Econ Midterm 2
M2
-everything from M! -money market deposit accounts - savings account deposits -certificates of deposit -miscellaneous near-monies.
discount rate is the interest rate that
the Fed charges banks for loans
comparative advantage:
the ability of a party to produce a particular good or service at a LOWER OPPERTUNITY COST than another
deadweight loss
the fall in total surplus that results from a market distortion, such as a tax
MPC (marginal propensity to consume)=
the fraction of extra income that a household consumes rather than saves.
diminishing returns:
the more capital an economy has, the less additional output the economy gets from an extra unit of capital
fiscal policy
the setting of the level of government spending and taxation by government policymakers (contractionary and expansionary)
GDP multiplier
1/1- MPC
multiplier (mm)=
1/1-MPC
rule of 72
72/ annual rate of return
average income in "n" years=
current average income (1+g)^n
According to the long-run Phillips curve, in the long run monetary policy influences
A. the inflation rate but not the unemployment rate.
producer surplus is located
ABOVE the SUPPLY curve
consumer surplus is located
BELOW the DEMAND curve
Inflation rate
CPI year 1 - CPI year 2 --------------------------- x100 CPI year 1
What is the fundamental basis for trade among nations?
Comparative Advantage
What is the fundamental basis for trade among nations?
Comparative advantage
after importing, the price goes
DOWN
world price goes ____________ after importing
DOWN
∆GDP=
GDP mult X initial spending
The short-run relationship between inflation and unemployment is often called
The Phillips Curve
T or F: A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.
Tru
after exporting, the price goes
UP
world price goes ____________ after exporting
UP
unit of account
a common reference point for valuing goods and services provided to sellers
store of value
a means of transferring purchasing power from the present to the future
To find an amount in today's dollars=
amt. in year T x price level today ---------------------- price level in year T
medium of exchange
an accepted method of payment for goods and services
The Catch-Up Effect
countries that start off poor tend to grow more rapidly than countries that start off rich
M1
currency, traveler's checks, and checkable deposits.
To increase the money supply, the Federal Reserve will...
buy government bonds
According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they
decreased the money supply
required reserves (rr)=
demand deposits x rr ratio (given percentage)
reserves=
demand deposits- loans
under a fractional-reserve banking system, banks
generally lend out a majority of funds depostied
Crowding-Out:
govt raises prices
purchasing power
initial deposit / price
CPI
price of basket of GOS in current year --------------------------------------------- x100 price of basket in base year
expansionary policy
reducing the RR, purchasing govt bonds, lower discount rate
Multiplier Effect
shift in AD could be larger than expected from certain amount
The Phillips Curve:
trade-off between inflation and unemployment (inverse)
GDP deflator
value of all goods and services produced this year using this year's prices / value of all goods and services produced this year using the base year's price
absolute advantage:
when a producer requires FEWER INPUTS than another to produce the same output
MPC=
∆ consumption/ ∆ income
deadweight loss=
∆consumer surplus (neg) + ∆producer surplus + ∆govt revenue
