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1) market value of the final goods and services produced in an economy during a given time period 2) GDP 3) measure value of an economy's production |
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1) also known as "natural gross domestic product" 2) refers to the highest level of real GDP output than can be sustained over the long term 3) there is a limit because of natural and institutional constraints |
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refer to current prices and current quantities |
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refers to constant prices and current quantities |
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which GDP is comparable over time |
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GDP equation (expenditures) |
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when the worker leaves job by choice |
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caused by a change in technology |
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a price index for final goods purchased by the entire economy |
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1) price index provides information on the cost of living for an entire economy 2) represents the average cost of goods purchased 3) measures the average price of final goods purchased by households |
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measures urban households cost of living (85%) |
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cost of living for wage and clerical workers (35%) |
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1) determine base period prices P(0) and quantities Q(0) 2) calculate the cost of the basket during the base period P(0)*Q(0) 3) determine current prices P(t) 4) calculate the current cost of the basket P(t)*Q(0) 5) calculate the CPI |
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total amount that all consumers, business firms, govt agencies, and foreigners spend on US final goods and services |
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amount that firms spend on factories, machinery, software and the like, plus the amount families spend on new houses |
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the total supply of goods and services that firms in a national economy plan on selling during a specific time period |
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macroeconomic equilibrium |
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for an economy in the short run is established when aggregate demand intersects with short run aggregate supply |
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impact of inflation on multiplier |
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inflation reduces impact of multiplier |
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a measure of output from a production process, per unit of input |
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increases in productivity |
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increase the standard of living |
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the lower turning point of a business cycle |
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steady increase in economic growth |
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occurs with decline of economic growth |
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1) is sustainable increase in productive capacity 2) long run growth is regular continuous increases in potential GDP |
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required reserve ratio given by law |
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reserves (cash + deposits at fed) |
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banks continue to lend until |
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1) eligible customers do not desire loans 2) borrowers withdraw cash from their deposits |
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potential deposit creation |
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what happens to AD with an expansionary fiscal policy |
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Definition
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what happens to AD with a contactionary fiscal card |
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Definition
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is government spending easily observed |
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Definition
yes, as firm revenues or as payments and taxes are observed in take home pay |
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are fiscal policy operations have an immediate impact |
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Definition
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government spending multiplier |
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balanced budget multiplier |
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the economy has a recessionary gap |
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Definition
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expansionary fiscal policy |
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Definition
1) increases output and lowers unemployment 2) increase govt spending, and lower taxes 3) associated with recessionary gap |
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contractionary fiscal policy |
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Definition
1) increase T, lower G 2) Y>potential GDP |
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Definition
1) full employment 2) stable prices 3) moderate business cycle fluctuations 4) promote long run economic growth |
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1) required reserve ratio (r) 2) discount rate 3) open market operations |
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ER decreases and money decreases |
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Term
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Definition
interest rate charged by the fed for banks to borrow funds overnight 1) increase D.R. banks borrow less, ER and money decreases |
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Term
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Definition
federal open market committee directs NY fed to buy and sell bonds 1) buying bonds: bonds in banks decrease and reserves increase, ER increases and so does money |
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the cost to borrow $1 for 1 year |
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annualized rate bankers pay to borrow $1 overnight from another bank |
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so will GDP and employment |
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to find change in investment |
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(gap)/(expenditure multiplier) |
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if excess reserves increase... |
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Definition
banks lend more to firms to buy capital goods (I increases) |
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Term
if interest rates decrease... |
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Definition
firms borrow more funds to fund purchases of capital goods (I increases) |
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to close a recessionary gap |
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Definition
1) decrease the required reserve ratio 2) decrease the discount rate 3) buy us bonds from banks |
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Term
to close the inflationary gap, the fed can... |
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Definition
1)increase the required reserve ratio 2) increase the federal funds rate 3) sell US bonds |
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Term
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Definition
records an economies trading, borrowing and lending: in the US, the BOP records the transactions in the goods sector and the financial sector |
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Definition
1) current account 2) capital account 3) official settlements account |
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(net exports)+(net interest income)+(net transfers)=CA |
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(foreign US investment)-(US investment abroad)=capital accounts |
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official settlements account |
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Definition
(change in US foreign exchange holdings) |
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the capital account records |
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Definition
the difference between foreign purchases of US assets and the US purchases of foreign assets |
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official settlements account represents |
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Definition
US investment abroad in foreign money less the holdings in the US $ by foreigners |
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is the price of one currency in terms of another currency |
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Definition
occurs when there is an increase in purchasing power relative to another currency |
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Definition
increases AD, causing AE to raise, and US price levels to rise along with GDP increasing and unemployment falling |
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demand for foreign currencies increase if: |
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Definition
1) us interest rates are lower relative to the rest of the world 2) us GDP growth is higher 3) US inflation is higher |
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supply of foreign currencies increase if: |
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Definition
1) US interest rates increase relative to the rest of the world |
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Term
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Definition
spending on final goods in an economy 1) AE=C+I+G+(X-M) |
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value of domestic product produced by firms at each given price level |
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Definition
1) price level movement along curve 2) input prices increase, profit rates fall, AS shifts to left 3) nominal wages increase, profits lower, AS shifts to the left 4) better technology-increase labor productivity, increase profit rates, increase AS 5) additional resources, AS increases |
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macroeconomic equilibrium |
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Definition
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Term
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Definition
1) GDP at full employment 2) represented by straight line up and down 3) independent of input prices-no movement 4) nominal wages-no impact/movement 5) technology-shift to right 6) better resources-shift to right |
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output gaps (inflationary gap) |
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Definition
1) Real GDP>Potential GDP 2) nominal wages increase 3) aggregate supply decreases-increase in unemployment 4) aggregate expenditure decreases |
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output gaps (recessionary gap) |
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Definition
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impact of inflation on the multiplier |
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Definition
1) inflation reduces impact of multiplier 2) some spending power is lost as prices increase |
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Definition
1) convenient 2) eliminates barter and need for a double coincidence of wants 3) reduces transaction costs 4) increases division of labor and labor specialization |
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does money have a store value |
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Definition
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Definition
state bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes |
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Definition
1) US central banking system 2) national banks are required to join the system 3) fed is owned by its member banks |
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Definition
1) provide the money supply 2) regulate interest rates 3) set required reserve ratio |
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Term
federal open market committee |
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Definition
1) controls the federal funds rate-interest rate which banks borrow from and lend to each other 2) directs the NY fed to buy and sell bonds 3) buy bonds: bonds in banks decrease and reserves increase, so ER increases and so does money |
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