Econ 102 2nd midterm to final

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hcunning
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300678
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Econ 102 2nd midterm to final
Updated:
2015-04-13 13:07:13
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econ
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macroeconomics
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second midterm to final material
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  1. Closed economy
    an economy that does not interact with other economies in the world
  2. Open economy
    an economy that interacts freely with other economies around the world
  3. Exports
    goods and services that are produced domestically and sold abroad
  4. Imports
    goods and services that are produced abroad and sold domestically
  5. Net exports/Trade balance
    the value of a nation's exports minus the value of its imports
  6. Trade surplus
    an excess of exports over imports
  7. Trade deficit
    an excess of imports over exports
  8. Balanced trade
    a situation in which exports equal imports
  9. Net capital outflow (NCO)
    the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
  10. NCO always equals _______
    Net exports (NX)
  11. Nominal exchange rate
    the rate at which a person can trade the currency of one country for the currency of another
  12. Appreciation
    an increase in the value of a currency as measured by the amount of foreign currency it can buy
  13. Depreciation
    a decrease in the value of a currency as measured by the amount of foreign currency it can buy
  14. Real exchange rate
    the rate at which a person can trade the goods and services of one country for the goods and services of another
  15. Real exchange rate eqn
    Real x-rate= (nominal x-rate X domestic price)/foreign price
  16. PPP
    Purchasing Power Parity: a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries
  17. LOP
    Law of One Price: a good must sell for the same price in all locations
  18. Small open economy
    an economy that trades goods and services with other economies and, by itself, has a negligible effect on world prices and interest rates
  19. Perfect capital mobility
    full access to world financial markets
  20. Interest rate parity
    a theory of interest rate determination whereby the real interest rate on comparable financial assets should be the same in all economies with full access to world financial markets
  21. Recession
    a period of falling incomes and raising unemployment
  22. Depression
    a severe recession
  23. Aggregate-demand curve
    a curve that shows the quantity of goods and services that households, firms, and the gov't want to buy at each price level
  24. Aggregate-supply curve
    a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level
  25. Why the aggregate-demand curve might shift?
    • changes in consumption
    • changes in investment
    • changes in gov't purchases
    • changes in net exports
  26. Why the long-run aggregate supply curve might shift?
    • changes in labour
    • changes in capital
    • changes in natural resources
    • changes in technological knowledge
  27. Wealth effect
    a lower price level raises the real value of household's money holdings, a higher real wealth stimulates consumer spending
  28. Interest rate effect
    • As price level goes down, interest rate goes up, which increases investment spending
    • most important of the 3 reasons the aggregate-demand curve slopes downward
  29. The real exchange rate effect
    lower price lvel reduces the real exchange rate, this depreciation makes Canadian-produced goods and services cheaper relative to foreign-produced goods and services, therefore Canadian net exports rise
  30. Theory of liquidity preference
    Keynes's theory that the interest rate adjusts to bring money supply and money demand into balance
  31. Equilibrium interest rate
    the one interest rate at which the quantity of money demanded exactly balances the quantity of money supplied
  32. Flexible exchange rate
    a policy by which the value of the exchange rate is allowed to vary without interference by the central bank
  33. Fixed exchange rate
    the additional shifts in aggregate demand that result when expansionary fiscal policy increase outcome and thereby increase consumer spending
  34. MPC
    Marginal propensity consume: the fraction of extra income that a household consumes rather than saves
  35. Crowding-out effect on investment
    the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces the investment spending
  36. Crowding-out effect on net exports
    the offset in aggregate demand that results when expansionary fiscal policy in a small open economy with a flexible exchange rate raises the real exchange rate and thereby reduces net exports
  37. Automatic stabilizers
    changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession, without policer makers having to take any deliberate action
  38. Phillips curve
    a curve that shows the short-run tradeoff b/w inflation and unemployment
  39. Natural rate hypothesis
    the claim that unemployment eventually returns to its normal, or natural rate, regardless of the rate of inflation
  40. Supply shock
    an event that directly alters firms' costs and prices, shifting the aggregate-supply curve and thus the Phillips curve
  41. Sacrifice ratio
    the number of percentage points of one's year's output lost in the process of reducing inflation by one percentage point
  42. Okam's law
    the number of percentage points the unemployment rate increases when GDP falls by one percentage point
  43. Rational expectations
    the theory according to which people ultimately use all the information they have, including information about gov't policies, when focusing or forecasting the future.

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