Macroeconomics-Chap-9-11

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micsflashcards
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Macroeconomics-Chap-9-11
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2013-11-20 14:51:13
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Macroeconomics Chap 11
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macroeconomics.
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  1. Say's law
    Supply creates its own demand. Production creates enough demand to purchase all the goods and services produced.
  2. Recessionary Gap
    The condition in which the Real GDP that the economy is producing is less than the Natural Real GDP and the unemployment rate is greater than the natural unemployment rate.
  3. Inflationary Gap
    The condition in which the Real GDP that the economy is producing is greater than the Natural Real GDP and the unemployment rate is less than the natural unemployment rate.
  4. laissez-faire
    A public policy of not interfering with market activities in the economy.
  5. Efficiency Wage Models
    Models holding that it is sometimes in the best interest of business firms to pay their employees higher than equilibrium wage rates.
  6. Consumption Function
    • The relationship between consumption and disposable income. In the consumption used in this text, consumption is directly related to disposable income and is positive even at zero disposable income.
    • C=C0+(MPC)(Yd).
  7. Marginal Propensity to consume (MPC)
    • The ratio of the change in consumption to the change in disposable income
    • MPC=ΔC 
    •         ΔYd
  8. Autonomous Consumption
    The part of consumption that is independent of disposable income.
  9. Marginal Propensity to Save (MPS)
    • The ratio of the change in saving to the change in disposable income.
    • MPS=ΔS 
    •         ΔYd
  10. Multiplier
    The number that is multiplied by the change in autonomous spending to obtain the overall change in total spending. The multiplier (m) is equal to 1÷(1-MPC). If the economy is operating below Natural Real GDP, then the multiplier is the number that is multiplied by the change in autonomous spending to obtain the change in Real GDP.
  11. progressive income tax
    An income tax system in which one's tax rate rises as taxable income rises.
  12. Proportional Income tax
    An income tax system in which a person's tax rate is the same regardless of taxable income.
  13. Regressive Income Tax
    An income tax system in which a person's tax rate declines as his or her taxable income rises.
  14. Budget Deficit
    Government expenditures greater than tax revenues.
  15. Budget Surplus
    Tax revenues greater than government expenditures.
  16. Balanced Budget
    Government expenditures equal to tax revenues.
  17. Cyclical Deficit
    The part of the budget deficit that is a result of a downturn in economic activity.
  18. Structural Deficit
    The part of the budget deficit that would exist even if the economy were operating at full employment.
  19. Public Debt
    The total amount that the federal government owes its creditors.
  20. Fiscal Policy
    Changes in government expenditures and/or taxes to achieve economic goals, such as low unemployment, stable prices, and economic growth.
  21. Expansionary Fiscal Policy
    Increases in government expenditures and/or decreases in taxes to achieve particular economic goals.
  22. Contradictory Fiscal Policy
    Decreases in government expenditures and/or increases in taxes to achieve economic goals.
  23. Discretionary Fiscal Policy
    Deliberate changes of government expenditures and/or taxes to achieve economic goals.
  24. Automatic Fiscal Policy
    Changes in government expenditures and/or taxes that occur automatically without (additional) congressional action.
  25. Crowding Out
    The decrease in private expenditures that occurs as a consequence of increased government spending or the financing needs of a budget deficit.
  26. Complete Crowding Out
    A decrease in one or more components of private spending that completely offsets the increase in government spending.
  27. Incomplete Crowding Out
    The decrease in one or more components of private spending that only partially offsets the increase in government spending.
  28. Marginal (Income) Tax Rate
    • The change in a person's tax payment divided by the change in taxable income. 
    • Δ Tax Payment÷ Δ Taxable income.
  29. Laffer Curve
    The curve, named after Arthur Laffer, that shows the relationship between tax rates and tax revenues. According to the Laffer curve, as tax rates rise from zero, tax revenues rise, reach a maximum at some point, and then fall with further increases in tax rates.
  30. Tax Base
    In terms of income taxes, the total amount of taxable income. Tax revenue = Tax base X (average) Tax rate.
  31. Federal Income tax is a....?
    Progressive Income Tax
  32. In Keynesian theory a recessionary gap calls for _____________.
    expansionary fiscal policy.
  33. In Keynesian theory a inflationary gap calls for _______________.
    contractionary fiscal policy.
  34. The crowding out effect suggests that expansionary fiscal policy does not work to the degree that _____________ predicts.
    Keynesian theory
  35. Demand-side fiscal policy may be ineffective at achieving certain micro-economic goals because of 2 things?
    • (1) crowding out
    • (2) Lags
  36. What are the 5 types of lags?
    • The Data Lag
    • The Wait-and-see Lag
    • The legislative lag
    • The transmission lag
    • The effectiveness lag
  37. Data Lag?
    Policy makers are not aware of changes in the economy as soon as they happen. For example, if the economy turns down in january, the decline may not be apparent for two months.
  38. The wait and see lag?
    After policy makers are aware of a downturn in economic activity, they rarely enact counteractive measures immediately. Instead, they usually adopt a relatively cautious wait-and-see attitude to be sure that the observed events are not just short run phenomena.
  39. The Legislative Lag?
    After policy makers decide that some type of fiscal policy measure is required, Congress or the president has to propose the measure, build political support for it, and get it passed. The legislative lag can take many months.
  40. The transmission lag?
    Once enacted, a fiscal policy measure takes time to go into effect. For example, a discretionary expansionary fiscal policy measure mandating increased spending for public works projects requires construction companies to submit bids for the work, prepare designs, negotiate contracts, and so on.
  41. The Effectiveness Lag?
    After being actually implemented, a policy measure takes time to affect the economy. If government spending is increased on Monday, the aggregate demand curve does not shift rightward on Tuesday.
  42. Medium of Exchange
    Anything that is widely acceptable in exchange for goods and services; a function of money.
  43. Store Value
    the ability of an item to hold value over time; a function of money.
  44. M1
    • Currency held outside banks
    • checkable deposits
    • travelers checks.
  45. Federal Reserve Notes
    Paper money issued by the Federal Reserve.
  46. M2
    • M1 
    • savings deposits (including money market deposit accounts)
    • small-denomination time deposits
    • money market mutual funds.
  47. Savings Deposit
    An interest-earning account at a commercial bank or thrift institution. Normally, checks cannot be written on savings deposits, and the funds in a savings deposit can be withdrawn at any time without penalty payment.
  48. Time Deposit
    An interest earning deposit with a specified maturity date. Time deposits are subject to penalties for early withdrawal, that is, withdrawal before the maturity date. Small denomination time deposits are less than 100,000.
  49. Fractional Reserve Banking
    A banking arrangement that allows banks to hold reserves equal to only a fraction of their deposit liabilities.
  50. Federal Reserve System (the fed)
    The central bank of the United States.
  51. Reserves
    The sum of bank deposits at the Fed and vault cash.
  52. Required Reserve Ratio (r)
    A percentage of each dollar deposited that must be held in reserve form (specifically, as bank deposits at the Fed or vault cash)
  53. Required Reserves
    The minimum dollar amount of reserves that a bank must hold against checkable deposits, as mandated by the Fed.
  54. Reserve Requirement
    The Fed rule that specifies the amount of reserves a bank must hold to back up deposits.
  55. Excess Reserves
    • Any reserves held beyond the required amount; the difference between (total) reserves and required reserves)
    • total reserves - required reserves
  56. Direct Finance
    Borrowers and lenders come together in a market setting, such as a bond market.
  57. Indirect Finance
    Funds are loaned and borrowed through a financial intermediary.
  58. Asymmetric Information
    Relates to an economic agent on one side of a transaction having information that an economic agent on the other side of the transaction does not have.
  59. Adverse Selection
    A phenomenon that occurs when the parties on one side of the market, who have information not known to others, self-select in a way that adversely affects the parties on the other side of the market.
  60. Moral hazard
    A condition that exists when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party.
  61. Balance Sheet
    A record of the costs and liabilities of a bank.
  62. Asset
    Anything of value that is owed or that one has claim to.
  63. Liability
    Anything that is owed to someone else
  64. Insolvency
    A condition in which ones liabilities are greater than one's assets.

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