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Unit Four
gdp
133
Economics
12th Grade
12/01/2011

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Term
GDP
Definition
total $ value of all final G/S produced within a country during 1 calendar year
Term
per capita GDP
Definition
avg amt produced by each citizen in a year
Term
GDP formula
Definition
C + I + G + (X-M)
Term
GDP (C)
Definition
consumer goods
Term
durable g/s vs non-durable g/s
Definition
lifetime of 1+ year
Term
GDP (I)
Definition
gross investment
Term
gross investment
Definition
the total value of all capital goods produced during 1 year
Term
GDP (G)
Definition
gov purchases
Term
gov purchases
Definition
schools, highways, national defense
Term
GDP (X-M)
Definition
eXports and iMports
Term
aggregate demand
Definition
amt of all g/s that will be purchased @ all possible prices
Term
economies should strive to reach __/__ equilibrium
Definition
AD/AS
Term
what causes AD to shift? (3)
Definition
1 changes in consumer spending (consumer optimism)
2 changes in gov influence (higher tax)
3 changes in investment spending (more spending)
Term
aggregate supply
Definition
total amt of all G/S available at all possible prices
Term
what causes AS to shift? (4)
Definition
1. changes in input rises (all price go up)
2. changes in productivity (asssembly line invented)
3. changes in the legal environment (limits on pullution)
4. changes in labor supply (labor supply decreases)
Term
business cycle
Definition
flunctuations in a market's activity
Term
how are flunctuations in a biz cycle measured
Definition
by increases & decreases in the real GDP
Term
expansion
Definition
a period of economic growth (rising GDP)
Term
peak
Definition
when real GDP stops rising
Term
contraction
Definition
a period of falling GDP
Term
trough
Definition
bottoming out; when GDP stops falling
Term
prosperity
Definition
when new peak exceeds previous one
Term
recession
Definition
when GDP falls for 2 consecutive quarters
Term
depression
Definition
a long&severe recession
Term
stagflation
Definition
a decline in GDP (more unemployment)with a rise in prices (inflation)
Term
what influences the business cycle (3)
Definition
1. public perception
2. effects of war
3. interest rates
Term
perception is _____
Definition
reality
Term
war can ___ an economy in the short term
Definition
help
Term
if war drags on, the ecomonmy will most likely _____
Definition
contract
Term
interest is ...
Definition
the cost of "buying" money
Term
if interest rates are high, money is _____
Definition
expensive
Term
if economy appears to be slowing down, gov might _____ the interest rate
Definition
lower
Term
if the real GDP rises but not as fast as the population, what will happen to the standard of living
Definition
may actually decrease
Term
economic growth is critical for a nation to maintain its....
Definition
standard of living
Term
standard of living
Definition
economic well being of a nation's people
Term
tax
Definition
required payment to the gov
Term
revenue
Definition
income received by govs
Term
without _____, gov cannot function
Definition
revenue
Term
taxes must be for ...
Definition
the common defense & general warfare
Term
taxes cannot benefit ...
Definition
single individuals
Term
federal taxes must be ___ in every state
Definition
same
Term
who can congress NOT tax?
Definition
churches & exports
Term
amendment that allows congress to tax incomes on an UNEQUAL basis
Definition
16
Term
tax base
Definition
income, property, G/S that is being taxed
Term
income tax
Definition
tax on individual income
Term
sales tax
Definition
tax on the $ value of a sale
Term
property tax
Definition
tax on the value of a property
Term
corporate income tax
Definition
tax on the value of a company's profits
Term
proportional tax
Definition
tax that is same percentage for everybody
Term
ex of prop tax
Definition
sales tax
Term
progressive tax
Definition
% of income paid in taxes INCREASES as income increases
Term
which tax can cause poor people to pay nothing
Definition
progressive
Term
regressive tax
Definition
% of income paid in taxes DECREASES as income increases
Term
ex of regressive tax
Definition
also sales tax bc the amt a rich person makes is MUCH MORE than the 6% that will be spent
Term
good taxes are... (4)
Definition
1. simplicity
2. efficiency (gov shouldn't spend more $ to collect than they receive)
3. certainty
4. equity (system should be fair to all)
Term
pay-as-you-earn
Definition
employers withold money from your check & forward it to gov
Term
tax return filing day
Definition
april 15
Term
FICA (Federal INsurance Contributions Act)
Definition
social security, disabled americans, surviving fam of deceased wage-earners, medicare
Term
excise tax
Definition
federal tax on sale/manufacture of a good
Term
estate tax
Definition
tax on total value of the $ & property of a deceased person
Term
gift tax
Definition
prevents people from giving their estates away before death to avoid the estate tax
Term
tarriff
Definition
tax on imported goods
Term
"stupid" tax
Definition
ex loterry
Term
inflation
Definition
general increase in prices
Term
purchasing power
Definition
ability to purchase g/s
Term
as prices rise, purchasing power ____
Definition
declines
Term
nominal value
Definition
prices NOT adjusted for inflation
Term
real value
Definition
prices that ARE adjusted for inflation
Term
CPI (consumer price index)
Definition
measures price of "a market basket"
Term
who/when computes cpi
Definition
bureau of labor statistics ; every month
Term
inflation rate interval that causes few problems
Definition
b/w 1% and 3%
Term
inflation rate that shows economy can become unstable
Definition
above 5%
Term
hyperinflation
Definition
out of control inflation... can go as high as 100% to 500% per month
Term
quantity inflation
Definition
occurs when gov prints TOO MUCH $
Term
demand-pull inflation
Definition
when demand for G/S exceeds supplies
Term
when does demand-pull inflation occur
Definition
during wartime or after natural disaster
Term
cost-push inflation (worst one)
Definition
producers raise prices to meet increased costs
Term
ex of cost-push inflation
Definition
increase in min wage & gasoline; gov regulation
Term
pollution restrictions make doing business ____
Definition
expensive
Term
inflation rates often ____ wage raises, leading to a _____
Definition
exceed ; net loss of income
Term
inflation is bad for ____
Definition
savers
Term
inflation is good for _____
Definition
borrowers
Term
deflation
Definition
sustained drop in price levels
Term
ex of deflation
Definition
gas prices
Term
fiscal policty
Definition
a government policy for dealing with the budget (especially with taxation and borrowing)
Term
fiscal policy is determined by ? (2)
Definition
1. collecting taxes
2. spending $
Term
who controls fiscal policy
Definition
congress
Term
what is expansionary policy used for (2)
Definition
to raise GDP & pull economy out of recession
Term
how does congress go about expansionary policy (2)
Definition
1. spend more $
2. cut taxes
Term
what is contractionary policy used for
Definition
to slow down the economy growth which could would have caused inflation
Term
how does congress go about contractionary policy (2)
Definition
1. cut spending
2. raise taxes
Term
fiscal policy: classical economics
Definition
adam smith - laissez faire
Term
fiscal policy: keynesian economics
Definition
gov should spend more $ by building schools, airports etc to create jobs
Term
demand-side economy goes with which person?
Definition
keynesian
Term
supply-side believe in ____ _____
Definition
tax cuts
Term
2 problems w/ demand-side theory
Definition
1. increased gov spending during bad times
2. massive gov savings during good times
Term
1 problem w/ supply-side
Definition
they don't use extra profit to hire new workers
Term
budget deficit
Definition
gov spends more than it takes in
Term
budget surplus
Definition
gov takes in more than it spends
Term
what does deficit lead to?
Definition
debt
Term
national debt
Definition
total $ gov owes to bondholders
Term
every year the gov runs a deficit, it must ____ money to operate
Definition
borrow
Term
to borrow $, the gov sells ____ aka _____
Definition
us bonds ; securities
Term
large debt = ?
Definition
loss in value of the dollar
Term
interest on national debt per year
Definition
$600 bil
Term
what does the gov do to attract bond purchasers
Definition
offer high interest rates
Term
monetary policy
Definition
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates.
Term
Federal Reserve Act of 1913
Definition
created the Federal Reserve System (fed) composed of 12 regional banks
Term
who oversees the Fed
Definition
board of governors that lend $ to private banks
Term
"the lender of last resort"
Definition
the Federal Reserve acts as the lender of last resort to institutions that do not have any other means of borrowing and whose failure to obtain credit would dramatically affect the economy.
Term
the Fed is the ...
Definition
bank of the US
Term
3 things the fed does
Definition
1. processes all gov payments (social security, IRS refunds)
2. makes interest payments on gov bonds
3. responsible for issuing currency
Term
fed does check cleansing which is ...
Definition
process by which banks record whose account gives/receives $
Term
banks hold ____ of their funds in reserve, the rest is ____ to its customers
Definition
a fractoin ; lent
Term
the fed ensures that each banks keeps the required amount in ______
Definition
reserve
Term
Required Reserve Ratio (RRR)
Definition
the amt the bank must keep on hand
Term
most impt role of fed
Definition
control money supply
Term
money supply
Definition
total amt of currency held by indivudals, plus $ in bank accounts
Term
by controlling money supply, fed influcnes... (2)
Definition
1. growth of GDP
2. rate of inflation
Term
3 methods fed uses to control amt of money in ecomonmy
Definition
1. altering the reserve requirements
2. open market operations
3. setting interest rates
Term
reducing the RRR causes ____ in money supply
Definition
increase (banks are allowed to lend more $)
Term
increasing the RRR causes _____ in money supply
Definition
decrease (bank loans are limited)
Term
when fed buys gov bonds/securities, bond sellers receive $ that enters the economy and the money supply _____
Definition
increases
Term
when fed sells bonds/securities, money supply ____
Definition
decreases
Term
discount rates
Definition
interest rate the fed charges on loans to other banks
Term
lowering the discount rate makes loans ____
Definition
cheaper
Term
how do banks respond to lowering discount rate (aka loans are cheaper)
Definition
primal rate
Term
primal rate
Definition
interest rate banks charge their customers
Term
when discount rate is loowered, money suppply _____
Definition
increases
Term
tight money policy
Definition
introduced during periods of expansion & inflation
Term
3 methods for tight money policy
Definition
1. increase RRR
2. sell gov securities
3. increase discount rate
Term
easy/loose money policy
Definition
introduced during times of contraction &receession
Term
3 methods for loose money policy
Definition
1. lower RRR
2. buy gov securities
3. lower discount rate
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