Waldonomics Exam Review xoxo

budget surplus

occurs when revenues exceed outlays. more funds flowing in than out.

employed workers

people currently holding a job in the economy, either full time or part time

Inefficient points on the PPF

points inside the PPF, unemployment, unused buildings. (D)

efficient points on PPF

points on the PPF curve (a,b,c)

Unattainable points on PPF

points outside the PPF (E)

calculating price index

price index = current basket price/basket price in base year x 100

a store of value

something that keeps its value if it is stored rather than used

full employment

4-6% unemployment (includes only frictional and structural)

labor force participation rate formula

(#labor force/# of working age population)100

examples of macroeconomics

Inflation, economic growth and productivity, unemployment, interest rates, aggregate demand and supply.

Scarcity

Limited quantities of resources to meet unlimited wants

responsibilities of Fed

Monetary policy:controls the size of the M. Central banking: is a banks bank Bank regulation: ensures the health of the banking system

Why is the PPF downward sloping?

Must give up one good to increase production of another

currency

Coins and paper bills used to buy services

expansionary fiscal policy

government increases spending or decreases taxes to stimulate or expand economy.

Microeconomics

individual units that comprise the economy.

current chairman of the Fed

Jerome H. Powell

absolute advantage (inputs)

can produce absolutely faster with the same inputs

Calculating Inflation Rate

index 2 - index 1/ index 1 x100

fiscal policy complications

lag times crowding out negative net export effect savings shifts

price floor

legally established minimum price for a good or service

commodity-backed money

money that can be exchanged for a commodity at a fixed rat. silver certificates, first half of the 20th century.

commodity money

money that is an actual physical commodity, such as gold, silver, or tobacco

fiat money

no value except as the medium of exchange. no intrinsic value.

labor force formula

# of employed + # of unemployed

unemployment rate formula

(#unemployed/#labor force)100

Total world exports of goods and services are now _______ about the size of world gross domestic product (GDP)

One-fourth

formulas for reserves

TR= RR+ER PMC= Mn x ER TMS= PMC + DD MM= 1/.RR

interest rate on the demand side

the cost of borrowing. higher interest rates mean a firm pays more to borrow.

opportunity cost

The highest-valued alternative that must be given up to engage in an activity.

Macroeconomics

The study of the broader economy.

discount rate

banks borrow from the fed

why treasury securities?

- Funds go directly into the market for loanable funds. - Can buy and sell large volumes daily ($500 billion)

Importance of the quantity of money

-Affects the ease of making purchases -Affects price level

important institutions for economic growth

1. Political stability and rule of law 2. Private property rights 3. Stable money and prices 4. Competitive markets 5. Efficient taxes 6. International trade 7. Flow of funds across borders

open market operations

The purchase or sale of bonds by a central bank. Fed buys securities to increase money supply, and sells securities to decrease the money supply. BUYING=BIGGER selling = smaller Fed typically buys and sells U.S. Treasury securities.

vault cash

the currency a bank has in its vault and cash drawers

Government budgets

a budget must have plans for both incoming and outgoing funds. government budget is a plan for both and spending and raising funds for the government.

PPF (Production Possibilities Frontier)

a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced

The phillips curve

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

disinflation

a decrease in the rate of inflation. example, inflation going from 3% one year to 1.5% the next year. still inflation just less of it.

fractional reserve banking system

a fraction of deposits are held in reserve, the rest is loaned out.

deflation

a general decrease in price level. our economy hadn't experienced deflation in over 60 years until 2008-2009.

inflation

a general increase in price level. expressed as a percentage change in the previous years price level.

demand curve

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

loanable funds market

a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders

price ceiling

a legally established maximum price for a good or service

a unit of account

a means for comparing the values of goods and services

Causes of economic growth

additional resources new technology strong institutions

Law of Demand

all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

Law of Supply

all other things equal there is a direct relationship between price and quantity supplied. direct: Two variables move in the same direction

money multiplier

also called the 'deposit expansion multiplier'. It is found by dividing 1 by the reserve ratio. (1/.RR)

medium of exchange

an item that buyers give to sellers when they want to purchase goods and services

price controls

attempt to set or manipulate prices through government involvement in the market. meant to ease perceived burdens of the population.

absolute advantage (outputs)

can produce absolutely more with the same inputs (more efficient)

movement along the supply curve

caused by a change in the price of the good, direct relationship between price and quantity supplied

shift in supply

caused by non price factors, entire supply curve will shift to the left or right.

producer surplus

difference between willingness to sell and the price actually received for that good.

willingness to sell determined by:

direct costs and opportunity costs

the federal reserve

established in 1913 as central bank of U.S

macroeconomics and GDP

gives us a measurement that we can use to analyze economic growth. can compare regions or nations. not perfectly straightforward, come qualities of life not easily captured by numbers.

budget deficit

occurs when outlays exceed revenues, more funds flowing out than in.

crowding out

occurs when private spending falls in response to increases in government spending. Implications: overall spending may not increase, government now has higher deficit and debt.

excess reserves

the $ value of reserves a bank holds above the required reserves.

required reserves

the dollar value of the percentage of deposits that must be held and not loaned out. (example: 10% of $100 is $10)

interest rate

the price of loanable funds.

quantity demanded

the amount of a good that buyers are willing and able to purchase

For country A, an import is a good produced in:

Country B and purchased by residents of country A

Quantity supplied

the amount of the good or service that producers are willing to sell at the current price

For country A, an export is a good produced in:

Country A and purchased by residents of country B

An economy that does not trade with the rest of the world is a(n):

Closed Economy

C+Ig+G+(X-M)=GDP

Consumption spending Investment spending (purchase of capital) Government purchases Exports Imports

M2 money supply

Includes all of M1 money supply plus most savings accounts, money market accounts, and certificates of deposit. = M1 + saving accounts.

examples of microeconomics

Individual choosing to take a job in Florida or California. Couple decides to start a family. Firm choosing to open another factory. Effect of government intervention on a single market.

Unemployed workers

Out of work but actively seeking work.

why are we unable to produce certain combinations

Scarcity and limited resources

supply shifters (stores)

Size of the market (#sellers) Technology Other goods (output alternatives Resource costs Exceptions of future price Subsidies, taxes and regulations

shifts in the SRPC and SRAS

The SRPC and LRPC are not static, they can shift left or right. SRPC is MARRIED to the SRAS curve on our AD/AS Model of the Economy. (Think mirrors) WHATEVER shifts the SRAS curve [RAP] causes the SRPC to shift as well. However they shift in OPPOSITE directions!!!

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

Consumer Price Index (CPI)

a measure of the price level based on the consumption pattern of a typical consumer. Goal: include everything purchased by a typical consumer to get a measure of the cost of living.

demand schedule

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

balance sheet

how a bank accounts for its debits and credits under assets and liabilities.

discouraged workers

jobless individuals who have given up looking for work.

reserve requirement

the % of DD that may not be loaned, must be held in reserve. (example: 10%)

Bureau of Labor Statistics (BLS)

the government agency that reports inflation and unemployment data. determines how much weight to put on certain consumer prices.

Contractionary fiscal policy

the government decreases spending or increases taxes to slow the economy. used to pay off government debt. keep economy from expanding beyond long run capabilities.

deadweight loss

the loss of consumer and producer surplus from a tax

Gross Domestic Product (GDP)

the market value of all final goods and services legally produced within a nations borders during a given year.

M1 money supply

the money supply measure composed of currency and checkable deposits. = currency + DD (demand deposits)

loanable funds "law of supply"

the quantity of savings rises when the interest rate rises. the interest rate is a reward for saving.

reserve ratio

the reserve requirement expressed in 'decimal' form (example: .10)

Economics

the study of how people allocate their limited resources to satisfy their unlimited wants. the study of how people make decisions.

market demand

the sum of all the individual quantities demanded by each buyer in the market at each price

total reserves

the total amount of cash a bank 'owns'. It is the vault cash plus the amount on reserve at the FED bank.

fiscal policy

the use of government spending and taxes to influence the economy. taxes and spending changes must be legislated and approved by congress and the president.

Real Gross Domestic Product (Real GDP)

the value of all final goods and services legally produced within a nations borders during a given year adjusted for inflation.

inverse

two variables move in opposite directions.

Frictional Unemployment

unemployment that occurs when people take time to find a job

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves