Macro Econ Final

A set of institutional arrangements to determine how to distribute scarce resources to satisfy peoples wants.

• Extensive Private Property rights
• Freedom of enterprise and choice
• Self interest as the primary motivating force
• competition
• existence of market and prices
• Active, but limited government

An increase in RGDP per Capita

The claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation

Federal Reserve Bank

Banking system in which banks are required to keep a percentage (fraction) of checkable deposits in cash or with the central bank.

the decrease in investment that results from decrease in public savings/ expansionary fiscal policy. With expansionary fiscal policy, the public savings decreases, therefor the supply of loanable funds decreases. This results in a higher interest rate and lower demand for loans in the new equilibrium in the loanable funds market.

Reserve Ratio (RR): Regulations on the minimum amount of reserves that banks must hold against deposits; Open-Market Operations: The purchase and sale of US government bonds by the Fed Discount Rate: The interest rate on the loans that the Fed makes to the banks

Consumption, Investment, Government purchases, Net Export

• -New Keynesians: unexpected shocks to either aggregate demand or supply interacting with sticky prices
• -Monetarists: Inappropriate Gov Policy
• -Real Business Cycle: Shocks to Real factors
• -Coordination Failure: People lack ta way to coordinate their actions, and therefor we have events that result from people's expectations, rather than anything fundamental to the economy.

• -Pro: Places a burden on future taxpayer, Lower national savings
• -Con: Tax burden is not large compared to a person's lifetime income, budget deficit has to be seen in the picture.

Gov determine exchange rates and make necessary adjustments in their economies to maintain those rates

Demand and supple determine exchange rates and no gov. intervention occurs

Uncertainty and diminished trade; terms of trade changes; instability

Managed exchange rate float

• 1: trade policies
• 2: Exchange Rate controls and rationing
• 3: Domestic Macroeconomic Adjustment
• 4: Currency Intervention

The observation that people have unlimited wants but limited resources

type of unemployment caused by workers taking their time searching for a job that matches their skill tastes

If the money supply is fixed, increases in the price level tend to decrease the real value of financial assets, which lowers consumer spending.

• 1: Change in consumer Wealth
• 2: household borrowing
• 3: Taxes
• 4: interest rates
• 5: expected returns
• 6: government spending
• 7: income or wealth in foreign countries
• 8: exchange rates
• 9: tarrifs

Regulator and equalizer

People are rational, people have unlimited wants, people have limited income.

Gross Domestic Product- The market value of final goods and services produced within the borders of a given country within a given period of time.

• - Strong correlation between GDP and other quality of life factors
• - GDP data is available for many countries
• - Countries have a good incentive to collect accurate GDP data (tax purposes)

• -Firms act to maximize profits
• -Firms produce goods with a technology that requires resources
• -Resources are limited

• The recurring increases and decreases in the level of economic activity over periods of years.
• An expansion is the phase in a business cycle in which the RGDP, income and employment increase.

Monetary policy that increases money supply, lowers interest rates and increases aggregate demand.

The rate that the federal reserve bank charges on the loans it makes to commercial banks and thrift institutions

A measure of the overall cost of the goods and services used by a typical consumer

Changes in fiscal policy that stimulate AD when the economy goes into a recession (or slows AD when economy goes into a boom) without policy makers having to take any deliberate action.

Payments for new additions to the nations capital stock, whether public (new roads and bridges) or private (new factories, homes, and equipment)

• Medium of exchange: an item that buyers give sellers when they want o purchase goods and services.
• Unit of Account: The measure people use to post prices and record debts.
• Store of Value: An item that people can use to transfer purchasing power from present to the future.

• lending money to banks
• set the reserve ratio

The one-for-one adjustment of the nominal interest rate to the inflation rate.

shoeleather costs, menu costs, relative price-variability and the misallocation of resources, confusion and inconvenience, inflation-induced tax distortions, unexpected inflation causes redistributions of wealth

• limited amount of money that can be printed
• resources could be put to better use
• value of resources need not be stable

A loan from the saver to the borrower

Changes in government purchases and/or tax collections designed to achieve full-employment and noninflationary domestic output.

• Federal Reserve notes
• It is an example of fiat currency, because it is not backed up by the value of an underlying asset.

• Short run input or output prices are sticky-
• They do not immediate respond to changes in economic conditions. In the long run all prices are fully flexible and accurate reflect the value of inputs and outputs.

Buying or building an asset in expectation of earning financial gain (new factories and homes, but also old buildings, plus stocks, bonds, and other financial assets)

The proposition that changes in the money supply do not affect real variables

The goods a typical consumer buys

• Substitution bias
• quality change
• intro of new goods

• -Country is small enough so that whatever amount they demand can be supplied
• -Country's demand does not affect prices
• -Supply first comes from domestic firms and the remainder is met by foreign firms

A tax imposed by a nation on an imported good.

designed to produce income for the federal government

designed to shield domestic producers from the competition with foreign producers.

A limit imposed by a nation on the quantity of good that may be imported during some period of time.

The rate at which the currency of onenation can be exchanged for the currency of another nation.

A decrease in the value of a currency as measured bythe amount of foreign currency it can buy.

An increase in the value of a currency as measured by the amount of foreign currency it can buy.

The rate at which a person can trade the goods and services of one country for the goods and services of another country.

A theory of nominal exchange rates whereby a unit of any given currency should be able to buy the same quantity of the same goods in all countries.

• 1 Foreign direct investment: e.g. McDonald's opens up a fast-food restaurant in Russia. They actively manage the investment.
• 2 Foreign portfolio investment: e.g. an American buys stock in a Russian corporation. The American owner has a more passive role.

Purchase of foreign assets by domestic residents - purchase of domestic assets by foreigners.