ECN 222

How many Federal Reserve regional banks are there?

12

Inflation Rate

= (GDP deflator in current year - GDP deflator in previous year) / GDP deflator in previous year = ((new money supply - old money supply) / old money supply) x 100

Labor Force Participation Rate

= (labor force / adult population) x 100

GDP Deflator

= (nominal GDP / real GDP) reflects the prices of domestically produced goods and services

Unemployment Rate

= (number of unemployed / labor force) x 100

What is the Velocity Formula?

= (price level x quantity of output or real GDP) / quantity of money V = (P x Y) / M

CPI

= (total basket cost of current year / total basket cost of the base year) x 100

Spending Multiplier

= 1 / (1 - marginal propensity to consume)

GDP in Closed Economy

= C + I + G

National Savings

= GDP - consumption - government spending = Y - C - G = private savings + public savings = investment

Private Savings

= GDP - consumption - taxes = Y - C - T

Real GDP

= SUM(quantity x base year's price) IS corrected for inflation

Nominal GDP

= SUM(quantity x current price) NOT corrected for inflation

Reserves

= demand deposits - loans

Required Reserves

= demand deposits x required reserve ratio

Opportunity Cost

= explicit costs + implicit costs

Total Change in Demand

= initial change in spending x spending multiplier

Real Interest Rate

= nominal interest rate - inflation rate = ((new quantity - original quantity) / original quantity) x 100

Public Savings

= taxes - government spending = T - G

Labor Force

= unemployed + employed

Fiscal Multiplier

M = 1 / R money multiplier = 1 / reserve ratio

What is the Quantity Equation?

M x V = P x Y quantity of money x velocity = price level x quantity of output or real GDP

Foreign Direct Investment

a capital investment that is owned and operated by a foreign entity

Store of Value

a means of transferring purchasing power from the present to the future

Medium of Exchange

an accepted method of payment for goods and services

Foreign Portfolio Investment

an investment that is financed with foreign money but operated by domestic residents

Implicit Costs

any other sacrifices made

"Gains From Trade"

arise from specialization

Cyclical Unemployment

associated with business cycles (recessions/expansions)

CPI Overstates Inflation When It:

assumes the quality of a good doesn't change from year to year doesn't account for the benefits of new goods uses a fixed basket of goods

Money Neutrality

changes in the quantity of money only impact nominal prices, not production

Menu Costs

costs associated with changing price tags, price lists, website content, catalogs, and menus

Robert Fogel

economy historian best known for work suggesting that a significant factor in long-run economic growth is improvements in worker health from better nutrition

What Kinds of Policy Suffer From Lags?

fiscal and monetary policies

Intrinsic Value

has value outside of its use as money (anything with intrinsic value is a commodity)

When are Real and Nominal Variables Independent?

in the long-run aggregate supply and demand

When are Real and Nominal Variables Intertwined?

in the short-run aggregate supply and demand

What is the Source of the Demand For Loanable Funds?

investment

Why is the Federal Reserve an Independent Policymaking Body

members of the board of governors are appointed for 14-year terms

Explicit Costs

monetary amounts paid (wage)

Fiat Money

money whose value derives from government decree

Converting Money Formula

new = original (current year's CPI / original year's CPI)

Frictional Unemployment

occurs because job seekers and employers need time to find one another

Structural Unemployment

occurs because the number of jobs available is insufficient to provide jobs to everyone

What is On the Vertical Axis of a Short-Run Model of Aggregate Demand and Supply?

price level

Unit of Account

provides buyers and sellers a common reference point for valuing goods and services (units/dollars)

What is On the Horizontal Axis of a Short-Run Model of Aggregate Demand and Supply?

quantity of output

Classical Dichotomy

real and nominal variables are separate

"Business Cycle"

refers to the fluctuation in the amount of goods and services produced

Contractionary Policy

results in a decrease in aggregate demand

What is the Source of the Supply For Loanable Funds?

savings

GDP

the market value of all final goods and services produced by resources with the U.S. in a given year = C + I + G + (X - M)

Why is the Long-Run Aggregate Supply Curve Vertical at the Natural Rate of Output?

the price level has no bearing on the economy's long-run level of real output

What Does CPI reflect?

the prices of all goods and services bought by consumers

Nominal Variables

variables that are measured in monetary units nominal wage is $ per hour

Real Variables

variables that are measured in physical units real wage is 1/2 pizza per hour

Inflation Tax

when the government pays its debts by printing money

The Natural Rate of Unemployment Occurs When?

when there is 0% cyclical unemployment