Econ Final

• A set of rules and definitions for measuring economic activity in the economy as a whole
• AKA= national income accounting

• Gross Domestic Product
• Total market value of all final goods and services produced in an econmy in a one year period

• Multiply each good by its price
• Called weighting the importance of each good by its price

• Consumption-spending by households on goods and services
• Investment-spending for the purpose of additiobal production
• Government spending-goods and services the gov buys
• Net Exports-exports-imports
• GDP=C+I+G+(X-M)

concept that has meaning only with time period associated

Amount at given point in time

a balance sheet of an economy's stock of assets and liabilities

value of the productive capacity of the assets of an economy measured by the goods and services it can produce now and in the future

value of assets measured at their current prices

the decrease in an assets value

• Net Domestic Product
• GDP less Depreciation
• NDP=GDP-depreciation

gross investment less depreciation

• Gross National product
• the aggregate final output of citizens and business of an economy in a one year period

total income earned by citizens and firms of a country

• Compensation of employees-wages and salaries, fringe benefits and taxes for soc sec and unemployment
• Rents-income from property received by households(not firms)
• Interest-money private business pay to households that have lent money
• Profits-whats left after comp to employees, rent and interest have been paid out

A measure of how much the price level has risen from one year to the next

an index of the price level of aggregate output, or the average price of the components in total output(or GDP) relative to a base year.

GDP calculated at exsisting prices

Nominal GDP adjusted for inflation

highest amount of output an economy can produce from exsisting production process and resources

output per unit of input

Supply creates it's own demand

number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of increase

concentration of individuals on ceratin aspects of production

the splitting up of a task to allow for specialization of production

country is producing more goods and services per person

• Growth compatible institutions
• Capital accumulation-investment in productive capacity
• Available resources
• Technological development
• Entrepreneurship

skills that are embodied in workers through experience, education and on the job training

the habitual way of doing things that guides people in how they approach production

the way we make goods and supply services

an abstraction that shows relationship between the quantity of inputs used in production and the quantity of output resulting from production

what happens to to output if all inputs increase by the same pecentage

increasing one input, keeping all others constant, will lead to smaller and smaller gains in output

model of growth that focuses on the role of capital accumulation in the growth process

• based on classical growth model
• hypothesis that per capita income in countries with similar institutional structures will gravitate toward the same level of income per person

the geographical concentration of technological advances caused by the tendency of inovations to lead to further innovations in that industry and other industries

theory that emphasizes the role of technology rather than capital in the growth process

positive effects on others not taken into account by the desicion maker

legal protection of a technological innovation that gives the owner of the patent sole rights to its use and distribution for a limited time

improve the methods of production through experience

• for every real transaction there is a financial transaction that mirrors it
• Financial sector channels saving back into spending
• For every financial asset, there is a corresponding financial liability

assets such as stocks or bonds, whose benefit to the owner depends on the issuer of the asset meeting certain obligations

obligations by the issuer of the financial asset

market for the production and exchange of goods and services

• market for the creation and exchange of financial assets
• financial assets include money,stocks and bonds

• Medium of exchange
• unit of account
• store of wealth

measure of the money supply; it consists of currency in the hands of the public plus checking accounts and travelers checks

measure of the money supply; it consists of M1 plus other relativly liquid assets

currency or deposits a bank keeps on handor at the fed or central bank, to manange the normal cash inflows and outflows

the ratio of reserves to deposits a bank keeps as a reserve against cash withdrawls

measure of the amount of money ultimatly created per dollar deposited in the banking system, when people hold no currency

• original deposit x 1/r where r is the reserve ratio i.e.
• if original deposit 100 dollars and reserve ratio is 10% then
• 100 x 1/0.1=1000 new money created 1000-100=900

(1 + C)/(r + C) where r is reserve ratio and c is the ratio of money people hold in currency to the money they hold as deposits

policy that increases the money supply and decreases the interest rate and it tends to increase both investment and output

policy that decreases the money supply and increases the interest rate and it tends to decrease both investment and output

a type of bankers bank whose financial obligations underlie an economy's money supply

• Main bank headquartered in D.C.
• 12 regional banks

Feds chief body that decides monetary policy

made up of 7 govenors plus the pres of New York Fed and rotating group of four pres from other regional banks

• 1. Conducting monetary policy (influencing supply of money and credit in the economy)
• 2. Supervising and regulating financial institutions
• 3. Serving as a lender of last resort to financial institutions
• 4. Providing banking services to the U.S. Gov
• 5. Issuing coin and currency
• 6. Providing financial services(such as check clearing) to commercial banks, S and L's,savings banks and credit unions

the fed's buying and selling of government securities

rate of interest the fed charges for loans it makes to banks

vault cash, deposits of the fed,and currency in circulation

loans of excess reserves banks make to each other

interest banks charge each other for fed funds

rates you actually see and pay

nominal interest rates adjusted for expected inflation