Econ Final

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Econ Final
2012-05-01 18:54:25
Econ Final

Econ Final
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  1. Aggregate Accounting
    • A set of rules and definitions for measuring economic activity in the economy as a whole
    • AKA= national income accounting
  2. GDP
    • Gross Domestic Product
    • Total market value of all final goods and services produced in an econmy in a one year period
  3. How do you add unlike things
    • Multiply each good by its price
    • Called weighting the importance of each good by its price
  4. Components of GDP
    • 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)
  5. Flow concept
    concept that has meaning only with time period associated
  6. Stock Concept
    Amount at given point in time
  7. Wealth accounts
    a balance sheet of an economy's stock of assets and liabilities
  8. Real wealth
    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
  9. nominal wealth
    value of assets measured at their current prices
  10. depreciation
    the decrease in an assets value
  11. NDP
    • Net Domestic Product
    • GDP less Depreciation
    • NDP=GDP-depreciation
  12. net investment
    gross investment less depreciation
  13. GNP
    • Gross National product
    • the aggregate final output of citizens and business of an economy in a one year period
  14. Aggregate income
    total income earned by citizens and firms of a country
  15. Four Categories of aggregate income
    • 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
  16. Price Index
    A measure of how much the price level has risen from one year to the next
  17. GDP Deflator
    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.
  18. nominal GDP
    GDP calculated at exsisting prices
  19. real GDP
    Nominal GDP adjusted for inflation
  20. Potential output
    highest amount of output an economy can produce from exsisting production process and resources
  21. Productivity
    output per unit of input
  22. Say's Law
    Supply creates it's own demand
  23. Rule of 72
    number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of increase
  24. Specialization
    concentration of individuals on ceratin aspects of production
  25. Division of labor
    the splitting up of a task to allow for specialization of production
  26. Per capitia growth
    country is producing more goods and services per person
  27. 5 sources of growth
    • Growth compatible institutions
    • Capital accumulation-investment in productive capacity
    • Available resources
    • Technological development
    • Entrepreneurship
  28. Human capital
    skills that are embodied in workers through experience, education and on the job training
  29. Social capital
    the habitual way of doing things that guides people in how they approach production
  30. technology
    the way we make goods and supply services
  31. Production function
    an abstraction that shows relationship between the quantity of inputs used in production and the quantity of output resulting from production
  32. scale economics
    what happens to to output if all inputs increase by the same pecentage
  33. law of diminishing marginal productivity
    increasing one input, keeping all others constant, will lead to smaller and smaller gains in output
  34. Classical growth model
    model of growth that focuses on the role of capital accumulation in the growth process
  35. Convergence hypothesis
    • 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
  36. Technological agglomeration
    the geographical concentration of technological advances caused by the tendency of inovations to lead to further innovations in that industry and other industries
  37. New Growth Theory
    theory that emphasizes the role of technology rather than capital in the growth process
  38. positive externality
    positive effects on others not taken into account by the desicion maker
  39. patents
    legal protection of a technological innovation that gives the owner of the patent sole rights to its use and distribution for a limited time
  40. learn by doing
    improve the methods of production through experience
  41. Why is financial sector important to Macro
    • 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
  42. Finanacial assets
    assets such as stocks or bonds, whose benefit to the owner depends on the issuer of the asset meeting certain obligations
  43. Financial liabilities
    obligations by the issuer of the financial asset
  44. real sector
    market for the production and exchange of goods and services
  45. financial sector
    • market for the creation and exchange of financial assets
    • financial assets include money,stocks and bonds
  46. Definition and functions of money
    • Medium of exchange
    • unit of account
    • store of wealth
  47. M1
    measure of the money supply; it consists of currency in the hands of the public plus checking accounts and travelers checks
  48. M2
    measure of the money supply; it consists of M1 plus other relativly liquid assets
  49. reserves
    currency or deposits a bank keeps on handor at the fed or central bank, to manange the normal cash inflows and outflows
  50. reserve ratio
    the ratio of reserves to deposits a bank keeps as a reserve against cash withdrawls
  51. the simple money multiplier
    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
  52. money multiplier when people and firms hold currency
    (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
  53. expansionary monetary policy
    policy that increases the money supply and decreases the interest rate and it tends to increase both investment and output
  54. Contractionary monetary policy
    policy that decreases the money supply and increases the interest rate and it tends to decrease both investment and output
  55. central bank
    a type of bankers bank whose financial obligations underlie an economy's money supply
  56. Structure of Fed
    • Main bank headquartered in D.C.
    • 12 regional banks
  57. Federal Open Market Committe
    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
  58. Duties of the Fed
    • 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
  59. open market operations
    the fed's buying and selling of government securities
  60. Discount rate
    rate of interest the fed charges for loans it makes to banks
  61. Monetary Base
    vault cash, deposits of the fed,and currency in circulation
  62. fed funds
    loans of excess reserves banks make to each other
  63. fed fund rate
    interest banks charge each other for fed funds
  64. nominal interest rates
    rates you actually see and pay
  65. Real interest rates
    nominal interest rates adjusted for expected inflation