ECON 1102: MIDTERM 2
45 Cards in this Set
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Disinflation
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a significant reduction in the rate of inflation
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deflation
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a negative rate of inflation
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Fed's most important function
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regulating the U.S. money supply
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Money
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a widely accepted means of payment
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currency
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coins and paper bills
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M1
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currency outstanding and deposits
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M2
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M1 + money market mutual funds
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Money multiplier (MM)
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the among of the money supply expands with each dollar increase the reserves
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Open market operations
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the buying and selling of U.S. government bonds
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Federal funds rate
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the overnight lending rate that banks charge each other
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discount rate
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the interest rate banks pay when they borrow directly from the Fed
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Federal Open Market Committee (FOMC)
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includes the board of governors and 5 presidents of the regional banks
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AD curve
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gives combination of inflation and real growth consistent with a given rate of spending growth
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Solow Growth Rate
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an economy's potential growth rate, the rate of economic growth that would occur given the flexible prices and existing real factors of production
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Real shock
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any shock that increases or decreases the potential growth rate
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Aggregate demand shock
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a rapid and unexpected shift in the AD curve (spending growth)
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SRAS
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shows the positive relationship between the inflation rate and real growth when prices and wages are sticky
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Menu costs
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costs of changing prices
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Consumer price index (CPI)
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measures the average price of goods bought by a typical American consumer
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Producer price index (PPI)
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measures the average price received by producers
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GDP deflator
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measures the average price of all final goods and services
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Real price
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the price of a good that has been corrected for inflation
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velocity
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the average number of times a dollar is spent on final goods and services in a year
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deflation
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a decrease in the average level of prices (a negative inflation rate)
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problems with inflation
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-price confusion and money illusion
-inflation redistributes wealth
-inflation interacts with other taxes
-inflation is painful to stop
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Working age population
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number of people 16 years and older (adults) who are not in the military or institutionalized
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unemployed
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adults who do not have a job but are looking for work
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labor force
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all workers, employed plus unemployed
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unemployment rate
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the percent of the labor force without a job
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discouraged workers
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workers who have given up looking for work, but who would still like a job, are not counted as unemployed
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involuntary part-time workers
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workers who are working part-time but would like a full time job
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Underemployment rate
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an alternative BLS measure that adds discourage workers and the involuntary part-time workers to the official unemployment rate
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frictional unemployment
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short-term unemployment caused by difficulties of matching employee to employer; created from scarcity of information
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structural unemployment
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persistent, long-term unemployment, caused by long-lasting shocks or permanent changes in the economy (oil shocks, new information technologies, globalization, shifts from manufacturing to services)
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Labor force participation rate (LFPR)
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the percentage of the aunt (16+) non-institutionalized civilian population who are working or actively looking for work
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The efficient markets hypothesis
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prices of traded goods reflect all publicly available information. If you have inside information, you have to act quickly
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How to pick stocks
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diversify, avoid high fees, compound returns build wealth
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Irreversible investments
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have high value only under specific conditions--they cannot be easily moved, adjusted, or reversed if conditions change
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labor adjustment costs
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the costs of shifting workers from declining sectors of the economy to growing sectors
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time bunching
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the tendency of economic activities to be coordinated at common points in time
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collateral
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a valuable asset that is pledge to a lender to secure a loan. If the borrower defaults, ownership of the collateral transfers to the lender
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collateral shockk
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a reduction in the value of collateral. Collateral shocks make borrowing and lending more difficult
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intertemporal substitution
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the allocation of consumption, work, and leisure across time to maximize well-being
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transmission mechanisms
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economic forces that cant amplify the impact of shocks on the economy
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5 transmission mechanisms
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-intertemporal substitution
-uncertainty and irreversible investments
-labor adjustment costs
-time bunching
-shocks to collateral and net worth
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ECON 1102: MIDTERM 2