Mac. Test 2.txt

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Mac. Test 2.txt
2011-10-13 01:56:46

2SQ 9,10 12-21 3SQ 1-7
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  1. Real GDP
    GDP adjusted for inflation
  2. Nominal GDP
    Market value of GDP
  3. Business cycle
    Repetitive pattern of increases in production followed by decreases in production
  4. Recession
    Decrease in Real GDP that last for 2 consecutive quarters or longer
  5. Depression
    A long lasting and very severe recession(2 years or more)
  6. Growth recession
    Production increases so slowly that unemployment stays high.
  7. Consumption good
    Goods produced that are used up by consumers
  8. Durable good
    Goods that last 3 years or more
  9. Non-durable goods
    Good that last less than 3 years
  10. Services
    Anything you buy that cannot be stored
  11. Investment good
    Goods produced that are used repeatedly to produce future goods
  12. Depreciation
    The wearing out and using up investment goods
  13. 10. difference between gross investment and net investment
    • Gross inv-all new investment spending
    • Net inv-gross inv minus depreciation
  14. Net domestic product
    GDP minus depreciation
  15. National income
    All the income earned in a year in the US
  16. Personal disposable income
    After tax income that is received and available to either spend or save
  17. How gov. creates difference between national income & personal disposable income
    • National income
    • -Income tax
    • -Social security tax
    • +Government benefits
    • =personal disposable income
  18. Savings
    Any part of PDI that is not spent
  19. Real personal disposable income
    PDI corrected for inflation
  20. 12. Components of GDP according to expenditure approach
    GDP= C + I + G + X - Im
  21. Exports
    Goods & services produced in nation sold in foreign nation
  22. Imports
    Goods & services produced in foreign nation sold in nation
  23. Trade deficit
    Imports more than exports
  24. Trade surplus
    Exports more than imports
  25. 13. What caused trade deficit to decrease in 01 and 08
    • US has a weaker economy or in recession
    • (less PDI buy less imports)
    • Foreign trading partners have a strong
    • (US sells more exports)
    • US has a weaker dollar
  26. 14. What caused trade deficit to increase from 1992-2007
    • US has a stronger economy (US buys more exports)
    • Foreign trading partners has a weak economy
    • US has a stronger dollar
    • More US firms outsourcing
    • Retailing-imports
    • Oil
  27. 15. What commodity usually accounts for 50% of trade deficit
  28. 16. If lunch is priced 36 pesos in Mexico, exchange rate is $1 = 12 pesos, how much is lunch in $
    36/12 = $3
  29. 17. US dollar appreciates, what effect will this have on the price of imports and exports
    • Decrease price of foreign made import to US buyer
    • US buys more imports
    • Helps US consumers
    • Increase the price of US made exports to foreign buyer
    • US sells fewer exports
    • Hurts US business
  30. 18. US dollar depreciates, what effect will this have on hte price of imports and exports
    • Increase price of imports to US buyer
    • US buys fewer imports
    • Hurts US consumers
    • Decrease price of exports to foreign buyer
    • USA sells more exports
    • Helps some US business
  31. 19. Reason why the dollar might get stronger
    • Increase in foreign demand for US dollar
    • Increase in demand for US made exports
    • Increase in financial investing
    • Strong economy
    • Low inflation
    • Demand Curve shifts right
  32. 20 Reason why the dollar might get weaker
    • Decrease in foreign demand for US dollar
    • Decrease in foreign demand for US exports
    • Decrease in foreign financial investing
    • Lack of confidence
    • High inflation
  33. 21. List pros and cons of Free Trade
    • the government does nothing to prevent or discourage trade between nations
    • Pos
    • more competition, quality, lower prices, choices creastes jobs in export industry, inrease profits
    • Cons
    • Hurt specific industry, losing high paying jobs, create low paying jobs (underemployment), race to bottom (only corporations benefits
  34. Money
    Anything that is generally accepted as a medium of exchange
  35. Barter
    Trade specific product for specific product (no medium of exhange)
  36. 2. Properties of money
    • Serves as a medium of exchange
    • Serves as a measure of value
    • Serves as a way to save
    • Way to borrow and repay loans
  37. Checkable (Demand) Depostis
    Checking Accounts
  38. Time Deposits
    Savings acounts
  39. Assets
    Anything you own, or owed to you
  40. Liability
    Anything you owe
  41. M1
    • Cash in circulation + Demand Deposits +
    • (Travelers Checks)
  42. M2
    M1 + Savings
  43. 3. Essential functions of a commercial (retail) bank
    • Hold checking accounts
    • Make loans
  44. 5a. Bank Balance Sheet
    • Assets:
    • Vault cash
    • Deposits in Federal Reserve
    • Loans
    • Liabilities:
    • Demand Depostis
    • Owner's equity
  45. Owner's equity
    Funds provided to bank by it's owners
  46. Total Reserves
    Vault Cash + Deposits in Federal Reserves
  47. Required Reserves
    The minimum amount of reserves that banks must hold by law
  48. Reserve ratio
    The % of funds in checking accounts that the banks must hold as required reserves
  49. Excess Reserves
    Total Reserves - Required Reserves
  50. 5b. Compute Total Reserves
    Required Reserves
    Excess Reserves
    • TR=vault cash + Deposits in Fed Reserves
    • RR=Demand Deposits X reserve ration
    • ER= Total Reserves - Required Reserves
  51. 5c. Formula to calculate the total increase in M1
    excess reserves/ reserve ratio
  52. 5d. Assumptions you have to make for M1 to change
    • All banks lend out all excess reserves
    • All loans are spent
    • All spending returns to a bank
  53. 6. When a bank makes a loan, what happens to size of M1
    M1 increases by the amount of the loan
  54. 7. What determines a banks ability to make loans
    It's excess reserves