market dominated by a single seller

invisible hand theorem

a market economy through the price mechanism, will tend to allocate resources efficiently

Equilibrium

a market price has reached the level at which quantity supplied equals quantity demanded

describe oligopoly

a market structure in which a few large firms dominate a market

Describe perfect competition

a market structure in which a large number of firms all produce the same product.

describe monopolistic

a market structure in which many companies sell products similar not identical

monopolistic compitition

a market structure in which many sellers offer similar, but not standardized, products to consumers

capitalism

a market-based econmic system in which individuals own and control the factors of production

Dow Jones Industrial Average

a measure based on the prices of the stocks of 30 large companies, widely used as a barometer of the stock market's health.

Nominal GDP

a measure of GDP in which the quantities produced are valued at current-year prices; measures the current dollar value of production

Calculate real GDP

a measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices; measures the actual physical volume of production

Elasticity of Demand

a measure of how consumer react to a change in price

Elasticity of demand

a measure of how consumers react to a change in price

price index?

a measurement that shows how the average price of a standard good/goods changes over time

government monopoly

a monopoly created by the government like the us mail sevice

developing nations

a nation where the average income is much lower than in industrialized nations.

Socially Optimun Policies

a one-size-fits-all solution does not exist

Depression

a particularly severe or protracted recession

Boom

a particularly strong and protracted expansion

Expansion

a period in which the economy is growing at a rate significantly above normal

broker

a person who carries out investors orders to buy and sell stocks and bonds

What is underemployment

a person who is part tie but would like to be full time

producer

a person, group, or business that makes good or provides services to satisfy consumers' wants and needs

budget

a plan for saving and spending

democracy

a political system in which the supreme power lies in a body of citizens who can elect people to represent them

rent control

a price ceiling on rents, sett by government

CPI

a price index determined by measuring the price of standing group of goods meant to represent "market basket"

stock

a purchasable share in a company

What is an AD shock

a rapid an unexpected shift in the AD curve. AKA a rapid and unexpected shift in spending

what is disinflation

a reduction in inflation: inflation is growing at a decreasing rate

Dividend

a regular payment received by stockholders for each share that they own

market basket?

a representative collection of goods and services

I.R.A.

a self-funded retirement plan that allows you to contribute a limited yearly sum toward your retirement taxes on the interest earned in the account are deferred

Recession

a significant widespread decline in real income and employment

budget deficit

a situation in which the government spends more than it takes in

budget surplus

a situation in which the government takes more than it spends

shortage

a situation in which the quantity demanded of a good or resource exceeds the quantity supplied

economics

a social science that studies how resources are used and is often concerned with how resources can be used to their fullest potential

mortgage

a specific type of loan that is used to buy real estate

state convention

a state convention convened to amend the state constitution or draft a new one

(Figure: The Demand and Supply of Wheat) Look at the figure The Demand and Supply of Wheat. If a price of $8 temporarily exists in this market:

a surplus of 4,000 bushels will result.

federalism

a system in which power is divided between the national and state governments

winner take all

a system in which the candidate with the most district votes in a state gets all of the delegate votes from that state

market demand schedule

a table that lists the quantity of a good all consumers in a market will buy at each different price

Demand Schedule

a table that shows the relationship between the price of a good and the quantity demanded

excise tax

a tax that is levied on a specific good

brand name

a word picture or logo on a product that helps consurmers distinguish it from similar products

warrenty

a written guarantee from the manufacturer or distributor that states the conditions under which the product can be returned, replaced, or repaired.

entrepreneurship

ability to organize and get something done

elastic

able to adjust readily to different conditions

efficiency

achieving a goal as cheaply as possible

efficiency

achieving a goal using as few inputs as possible

productive efficiency

achieving as much output as possible from a given amount of inputs or resources

Tradeoffs

act of giving up one goal in order to gain greater goal all the alternative that we giving up where never we choose one course of action over other

outsourcing

act of one company contracting with another company to provide services performed by in house employees.

investment?

act of redirecting resources from being consumed today so that they may create benefits in the future

economic policies

actions or inactions taken by the government to influence economic actions

Expansionary Gap

actual output is higher than potential output, positive

Excess Reserves

actual reserves less rr money used to make loans with

intrinsic value

actual value

Marginal Product of Labor (MPL)

additional Y produced by an additional hr of L when K & T are fixed

marginal benefit

additional benefit above what you've already derived

Marginal cost

additional cost to you over and above the costs you have already incurred

marginal cost

additional cost you obtain when producing one more unit

ex post real interest rate

adjusted for actual changes in the price level; describes how lenders and borrowers fared in real terms after the fact

ex ante real interest rate

adjusted for expected changes in the price level; considered the most relevant for economic decisions but not ready observable

Who are the unemployed?

adults who do not have a job but are looking for work

sole proprietorship

advantage- easy to start, few regulations, complete control disadvantage- liability, limited access to resources

partnerships

advantage- easy to start, shared decision making, taxation, disadvantage- expensive, double tax, loss of control, more regulation.

corporations

advantage- no responsibility, stocks transferable, growth, borrow money disadvantage- double tax, loss of control, more regulation

Principle agent problem

agents do not do in the best interest of the principle.

gross domestic product (GDP)

aggregate output (annual total output of goods) as the dollar value of all final goods and services produced within the US in a year

Unit of Account

agreed measure for stating price of g/s

money

agreed value

collusion?

agreement among firms to divide the market, set prices, or limit production

closed shop

all companies must be part of a union (not in az)

labor

all human activity that is productive

land

all natural resources

Land

all nature respire that used to produce good and service

6. Ceteris Paribus Assumption

all other factors are held unchanged. It is used to isolate the effect one economic factor has on another. Without this assumption, it would be difficult to determine cause and effect in the economy.

mediation

all parties must agree and a judge is there to make sure they do

national debt

all the money the federal government owes to bonding

Who is in the labor force?

all workers employed + unemployed. MILITARY IS NOT INCLUDED

solution to scarcity

allocation

Flexible Exchange Rate

also known as a floating exchange rate is not officially fixed but varies according to the supply and demand for the currency in the foreign exchange market

trade-off

alternatives that must be given up when one is chosen over another

entrepreneur?

ambitious leader who combines land, labor, & capital to create and market new goods or services

equilibrium quantity

amount bought and sold at the equilibrium price

GDP multiplier (M)

amount by which a change in autonomous consumption is magnified to determine EQ and rGDP increase in fixed values of AE (I,G,X) = increase in AE and rGDP increase in rGDP results in an overall increase in AE and rGDP

how do you figure out the amount of money a bank creates by loaning out?

amount deposited x MM

wages

amount earned

Autonomous consumption

amount of C that would take place in the short tun without YD

quanitiy demanded

amount of good/service that consumers are willing and able to purchase in a given time period at a particular price

Nominal Money

amount of money measured in $

Reserve Ratio (rr)

amount of money on hand rr= reserved money/total deposits

money multiplier formula?

amount of new money that will be created with each demand deposit

aggregate demand

amount of real domestic output that domestic will desire to purchase at each possible price index

trade offs

an alternative we sacrifice when we make a decision

automation

an assembly line run by robots

Money is

an asset that can be easily used to purchase goods and services.

what is a liquid asset

an asset that can be used for payments, or, quickly and without loss of value, be converted into an asset that can be used for payments

Capital requirements for banks include all of the following EXCEPT:

an attempt to reduce deposits.

socialism

an economic system based on individual's goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how and for whom to produce

capitalism

an economic system based on private ownership of capital

market economy

an economic system based on private property and the market in which, in principle, individuals decide how, what and for whom to produce

market economic system

an economic system consisting of buying and selling

command economic system

an economic system run by the government

market economy

an economy in which the government has little say in what, how, and for whom goods are produced and in which the factors of production are only for individuals.

one-crop economy

an economy that is dominated by the production of a single item

board of directors

an elected group that runs a company

credit rating

an evaluation made by credit bureaus of a borrowers overall credit history

substitution

an event in which one thing is substituted for another

tariff

an excise tax on an imported good

Law of Diminishing Returns

an increase in L results in a decrease in MPL

law of demand

an increase in a product's price will reduce the quantity of it demanded (vice versa for a decrease in price)

How does government borrowing affect the deman dog loanble funds?

an increase in government borrowing will cause an increase in demand for loanable funds

Appreciation

an increase in the value of a currency relative to other countries

Adverse selection

an individual benefits from an exchange by having more information than the other

real gross domestic product

an inflation-adjusted measure of GDP

Suppose the Federal Reserve is following the Taylor rule, which takes both inflation and business cycles into account when setting the federal funds rate. Also suppose that the inflation rate in the economy is equal to 3% and the output gap is 5%.

an inflationary gap, since actual real GDP exceeds potential real GDP.

Financial Intermediaries

an institution acts as a service for both those who have extra money to save or lend and channels it to those who wish to invest or borrow.

real investment

an investment that creates a new capital good

Medium of Exchange

an object generally accepted in exchange for g/s

A quota is

an upper limit on the quantity of a good that can be bought or sold

draw and label a business cycle

answers will vary

provide a graph that shows what a price floor and ceiling cause

answers will vary

Factors the cause movement along SRAS

any change in P increase in P results in an increase in rGDP supplied

Labor

any effort a person devotes to task for which that person is paid

natural resource

any material provided by nature that can be used to produce goods or provide services.

What is a real shock/productivity shock

any shock that increases or decrease the potential growth rate AKA Solow growth curve

good

any tangible item

technology

any use of the other factors of production that produce foods and services more efficently

Assets

anything of value that one owns

resource

anything that can be used to produce a good or service

Factors that affect buying plans

anything that shifts or moved AD curve Price, Expectations, Fiscal and Monetary Policy, World Economy

capital gain

anytime you make money from selling property or stock

art of economics

application of the knowledge learned in positive economics to achieve the goals one has determined in normative economics

How is the chair of the red appointed and for how long?

appointed by the Prez and is confirmed by the senate for a term of 4 years

observations

as a science, economics always begins with what?

3. Marginal benefits and costs

as long as benefits are greater than cost we shall purchase the product.

How do lifecycle effects affect the LFPR?

as people age they retire and therefore there are less people in the labor force

law of supply

as the price rises, the quantity supplied rises.. and as price decreases, quantity supplied decreases

mass production

assembly line used to produce many goods quickly

infinite

at any one moment, how many market equilibrium points does each product have?

what is the term auction facility

auctioning off of funds to the banks until the rate was low enough so that the banks would borrow. they were designed to give the fed more control over the money supply

Example feedback-rule policy

automatic adjustment of MS in response to inflation

Automatic stabilizers act like:

automatic expansionary fiscal policy when the economy is in a recession.

Why does an increase in spending growth only cause a temporary increase in economic growth?

b.c. eventually the people who increase there output will realize they aren't gaining any actual purchasing power so they will fall down to their previous rate of output

Why was the Great depression prolonged

b/c the fed kept a tight monetary policy instead of trying to pump money back into the economy to help aid the failing banks

Why are long-term loans harder to secure if inflation is volatile and unpredictable?

b/c they are more riskier, lenders and borrowers are scared that unexpected inflation or deflation could redistribute wealth

examples of negative real shocks

bad weather, higher price of oil or important input, productivity/tech slump, higher taxes/regulation, disruption of production by war/earthquack/pandemic

barriers to entry

barriers that make it difficult to enter an industry

Traditional Economy

based on customs and beliefs

9. Economic perspectives: Positive statement

based on facts, can be measured and confirmed

core democratic values

basic rights outlined in the Declaration of independence and/or the United States Constitution and other important writings of the nation such as Supreme Court decisions.

Why is GDP multiplier greater than 1?

because increases autonomous consumption induce further increase in AE

why do changes in V only have a temporary effect on AD?

because it didn't crease any sort of long-term inflation, inflation is purely a monetary phenomenon and changes in velocity will eventually resort back

why will open market sales decrease AD

because it is decrease the monetary base, therefore decreasing M which will shift the AD curve in

why will open market purchases increase AD

because it is increase the monetary base, therefore increase M which will shift the AD curve out

Why is it difficult to measure the CPI accurately?

because it must take into account both new goods and better quality goods

why is frictional unemployment described as short-term?

because it normally takes a few months for them to find employment

why is Money is not considered a economic resource?

because its not productive

why do prices and wages fall slower when there i a negative shock to AD

because no one likes to have their wage cut

If people are forward-looking why will a tax cut lead to less consumption in the economy

because of ricardian equivalence

Why does the fed face difficulty in controlling broader measures of the money supply (M1 and M2) even tho they have direct influence over the money supply?

because of the changing of MM, if the MM is relatively low then the amount that the money supply will change in relation to the additional loans will be quite small.

why does it take time for AD shocks to work their way through an economy?

because of the cost to change things and the unknowing weather it is a shock or if it was an actual trend in the market

Why is the supply of loanable funds up sloping?

because the higher the return a person will expect to get the greater number of people who will be wiling to supply the money

Why i the fed a "lender of last resort"

because when everyone else has run out of funds or are too scared to lend, banks and other financial institutions can still turn to the fed to get money

classical economists

belief that cyclical employment is always at zero because there is always minimum wage job and those who do not take it are voluntarily unemployed

Ability to pay principle of

belief that taxes should be paid according to level of income regardless of benefits received.

comparative advantage

better suited to the production of one good than to the production of another good

cultural imperialism

black market

bonds

borrow money; buy a bond

experimental economics

branch of econ that studies the economy through controlled laboratory experiments

bull and bear markets

bull= high market bear=low market

partnership?

business organization owned 2+ persons who agree on a specific division of responsibilities and profits

price taker

business that accepts market price determined by supply and demand

corporations

businesses that are treated as a person and are legally owned by their stockholders who are not liable for the actions of the corporate "person"

sole proprietorships

businesses that have only one owner

partnerships

businesses with 2 or more owners

How does the Fed affect the interest rate?

by changing the MS

Store Value

can be held for a time and later exchanged for g/s

free enterprise

capitalism

positive externalities

causes demand side market failures and moves the demand curve to the left or below.. products are under produced

negative externalities

causes supply side market failures and moves the supply curve to the right or below

Marginal propensity to consume (MPC)

change in C/change in YD slope of consumption function

Movement along Productivity function

change in K/L or Y/L when T is fixed

Money Multiplier (mm)

change in MS/ change in MB or 1/rrr

Factors that cause movement along LRAS

change in P and MWR by the same % increase in P = increase in MWR

Marginal propensity to save (MPS)

change in S/ change in YD slope of savings function

Shift of Productivity Function

change in T when (K/L or Y/L is fixed)

Size of M

change in Y/ change in autonomous consumption

What causes a shift of Ld?

change in labor productivity

Substitution effect

change in quantity demanded because of change in relative price (margerine and butter)

What factors affect spending growth

changes in M and V, increase will lead to higher, decreases will lead to lower

What is the difference between changes in M and changes in V

changes in V are only temporary while changes in M can be permanent ands set at any rate

What is an automatic stabilizer?

changes in fiscal policy that stimulate AD in a recession without explicit action by policy makers

Which of the following factors cannot shift the aggregate demand curve?

changes in the price level

variable expense

changing expense

corporation

chartered company with stock holders

Which of the following is part of M1?

checking account balances

Demand for money (MD)

choice to hold money downward sloping

scarcity

choices are necessary because people experience a conflict between insatiability and ______

allocation

choosing when needs will be satisfied and how much of our resources we will use to get them

who is adam smith?

classical economist, created the idea of laissez faire & the invisible hand of self-interest

Vertical Merger

combination of firms involved in different steps of manufacturing or marketing

mechanization

combining labor of people and machines

economic principle

commonly held economic insight stated as a law or principle

Public utilities

company providing essential services, water, electricity to customers under some gov. regulations.

market share

company's percent of total sales in a market

marginal analysis

comparison of marginal benefits/costs (usually for decision-making)

bicameral

composed of two legislative bodies

equilibrium

concept in which opposing dynamic forces cancel each other out

The Federal Reserve is able to have an impact on financial crises because it:

conducts monetary policy

Legislation lag

confess must propose and pass a plan. takes a while for things to get done in legislation

supremacy clause

constitutional declaration (Article VI) that the Constitution and laws made under its provisions are the greatest law of the land

what indexes is inflation measured from

consumer price index (CPI), Gdp deflator, and producer price indexes (PPI)

consumer sovereignty

consumer's wishes determine what's produced

MC > MB

consumers are saying "that's not worth it" losing profits

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

Law of demand

consumers buy more of a good when its price decreases and less when its price increases

law of demand

consumers buy more of a good when its price decreases and less when its price increases

As the real interest rate goes up:

consumption and investment goes down

traditional economy

continuity is valued, tend to repeat problems

Coupon bond

corporate bonds and US treasury notes and bonds

spy on other businesses

corporate spying occurs when businesses _____

global corporations

corporations which substantial operations on both the production and sales sides in more than one country

fixed cost

cost that does not change; no matter how much of a good is produced

variable cost

cost that rises or falls depending or how much is produced (example supplies)

Inefficiencies in Distributing Funds

costs may out weigh benefits

sunk costs

costs that have already been incurred and cannot be recovered

Comparative advantage

country's ability to produce a given product relatively more efficiently than another country,

advertising

create a need

Karl Marx

created the communist manifesto

What is the role of government in regulating corporations?

creating laws and enforcing them

What assets serve as money?

currency, total reserves held at banks, checkable deposits, savings deposits/market mutual funds/small-time deposits

M1

currency, travelers checks, and checking deposits

Increase in expected future income (AD effect)

current consumption increases, so AD increases rightward shift

When Recession?

current inflation < expected inflation

When Expansion?

current inflation > expected inflation

incumbent

currently holding an office

production possibility curve (PPC)

curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

production possibilities curve

curve showing 2 combinations of goods that can be produced in a full employment, full production economy where the available supplies of resources and technology are fixed

difference between a demand curve and demand schedule

curve- graph with a slope schedule- numbers in a table

MB > MC

customers will choose to do this because it's rational and helps maximize utility... you continue to make a profit

Microeconomics

deals with behavior and decision making by individual units

command economy

decisions are made by individual leaders or government agencies

economic choices

decisions made by consumers based on demand of resources

stagflation?

decline in real GDP, rise in prices

Interest rate effect on investment and AD curve

decrease in IR increase investment which increase AD

Rightward shift of LRAS

decrease in RWR causes an increase in Labor productivity which increases pGDP shifting LRAS rightward

Affect of financial innovation

decrease in rMD

discount rate used by Fed to control MS

decrease in the discount rate causes banks to borrow more which allows banks to lend more increasing MS

Planned AE > rGDP

decrease inventory, increase production --> overall increase rGDP to AE (aka EQ)

Increase in interest rate (AD effect)

decrease investment, decrease Yd and AD leftward shift

How do changes in interest rate because of the selling of bonds affect consumption.

decrease it, because it will encourage households to save more due to the higher interest rates

Effects of a recession in the world economy AD

decrease net exports, decreases AD leftward shift

rrr used by Fed to control MS

decrease rrr, increase mm which increase MS

increase in expected future income on saving and consumption

decrease saving, increase consumption

affect on unemployment if inflation is greater than expected in SRPC

decreases

increase in MWR increases or decreases SRAS?

decreases

Capital Losses

decreases in the value of existing assets

anti-trust legislation

defines monopolies and gives government the power to control them

Elastic

demand that is very sensitive to change in price

Inelastic

demands that is not very sensitive to change in price

Induced Expenditure

depends on output (Y)

Inelastic

describes demand that is not very sensitive to a change in price

Elastic Demand

describes demand that is very sensitive to a change in price (candy is an example)

Inelastic demand

describes demand that isn't very sensitive to change ( example :medicine)

unitary elastic

describes demand whose elasticity is exactly equal to one (example demand goes down equally with price)

rent-seeking activities

designed to transfer surplus from one group to another

partisan

devoted to a cause or party

Costs of a market economy

difficult to achieve, producers pick prices, no govt. help

What is the relationship between price and quantity supplied

direct relationship up- up down down

What is the difference between an automatic stabilizer and discretionary fiscal policy?

discretionary is a delibetare manipulation of macroeconomics while automatic happens without any actions done

circular flow diagram

draw and label one; How does it represent consumers and businesses in the market?

Production Possibilities Curve

draw one to demonstrate the concepts of opportunity costs vs. Standard of living

why do firms find it easier to fire workers or reduce hours than to lower wages when there is a negative shock to AD

due to the long time it takes for wages to fall its easier just to fire somoene

What are the characteristics of money?

durability, portability, divisibility, acceptability, uniformity, and limited supply

income

earnings

the fed initiates what policies?

easy money or tight money

positive economics

economic analysis that draws conclusions based on logical deduction or induction, value judgements are avoided

Free Market

economic decisions are made by individual and are based on exchange or trade

Benefits of a market econony

economic efficiency, economic freedom, and economic growth

market force

economic force that is given relatively free rein by society to work through the market

Law of Demand

economic law that states that consumers buy more of a good when the price decreases and less when it increases.

paper losses

economic losses because if the bond had not been bought, funds could have earned more elsewhere and bought more bonds at the lower price

market structure

economic model of competition among businesses in the same industry

Supplyside economics

economic policies designed to increase aggregate supply or shift aggregate supply curve to the right.

laissez-faire

economic policy of leaving coordination of individuals' actions to the market (let events take their course)

macroeconomics

economic problems encountered by the nation as a whole

microeconomics

economic problems faced by individual units within the overall economy

real income effect

economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same

Externalities

economic side effect that affects an uninvolved third party.

capitalism

economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists

market economy?

economic system in which decisions on production/consumption of goods & services

command economy?

economic system in which the central govt. makes all decisions on the production and consumption of goods & services

mixed economy?

economic system that combines the free market with limited govt. involvement

Command

economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow

normative economics

economics involving value judgements

Economics

economics is the study of how people make choice to satisfy their wants

8. Micro economics

economics that analyzes the market behavior of individual consumers and firms. It focuses on patterns of supply and demand and the determination of price and output in individual markets. Remember price theory

John Mayard Keynes

economist who belived that the government spending could help a falthering economy

externality

effect of a decision on a third party not taken into account by the decision maker

product differentiation

effort to distinguish a product from similar products

assembly line

enables workers to proform individual task more efficently

Free Enterprise System

encourage individuals to start and operate their own business in a competitive system, without government involvement

EPA

environmental protection agency

EEOC

equal opportunity comity

equilibrium

equality of distribution

Economy at full employment when Ld _____ Ls

equals

Resources are being used efficiently when:

every opportunity to make people better off has been utilized.

Why does economy growth rate matter?

everything from, government, to work, to life, to wealth, to health is better

communism

everything is owned and run by the government. planned economic system

gross domestic product

everything produced in the us

toxic waste

example of a nuisance good

watch

example of an economic good

lumber

example of an undifferentiated product

camera manufactures

example of industry

gas station

example of perfect competition

Surplus

excess demand

conspicuous consumption

excessive consumption "flashy"

secondhand sales

excluded from GDP... contributes nothing to current production

government monopoly

exists when the government either owns and runs the business or authorizes 1 product

geographic monopoly

exists when there are no other producers within a certain region

the govt. initiates what policies?

expansionary or contractionary

Describe the govt's two fiscal policy tools

expansionary policies and contractionary policies

start-up costs

expenses new businesses face when entering the market

How do exports and imports combine to create a nation's trade balance?

exports vs. imports

macroeconomic externality

externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole

Economic Equity

fair distribution of wealth

economic equity

fairness in the economy and make it balenced

assembly line

fast moving production process involving the putting together of interchangeable parts for a finished good

Positive shocks to AD

faster money growth rate, confidence, increased wealth, greater growth of GOV. spending, increased export growth, decreased import growth

who is the FOMC in the fed?

fed committee that makes key decisions about interest rates & the growth of the united states money supply

FCC

federal communications commission

FDIC

federal deposit insurance corporation

fiscal policy is by who?

federal government

FICA

federal insurance contributions act (social security)

monetary policy is by who?

federal reserve

points

fees paid to a lender and computed as a percentage of a loan

Incidence of a tax

final burden of a tax

gas used for public transportation is an example of...

final good

price maker

firm that doesn't have to consider competitors when setting the prices of its products

How are fiscal policy tools used to expand and contract the economy?

fiscal policies that try to increase output- expansionary policies Fiscal policies intended to decrease output- contractionary policies

nominal GDP?

fixed GDP

total cost

fixed cost plus variable cost (example rent and supplies)

B-corportaions

flexible-purpose corporation or benefit corporations -- explicitly lake social mission in addition to profit into consideration when making decisions

positive economics

focuses on fact and cause and effect relationships (what is).. develops scientific generalizations about economic theory

Specialization

focusing on producing a few products better rather than producing many less efficiently

FDA

food and drug administration

Consumer Price Index (CPI)

for any period, a measure of the cost in that period of a standard basket of goods and services relative to the cost of the same basket of goods and services in a fixed year, called the base year = Cost in current year / Cost in base year

copyright

for artist to protect the ownership of their art

patent

for inventors to protect the ownership of their inventions

Keynesian economics?

form of demand-side economics that encourages govt. action to increase or decrease demand & output

cartel?

formal organization of producers that agree to coordinate prices & production

Taylor policy rule

formula for setting the interest rate ffr = 2 + inflation rate + .5(inflation rate - 2) + .5(output gap)

capitalism

free market enterprise

Unemployment that is due to the time workers spend in job search is considered

frictional unemployment

keynesian economists

full employment is never reached

what are capital gain

gains off of stock ect.

inflation?

general increase in prices

generic brand

general name for a product rather than a specific brand name given by the manufacturer

welfare loss triangle

geometric representation of the welfare cost in terms of misallocated resources caused by a deviation from a supply demand equilibrium

distribution

getting goods where you want them when you want them -- important and central component of a service economy

inefficiency

getting less output from inputs that, if devoted to some other activity, would produce more output

patent

gives an inventor the exclusive property rights to that invention or process for a certain number of years

Large economies should always have a flexible budget because:

giving up stabilization makes no sense

imports

good from other countries we purchase

substitute good

good that can be used in place of another good... an increase in price in one good will increase the demand of another good

public good

good that if supplied to one person, must be supplied to all and whose consumption by an individual does not prevent its consumption by another (national defense)

private good

good that, when consumed by one individual, cannot be consumed by another (apple)

demand

good wanted

examples of positive real shocks

good weather, lower price of oil/other important input, productivity/tech boom, lower taxes/regulation, smooth production without disruption

merit goods or activities

goods and activities that govt believes are good for you even though you may not choose to engage in them

want

goods and services that people consume beyond what is necessary for survival.

supply

goods available

import

goods brought into the country

export

goods leaving the country

demerit goods or activities

goods or activities that govt. believes are bad for people even though they choose to use the goods or engage in the activities (drugs)

exports

goods sold to other countries

complementary goods?

goods that are bought & used together

complementary goods

goods that are bought to work together with another good

normal goods

goods that experience an increase in demand as a result of increases in buyers incomes are known as what?

substitute goods?

goods used in place of another good

inferior goods

goods we buy when our income is low ex. used books

intermediate goods

goods wither purchased for resale or for further processing into final goods

what is Government and market failure?

government failure: is when the government intervenes with trade which cause inefficiency and economic costs. Market failure: the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. Thus creating market ineficiency

social security

government funding for the disabled and peole over 65

price floors

government imposed limits on how low a price can be charged

subsidy

government loan commonly granted to small business owners

Command Economy

government makes all decisions, very restricted, no freedom

Mixed Economy

government plays a limited role, market driven

price ceiling

government set price below the market equilibrium price

What are the economic differences between the two types of fiscal policy

government spending is amore certain influence on the economy but is slower. Tax cuts will increase spending but only if people don't save their new money

price floors

govt set prices above equilibrium price

John Maynard Keynes

govt. official teacher and writer, theory of supply/demand and unemployment led to programs to help nations economy

demand-side economics?

govt. spending and tax cuts help an economy by raising demand

Demand Curve

graph showing quantity demanded at prices that may occur in market

Laffer curve

graph showing that lower tax rates will supposedly stimulate higher tax revenues

Production possibility curve

graph that shows alternative ways to use an economies productive resources

demand curve

graphic representation of the relationship between price and quantity demanded

Supply Curve

graphical representation of quantities produced at each and every price in the market

movement along a demand curve

graphical representation of the effect of a change i price on the quantity demanded

shift in supply

graphical representation of the effect of a change in a factor other than price on supply

supply curve

graphical representation of the relationship between price and quantity supplied

Great Depression

greatest economic decline in US history, lasting from 1929-1939

GNP

gross national product

CEA?

group of 3 respected economists that advise the president on economic policy

trust

group of firms combined in order to reduce competition

union

group of workers get together to gain power

cartel

group that acts together to set prices and limit output

households

groups of individuals living together and making joint decisions - most powerful economic institutions

Nominal GDP:

has not been adjusted for changes in prices over time.

Special Interest Groups

have intense interest in an issue. they may benefit from the concept of disbursed costs and concentrated benefits

medicare

health insurance for people over 65

Why do countries develop free trade agreements to reduce protectionism?

helps both countries

FED- purpose

helps keep stable economy

What has not been a facilitating factor in world trade?

here's a list of what has. Know these and you'll know what factors aren't in world trade: * technology, communications, nafta

What are some implicating for a person who is structurally unemployed?

higher rates of suicide, lower rates of happiness. Recipe for misery and social decay and can lead to people losing their skills in their industry

law of demand?

higher the price ⬆️, the lower the quantity demanded ⬇️

law of supply?

higher the prices ⬆️, the more the supply ⬆️

Near-moneys are

highly liquid financial assets

market demand curve

horizontal sum of all individual demand curves

a market supply curve

horizontal sum of all individual supply curves

power of households

households vote with their dollars resides in the people representatives suppliers of labor

means of production

how a good is produced

it shifts right

how does an increase in supply affect the supply curve?

budget

how much you make and how much you spend

Basic Keynesian Model or Keynesian Cross illustrate the theory of:

how recessions and expansions may arise from fluctuations in aggregate expenditures

Efficiency

how well resources are used to achieve a goal in the shortest amount of time

Specialization

human resources are used for better suited production. Increases completion brings more capital

How do politicized lending and government banks as well as bank failures and panics affect the quantity of savings and investments within an economy?

hurts both savings and investment

perfect competition

ideal model of a market economy

it will increase

if a group of retired rich people moves to a poor town, what will probably happen to the demand curve for jewelry at the local jewelry store?

shortage

if cell phones are selling below the market equilibrium price, what results?

How does inflation affect the real return that borrower's pay?

if inflation > interest then borrowers gain money

surplus

if milk is sold above the market equilibrium price, what results?

it will decrease

if people expect the price of antique furniture to fall in three weeks, what will probably happen to the demand curve for antique furniture immediately?

collusion

if poker players were working together to cheat against the other players, it would be called what?

they will increase

if the major business in a small town gives all of its workers a raise, what will probably happen to the demand curves for normal goods in that town?

economic decision rule

if the marginal benefits of doing something exceed the marginal costs, do it. if the marginal costs of doing something exceed the marginal benefits, don't do it

invisabel hand

if you let the economy go it will work its self out and consumers will buy what they want at the best price and producesers will make what they can at the cheapeest price.

Spending promises made by governments that are effectively a debt, despite the fact that they are not included in the usual debt statistics, are known as:

implicit liabilities

Spending promises made by the government that are effectively a debt, although they are not included in the usual debt statistics, are known as:

implicit liabilities

List two examples of trade barriers

import quota tariffs

The European Central Bank was created:

in 1999, when the euro was adopted

radical capitalism

in what type of economic system does a central authority, a committee, or the people in common control the economy?

disposable income

income made after taxes

Real GDP per Capita

income per person adjusted for purchasing power

disposable income

income received by households - personal taxes

revenue?

income recieved by a government from taxes and nontax sources

normative economics

incorporates value judgements about what the economy should be like or what policy should be recommended to achieve a desirable goal (what ought to be or should be)

Increase in money supply (AD effect)

increase AD rightward shift

Increase of wealth on saving and consumption

increase consumption, decrease saving

Interest rate effect on net exports and AD curve

increase in IR decrease net exports which decreases AD

Increase in expected future profit (AD effect)

increase in Investment so AD increases rightward shift

International Substitution (AD effect)

increase in P coupled with a decrease in X and an increase in m decreases Yd

Wealth Effect (AD effect)

increase in P decreases the real value of money, decreasing Yd (Consumption decreases)

Intertemporal Substitution (AD effect)

increase in P raises interest rate, decreasing Yd (Investment decreases)

Increase in government spending (AD effect)

increase in Yd and AD rightward shift

Decrease in taxes (AD effect)

increase in consumption, increase in Yd and AD rightward shift

Increase in expected future inflation rate (AD effect)

increase in future price, increases current consumption so AD increases rightward shift

Interest rate effect of decrease in MS

increase in interest rate

What is the 2-way link between rGDP and AE?

increase in rGDP increase AE and an increase in AE increase rGDP

What causes economic growth AD-AS model?

increase in rGDP per person

Affect of increase in rGDP on MD

increase in rMD

Which of the following is an expansionary fiscal policy?

increase in unemployment benefits

Planned AE < rGDP

increase inventory, decrease production --> overall decrease in rGDP to AE (aka EQ)

Affect of decrease of nominal interest rate on MD

increase of real money demanded (rMD)

Movement of MD Curve

increase or decrease in Nominal Interest Rate

Shifts of MD Curve

increase or decrease in rGDP or financial innovations

Increase of real interest rate on saving and consumption

increase saving, decrease consumption

learning by doing

increased productivity as firms get better and better at producing through practice

How does the fed fight inflation?

increases ffr... ...which decrease MS cause interest rates to rise, banks no have less loanable funds so investment decreases, causing AE and AD to decrease, rGDP falls to pGDP

A government surplus is contractionary because:

increases in taxation, decreases in government purchases, and decreases in government transfers are contractionary.

Capital Gains

increases in the value of existing assets

globalization

increasing integration of economies, cultures, and institutions across the world

Autonomous Expenditure

independent of output

S&P 500

index that shows the price changes of 500 different stock

market economy

individuals and businesses make main economic decisions

What are some of the weaknesses of using the unemployment rate as a measure of how well the labor market is working?

individuals without a job but aren't actively looking for work are not counted as unemployment

Income increases, demand decreases

inferior goods

cost-pull inflation

inflation caused by a decrease in aggregate supply

Demand-Pull inflation

inflation caused by an increase in AD increases in the price level resulting from an excess of demand over output at the existing price level

demand-pull inflation

inflation caused by an increase in aggregate demand

Cost-Push inflation

inflation caused by an increase in costs (MWR or production materials)

what will a negative shock do to spending growth in the long run?

inflation decreases, expected inflation decrease, GDP remains same

What is inflation

inflation is an increase in the average level of prices

demand-pull theory?

inflation occurs when demand for goods and services exceeds existing supplies

cost-push theory?

inflation occurs when producers raise prices in order to meet increased costs

What is expected along the LRPC?

inflation rate

If real interest rates are negative, what is the relationship b/t nominal interest rates and the inflation rate?

inflation rate > nominal interest rate

Above full employment EQ

inflationary gap pGDP < rGDP

liability insurance

insurance that pays for bodily injury and property damage

Contractionary Policies

intended to reduce PAE and output

A business will want a loan when

interest rate < (return on project - cost of project) / cost of project × 100

Federal funds rate (ffr)

interest rate at which banks borrow money from other banks over night

tools of monetary policy?

interest rates, open market operations, and reserve requirements (rrr)

crude oil is an example of...

intermediate good

GDP excludes...

intermediate goodsq

IRS

internal revenue service

IMF

international monetary fund

the the real business cycle monday, how are the equilibrium inflation rate and growth rate determined

intersection of AD and Solow growth curves

where does C=YD?

intersection of consumption function and 45 line

7. Macro economy

is a aggregate economy. Deals with overall production(Gross domestic product)

Containerization, what is it?

is a system of freight transport based on a range of steel inter-modal containers. allows for efficient global trading

purely financial transaction

is excluded from GDP... includes public transfer payments (social security payments, welfare & veterens payments), private transfer payments (cash gifts given during the holiday), and stock market transactions (buying and selling of stocks aka produces no output)

How does the underemployment rate compare to the unemployment rate?

is greater than unemployment

Production possibility curve why does it bow outward?

it bows outward because of law of increasing opportunity cost.

If the FED wants the federal funds rate to fall:

it conducts open-market purchases, which increases revenue

why challenges does the fed face when it tries to influence AD

it does not know by how much their changes in monetary decision will have on AD. They must predict: 1. Will banks lend out all the new reserves or will they lend out only a portion, holding the rest as excess reserves 2. How quickly will increases in the monetary base translate into new loans and thus larger increases in M1 and M2 3. Do businesses want to borrow? How low do short-term interest rates have to go to stimulate more investment borrowing 4. If businesses do borrow, will they promptly hire labor and capital, or will they just hold the money as precaution against bad times?

Does a change in V affect the inflation rate in the long-run

it doesn't it stays the same

How does inflation affect our tax burden on capital gains?

it increases it because even if your capital gains is just keeping up with inflation and you make no real profit, you must pay taxes on it

IF the fed buys bonds, aka open-market purchases, what happens to interest rates?

it increases the demand for bonds, which pushes up the price of bonds thus lowering the interest rates.

what is the natural unemployment rate

it is defined as the rate of structural plus frictional unemployment

How does a bank make money by making loans?

it loans out money that is deposited in the bank. i.e. you deposit 1k in bank they loan out 900 of it to keep RR at 1/10. thus creating 900 new dollars and this effect continues on as the money doesn't just stop at one bank.

Factor Market

it pay wage to government employees

What is the fisher effect?

it says that the nominal rate will rise with expected inflation

how will volatile and unpredictable inflation affect econ. growth?

it slows it down

through what channels do open-market purchase slow the economy?

it will slow down the economy

How will a change in V affect AD

it will temporarily increase AD but it will eventually retract back. Changes in the growth rate of C, I, G, and NX will cause changes in V

What does "inflation is always and everywhere a monetary phenomenon"

it's the amount of money and the rate at which you increase this money that is going to cause inflation

consumer price index

itemized list of how much things cost last year

what influences a banks reserve ratio?

its determined primarily by how liquid banks wish to be. When banks are worried about demanders wanting their money back they keep a high reserve ration, but when they aren't worried about demanders wanting their cash they keep a low reserve ratio

what are some policies that can reduce structural unemployment

job retraining, job-search assistance, work tests, early employment bonuses

merger

joining of 2 firms to form a single firm

full employment

keeping goal of full employment in sight

economic equity

knowing who will gain and who will lose in an economic decision, making sure it balances

economic security

knowing you'll have a job next week, okay financially

Demand for Labor (Ld)

labor demanded in relation to RWR downward slope

why has structural unemployment been more serious in europe than in US

labor regulations

Labor Supply (Ls)

labor supplied given the RWR # of hours that all households in the economy plan to work upward slope

factors of production?

land, labor, capital

factors of production

land, labor, capital; The three groups of resources that are used to make all goods and services

Perfect comp

large # well informed buyers, and sellers with identical products

ceteris paribus

latin phrase for "holding other things constant".. assumption that factors other than the one being considered are held constant simplify the complex world

ceteris paribus?

latin phrase meaning "all other things held constant"

"lemon" law

law applied to used cars

law of increasing costs

law that states that when more of a product is initially being produced, the higher the opportunity cost will be to produce still more

minimum wage laws

laws specifying the lowest wage a firm can legally pay an employee

antitrust laws?

laws that encourage competition in the marketplace

the front runner

leader (the candidate currently leading a election)

What happens to the economy when prices are difficult to interpret?

leads to missed opportunities

(Figure: The Market for Loanable Funds II) A decrease in government borrowing will shift the demand for loanable funds to the:

left and decrease the interest rate

corporation?

legal entity owned by the individual stockholders

Discount bond

lender buys at price below face value and is repaid the face value at maturity. No distinct interest payments but interest is implicit in the difference between the face payment at maturity and discount price

Have shocks to rainfall become more or less important since 1980?

less because agriculture makes up a smaller portion of GDP

registration fee

licensing fee, usually annual, paid to a state for the right to use a car

trust?

like a cartel, an illegal grouping of companies that discourages competition

import quota

limit on the amount of a good that can be imported

Explain how scarcity relates to economics

limited quantities of resources to meet unlimited wants

scarcity

limited quantities of resources to meet unlimited wants

coercion

limiting people's wants and increasing the amount of work individuals are willing to do to fulfill those wants.

Bonds

loan that a corporation or government repays

What determines interest rate when economy is in long run EQ?

loanable funds market

Treasury Bond

long-term 10-30 year

deadweight loss

loss of consumer and producer surplus from a tax

savings bond

low-denomination bond issued by the United States government used as a form of investment

Savings Bond

low-denomination bond issued by the united-state government.

private-labeled products

lower priced store-brand products carried by some supermarket chains and club warehouse chains

Economies of Scale

lower production costs as a result of large-scale production Factories, equipment, assembly line, bulk purchase, distribution network, volume marketing

To fight recession the FED should

lower the real interest rate to stimulate spending

How does the fed fight recession?

lowers ffr... ...which increase the MS causing the interest rate to fall, banks than have more loanable funds so investment increase resulting in an increase in AE and AD causing rGDP to increase to pGDP

excise tax

luxury tax added to specific items (i.e gasoline)

interchangeable parts

machine made parts used in an assembly line

Physical Capital

machines, equipment, and buildings

Market economy

make choices, exchange/trade, free market

producer

maker

producers

makes goods

barrier to entry

makes it hard for a new business to enter a market

FTC

makes sure companies are able to compete

capital

manufactored goods used to make more goods

The horizontal summation of individual demand curves for a particular product, holding the quantity demanded constant, is referred to as

market demand

Factor Market

market in which firms purchase the factors of production from households

factor market?

market in which firms purchase the factors of production from households

product market?

market in which households purchase the goods & services that firms produce

Product Market

market in which households purchase the goods and services that firms produce

oligopoply

market structure in which a small number of firms compete

monopolistic competition?

market structure in which many companies sell products that are similar but not identical

oligopoly

market structure in which only a few sellers offer a similar product

Oligopoly

market structure where few large sellers dominate

value added

market value of a firm's output - the value of the inputs a firm has bought from others

Market Failure

market where any of the requirements for a comp. market are lacking

goods market

market where businesses produce goods and services and sell them to households and government

factor market

market where households supply labor and other factors of production to businesses and are paid by businesses for doing so

price ceiling

max price that can legally be charged for a good or service

National Income

measure of nations income.

aggregate supply

measure of real domestic output available at each possible price level

2. Utility

measurement of satisfaction obtained from consuming a good or service.

What is a consumer price index

measures the average price for a basket of goods and services bought by a typical american consumer. This index covers some 80000 items and is weighted so that expensive items cary more pull then cheap itmes

national income accounting

measures the economy's overall performance

When we use money to buy groceries, money is playing the role of a:

medium of exchange

What are the functions of Money?

medium of exchange unit of account store value

What are the three functions or uses of money?

medium of exchange, unit of account, and store of value.

interlocking directorate

members of the board of directors of one corporation who also sit on the board(s) of other corporations

randy schafer

michigan commisioner

gretchen whitmer

michigan state senator

Margin requirement

minimum deposits left with a stock broker to be used as partial payment on other securities.

price floor

minimum price fixed by the government.. price at or above this is legal; below it is not

price floor

minimum price for a good or service

why will minimum wages increase the unemployment rate?

minimum wage raises the wage thus decreasing the quantity of labor demanded

focus group

moderated discussion with small groups of consumers

Control and adjustment of MS

monetary policy

credit

money available for a client to borrow, owned by the government

Specie

money in the form of gold or silver coins

inflation

money isn't worth as much

discretionary income

money made after paying for taxes and nessecities

profit

money made from selling a good or service after the cost of production and labor

What determines the interest rate?

money market

Increase of MS by fed when economy is in long-run EQ

money market moves to new EQ but nothing real has changed

insurance

money set aside in case of emergency (i.e car accident)

fiat money

money that has value because the govt. has ordered that is an acceptable means

fiat money?

money that has value because the govt. has ordered that it is an acceptable means to pay debts

savings

money that is put away

mutual funds

money to be diversified

profit

money you have left over after paying all expenses

wage

monies earned by work

price stability

monitering prices to avoid inflation or deflation

fixed expense

month to month expense that doesn't change

what is moral hazard

moral hazards occur when banks and other financial institutions take on too much risk hoping that the fed and regulators will later bail them out

opportunity cost?

most desirable alternative given up as a result of a decision

opportunity costs

most desirable alternative given up as a result of the decision

quantity supplied

movement from one point to another on a fixed supply curve

international Monetary Fund (IMF)

multinational, international financial institution, concerned primarily w/ monetary issues

business

name given to private producing units in our society (defines what to produce, how much to produce, and for whom to produce it)

According to the text, productivity is driven by all of the following EXCEPT:

natural resources

Land

natural resources that are used to make goods and/or services

resources

natural, capital

natural experiments

naturally occurring events that approximate a controlled experiment where something has changed in one place but not anywhere else

economics forces

necessary reactions to scarcity

collective bargaining

negotiation between an employer and trade union (wages&benefits)

In the long run ______ factors are fixed

no

is frictional unemployment bad?

no

price index

nominal GDP/real GDP

Affect of increase in the Price level on MD

nominal MD increases

How do lenders set the nominal interest rate?

nominal interest rate = real interest rate + inflation nominal interest rate = Expected inflation + equilibrium interest rate

Real Money

nominal money/price level

Fisher Equation

nominal rate = real rate - inflation

If an economy is operating at an output level below its potential output level, holding everything else constant, one would expect:

nominal wages to fall

Nonbank financial institution =

non-depository institutions that channel savings to borrowers. (Finance companies, life insurance companies, pension funds etc.)

what is excluded from the computation of GDP

nonproduction transactions

Income increase, demand increases

normal goods

NAFTA

north american free trade association

Market Equilibrium Value of the exchange rate

not constant but changes with shifts in supply and demand for dollars because the US has a flexible budget

unemployment

not working

characteristics of perfect competition

numerous buyers and sellers, standardized product, freedom to enter and exit market, independent buyers and sellers, well-informed buyers and sellers

representative money

objects that have value because the holder can exchange them for something else of value

economic efficiency

obtaining maximum results from limited resources

OSHA

occupational safety hazard administration

economies of scale

occur when average costs of production falls as producers grow larger

Market Equilibrium

occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price

imperfect competition

occurs in markets that have few sellers or products that aren't standardized

technological monopoly

occurs when a firm controls a manufacturing method, invention, or technology

price fixing

occurs when businesses agree to set prices for competing producers

predatory pricing

occurs when businesses set prices below costs for a time to divide competitors out of a market

market allocations

occurs when competing businesses divide a market amongst themselves

natural monopoly

occurs when costs of production are lowest with one producer

Crowding in

occurs when goe has a budget surplus w/ no effect on loanable funds market, increase interest rate, AD, P and rGDP

Crowding out

occurs when gov has a budget deficit affecting the loanable funds market, which increase the interest rate decreasing AD, price and rGDP

Short run EQ of AE

occurs when planned AE=rGDP (point on 45 line)

Recessionary Gap

occurs when potential output exceeds actual output, negative

nonprice competition

occurs when producers use factors other than low prices to convince customers to buy their products

Scarcity

occurs when there are limited quantities of resources to meet unlimited needs or desires (always).

monopoly

occurs when there's only 1 seller of a product that has no close substitutues

Demand side economics

of, relating to, or being an economic theory that advocates use of government spending and growth in the money supply to stimulate the demand for goods and services and therefore expand economic activity

test marketing

offering a prodcut in a small area to see how it will work out without taking to much of a risk

supply

offering goods and services for sale

Social Security?

old-age, survivors, and disability insurance (OASDI)

large number of firms

on the continuum of market competition given in your text, which of the following characteristics belongs on the left, with a monopoly?

sole proprietorship

one owner

What is creative destruction?

one product is produced which destroys the market for a older less efficient good.

characteristics of a monopoly

one seller, restricted/regulated market, control of prices

complementary good

one that is used together with another good ex. snowboards and lift tickets

equation of opportunity cost

opportunity cost of good x = change in good y production/change in good x production

Nominal interest rate

opportunity cost of holding wealth in the form of money rather than in an interest-bearing asset

European Union (EU)

org. of european countries that developed out of a trade association devoted to reducing trade barriers among members

Firms

organization that uses resources to produce a product

What is a stock exchange?

organized markets where stocks are traded. NYSE is the largest in the world

another term for ceteris paribus

other-things equal assumption

scarcity's 2 elements

our wants and our means of fulfilling those wants

What is the role of stockholders in financing corporations?

own the stocks in the corporation

private property

owned by individual persons

public property

owned by the government

stocks

ownership organization; divendends

Diversification

owning a variety of different assets to be less risky

pGDP based on Ld-Ls and production function

pGDP= level of production produced at full employment

what is currency

paper bills and coins held by people and non bank firms

allocative efficiency

particular goods and services most valued by society

worker's compensation

pays for recovery when injured on a job

Coupon Bond

pays the bond holder fixed interest payment each period until maturity when a specified final amount is paid

economic freedom

people having a choice when it comes to the economic decisions they make

popular sovereignty

people hold the final authority in all matters of government

stockholders

people that own a share in a particular company

cyclically unemployed

people who lose their job because of temporary downturn in economy

seasonally unemployed

people who lose their job predictably every year at the same time

Discouraged Workers

people who say they would like to have a job but have not made an effort to find one in the past four weeks

List the four market structures

perfect competition, monopolistic, oligopoly, and monopoly

What is structural unemployment

persistant, long-term unemployment. i.e. unemployed for more than a year and is constant

Households

person or group living in the same residence

Creditor

person or institution to whom money is owned.

an elector

person who elects someone

The primary taxes at the federal level for the United States are:

personal income taxes, corporate profit taxes, and social insurance taxes

Adam Smith

philosopher argued that a free marker would regulate itself with little government involvement

Planned Aggregate Expenditure

planned C + planned I + planned X - planned m

precepts

policy rules that conclude that a particular course of action is preferable

public disclosure

policy that requires businesses to reveal product information

Mutual Funds

pools that savings of many individuals and invest this money in a variety of stocks, bonds, and other financial assets

Products Possibilites Curve

presents potential prospects for a production of a pair of products

What is fixed in the short run Keynesian model of the economy?

price

CPI?

price index determined by measuring the price of a standard group of goods meant to represent the "market basket" of a typical urban consumer

What is a GDP deflator

price index for inflation. It is the ration of normal to real GDP multiplied by 100. The GDP deflator covers all final goods

Factors that affect MD

price level, nominal interest rate, rGDP and financial innovation

invisible hand

price mechanism, rise and fall of prices that guides our actions in a market

shift factors for supply

price of inputs technology expectations taxes and subsidies

equilibrium price

price toward which the invisible hand drives the market

equilibrium price

price where the intentions of buyers and sellers match.. where the demand and supply curves intersect

interest-rate risk

prices and returns for long-term bonds are more volatile than those for short-term bonds

What do we assume when deriving the Solow growth curve

prices are flexible and money is neutral

quantity demanded element to remember

prices tend to rise when there is execs demand and fall when there is excess supply

nominal GDP

prices that were in effect when the output was produced

Commercial Banks

private depository institutions that are authorized to take deposits and make loans

economic growth

produceing increasing amounts of products over the long term

economic growth

producing more goods and services to increase quality of living

productive efficiency

production of any good in the least costly way

capital

productive equipment or machinery

Factors of production

productive resources that make up four categories of land, capital, labor, and entrepreneurship.

final goods

products purchased by their end users

undifferentiated

products that are exactly alike from firm to firm

differentiated

products that visibly differ from one firm to another

dividends

profit made from stock holding

Workfare

program requiring welfare participants to provide labor in exchange for benifits

Automatic stabilizers

program that automatically provides benefits to offset a change in peoples' incomes; unemployment insurance, entitlement programs

private property

property owned by individuals or companies, not by the government or the people as a whole

collateral

property used to secure a loan

What are the three major types of taxes?

proportional (flat tax) progressive (income tax) regressive (sales tax)

Flat tax

proportional tax on individual income after a specified threshold has been reached.

theorems

propositions that are logically true based on the assumptions in a model

How do trade barriers affect trade between countries?

protect industries from foreign competition. protect jobs, protect infant industries, and safeguard national security.

Restrictions on free international trade designed to protect domestic industries from competitive market forces that originate beyond the borders of the country are:

protectionist policies

statement savings account

provides a monthly or quarterly computerized statement detailing all account activity

consumers

purchases goods, buyer

investments

put capital to work

savings

put money in; low interest rate

depositor

puts money in

Shortage

quantity demanded is greater than quantity supplied

law of demand

quantity demanded rises as price falls, other things constant - quantity demanded falls as price rises, other things constant

Real Wage Rate (RWR)

quantity of g/s produced in 1 hour of labor

law of supply

quantity supplied as price rises, other things constant, or quantity supplied falls as price falls

Surplus

quantity supplied is greater than quantity demanded

Shortage

quantity supplied is less than quantity demanded

What do consumption and spending depend on?

rGDP Disposable income Wealth Expected future income

Fed Response to recessionary gap

rGDP < pGDP so recessionary gap exist Fed increase MS, lowering interest rate (MD @ EQ is increased) increased MD raises price level shifting AD rightward to LRAS

Fed Response to inflationary gap

rGDP > pGDP so inflationary gap exists Fed decreases MS, increasing IR (MD @ EQ is decreased) decreased MD lowers price level shift AD leftward to LRAS

Labor productivity

rGDP per hour of labor Y/L

rGDP per person

rGDP/population

To fight inflation the FED should

raise the real interest rate, reducing spending

A sale of bonds by the Federal Reserve

raises interest rates and reduces the money supply

debt financing

raising money for a buismess through borrowing

prime rate?

rate of interest banks charge on short-term loans to their best customers

Unemployment rate

ratio of unemployed individuals divided by number of persons in the civilian labor force expressed as percentage.

If expected inflation = actual inflation what is true

real rate of return = equilibrium real interest rate

pGDP > rGDP

recessionary gap below full-employment EQ

What are the 5 relevant lags of implementing fiscal plocy

recognition lag, legislation lag, implementation lag, effectiveness lag, evaluation and adjustment lag

if the fed sells bonds, aka open-market sales, what happens to the interest rates?

reduces the money supply as people give up their reserves to buy the bonds. selling bonds lowers the price of bonds, which means interest rates increase

deregulation

reduces/removes government control of business

NAFTA

reducing trade barriers within north america

roles of government

referee (setting the rules that determine relations between business and households) actor (collecting money in taxes and spending the money on projects such as defense and education)

quantity demanded

refers to one particular point on the demand curve... refers to how much of the product is demanded at one particular price

popular rule

regime principle, people should be sovereign in some way (i.e. Leviathan), sovereign acting on behalf of people

Coupon Payments

regular interest payments made to the bondholder

Consumption function

relationship between C and YD

Saving Function

relationship between S and YD

LRAS- definition and slope

relationship between rGDP and P when MWR changes at same rate as P to maintain full employment vertical at pGDP

SRAS- definition and slope

relationship between rGDP supplied and P when MWR, prices of resources and pGDP are fixed upward sloping due to marginal cost of production

Adapting to Changes

relative scarcity of goods, tech, and personal preferences change constently

lease

renting a car but you can only drive so far

Market basket

representative collection of goods and services used to

Demand

request urgently and forcefully

cease and desist order

requires a firm to stop unfair business practice

who is the FAC of the fed?

research arm of the fed

What are the three tools of the Federal Reserve?

reserve requirement, discount rate, and buying and selling bonds

What are the real factors of production

resources, land labor and capital that are used to produce goods and services

scarcity

restricts options and demands choices... since we can't have it all, we have to decide what to get and what to forego

pension

retirement income

an increase in expectations results in a movement or shift of AD curve? what direction?

rightward shift

interest-rate risk

risk is actually about volatility in both directions

Why are junk bonds bad news?

risk you might not get your money, nor your investments

Entrepreneur

risk- taking individual in search of profits, one of the factors of production.

Required Reserve Ratio (rrr)

rr required by the Fed

Factors used by Fed to control MS

rrr, discount rate, open market operations

Corner offices in high-rise office buildings usually cost more to rent than other offices. This best illustrates the economic principle of

scarce resources

basic economic problem

scarcity

What are the causes of frictional unemployment

scarcity of information

supply

schedule of quantities a seller is willing to sell per unit of time at various prices other things constant

demand

schedule of quantities of a good that will be bought per unit of time at various pries, other things constant

supply

schedule/curve showing the amounts of a product a produce is willing/able to make available for sale

demand

schedule/curve where consumers have to be willing and able to purchase the good.. refers to the entire relationship between prices and the quantity of this product.. (demand curve)

SEC

securities and exchange commission

capital gains

sell stocks more than earn

Fixed Exchange Rate

set by government policy

regulation

set of rules designed to control business behavior

price ceiling

sets the maximum legal price a seller may charge for a product/service; below or at it is legal, above it is not legal ex. minimum wage laws

penetration priceing

settin a new product at a low price to draw consumers away from older products

Example of Fix-rule policy

setting a constant growth rate for money

price leadership

setting prices close to those of your competitors

Any change in pGDP when P is fixed causes a ______ of LRAS and SRAS

shift

What will a positive shock to spending growth do in the short run?

shift AD, will increase inflation and GDP growth, expected inflation will stay same

decrease in expected inflation leads to

shift down of SRAS

decrease in both supply & demand

shift to the left

increase in both supply & demand

shift to the right

increase in expected inflation leads to

shift up of SRAS

what happens to the AD curve if spending growth dec.

shifts down and left

what is a positive real shock

shifts solos growth curve to the right, it will dive the growth rate up and inflation down

what is a negative real shock

shifts the SGC to the left, increasing inflation and decreasing growth rate

What happens to the AD curve if spending growth inc.

shifts up and right

genereally, does the fed buy and sell short-term or long-term bonds?

short-term

What is frictional unemployment?

short-term unemployment caused by the ordinary difficulties of matching employee to employer

frictionally unemployed

short-term unemployment during a transition to a better job

prices below equilibrium

shortage (excess in quantity demanded)

excess demand

shortage - quantity demanded is greater than quantity supplied

Production Function

shows how Y changes as L changes when K and T are fixed Y/L = F(K/L, T) when K & T are fixed

AD Curve

shows the relationship between planned spending and the inflation rate

AS Curve

shows the relationship between the amount firms want to produce and the inflation rate

Short-Run Phillips Curve (SRPC)

shows the trade-off between inflation and unemployment when expected inflation and natural unemployment are constant downward sloping through expected rate

Long Run Phillips Curve (LRPC)

shows the trade-off between inflation and unemployment when the actual unemployment rate = the expected inflation rate vertical @ natural unemployment

monopoly

single business owner with total control

Monopoly

single producer, a form of imperfect comp.

Government failures

situations in which the govt. intervenes and makes things worse

market failures

situations in which the market does not lead to a desired result

craft union

skilled labors

human capital?

skills & knowledge gained by a worker through education & experience

Human Capital

skills and training of workers

negative shocks to AD

slower money growth rate, fear, reduced wealth, higher taxes, lower growth of gov. spending, dec. export growth, inc import growth

FICA funds...

social security and medicare

some factors that shift demand

societies income the price of other goods tastes expectations taxes and subsidies

List the three types of business organizations

sole proprietorship, partnership, and corporations

In the short run _________ factors are fixed

some

how do taxes and benefits affect the LFPR

some countries punish people who work past the retirement age by limiting the amount of benefits they receive

Inflation Hawk

someone who is committed to achieving and maintaining low inflation, even at some short-run cost in reduced output and employment

Inflation Dove

someone who is not strongly committed to achieving and maintaining low inflation

retailer

someone who sells dirctly to the consumers

Enterpreneur

someone who takes a risk in starting a business to earn a profit

entrepreneur

someone who takes the risk of starting a buissness

What is a discouraged worker?

someone who's given up on looking for a job because they've been looking for so long

nuisance good

something that bears a negative economic cost

service

something you get done that costs value

quantity demanded

specific amount that will be demanded per unit of time at a specific price other things constant

quantity supplied

specific amount that will be supped at a specific price

Fix-rule policy

specifies an action independent of the state of the economy

Feedback-rule policy

specifies how policy actions respond to changes in the state of the economy

Goals of monetary policy

stabilize price level maintain max employment control MS and interest rate through open market operations

(Figure: Policy Alternatives) If the economy is in equilibrium at Y1 in panel (a), it is experiencing

stagflation

two-tier wage system

starting off with a small wage that increases as your time increases in the company

Depression

state of economy with large numbers of unemployed, declining real incomes, overcapacity in manufacturing plants, general economic hardship.

Coupon

stated interest on a corporate, municipal, or government bond

consumer sovereignty

states consumers set the price

recession

steep rise in unemployment rate, moderation in inflation rate, reduction in RGDP by 2 to 3%

describe the corporate structure from stockholders to workers

stockholders hold money and workers make money

club warehouse stores

store that carries a limited number of brands and items in large quantities and is less expensive than grocery stores

economics

study of how human beings coordinate their wants and desires given the decision making mechanisms, social customs and political realities of the society

economics

study of how people spend and earn money

Alternative def. of econ

study of how to get people to do things they're not wild about doing and not do the things they are wild about doing, so that the things some people want to do are consistent with the things other people wanna do

microeconomics

study of individual choice and how that choice is influenced by economic forces

macroeconomics

study of the economy as a whole (considers inflation, unemployment, business cycles and growth)

positive economics

study of what is and how the economy works

normative economics

study of what the goals of the economy should be

goods that replace another good

substitute goods

market price

supply and demand are equal

You notice that the price of DVD players falls and the quantity of DVD players sold increases. This set of observations can be the result of the:

supply of DVD players shifting to the right.

prices above equilibrium

surplus (excess in quantity supplied)

Fractional reserve system

system requiring financial institutions to set aside a fraction of their deposits in the form of reserves.

Mixed Economies

systems that combine command and the free market with limited government intervention

a production possibility table

table that lists the trade-offs between 2 choices

Diffusion

take a good idea and apply it elsewhere • GAT • WTO • Declines in barrier to international trade

Goods

tangible products that we use to satisfy our wants and needs

protective tariff

tariff tax on imports to protect the sale of american goods

income tax

tax based upon salary

supply-side economics?

tax cuts can help an economy by raising supply

excise tax

tax levied on a specific good

tariffs

tax on imported goods

property tax

tax on something you own (car,house,etc.)

three main tools of fiscal policy?

taxes, spending, and debt

For developed countries, which of the following would be considered the most important driver in productivity growth?

technological progress

What shifts the AS?

technology, changes in expected inflation, and changes in available resources

Do real shocks cause temp or permanent changes in GR and Inflation rate

temporary, because the curve is always shifting because of many real shocks

law of Supply

tendency of suppliers to offer more of a good at a higher price

how can real shocks be used to explain the business cycle

that business fluctuations are simply changes in economic growth in the short run driven by real shocks

what assumption about expected inflation when drawing the SRAS

that it is set to a certain level

Substitution effect

that portion of a change in quantity demanded due to change in relative price of a product.

(Figure: Aggregate Supply Movements) Refer to the accompanying figure called Aggregate Supply Movements. In this figure, ________.

that there has been an increase in the short-run aggregate supply

Infation rate

the % rate of change in price level over time

When inflation rises:

the FED will increase the interest rates and vice versa

What is the money multiplier

the MM is the ratio of deposits to reserves. AKA the OPPOSITE OF THE RESERVE RATIO

What is the reserve ratio (RR)?

the RR is the ration of reserves to deposits

What is the relationship between the position of the SGC and the Solow growth rate?

the SGC is a vertical line at the solos growth rate

Which of the following oversees international trade agreements?

the World Trade Organization

demand

the ability and desire to purchase goods and services

productivity

the ability to produce greater quantitys o goods and servisees in better and faster ways

absolute advantage

the ability to produce something more efficiently

comparative advantage

the ability to produce something with a lower opportunity cost

GK capital formation

the accumulation of financial and capital goods that promote increased production and economic development

Investment

the act of redirecting resource from being consumed today so that they may create benefit in the future the use pf asset to learn income or profit

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

marginal product

the additional output obtained by employing one more unit of input.

Marginal Tax Rate

the amount by which taxes rise when before-tax income rises by one dollar

What is the opportunity cost of the bank holding reserves?

the amount of interest that could be gained through lending your money out instead of keeping it

apr

the amount of intrest that the person has to pay on their loan

What are bank reserves?

the amount of money the bank keeps in stock that it doesn't lend back out

opportunity cost

the amount of one good that must be sacrificed to obtain an alternative good

service flow

the amount of time you get to use a product and the value you place on this use

Principal Amount

the amount originally lent

Par Value

the amount that an investor pay to purchase a pond and that will be repaid to the investor a anoturity

Total receipts test

the analysis of the effects of a price change .

Rate of Inflation

the annual percentage change in the price level, can be measured by the Consumer Price Index (CPI)

Nominal Interest Rate

the annual percentage increase in the nominal value of a financial asset

Real Interest Rate

the annual percentage increase in the purchasing power of a financial asset = nominal interest rate - inflation rate

market

the arrangements people make for trading with one another

Peak

the beginning of a recession; the high point of economic activity prior to a downturn

opportunity cost

the benefit that you might have gained from choosing the next best alternative

macroeconomics

the branch of economics that studies the overall working of a national economy

how do demographics affect the LFPR?

the break up of age distribution can greatly affect the LFPR with the baby boomers coming to the retirement age there is a large quantity of people whoa re about to be unemployed and therefore the LFPR will increase

stock exchange

the buying and selling of stocks

Income effect

the change in consumption resulting from a change in real income

production possibilities fronteir

the combinations of two goods that can be produced if the economy used all of its resources fully and efficiently

private property rights

the control a private individual or firm has over an asset

marginal cost

the cost of producing one additional unit of output

marginal cost

the cost of producing one more unit of a good

marginal cost

the cost of producing one more unit of a good (example bean bags)

Maturation Date

the date at which the principal amount of a bond will be repaid

oligopoly

the debeers mining company of south africa owns roughly 70% of the worlds diamond mines. under what type of competition does diamond mining operate?

Liabilities

the debts one owes

What is crowding out?

the decrease in private spending that occurs when government increases spending

Capital Gains

the difference between a higher selling price and lower purchase price, resulting in financial gain for the seller

profit

the difference between the revenue received from the sale of a good or service and the costs of providing that good or service

What is the relationship b/t the nominal interest rate and the expected inflation rate?

the difference is the equilibrium rate of return. AKA interest rate

what is the difference between the real rate of return and the equilibrium real interest rate in the market for loanable funds?

the difference is the expected inflation rate - actual inflation rate

separation of powers

the division of power among the legislative, executive, and judicial branches of government

declaration of independence

the document recording the proclamation of the second Continental Congress (4 July 1776) asserting the independence of the colonies from Great Britain

GDP

the dollar value of all goods and services produced for final sale in the US in a year

Trough

the end of a recession; the low point of economic activity prior to a recovery

Nominal Exchange Rates

the exchange rate between 2 countries

Marginal Product

the extra production gained by adding one more worker

Cyclical Unemployment

the extra unemployment that occurs during periods of recession

fallacy of composition

the false assumption that what is true for a part will also be true for a whole

Who produces the money we use in the US

the fed. reserve

institutions

the formal and informal rules that constrain human economic behavior

Marginal propensity to consume (MPC)

the fraction of extra income that households consume rather than save.

marginal benefit

the gain you receive of doing something one more time

scarcity

the goods available are too few to satisfy the individual's desires

Centrally Planned Economies

the government own both land and capital, the government decides what to produce, how much to produce and how much to charge

movement along a supply curve

the graphical representation of the effect of a change in price on the quantity supplied

shift in demand

the graphical representation of the effect of anything other than prices on demand

Guns or butter

the idea that a country that produces guns has fewer resources to produce butter (consumer goods) and vice versa

classical economy?

the idea that free markets can regulate themselves

What is the cost of borrowing in the loanable funds market?

the interest rate

What is the discount rate

the interest rate banks pay when they borrow directly from the fed

Federal Funds Rate

the interest rate commercial banks charge each other for very short loans (overnight loans)

Coupon Rate

the interest rate promised when a bond is issued; the annual coupon payments are equal to the coupon rate times the principal amount of the bond

Coupon rate

the interest rate that a bond issues will pay to a bondholder

price

the law of demand describes the effects of _____ on demand.

Structural Unemployment

the long-term and chronic unemployment that exists even when the economy is producing at a normal rate

Foreign exchange market

the market on which currencies of various nations are traded for one another

Value added method

the market value of its product or service minus the cost of inputs purchased from other firms

Gross Domestic Product (GDP)

the market value of the final goods and services produced in a country during a given period Y= C + I + G + NX Y = GDP or Output C = Consumption Expenditure I = Investment G = Government Purchases NX = Net Exports

Potential Output

the maximum sustainabile amount of output that an economy can produce

Price Index

the measure of the average change in price over time.

profits

the money earned from subtracting cost from revenues

short term financing

the money needed to pay for the current operating activities of a business

rule of the relative burden of tax

the more inelastic one's relative s&d, the larger the burden of the tax one will bear

What is the relationship between liquidity and money?

the more liquid the asset, the more it can serve as money. -currency is usually the most liquid asset since it can be spent anywhere -checkable deposits and reserves are also very liquid -money market mutual funds and time deposits are less liquid since sometimes it takes time and trouble to turn these assets into currency or checkable deposits

law of diminishing margenal utility

the more of a product you have the less utility you will get out of it

diminishing marginal utility

the more of a supply a person has, the less the demand for that product is

opportunity cost

the most desirable alternative given up as the result of a decision

Opportunity cost

the most desirable alternative given up us as a result of decision.

what is the quantity demanded vs market quantity demanded

the number of products that a consumer demands vs. the number of products society demands

Unemployment Rate

the number of unemployed people divided by the labor force

the incumbent

the official who holds an office

What is the federal funds rate?

the overnight lending rate from one major bank to another

lockout

the owners of a company close the doors and do not allow people in to work

circular flow

the pattern at which money flows in and out of households and businesses

Compound Interest

the payment of interest not only on the original deposit but on all previously accumulated interest

rate of return

the payments to the owner plus the change in value expressed as a fraction of the purchase price

human resources

the people who contribute the physical and mental energy to the production process

what is the inflation rate?

the percentage change in the average level of prices over a period of time

third-party-payer markets

the person who receives the good differs from the person paying for the good

market equilibrium

the point at which the quantity supplied and the quantity demanded for a product are equal at the same place

Dividens

the portion of corporate profits paid out to stock holders

central planning

the power to decide what products will be made and how these products will be produced.

If the money supply increases by 10%, in the long run:

the price level increases by 10%

interest

the price paid for the use of borrowed money

equilibrium price

the price that balances quantity supplied and quantity demanded

producer surplus

the price the producer sells a product for less the cost of producing it

substitute good

the product that purchasers use in place of another product, particularly if the price of the other product rises

What does "in the long run, money is neutral" mean?

the proposition that changes in the money supply do not affect real variables. i.e. real gdp. increasing the money supply will cause only nominal prices to increase

If the interest rate is below equilibrium

the public will try and sell bonds, which will drive the prices down, which will increase the interest rate, and movement along the money demand curve will move to equilibrium

Risk Premium

the rate of return financial investors require to hold risky assets minus the rate of return on safe assets

Yield to Maturity

the rate that equates the present value of a cash flow of payments from a debt instrument with its value or price today

What is productivity, and what can increase labor productivity?

the ratio of how much you can produce (Output), based on the resources available (Inputs) machines, capital good, & human capital

beneficiary

the recipient of funds or other benefits (life insurance)

MD Curve

the relationship between rMD and Nominal Interest Rate, all other influences constant

deregulation?

the removal of some govt. controls over a market

wagner act

the right to collectively bargain

franchise?

the right to sell a good or service within an exclusive market

what is systemic risk?

the risk that the failure of one financial institution can bring down other institutions as well

opportunity cost

the satisfaction a person gives up when choosing between two options

opportunity benefit

the satisfaction a person receives from a choice

Frictional Unemployment

the short-term unemployment associated with the process of matching workers with jobs

surplus

the situation in which the quantity supplied of an item at a given price exceeds the quantity demanded

inelastic demand

the situation that exists when quanatity demanded changes only slightly or not at all in response to changes in price.

elastic demand

the situation that exists when quantity demanded changes greatly in response to a change in price

underemployed

the state of working significantly below skill level or working fewer hours than desired

economics

the study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants

Economy

the study of who people seek their needs and wants by making choices

Fisher Effect

the tendency for nominal interest rates to be high when inflation is high and low when inflation is low

total revenue

the total amount of money a firm receives by selling goods or services

example of positive economics

the unemployment rate in France is higher than that in the US

What is fiscal policy?

the use of govt. spending and revenue collection to influence the economy

Wealth

the value of assets minus liabilities

consumer surplus

the value the consumer gets from buying a product less than its price

law of one price

the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country

Value of Marginal Product (of a worker)

the worker's marginal product times the price of the firm's output

If the economy is at equilibrium below potential output:

there is a recessionary gap, and expansionary fiscal policy is appropriate

normal goods

there is an increase in demand if a consumer's income increases... those products whose demand varies directly with income

socialism

there is some private ownership and some government ownership

What is the relationship between the growth rate of the money supply and the inflation rate

they are approx. equal. if the growth rate of V and Y are small

who are the fed's customers

they are both the government bank and the bankers bank

In long-run equilibrium what is the relationship between Einflation and actual inflation

they are equal

If the fed lowers the discount rate what does this tell us?

they are implementing expansionary monetary policy, they want the money supply to grow. BUY = expansionary policy, they are putting money into the economy

what does a bank borrowing from the discount window tell the market

they are in trouble

how much influence does the u.s. government have over the fed

they are more independent than not

how does the fed create money

they can literally print money or create it 'by computer' by adding reserves to bank accounts held at the fed

why will employment protection laws increase the unemployment rate?

they cause firms to be slower to hire employees because of higher hiring and firing costs. 1. They create valuable insurance for workers with a full-time job 2. they make labor markets less flexible and dynamic 3. they increase the duration of unemployment 4. they increase unemployment rate among young, minority, and "risky" workers

public choice economists

they integrate an economic analysis of politics with their analysis of the economy

How do discouraged workers affect the unemployment rate?

they make it lower than it really is because they are not included in caluculation

why will unions increase the unemployment rate?

they raise minimum wage, decreasing the quantity of labor demanded

During the 2008 crisis, what actions did the fed take to limit systemic risk?

they supported JP morgan's buyout of bear sterns as well as taking a majority stake in AIG to keep them afloat

how does the fed vary this interest rate to influence the money supply?

they vary it to help it achieve the goals of monetary policy

If the fed raises the discount rate what does this tell us?

they want to contract the moneytary policy, they want the money supply to shrink. Sales = contracting policy. it takes money out

What happens to financial intermediation when real interest rates are negative?

they will break down. Because savings accounts will turn into wasting accounts and therefore people will take their money out of the bank. This will also decrease economic growth

What will people do if they are forward looking and given a tax rebate?

they will use the tax rebate to pay down debt

Traditional

things are done the way they have always been done; economic decisions are based on custom or habit

services

things done for the consumer

goods

things produced for the consumer

Determinantes

things that can change the demand of a product

luxuries

things we want, but do not need to survive

articles of confederation

this document, the nations first constitution, was adopted by the second continental congress in 1781during the revolution. the document was limited because states held most of the power, and congress lacked the power to tax, regulate trade, or control coinage

e = nominal exchange rate

this is the number of units of foreign currency that each unit of domestic currency will buy, an increase in "e" corresponds to an appreciation

How does the fed control the federal funds rate via open-market operations?

through buying or selling bonds until they have had their desired increase or decrease in the federal funds rate. WILL BUY BONDS TO DEC. RATE. WILL SELL BONDS TO INC RATE

Maturity

time at which payment is due to bondholder

wants

to an economist what is unlimited?

What is present value (PV)

todays value of a future cash flow 100$ today > 100$ future

Personal Income

total ammt of income going to consumer sector before individual income taxes are paid.

Federal debt

total amount of money the federal government has borrowed from others.

Disposable personal income

total income available to consumer sector after income tax

Planned Aggregate Expenditure

total planned spending on final goods and services, the amount of people throughout the economy that are willing to spend

GDP

total value of all final goods and services produced in a particular economy

GNP?

total value of production in a country or foreign nations

GDP?

total worth of goods produced in a given year within a country's borders

merger

two companies coming together

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

what is cyclical unemployment

unemployment correlated with the us and downs of the business cycle

Sole proprietorship

unincorporated business owned and run by a single person who has all rights to everything, most common form.

UAW

union of auto workers

needs

urgent wants for necessary things

consumption

use

promotion

use of advertising to inform consumers about a product and to pursade them to purchase it

tax incentive?

use of taxation to encourage certain behavior

Efficiency

using resources in such a way as to maximize the production of goods and services.

efficiency

using resources to their maximum potential

overhead expense

utility expenses required to run a business

Slope of MS Curve

vertical

Nominal wages are "sticky" because

wages are slow to rise in the short run when there are labor shortages and slow to fall even when there is significant level of unemployment

nominal wages

wages you see in your paycheck

What is perfect competition

well informed buyers/sellers that exchange identical products

the anti federalists

were more sympathetic to the "common man" and favored a more limited role for government

Opportunity Cost

what amount of product is given up in order to produce more of another product

Coordination: three central problems

what and how much to produce; how to produce it; for whom to produce it

normative economics

what approach to economic study focuses on value judgement?

federal trade comission

what does FTC stand for?

competition

what does a monopoly completely cut out?

to let alone

what does laissez-faire mean?

laissez-faire

what economic philosophy , first popularized in 1776, advised the government to keep its hands off the economy and let private citizens pursue their own wealth?

mercantilism

what economic philosophy promotes the accumulation of gold and silver as a demonstration of national wealth?

capitalism

what economic system is currently practiced in the United States?

candy

what has the greatest potential for differentiation?

Fallacy of Composition

what is good for one person is not good for all.

personal responsibility

what is not a major trait of laissez-faire liberalism?

perfect competition

what is probably the most prevalent form of competition in america today?

output?

what is produced from input in production of a good

utility

what is the economic term that means satisfaction?

improvements in technology

what is the most significant reason for the rapid drop in prices of older model cell phones and calculators since they were first introduced years ago?

few firms

what is true about an oligopoly?

socialist/welfare

what kind of capitalist nation relies on high taxes to redistribute wealth?

microeconomics

what level of economic study is concerned primarily with choices made by individual units?

macroeconomics

what level of economic study is concerned primarily with large scale economic choices and issues?

favorable balance of trade

what mercantilistic term describes a nation that exports more goods than it imports?

perfume company

what operates under imperfect competition?

50%

what percent of all small businesses close within their first 3 years of existence?

complementary good

what term best describes steak sauce that is often purchased with steak?

factors of production

what to produce, how to produce it, whom to produce it for

monopoly

what type of competition has one supplier?

perfect competition

what type of competition sells undifferentiated products?

capitalism

what type of economic system stresses the freedom of private individuals to own the factors of production and to make economic choices?

a legal monopoly

what type of market does the government create when it allows a power plant the exclusive right to provide electricity in an area?

the sherman antitrust act

what was america's first major legislation against monopolies?

increasing foreign competition

what was not a major aim of mercantilist countries?

automobile manufacturers

what would you expect to operate under the oligopoly form of competition?

balanced budget

what you make and what you spend are equal

opportunity benefit

what you will gain when making a decision

opportunity cost

what you will have to give up when making a decision

profit

what's left over from total revenues after all the appropriate costs have been subtracted

when does dissaving occur in consumption function?

when C > YD area above 45 line

when does savings occur in consumption function?

when C<YD area below 45 line

conglomerate

when a buissness ones a bunch of unrelated buissnesses

what is a jobless recovery

when a macroeconomy experiences growth while maintaing or decreasing its level of employment

subjective value

when a person determines an items value by the quantity of it

solvency crisis

when banks become insolvent: has liabilities greater than its assets

what is the relationship between bond prices and interest rates?

when bond prices go up, interest rates go down. When bond prices go down, interest rates go up.

competitive shopping

when buisseness's say why their product is better than anothers

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

shortage

when demand is greater than supply, you end up with a _______

what is hyperinflation

when inflation occurs at a very high rate, i.e. prices are extremely volatile people will spend money as soon as they make it

they will decrease

when many people lose their jobs during a depression, what usually happens to the demand curves for normal goods?

What is 'creative destruction'

when millions of jobs are created which leads to millions of other jobs being destroyed

Economists use the term equilibrium to describe:

when no individual would be better off taking a different action or when no individual has an incentive to change his or her behavior

structurally unemployed

when people loe their job because their skills turn obsolete

Law of Demand

when price increases, demand decreases (downward slope)

general rule of political econ

when small groups are helped by a govt action and large groups are hurt by that same action, the small group tends to lobby far more effectively than the large group; thus, policies tend to reelect the small groups interests

externalities

when some of the benefits/costs are passed onto someone who isn't the buyer or seller

surplus

when supply is greater than demand, you end up with a _____

What is an open market operation

when the fed buys and sells government bonds

what is quantitative easing?

when the fed buys longer-term government bonds or other securities

what is quantitative tightening

when the fed sells longer-term government bonds or other securities

a primary election

when voters choose who they want in office

LRAS Equilibrium

where AD intersects LRAS rGDP = pGDP

SRAS Equilibrium

where AD intersects SRAS Ys = Yd

arbitration

where a conflict is taken to a judge to be decided

compitition

where buissnesses try to make their prices and quality of their products so then people will buy theirs and not the other persons

What is the golden rule of profit maximization?

where marginal costs equal marginal revenue

How are interest rates determined

where the quantity supplied = quantity demanded on the market of loanable funds curve

adam smith

who wrote "The Wealth of Nations?"

it displays more information

why is a demand curve preferable to a demand schedule?

What will a positive shock to spending growth do in the long run?

will increase inflation rate, GDP growth will stay the same and expected inflation will increase by the increase in spending growth

What will a negative shock do to spending growth in the short run?

will shift the AD down, inflation decreases, expected inflation remains same, GDP decreases

Supply-side view of income tax reduction

wise b/c: increase incentive to work increase Ls increase production increase AS

Supply-side view of corporate tax reduction

wise b/c: increase investment create more jobs increase T and K increase AS

input?

work/goods that go into making a good

strike

workers stop working and try to prevent others from working

People respond to reductions in their marginal tax rate by:

working more hours, investing more in education, and taking more entrepreneurial risks, all of which contribute to greater potential output

World trade organization (WTO)

works to reduce trade barriers

WB

world bank

Adam Smith

wrote Wealth of Nations; believed in an invisible hand (laissez-faire)

Demand Elasticity ( what do yes and no's mean)

yes- elastic no-inelastic

pernsion plan

youget part of you paycheck taken out and put into a retirment plan

what are checkable deposits

your checking or debit account

limited liability

your only responsible for the amount of money you invest

What are the factors of production?

• Land • Capital • Entrepreneurial ability

Assumptions of production Possibility curve?

• Only 2 products easily interchangeable • Resources are fixed supply

List the characteristics of a market system.

• Private property rights • Competition( lowers prices, raises quality, and diversity) • Laissez faire: government can't interfere • Dollar votes • Consumer sovereignty • Producer sovereignty • Incentives: system encourages skill, hard work and innovation • Freedom


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