ECN 203: Final Exam
45 Cards in this Set
| Front | Back |
|---|---|
|
Gross Domestic Product (GDP)
|
The value of all new production in the nation during a given year
|
|
Recession
|
When Y (actual GDP) continues to decline for two quarters or more
|
|
Depression
|
Prolonged, Deep decline in Y
|
|
Frictional
|
Enough jobs, people havent found job yet ( Job search takes time)
|
|
Structural
|
Enough jobs, a mismatch between skills and jobs (Economy grows and changes)
|
|
Demand-deficient unemployment
|
Not enough jobs for all actively seeking employment (unhealthy economy)
|
|
Natural rate of unemployment
|
Frictional + Structural
|
|
Real GDP
|
Value measured in constant dollars overtime.
|
|
Nominal GDP
|
Value measured in current dollars (Doesnt account for changes that occur overtime
|
|
Inflation
|
The price level rises. This causes a fall in purchasing power of money
|
|
Price Level
|
An Aggregate measure of prices in the economy
|
|
Aggregate Demand: Slopes Down
|
At higher levels of the price, the less real GDP aggregate expenditures will buy
|
|
Long-run aggregate supply (LAS)
|
Vertical at full employment (Yf) because in the long run all markets have adjusted and economy reaches a production level full GDP at any price level
|
|
Connection between the shape of the AS and the price level
|
Shape of AS relates to changes in P, holding factor price constant
|
|
Why shift in AS occur
|
Changes in basic cost of production in the economy
|
|
How does Y, P and unemployment change with shifts in either AD or AS
|
A fall in AD causes production to slow, unemployment to rise, and deflation.
A shift up in AS causes production to slow, unemployment to rise, and inflation
|
|
Consumer Spending
|
Determined by consumer confidence
Positive Expectations- AD shifts up
Negative Expectations- AD falls
|
|
Supply of Financial Capital
|
Slopes up: as interest rate increases, more willing to lend capital
|
|
What shifts supply of long-term financial capital
|
perception of default risk for making loan(higher the risk, higher the interest want to charge
difference between short term and long term rates (waiting premium and inflationary expectation premium)
entry and exit of funds (international capital flows, accumulated wealth)
|
|
Demand for financial capital
|
Slopes down: attitudes towards borrowing ( at higher r, borrow less)
Shifts: expectation about the economy
|
|
Long-term financial capital market
|
Shifts in S or D affect equilibrium I and r; shift AD curve affect Y and P
|
|
Government Budget Position (G-T)
|
G-Tdfvhk
|
|
Trade Balance ( X-M)
|
X-M>0 - trade surplus
X-M<0 - trade deficit
Trade balance affected by relative strength of curreny
|
|
Trade balance affected by relative strength of currency
|
Foreign exchange market where currency exchange occurs
Determines the value of one currency in terms of another: if currency strengthens- X decreases, M increases; if currency weakens- X increases, M decreases
|
|
How can changes in domestic interest rates affect the trade balance
|
Changes in interest rates affect international capital flows and in turn the relative strength of currency and ultimately the trade balance
|
|
Phillips Curve
|
Represent the trade-off between unemployment and inflation
|
|
Wage-Price Spiral
|
A situation in which rising prices push worker to demand higher wages
|
|
Stagflation
|
A situation in which unemployment and inflation exists in the economy
|
|
Federal Reserve
|
Established 1913 to monitor banking system after series of crises
Structure: 7 members: Chair (4-year renewable term) ; Others (14-year renewable term
|
|
Reserve Requirements
|
Fed requires banks to pay a percentage of deposits in Reserves. Changes in RR will affect reserves and effect the economy
|
|
Open Market Operations
|
Buying and Selling of bonds on the Open Market-----Main policy tool of the Fed
|
|
Federal Funds Market
|
Market for overnight loans between banks. Banks borrow to meet reserve requirements of the Federal Requirements
|
|
Federal Funds Rate
|
Interest rate charged for loans in Federal Funds Market
|
|
Fed Buy Bonds
|
Supply shifts right, AD shifts up
|
|
Fed Sells Bonds
|
Supply shifts left, AD falls
|
|
When would Fed want to use either policy
|
Fed Buys Bonds in times of recession and unemployment. Fed Sells Bonds to get inflation under control
|
|
Discount rate
|
Less utilized policy tool of the Fed
Change in DR will affect bank reserves
|
|
How does budget deficit affect trade deficit
|
A government deficits leads to higher domestic interests rate. Attracts international capital flows. U.S. X decreases, M increases. Trade deficit worsens. "Twin deficit" theory
|
|
Regulations for production
|
Less restrictive creates advantages by lowering production costs
|
|
Red tape and regulations
|
Imported goods may be difficult for other nation to sell in their countries
|
|
Exchange Rate Manipulation
|
Sterilization- sell domestic currency to buy foreign currency
Lowering domestic interest rates
|
|
Quotas
|
A limit set on the number of foreign imports
|
|
Tariffs
|
In effect a tax on imported goods; cause the price of imports to rise ----less will be bought
|
|
Monetary Policy
|
Controlled by the Federal Reserve in the U.S.
Main policy tool- Open Market Opeaions
|
|
Fiscal Policy
|
Controlled by the Federal Government in the U.S.
Causes changes in government spending, taxes ( changes government budget, G-T
|
ECN 203: Final Exam