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Unanticipated inflation is good for borrowers
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What causes the shape of the PPC to be bowed?
Increasing Opportunity Costs
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What is the largest portion of the current account?
Imports and Exports
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What are unilateral transfers?
Gifts from one country to another
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What is the largest component of GDP?
Personal Consumption Expenditures
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Labor Productivity refers to output per worker
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Classical Model
- Long Run Equilibrium
- Flexible Wages
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Unanticipated inflation is good for borrowers
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Keynesian Economics
- Government Intervention can stabilize the Economy
- Prices are sticky
- Changes in AD have their greatest Short run effect on real output and employment
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Two tools of Fiscal Policy
- Government Expenditures
- Taxes
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Adverse Selection
The potential for borrowers to use the borrowed funds in high risk situations
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What is an important factor that affects the rate of economic growth and hence long term living standards
Rate of Saving
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Saving is important to Economic growth because without saving we cannot have investment
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How to calculate Real rate of interest
Nominal rate of interest - anticipated rate of inflation
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comparative advantage
those who have a smaller opportunity cost
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Absolute Advantage
More output per unit of input
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National Income Accounting
A measurement system use to estimate national income and its components
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What does GDP not include?
- Financial Transactions
- Transfer Payments
- Secondhand Goods
- GDP is not a measure of a nation's overall welfare
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Two ways to measuring GDP
- Expenditure Approach
- Income Approach
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Expenditure Approach
add the dollar value of all final goods and services
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Income Approach
- Add the income received by all factors of production
- Add up all components of national income, including wages, interest, rent, and profits
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Examples of Automatic Stabilizers
- Unemployment
- Welfare
- Tax Structure
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Four Functions of Money
- Medium of Exchange
- Unit of Accounting
- Store of value
- Standard of Deferred Payment
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Three functions of Central Banks
- Conduct Nation's monetary policy
- Provide Currency to nation
- act as government fiscal agent
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8 functions of the Fed
- Supplies economy with Fiduciary currency
- holds depository institutions' reserves and provides payment clearing systems
- acts as the government's fiscal agent
- supervises depository institutions
- conducts monetary policy
- intervenes in foreign currency markets
- acts as a lender of last resort
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3 tools of the Fed
- OMO
- Discount Rate
- Reserve Requirement Ratio
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3 reasons for money demand
- Transactions demand
- Precautionary Demand
- Asset Demand
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