Macroeconomics Chapters 7, 10-13

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dcwalker865
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Macroeconomics Chapters 7, 10-13
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2012-11-14 17:29:35
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Macroeconomics Chapters 10 13
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Macroeconomics Chapters 7, 10-13
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  1. What is Market Economy Composed of
    Government, Central Bank (Federal Reserve)
  2. Type of Policy Government Has
    Fiscal Policy 
  3. Type of Policy Central Bank Has
    Monetary Policy
  4. Bank
    financial intermediary
  5. Basis of Monetary Policy
    money
  6. Money Has Value Because of 
    scarcity and government promise
  7. Key Uses of Money
    • 1. Store of Value (helps hold value)
    • 2. Medium of Exchange (helps facilitate transactions)
    • 3. Unit of Accounting (counting unit)
  8. Money Supply
    how much money is available in the market, creates scarcity of money
  9. Liquidity
    how quickly you can turn assets into cash
  10. Flow of Money
    Central Bank - Financial Intermediaries - Consumers
  11. Price of Money = ________
    Interest Rates
  12. Statement on a Dollar Bill That is Government Promise
    This Note is Legal Tender for Public and Private Debts
  13. What are Public and Private Debts
    • Public - taxes, fees
    • Private - payments to individuals, businesses not owned by government
  14. Principle of Federal Reserve
    To be the lender of last resort to loan money to financial intermediaries
  15. Fractional Reserve System
    a mandated amount that a bank can not loan out and has to hold on to
  16. 2 Parts of Reserve System
    • 1. Required Reserves - what bank has to keep
    • 2. Excess Reserves - extra that is not loaned out
  17. Assests
    income generating transactions (loans)
  18. Liabilities
    income depleting transactions (deposits)
  19. What is the Market for Loanable Funds 
    Interactions between financial intermediaries and consumers 
  20. Federal Reserve Structure
    • 1. Member Banks 
    • 2. Federal Reserve District Banks
    • 3. Board of Governors 
    • 4. Federal Open Market Committee 
  21. Describe the Federal Reserve District Banks Structure 
    12 Banks located across the country with 2 branches each for a total of 24 branches
  22. Which Federal Reserve primarily handles AG transactions and which branch is the biggest branch out of all 12
    Kansas City, New York
  23. Describe the structure of the Board of Directors for a Reserve Bank
    • Class A: 3 members from member banks
    • Class B: 3 from industry, labor, etc (customers)
    • Class C: 3 appointed by Board of Governors (public sector)
  24. 4 Main Functions of District Banks
    • 1. clear checks 
    • 2. issue & withdraw currency
    • 3. evaluate merger proposals
    • 4. administer discount loans
  25. Who has most power in banking system
    Board of Governors
  26. Describe the structure of the Board of Governors
    7 members appointed by president & approved by congress and a chairman appointed by president and approved by congress.
  27. 3 Main Functions of Board of Governors
    • 1. All 7 serve FOMC 
    • 2. Set reserve requirement ratio
    • 3. Approve / disapprove of FRB reccomendations for discount rate
  28. Describe the structure of the FOMC
    • 7 members the Board of Governors 
    • 5 out of 12 FRB Presidents 

    12 Person Panel 
  29. 3 Monetary Policy Tools
    • 1. Reserve Requirement Ratio (10%)
    • 2. Discount Rate (.75%)
    • 3. Federal Funds Rate (0-0.25%)
  30. How Does the Federal Reserve balance money supply and demand
    buying and selling treasury securities
  31. FED Directives
    • 1. Stable Prices 
    • 2. Full Employment
    • 3. Economic Growth
  32. Frictional Unemployment 
    time it takes to change jobs
  33. Structural Unemployment 
    where one industry is dying and another one is growing
  34. Quanity Theory of Money
    Money x Velocity = Prices x Real GDP
  35. Open Market Purchase
    FED buys treasury securities, FED takes bond, investors get cash, money supply in system increases
  36. Expansionary Monetary Policy
    FED tries to increase real GDP and price
  37. Contractionary Monetary Policy
    FED tries to decrease price and sometimes real GDP
  38. Open Market Sale
    investors take bonds, FED takes cash, money supply decreases
  39. Inflation
    caused by continual increase in prices, NOT caused by one-time change
  40. Hyperinflation
    when the money supply can be increased infinitely, occurs between federal reserve and U.S. Treasury
  41. Understand the Physical Flow of Income
  42. Intermediate Goods
    goods that will be used in some further production
  43. Final Goods 
    goods that are being consumed or that become part of the capital stock
  44. Understand the Economic Flow of Income
  45. Understand the Relationship Between Physical and Economic Flow When Combined
  46. National Income
    total value of all factor payments
  47. Nominal GDP
    Price x Quanity
  48. 2 Measures of Prices
    • 1. GDP Deflator: used to go from nominal to real GDP
    • 2. CPI (Consumer Price Index): index number that expresses nominal price of a market basket of goods at one point in time relative to the nominal cost of the same basket of goods at another point in time
  49. Discuss the balance of power between the Federal Reserve District Banks and the Board of Governors
    Board of Governors has more voting members on FOMC, they approve / disaprove reccomendations by the Reserve Banks
  50. Measures of Economic Growth
    GPD and National Income
  51. Name and Describe the Measures of Employment
    • 1. Current Employment Statistics (CES): use establishment survey to ask businesses how many people they employ
    • 2. Local Area Unemployment Survey: asks households how many people are employed, measures unemployment rate
  52. Describe National Income Accounting
    GDP = Consumption (C) + Investment (I) + Gov Spending (G) + Net Exports (NX)
  53. Name 3 Business Types
    • 1. Sole Proprietorship: 1 owning, goes on individual income tax
    • 2. Partnership: 2 or more owning, goes on individual income tax
    • 3. Corporation: seperate from indivuals
  54. Fiscal Policy
    How Governement Spends Money and Why
  55. Formula for Disposable Income
    Income - Taxes
  56. Investment
    total gross purchases of total goods by firms to replace equipment or add to existing stock of capital
  57. Consumption
    Expenditures on final goods and services by households, sole proprietors and partnerships, accounts for 2/3 of GDP
  58. Describe Government Spending
    • source of revenue for government is taxes 
    • Deficit: revenues < spending 
    • Surplus: revenues > spending
  59. Describe Net Exports
    Exports - Imports

    Changes directly related GDP
  60. Transfer Payments
    federal spending that transfers funds to households, firms, and state / local government
  61. National Debt
    the accumulation of deficits 
  62. Describe the Effects of Increased Federal Governent Spending (GS)
    • 1. Direct: ↑GS causes ↑expenditures on final goods / services, which causes ↑ GDP
    • 2. Indirect: A. tax growth causes ↑ GS which causes ↓C and ↓I, effect on GDP is ? B. if deficit funds ↑GS, as  deficit ↑ the government borrows more money from investors through treasury securities and investors demand higher interest rate to account for growing debt, ↑ interest rates makes expansion by business difficult which causes ↓ investment
  63. Crowding Out Effect
    pushing out private investors iin market for money; caused by increased GS 
  64. Laissez - Faire Economics
    Macroeconomic policy that the says the government should do nothing; leads to arguement that the economy is self-correcting
  65. Decoupled Payments
    direct payment, production flexibility contract payment, seperate GOV support from prices

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