econ study guide 2

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  1. investment function shifts
    • relationship neg interest rate to investment level
    • ROI/GDP/captial utilization up
    • investment demand curve shifts right
    • down shifts left
    • cost of captial up investment demand curve shifts left
    • down shifts right
    • up capital production possiblity curve up and outward long term shifts AS curve right
  2. purpose of federal reserve
    • the centeral bank for the united states
    • supplies currency, holds reserves, processes and routes checks, makes loans to banks, banker for US govt & sets key interest rates
  3. automatic stablizer (define)
    govt program that tends to reduce fluctations in GDP automatically (progressive taxes & transfer payments)
  4. fiscal policy (define)
    use of govt expenditures & taxes to influence level of economic activity
  5. discretionary fiscal policy (define)
    changes in govt spending &/or taxation aimed at achieving a policy goal
  6. deposit multiplier
    Md = change in D/change in R = 1/rrr
  7. demand for money (define)
    relationship between quantity of money people want to hold & the factors that determine that quantity
  8. medium of exchange
    anything that is widely accepted as means of payment
  9. GDP = C + I + G + X
    • GDP = Y (real GDP or income)
    • AE = C + I + G + X
    • Y = AE
    • C = 70%
    • I = 10%
    • G = 19%
    • X = 1%
  10. consumption function shift
    • change Yd (income) causes movement along curve
    • shifts up real wealth and consumer confidence up
    • shift down real wealth and consumer confidence down
  11. aggregate expenditure relationships
    • AE < real GDP - real GDP shifts up
    • AE = real GDP - real GDP no change
    • AE > real GDP - real GDP shifts down
  12. 45 degree reference line
    line that shows all points at which AE = real GDP (equilibrium
  13. MPC
    • marginal propensity to consume
    • change in consumption/ change in disposable personal income
  14. MPS
    • marginal propensity to save
    • change in personal savings/change in disposable personal income
  15. autonomous consumption
    • real GDP at any level at which AE curve interestects with vertical axis
    • or
    • min level of consumption that still exists even if consumer has 0 income
  16. unplanned inventory (application)
    Real GDP minus AE
  17. APC
    • average propensity to consume
    • consumption/disposable income
  18. APS
    • average propensity to save
    • savings/disposable income
  19. MPC vs APC
    • MPC is change in consumption
    • APC is average consumption
  20. savings vs investment comparison
    • investment is up
    • consumption down
    • savings up
  21. required reserves
    % times checkable deposits
  22. excess reserves
    total reserves minus required reserves
  23. M1
    • narrowest of fed money supply
    • currency in circulation, checkable deposits & travelers checks
  24. M2
    • broader of Feds money supply
    • all M1, small savings accounts, money market mutual funds, CDs
  25. federal actions
    knowledge of tools
    • expansionary action - buy bonds
    • contractionary action - sell bonds
    • lender of last resort for banks
    • sets reserve requirements for banks
  26. reserve ratio
    • % required reserves times deposits
    • rrr = D/R
    • rrr = required reserve ratio
  27. required reserves (define)
    amount of bank assets required to be held as cash in vaults & deposits with fed reserve
  28. unit of account
    consistent means of measuring the value of things
  29. store of value
    item that holds value over time
  30. standard of deferred payment
    means of settling a debt
  31. liquidity (define)
    ease at which an asset can be converted into currency
  32. networth
    assets minues liabilities
  33. fractional reserves
    hold of reserves of less value than sum of outstanding claims on the reserves
  34. transaction demand for money
    held to pay for goods & services that anticipate buying
  35. precautionary demand for money
    money held for contingencies or emergencies
  36. speculative demand for money
    held in response to concern that bond prices & other financial asset prices may change
  37. crowding out (define)
    govt investments reducing private investments by borrowing money thru sell of bonds reducing available money for private investments
  38. budget surplus (define)
    govt revenues exceed expenditures
  39. budget deficit (define)
    govt expenditures exceed revenues
  40. balanced budget
    budget surplus equals zero
  41. equation for money demanded
    M = (1/v)PY
  42. equation of exchange
    • MV - nominal GDP = PY
    • M money supply
    • V velocity
    • P implicity price deflator (nominal GDP/real GDP)
    • Y real GDP
  43. level change of equation of exchange
    • when sum of % rates of change are approximately equal
    • %changeM + %changeV = %changeP + %changeY
  44. spending multiplier
    • change in equilibrium level of real GDP / change in autonomous AE
    • 1/MPS
    • change autonomous AE/1-MPC
Card Set
econ study guide 2
econ study guide 2
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