FINAL textbook

repeal of an investment tax credit effect

demand of loanable funds decrease less investment and less savings decrease the long run growth rate of a country

investment tax credit effect on market for loanable goods

demand of loanable funds increases more investments and more savings in economy

How big is the multiplier effect?

depends on the marginal propensity to consume

Keynesian economics

description of how economy works in short run short run changes can affect real variables

what are the differences in productivity of works attributable to

determinants of productivyt h k n t

what are the differences in growth rate of countries attributle to

differences in productivity of workers

what does money do

easier trading specialization

Other things the same, if workers and firms expected prices to rise by 2 percent but instead they rise by 3 percent, the

employment and production rise.

main trade off people face

equity vs efficency

increase of money supply causes

excess supply of money people get rid of their excess money by spending it on goods or by loaning it increased demand for goods but supply of goods does not increase so prices must rise

lower RRR

expansionary monetary policy lower RRR allows banks to loan out more money

open market purchase

expansionary monetary policy federal reserve purchases of treasury bonds

how do you fix demand shock recession supply shock recession

expansionary policy to increase ad (p back to original) expansionary policy to increase AD(p permently higher)

lower discount rates

extansionary monetary policy lower discount rates make it cheaper for banks to borrow so banks have more money to loan out

Stagflation

falling output and rising prices

Recessions (contractions)

falling real incomes for two or more quaters of RGDP contraction

Adam Smith

father of economics

who sets the RRR

federal reserve bank

open market sales

federal reserve sales of treasury bonds

mutual funds

financial intermediaries institutions that sell shares to the public and use the proceeds to purchase a portfolio of stocks and bonds

stocks and bonds are in what financial institution

financial markets

what do financial institutions consist of 2

financial markets financial intermediaries

sticky wage theory

firms and workers set teh nominal wage in advance based on expected price of the product they sell wages are slow to adjust so firms incrase production bc they are more profitiable

Misallocation of resources from relative-price variability

firms dont all rais prices at the same time so relative prices can vary distors the allocation of resoruces and consumer demand

neo classical misperception theory

firms may confuse changes in price level with changes in relative price of the products they sell is price is above expected price firms may believe its relative price is rising and may increase output and employment

debt financing in the bond market refers to what

firms take money for investment

which is more responsible for lag fiscal or monetary policy

fiscal

an open market sale causes money to

flow out of the economy

are bitcoins money1111111111111111111111111111111111

for now they are not considered money

when there a trade deficit and I>S where does the nation barrow the differnce

foriegners

how to you fix a liquidy trap

forward guidance: raise inflation expectations by commiting to keep interest rates low so ppl spend now quanitative easing: buy larger variaty of financial instruments

mutual fund

fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets financial intermediary

debt financing

funds raised through various forms of borrowing that must be repaid

should we focus on government debt or budget deficits

goverments debt

crowding out

government crowds out firms from being able to get loads due to government deficit

government runs a budget surplus or increases its budged surplus

government savings increase more total savings in the economy supply of loanable funds increase more total savings and more investments in the economy increases the long run growth rate of a country

financial system/institutions

group of institutions in the economy that help match one persons savings with another persons investment moves the economyes scare resources from savers (lenders) to borrowers (firms )

crowding out effect of fiscal poliyc

happens when the interest rate in higher increases in G increase Y which increases money demand this reduced interest rate and therefore investment

Harry buys a bond issued by Dell, Inc., which uses the funds to buy new machinery for one of its factories. In the language of macroeconomics

harry is saving dell is investing

commodity money111111111111

has a value independent of its use as money money with intrinsic value (alternative uses)

when ms is high price level is

high

what are the two reasons NCO could be negative which is the good reason

high investment and low savings high investment

longer term bonds have higher or lower interest rates

higher bc its more risky

longer term to maturity bonds have ___ interest rates

higher interest rates bc they are more risky

when the infaltion rate is higher than expected the real value of the loan is____ than expected which benefits ______

higher than lenders

market for goodsand services sells

house hold buy firms sell

savings by households 2

households deposit money in a bank or mutual fund households buy bonds or stocks

market for factors of production

households sell, firms buy

what was the cause of the great recession

housing market low interest rates and bubble mortgages

Money Demand111111111111111111

how much wealth want to hold in liquid form dependent of P an increase in P reduces the value of money so more money is required

liquidity trap

if interest rates have already fallen to zero monetary policy could no longe rbe effective

gdp what is not included

illegal goods second hand goods intermediate goods good that do not enter a market

If the economy is at point b, a policy to restore full employment would be a. an increase in the money supply. b. a decrease in government purchases. c. an increase in taxes. d. All of the above are correct.

incrase money supply

how does the goverment do expansionary fiscal policy

increase in goverment spending or decrease in taxes

ppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

increased consumption, which shifts the aggregate-demand curve right.

quantity theory of money

increases in money supply cause inflation increase the price level decrease the value of money

open market purchase______ the reserve int the banking system while ____ the money supply

increases reserves in banking system increaes the money suppky

increase in taxes does what to intersest rates repeal an investment tax credit

increases them decreases

how does monetary policy stimulate aggregate demand

increasing interest rate

discouraged workers11111111111111

individuals who would like to work but have given up looking for a job

Hyperinflation what causes it1111111111111111111

inflation exceeding 50% per month excessive growth in money supply

Tax distortions (a cost of inflation)

inflation makes nominal income grow faster than real income so inflation causes people to pay more taxes even when their real incomes dont increase

tax treatment

interest on most bonds is considered taxable income interest on municipal bonds (gov bonds) are tax free

opportunity cost in MD and MS

interest rate

what is the most important reason the AD slopes downward

interest rate effect

According to liquidity preference theory, the opportunity cost of holding money is the inflation rate. t or f

interest rate!

the relationship between the value of money and price level is

inverse

relationship between AD and Price level

inverse realtionship

law of demand11111111111111111111

inverse relationship between price and quantity demanded

why has the US been saving less than invesntmetns

investment in the 1990s increased faster than people were saving due to the information tech boom

relative price

is the price of one good relative to (divided by) another

what does increased goverment spending do to interest rates? how do they fix this?

it increases it using the loanable funds graph they can fix it by increasing money supply by buying bonds which decrease interest rates

The General Theory of Employment, Interest, and Money

keynes 1936

what is the most imporant reason the AD curve is downward

keynes interest rate effect

what are the four payments for the four factors of production

labor-wages entrepreneurs-payments land-rent physical capital-interest

factors of production

land labor physical capital entrepreneurs

who uses stocks11111111111111111111

large corporations to borrow money

how does a permanent tax cut effect AD

large impact bc houses knew they had a lot to spend

The tax cut will have a larger impact on aggregate demand in the economy with larger or smaller marginal propensity to consume

larger

in a demand shock recession ad shifts

left

a tax hike shifts ad to the

left bc ppl dont have as much to spend

increase in taxes shifts ad to the decreas?

left right

government runs a budget deficit or increases budged deficit

less over all savings supply of savings goes down less total savings and less investments in the economy decreases the long run growth rate of a country

what causes a change in supply curve

level of technology price of input seller expectations number of producers

bonds have term to maturity credit risk tax treatment

life of bond the probability that the borrower will fail to pay some of the interest interest on bonds that is taxed

term to maturity what does short date do long date

life of the bond contract short date means less risky long date means more risky

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

liquidity trap

how is there more money in checking accounts than there is actual currency in the economy

loans

classical theory describe the world in the

long run

AS is vertical in the ____________ and upward sloping in the _____

long run short run

in the short run economic activity fluctuates about its111111111111111111111

long run trend

tax free bonds do what to interest rates

lower interest rates

bank activities are designed to allow themselves to11111111111111

make a profit

invisible hand

market guide self interest people to create desirable social outcomes

critics of active policy stabilation believe

may destabiize the economy rather than help it

fuctions of money 3

medium of exchange unit of account store of value

principles of monetary neutrality

monetary policy affect nominal variables but not real variables in the long run

problems with monetary policy

monetary policy occures with a lag fed does not control amount of money that households chose not to put not banks feds cannot control how much exvess reserve banks choose to keep

The immediate effect of a monetary injection increases the economy's ability to supply goods and services. t or f

monetaryt inject does not change ability to supply goods and services

what eliminates the need for a double coincidence of wants

money

unit of account

money allows a way of measuring value in a standard manner each good has aprice in terms of dollar which enable us to compare different value

store of valueNOOOO

money allows people to defer consumption until a later date enables us to transfer our wealth from today to future other assets can do this as welll but money does it the best bc it is liquid

appreciation/depreciation111111111111111111111

money can buy more money can buy less

medium of exchangeNOOO

money is acceptable in a wide variety of places as a form of payment in exchange for goods and services

the great depression

money supply fell and stock prices fell

what caused the great depression

money supply fell and unemployment rose

fiat money111111111111

money that has little or no intrinsic value or alternative use any money that is authorized by a central bank or goverment does not have to be exchanged by the central bank for gold or some other commodity

When the U.S. real interest rate rises, purchasing U.S. assets becomes

more attractive to everyone bc interest rates represent a return on assets

structural unemployment

more people are looking for jobs than jobs are available

what happens to the market for loanable goods when taxes are reduced shelter some interest earned from savings from taxes liek IRA

more private savings more total savings supply of loable funds increases more total savings and investment in economy increases the long run growth rate of a country

what causes a change in quantity demanded

movement along the curve caused by a change in P

M1 money supply

narrowest and most commonly used definition of money supply= currency+ checking account+ travelers checks

in an open econmy where does the supply of loanble funds come from

national savings also investment+NCO

Suppose Jason believes that the government should follow an active stabilization policy when the economy is experiencing severe unemployment. Which of the following policies would he recommend in this case?

needs to shift ad to the right to do this he needs to decrease taxes

the relationship between money demanded and value of money is

negative

If Canadian purchases of foreign assets are less than purchases of Canadian assets by foreigners, then Canada has a___ NCO and a ____ net exports

negative negative

type of relationship between r and QDlf

negative relationship as interest rate goes up QDlf does down as r goes down QDlf goes up

if the money supplu grows at the same rate as real GDP there will be

neither inflation nor delfation

does inflation itself reduce purchasing power

no

does a change in money supply affect Y

no Y is determined by technology and resources

If the real exchange rate between India and Thailand is 1 and purchasing-power parity holds, then 1 Indian rupee buys 1 Thai bhat.

no bc it doesnt mean 1 unit of currency buys another

is total output changed by the money sypply in the long run

no bc they are real variables

are all assets money111111111111111

no bc they arent all medium of exhange

In the definition of the money supply, where do credit cards belong

none bc credit cards are not money they are measure of debt

default in bonds

not paying back the money

spill over effect of unions

one firm gets unionized higher wages means less ppl hired those extra ppl then floods other companies and their wage goes down

what is the most often used fiscal policy

open market operations

3 tools of money policy

open market operations discount rate required reserves ratio

3 ways to increase money supply

open market purchases decreasing the discount rate decreasing the reserve requirements

what do the 3 SRAS theories have in common

output deviates from its natural rate when the actual price level deviates from the price level people expected

free trade111111111111111

outward polices work beset

what are examples of automatic stabalizers

personal income tax unemployment insurance

the relationship between money and P is

positive

type of relationship between r and QSlf

positive relationship as interest rate goes up quantity of supply of loanable funds goes up ' if it goes down so does QSlf

Suppose that Thailand's saving exceeds its domestic investment. In this case, Thailand has

postitive NCo and postive net exports

draw a graph to show a stock market crash

ppl feel they lost money so they spend less ad shifts left firms respond first to recession by decreasing SRAS in order to get back to equalibrium SRAS must shift right

Normal goods vs inferior goods1111111111111111111

ppl prefer normal goods and will replace inferior goods if they can afford it

money demanded depends on what

price level

Pigou's wealth effect

price level declines consumers feel wealthier so they increase a demand for goods and s

Keynes Interest Rate Effect

price level declines so ppl buy bonds and assets decrease in interest rate increase in investment goods increase in quannity demand of g and s

mundell Fleming exchange rate effect

price level decreases interest rate falls domenstic and investment in foreign contries increase the US dollar depreciates domenstic goods become cheaper net exports increase and demand increases

what happens to prices unempoyment and out put in expansions

price rises unemployment back to orignial y the same

investment

purchase of physical capital by firms

investment by firms1111111111111111111

purchase of physical capital by firms

forward guidance

raise inflation expectations by committing to keep interest rates low used in liquidity trap

real exchange rate

rate at which goods and services of ones country trade for the goods and services of another

nominal exchange rate

rate at which ones countries currenty trades for another

discount rate

rate charged by the red to banks to borrow money

Are relative prices real or nominal variables?11111111111111111111

real

The model of aggregate demand and aggregate supply explains the relationship between

real GDP and price level

real versus normial variables111111111111111

real are adjusted for inflation

theoyr for why PPP does not always hold practice

real exchange rates flucuate

real interest rate

real interest rate = nominal interest rate - inflation rate

variables that infuence nco

real interset rates paid on foriegn assets real interest rates paid on domestic assets percieved risk of holding foriegn assets goverment policies affecting ownership

what did the govermnet do in the great recession

reduce fed funds rate to zero purchased mortgage backed securites injected capital into banking system increased gov spending and reduced taxes

an increase in R ______ the quanity of G and S demanded

reduces

how can the feds raise interst rates

reducing the money supply

what does the fed do

regulate banks acts as lenders of last resort to banks

Shoeleather Cost of Inflation

resources wasted when inflation encourages people to reduce their money holdings

seven board of governors how long do they serve renewable?

responsible for overseeing the FED they are appointed by the president and serve 14 year nonrenewable

If countries that imported goods and services from the United States recovered from recession, we would expect that U.S. net exports would what does it do to ad

rise and ad shift right

If the nominal exchange rate remains at 30 Thai bhat per U.S. dollar while prices in Thailand rise more slowly than in the United States, then the real exchange rate of Thai goods for U.S. goods

rises

advantages of mutual funds 3

risk diversification allows small time savers to have diverse portfolio access to professional money manager skills

risk lover vs risk averse111111111111111111

risk lover would prefer stocks risk averse means wanting to avoid stocks

equity finance

sale of stock by firms to raise money

equity financings

sale of stocks by firms to raise money

a change in money supply causes nominal GDP to change by the

same percentage

increase in interest rate makes ppl want to

save more money and have less money demand

In the language of macroeconomics, a higher interest rate induces people to

save more, so the supply of loanable funds slopes upward.

who are lenders and borrowers in the financial system

savers=lenders borrowers= firms

what government polices can effect the market for loanable funds

saving incentives investment incentives government budget deficits and surpluses

Cutter is spending less than he's earning, and he uses his unspent income to buy some stock from Phi Optics Corporation. A macroeconomist will call Cutter's act:

savings

what happens if ppl adopt a live for today approach

savings go down supply of loanable funds decrease less total savings and less investments in the economy decreases the long run growth rate of a country

what happens to the loanable funds graph when a goverment runs a surplus

savings goes to the right

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by purchasing government bonds. This action will shift aggregate demand to the right. b. purchasing government bonds. This action will shift aggregate demand to the left. c. selling government bonds. This action will shift aggregate demand to the left. d. selling government bonds. This action will shift aggregate demand to the right.

selling government bonds which will shift aggregate demand to left bc ppl want to save more bc money supply becomes lower as money goes from bank to gov

restore full employment means

send back the curves to equalibrium

fiscal policy

setting the level of government spending and taxation by government policy makers

aggreate demand and suppyl is used to describe short or long run fluctuations

short run

theory of liquidity preference

short run and supposes that interest rate adjust to bring money supply and money demand into balance interest rate effects how much people want to hold in liquid form

cyclical unemployment

short run fluctuations in unemployment rate deviation from the natural rate

business cycle1111111111111111111

short term fluctuations in economic activity

how does a temorary tax cut effect ad

small impact bc ppl know its only here for a little

deficits

spend more money today than you made today

normative statement

statement which describes how the world should be option

Menu costs help explain

sticky price theory

Why does the SRAS curve slope upward?\ what 3 theories

sticky wage theory, sticky price theory, misperceptions theory

S and P 500111111111111111

stock index 500 large cap us stocks which combine for about 80 percent of all us market Capitalization

down jones111111111111111111

stock index weighted average of stock prices of the 30 biggest US companies

stocks vs bonds which is riskier1111111111111111111111

stock ppl claim ownership to the firm bonds used by large corporation ro gov stocks

Which function of money is illustrated when Mia deposits money in her piggy bank?

store of value

unions cause

structural unemployment

efficiency wages cause

structural unepmployment but can make works work more effiencly

debt

sum of all previously incurred deficits and interest

banks business model

take in deposit from savers pay interest make loan to borrowers charge interest

investment tax credit111111111111111111

tax credit given for purchase of equipment firms wish to invest more

tax free bonds do what to interest rate

tax free bonds cause for lower interest rates they will offer higher rates if you are being taxed

what causes shift of supply curve

technology price of inputs sellers expectations number of producers

what does interest in the bond market depend on

term to maturity credit risk tax treatment

principal in bonds1111111111111111111

the amount borrowed

natural rate of output (potential output or full employment output)

the amount of output the economy produces when unemployment is at its natural rate

velocity of money

the average number of times each dollar in the money supply is used to purchase goods and services the rate at which money changes hands

Why is Ms a vertical line?111111111111111

the central bank sets the money

bank profit is determined through

the difference in interest rates that they pay on deposit and make on loans

LiquidityNOOOO

the ease at which an asset can be exhanged into an economy main medium of exchange

market failure

the economy fails to allocate resources efficiently on its own externalities one firm has too much market power

output gap why does it occure

the gap between real GDP and potential GDP bc ppl arent rational in short run

the inflation fallacy refers to

the incorrect belief that inflation robs people of their purchsing power over the long term workers get payed more and

People choose to hold a larger quantity of money if

the interest rate falls, which causes the opportunity cost of holding money to rise.

required reserve ration RRR

the minimum fraction of deposits that banks are required to keep as reserves

natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

Fisher effect111111111111111111

the one-for-one adjustment of the nominal interest rate to the inflation rate

Credit Risk111111111111111111111

the probability that the borrower will fail to pay some of the interest or principal

catch-up effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

inflation tax

the revenue the government raises by creating money when the gov prints money the price level rises and the dollar are less valurable so you need more

human capital11111111111111

the skills and knowledge gained by a worker through education and experience

what happesn if the goverment does not interfere with recessions

the sras will shift left to met at e but prices are now lower

Federal Open Market Committee (FOMC)

the systems principal monetary policy making body

classical dichotomy

the theoretical separation of nominal and real variables

aggregate supply curve

the total quanity of goods and services firms produce and sell at any given price level

what does a change in money sypply do to price level

there is an equal and porportionate change in price level

how do they compensate for longer date to maturity and higher risk bonds

they provide higher interest rates

how are stock prices determinded

though supply and demand in organized stock exchanges demand is determined by peoples perception of the corporations profitability in the future

how do households fund investments

through financial systems households keep their money there and banks loan it out

a tax credit will shift ad a repeale of tax credit will shift ad

to right left

what is the primary reason people hold money

to use it as medium of exchange

GNP (Gross National Product)

total dollar value of goods & services produced by a nation nationals

are we currently running a trade deficit or surplus

trade deficit

IRA111111111111111

traditional IRA (individual retirement account) allows individuals to direct pretax income toward investments that can grow tax-deferred

An investment tax credit shifts the demand for loanable funds right and raises the interest rate. t or f

true

mo

two traders are willing to exchange their products directly needed for a barter system to work

index funds

type of mutual fund with a portfolio constructed similar to a market index over time they have higher returns than their actively managed

frictional unemployment(job search)

unemployment that occurs when people take time to find a job

a shortage causes a ____ presure on price a surplus causes a ___ pressure on price

upward donwward

financial markets BOND MARKET used by who

used by large corporations federal state or local goverments to barrow money

demand for money is low when

value is high

monetary contraction11111111111111111111

value of money increases the price level decreases

why do we prefer M1

we are mostly interested in moneys role as the medium of exchange

how can the goverment pursue encourage growth in long run how do we increase productivity rates

we need to increase investments we can fund investmetns by encouraging savings

special cost of unexpected inflation

when actual inflation is higher or lower than expected redistributes wealth among debtor sand creditors

when does debt increase1111111111111111

when we increase borrowing to finance deficits

equilibrium value of money1111111111111111

where MS and MD cross

bank run11111111111111111

widespread panic in which great numbers of people try to redeem their paper money

trends of labor force over time women and why

women are participating more in labor force men went down changing political attitudes new technologies improved birth control

a big expansionary ad shift

ww2 boom

are banks a good option for those who are risk averse

yes

are debt cards money11111111111111

yes

are there persistent trade deficits111111111111111111111

yes

are unpaid workers in a family business employed?

yes

is the velocity of money stable in the long run

yes

In 2016, the economy produced Y = 300 cars; the money supply is $600,000, and each car sells for $10,000. The nominal GDP is:1111111111111111111111111111111111111111111

$3,000,000 and V = 5

variables that influence net exports

-Consumers' preferences -Prices of goods at home/abroad -Incomes of consumers at home/abroad -The exchange rates at which foreign currency trades for domestic currency -Transportation costs -Gov. policies

the money supply demand diagram

-as the value of money rises, the price level falls -the Fed sets MS at some fixed value, regardless of P -a fall in value of money (or increase in P) increases the quantity of money demanded -P adjusts to equate quantity of money demanded with money supply

two markets in the circular flow diagram

-the market for goods and services -the market for "factors of production"

3 facts about economic fluctuations

1. Economic fluctuations are irregular and unpredictable 2. Most macroeconomic quantities fluctuate together 3. As output falls, unemployment rises

Why the AD Curve Slopes Downward1111111111111111111111

1. wealth effect 2. interest rate effect 3. exchange rate effect

Assume that the nominal exchange rate (e) = 10 pesos per $. The price of a tall Starbucks Latte: P = $3 in U.S., P* = 24 pesos in Mexico Calculate the real exchange rate, measured as Mexican lattes per U.S. latte

1.25

Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 4,000, consumption equals 10,000, and government expenditures equal 3,000. What are private saving and public saving?

1000 and 1000

If the reserve requirement is 10%, how much is the total increase in checking account deposits caused by an initial deposit of $1,000

10k

central bank of united states how many district/reginal banks

12

The manager of the bank where you work tells you that the bank has $500 million in deposits and $350 million dollars in loans. If the reserve requirement is 5 percent, how much is the bank holding in excess reserves?

125

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

19.5

how much does real GDP grow on average1111111111111111111111111

3 percent

Assume that the nominal exchange rate (e) = 10 pesos per $. The price of a tall Starbucks Latte: P = $3 in U.S., P* = 24 pesos in Mexico What is the price of a U.S. latte measured in pesos

30 nominal exchange rate* domestics price

If U.S. residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of U.S. assets us net captial outflow is

300 billion capital is flowing out of us

how long does the chair serve renewable?

4 years yes

how often does the FOMC meet

6 weeks in DC

the federal open market commitee is made up of

7 board of gov menmbers president of NY federal reserve bank 4 of the other regional bank presidents

Suppose the banking system currently has $100 billion in reserves, the reserve requirement is 10 percent, and excess reserves amount to $5 billion. What is the level of deposits?

950 95=required to reserve 1/.1 * 95

Compared to bondholders, stockholders A. face higher risk and have the potential for higher returns. B. face higher risk but receive a fixed payment. C. face lower risk and have the potential for higher returns. D. face lower risk but receive a fixed payment.

A

fractional reserve banking system

A banking system in which banks keep less than 100 percent of deposits as reserves

which factor can the goverment only effect

AD

consumer firm optimism increase draw graph

AD shift right bc they feel more confident in buying then sras follows

expansionary fiscal policy shifts

AD to the right

Wealth of Nations

Adam Smith

command economy111111111111111111

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

mixed economy111111111111111111

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

CPI versus GDP deflator

CPI uses a fixed basket only includes consumption goods bought by households includes the price of imports

market economy

Economic decisions are made by individuals or the open market.

open market operations

FOMC buys and sells government bonds

FDIC Insurance11111111111111

Federal Deposit Insurance Corporation that protects the money in a bank account backed by US goverment covers the depositors of failed depository institution dollar for dollar up to 250000 per deposit

complementary goods1111111111111111

Goods that are commonly used with other goods if you buy one you want to buy the other

junk bonds

High-risk, high-interest bonds

Why is the financial system important?

Important for economic growth as it provides funds to firms for capital investment, training workers, and new technologies

disposable income

Income remaining for a person to spend or save after all taxes have been paid

confusion and inconvenience (cost of inflation)

Inflation changes the yardstick we use to measure transactions. Complicates long-range planning and the comparison of dollar amounts over time

Current chairman of the Fed previous chair?

Jerome Powell yanet yellen

sticky price theory

Many prices are sticky in the short run due to menu costs

natural resources11111111111111

Materials or substances such as minerals, forests, water, and fertile land that occur in nature and can be used for economic gain

capital outflow is when

NCO is greater than 0

capital inflow

NCO<0

net foreign investment means

Net capital outflow

lender of last resort

One of the functions of the Fed: It provides funds to troubled banks that cannot find any other sources of funds.

in the long run what does Pe and Yn equal111111111111111111111111

P N

positive statement

Positive statements are objective statements that can be tested, amended or rejected by referring to the available evidence.

substitute goods1111111111111111

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

rise of oil prices draw graph

SRAS shift left bc decrease in output

supply shock recession11111111111111111111111

SRAS shifts left

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most a municiple bond and corporate bond

The 2 percent bond is a municipal bond, and the 5 percent bond is a corporate bond.

Marginal Propensity to Consume (MPC)

The fraction of any change in disposable income spent for consumer goods; equal to the change in consumption divided by the change in disposable income

Law of Supply11111111111111111111

The positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.

expenditure method of calculating gdp

Y=C+I+G+NX

Foreign Direct Investment1111111111111111

a capital investment that is owned and operated by foreign entity

bonds111111111111111111

a certificate of indebtedness

risk averse risk lover1111111111111111

a dislike of uncertainty like want lower interst rates they prefer higher interset ratesand stocks

The Money Supply-Demand Diagram

a fall in the value or increase in p increases the quanity of money demanded curved line down

Purchasing Power Parity law of one price why does this not happen?arbitrage

a good should sell for the same price in all markets arbitrage by selling a good in another market you have to pay for transportation costs

financial markets

a place where savers(households) directly provide funds to borrowers(firms) bond or stock market households are lending money directly to firms when they buy bonds and stocks firms are borrowing money directly from households in order to invest in physical capital

bank panic1111111111111111

a situation in which many banks experience runs at the same time

what will cause for a rise in the real interest rate in the market for loanable funds

a storage of loans

national income accounting

a system that collects macroeconomic statistics on production, income, investment, and savings

how does a price level decrease effect AD? MD? people will try to ___their money holdings the interest rate will____ this makes residential and buisness investmetn to _____

ad shift left md shift left lower lower investment and demand for g and s goes up

contractionary fiscal policy shifts

ad to left

the multiplier effect of ad shifts

additional shifts in AD that result when fiscal policy increases income and thereby increases consumer spending

Reserves111111111111111

amount of deposits that banks keep in their vault or with the federal reserve bank

foreign portfolio investment1111111111111111

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

how does keynes explain shifts in AD and output

animal spirits cause waves of pessimism and optimism

money

any asset that people are willing to accept in exhange for goods and services and payment of debt

why would the AD curve shift

any changes in C I G or NX will shift a change in P will NOT

Why the Long-Run Aggregate-Supply Curve Might Shift

any event that changes the determinats of Y physical captital human captital labor force natural resources technology

Why does the short-run aggregate supply curve shift

any that shifts the LRAS

no

anything of value owned by a person or firm reflection of ones wealth

physcial capital1111111111

anything that helps produce the product

how does someone join the board of governors

appointed by the president and approved by the senante

nominal vairables

are measured in monetary units $ 100$ worth of milk

real variables

are measured in physical units adjusted for inflation 10 gallons of milk

diminish returns to capital

as capital rises the extra output from each additional unit of capital falls

stock index

average of a group of stock prices

NASDAQ111111111111

average of more than 3000 stock prices international companies

financial intermediaries

banks and mutual funds

fractional reserve system

banks are required to keep a fraction of their deposits as reserves

why does the us barrow so much abroad

bc we recieve lower interest rates

John Maynard Keynes

believed in keynias theory short run econ

municipal bonds

bonds from goverment

if inflation is higher than expected who benefits loaners or borrowers

borrowers bc fisher rate equations loaners are earning less real interst rate than they thougt

business cycle vs trend growth

business cycles are peaks and troughs in teh economy trend growth is the over all growth of economy

what explains the tendency for actual GDP to deviate from potential GDP

business cylce

quantitative easing

buy a larger variety of financial instrumetnts

how can the goverment effect ad 5 ways

by chaning money supply increase money supply change RRR decrease discount rate ncrease goverment spending decrease taxes

Which of the following shifts the short-run aggregate supply curve to the right? a. a decrease in the actual price level b. an increase in the actual price level c. a decrease in the expected price level d. an increase in the expected price leve

c

minimum wage

causes structural unemployment

automatic stabilizers

changes in fiscal policy that automaticlly go into effect during a recession taxes automatically drop

sectoral shifts

changes in the composition of demand across industries or regions of the country can cause frictional unemployment

demand deposit

checking account deposits in banks

stock111111111111111111

claim to partial ownership in a firm

adam smith was a ____ economis

classical

what type of theory is quanity of money theory is it long run or short run theory

classical theory that explains long run behavior

If prisoners of war use cigarettes as money, then cigarettes are

commodity money

types of money11111111111

commodity money fiat money

how would the fed change the AD how do you decrease Federal funds rate increase? what is the federal funds rate

conductt open market purchases in a way so that the new equalibrim federal funds rate would decrease open market sales the interest rate banks charge each oteh on short term loans

higher RRR

contractionary monetary policy higher RRR results in less money loaned out by banks to the general public

higher discount rates do what to the money supply

contractionary monetary policy higher discount rates make it more expensive for banks to borrow so banks have less money to loan out

do corporate or municipal bonds pay higher intererst

corporate bc interest made is being taxed

menu cost

cost of changing price listings printing new menus

opportunity cost

cost of something is what you give up to get it

Monetary policy affects the economy with a long lag, in part because a. proposals to change monetary policy must go through both the House and Senate before being sent to the president. b. monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly. c. changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance. d. changes in interest rates primarily influence investment spending, and firms make investment plans far in advance

d

The value of the goods and services Australia purchases from the U.S. are less than the value of goods and services the U.S. purchases from Australia. The U.S. has A. positive net exports with Australia and a trade surplus with Australia. B. positive net exports with Australia and a trade deficit with Australia. C. negative net exports with Australia and a trade surplus with Australia. D. negative net exports with Australia and a trade deficit with Australia

d

what 3 things do all bonds have

date to maturity (when the bond will be repaid rate of interest (price of borrowing) principal (amount borrowed)

When the Fed sells government bonds, the reserves of the banking system a. increase, so the money supply increases. b. increase, so the money supply decreases. c. decrease, so the money supply increases. d. decrease, so the money supply decreases.

decrease and so the money suppyl decreases as well

Assume banks hold no excess reserves. If the Fed increases the reserve ratio from 5 percent to 10 percent, then the money multiplier

decrease from 20 to 10

how does gov do contractionary fiscal policy

decrease goverment spending or increase taxes