Untitled Flashcards Set

Accounting Identity

The equation used to estimate GDP.

Components of GDP

Consumption, Investment, Government spending, Net exports.

Real GDP Calculation

Real GDP = Year 1 quantity × Base year price.

Nominal GDP Calculation

Nominal GDP = Price × Quantity (final goods only).

Inflation Rate Calculation

Measures the percentage increase in the price level over time.

Quantity Theory of Money

MV=PY, where M is money supply, V is velocity, P is price level, and Y is output.

Costs of Inflation

Includes shoe-leather costs, menu costs, and uncertainty in price signals.

Types of Unemployment

Frictional, structural, cyclical.

Employment/Unemployment Rate

Measures labor market conditions.

Shifts in Demand Curve

Caused by changes in income, preferences, prices of related goods.

Shifts in Supply Curve

Caused by changes in production costs, technology, expectations.

Present Value Formula

PV = Future Value / (1 + r)^t.

Credit and Interest Rate

Interest rate is the cost of borrowing money.

Bank Fundamentals

Includes reserves, loans, deposits.

Federal Reserve System

The central banking system of the U.S.

Monetary Policy

Central bank actions to control money supply and interest rates.

Fiscal Policy

Government actions on taxation and spending.

Bank Runs

Occurs when many depositors withdraw funds simultaneously.

Types of Firms

Sole proprietorships, partnerships, corporations.

Financial Regulation

Rules to maintain financial stability.

Trade Deficit

When a country imports more than it exports.

Expected Value

The weighted average of possible outcomes.

Measurement Identity

Two magnitudes are related when defined equally.

Expenditure-Based GDP

Y=C+I+G+X−M.

Medium of Exchange

Facilitates trade by eliminating the need for barter.

Store of Value

Allows purchasing power to be retained over time.

Unit of Account

Standardized measurement of value in an economy.

Labor Force Calculation

Labor force = Employed + Unemployed.

Natural Rate of Unemployment

The rate around which an economy fluctuates.

Business Cycles

The short-term ups and downs in economic activity.

Economic Fluctuations

Variations in GDP growth and employment.

Net Present Value (NPV)

The sum of discounted future costs and benefits.

Central Bank Functions

Regulates banks, controls interest rates, manages inflation.

Federal Reserve Act

Legislation establishing the U.S. Federal Reserve.

Open Market Operations

Fed buying/selling securities to control reserves.

Bond Pricing Equation

Determines the present value of bond payments.

Stock Pricing Equation

Determines the present value of stock dividends.

Asset Price Equation

Values financial assets based on expected returns.

Recession Definition

A widespread contraction in economic activity.

Aggregate Demand Equation

Y=C(Y−T,r)+I(Y,r)+G+X−M.

Financial Markets Function

Facilitate savings, investments, and borrowing.

Interest Rate Components

Real interest rate, inflation, risk premium.

Role of Banks

Facilitate transactions, manage risk, and allocate credit.

Securities Market

Trading of bonds, stocks, and other financial instruments.

Diversification Principle

Reducing risk by holding a variety of assets.

Expansionary Monetary Policy

Lowers interest rates to increase demand.

Contractionary Monetary Policy

Raises interest rates to decrease demand.

Federal Funds Rate

The interest rate at which banks lend to each other.

Quantitative Easing (QE)

Central bank buying assets to lower long-term interest rates.

Inflation Equation

π=m−y, where m is money supply growth and y is real GDP growth.