Econ 20B Final

Total income of everyone in the economy and the total expenditure on the economy's output of goods and services

The study of how households and firms make decisions and how they interact in markets

The study of economy-wide phenomena including inflation, unemployment, and economic growth.

Consumption+Investment+Government Purchases+Net Exports

Spending by households on goods and services, with the exception of new housing.

Spending on capital equipment, inventories, and structures, including household purchases of new housing

Spending on goods and services by local, state, and federal governments.

Spending on domestically produced goods by foragers (exports) minus spending on foreign goods by domestic residents (imports)

1) The economy is producing a larger output of goods and services. 2) Goods and services are being sold at higher prices

The production of goods and services valued at current prices

The production of goods and services valued at constant prices

A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Real GDP

Leisure, the value of almost all activity that takes place outside of markets, quality of the environment, distribution of income.

A measure of the cost of the goods and services bought by a typical consumer

A measure of the cost of a basket of goods and services bought by firms

To measure changes in the cost of living

1) substitution bias: when prices change from one year to the next at different rates. 2) intro of new goods. 3) quality change

1) GDP: products produced domestically, CPI: products bought by consumers. 2) GDP D: products currently produced, CPI : fixed basket of good

The automatic correction by law or contract of a dollar amount for the effects of inflation

Interest rate as usually reported without a correction for the effects of inflation

Interest rate correct for the effects of inflation

The quantity of goods and services produced from each unit of labor input

Physical Capital, Human Capital, Natural Resources per Worker, Technological Knowledge

The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases.

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

Investment from Abroad, Education, Health Nutrition, Prop Rights, Political Stability, Free Trade

The group of institutions in the economy that help to match one person's saving with another person's investment

Financial institutions through which savers can directly provide funds to borrowers

A certificate of indebtedness

A claim to partial ownership in a firm

1) Term. 2) Credit Risk, 3) Tax Treatment

Equity Finance

Debt Finance

Financial institutions through which savers can indirectly provide funds to borrowers

An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

Bond Market and the Stock Market

Banks and Mutual Funds

1) all people with small amounts of money to diversify holdings. 2) Give ordinary people access to skills of professionals

The total income in the economy that remains after paying for consumption and government purchases (Y-C-G)

The income that households have left over after paying for taxes and consumption (Y-C-G)

The tax revenue that the government has left after paying for its spending (T-G)

An excess of tax revenue over government spending T > G

A Shortfall of tax revenue from government spending T < G

The Market in which those who want to save supply funds and those who want to borrow to invest demand funds

Saving

Investment

A decrease in investment that results from government borrowing

The total number of workers including both employed and the unemployed

The percentage of the labor force that is unemployed

The percentage of the adult population that is in the labor force

The normal rate of unemployment around which the unemployment rate fluctuates

The deviation of unemployment from its natural rate

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

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills. Job Search

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

Job search, Minimum wage laws, unions, and efficiency wages

A Government program that partially protects worker's incomes when they become unemployed

A worker association that bargains with employers over wages, benefits, and working conditions

The process by which unions and firms agree on the terms of employment

The organized withdrawal of labor from a firm by a union

Above-equilibrium wages paid by firms to increase worker productivity

Worker Health, Worker Turnover, Worker Quality, Worker Effort

The set of assets in an economy that people regularly use to buy goods and services from other people

1) Medium of exchange, 2) Unit of Account, 3) Store of Value

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

The Yardstick people use to post prices and record debts

An item that people can use to transfer purchasing power from the present to the future

The ease with which an asset can be converted into the economy's medium of exchange

1) Commodity Money, 2) Fiat Money

Money that takes the form of a commodity with intrinsic value (EX: gold)

Money without intrinsic value that is used as money because of government decree (EX: paper money)

The paper bills and coins in the hands of the public

Balances in bank accounts that depositors can access on demand by writing a check

1) Currency, 2) Demand Deposits

1) Held abroad in foreign countries. 2) Held by drug dealers, tax evaders, and criminals

The central bank of the US

An institution designed to oversee the banking system and regulate the quantity of money in the economy

The quantity of money available in the money supply

The setting of the money supply by policymakers in the central bank

1) Regulate banks and ensure the health of banking system 2) Control the quality of money

Deposits that banks have received but not have loaned out

A Banking system in which banks hold only a fraction of deposits as reserves

The fraction of deposits that banks hold as reserves

The amount of money the banking system generates with each dollar reserves

The resources a bank's owners have put into the institution

The Use of borrowed money to supplement existing funds for purposes of investment

The ratio of assets to bank capital

A government regulation specifying a minimum amount of bank capital

Banks had too little capital after losing some assets (mortgage loans). Made banks reduce lending. Caused credit crunch. Came out of taxes

1) Open-Market Operations. Buys to add to m.s, sells to reduce m.s. 2) Fed Lending to Banks. increase discount rate to less m.s, decrease

The purchase and sale of U.S government bonds by the Fed

The interest rate on the loans that the Fed makes to banks

Regulations on the minimum amount of reserves that banks must hold against deposits

1) Reserve Requirements. Increasing requirement, less money supply. 2) Paying Interest on Reserves. Higher the i.r, more banks will save

1) Fed does not control the amount of money that households choose to hold in banks. 2) Fed doesn't control amount bankers choose to lend

The interest rate at which banks must make overnight loans to one another

To explain the long run determinants of the price level and inflation rate

1) Money Supply, 2) Money Demand, 3) Monetary Equillibrium

A Theory Asserting that the quantity of money available determines the price level and that the growth in the q of $ available=inflation rat

Variables measured in monetary units

Variables measured in physical units

The theoretical separation of nominal and real variables

The proposition that changes in the money supply do not affect real variables

M X V= P X Y, relates quantity and velocity of money with dollar value of output of g and s's

The revenue the government raises by creating money

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

1) Shoeleather Costs 2) Menu Costs. 3) Relative-Price Variab+Misallocation of Resources 4) Tax Distortions 5) Confus 6) WealtRedistribution

The resources wasted when inflation encourages people to reduce their money holdings (time and convenience)

Inflation does not in itself reduce people's real purchasing power. Buyers buy less, but sellers gain more

The cost of Changing prices

When inflation distorts relative prices, consumer decisions are distorted, and markets are less able to allocate resources to their best use

Exaggeration on taxes of capital gains and nominal interest income

Indexing (rewriting) the tax code)

Debtors

1) They are Irregular and Unpredictable 2) Many Macroeconomic Quantities Move Together 3) As Output Falls, Unemployment Rises

The model that most economists use to explain short-run fluctuations in economic activity round its long-run trend

A curve that shows the q of goods and services that households, firms, the government, and customers abroad want to buy at each price level

A curve that shows the quantity of goods and services that firms choose to produce and sell at each price level

1) Consumption: The Wealth Effect. 2) Investment: Interest-Rate Effect. 3) Net Exports: The Exchange Rate Effect

The production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

The production of goods and services that an economy achieves in the long run when unemployment is at its normal rate

1) Change in Labor 2) Change in Capital 3) Changes in Natural Resources 4) Changes in Technological Knowledge

When the actual price level in the economy deviates from the price level that people expected to prevail

1) Sticky Wage Theory 2) Sticky Price Theory 3) The Misperceptions Theory

The Great Depression and World War II

Keyne's Theory that the interest rate adjusts to bring money supply and money demand into balance

1) Money Supply. 2) Money Demand. 3) Equilllibrium in Money Market

The Setting of the level of government spending and taxation by government policymakers

The additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby incases consumer spending

The offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending