Studied by 1 personproblems with GDP
-double counting
-underground economy
GDP per capita
-inflation
-
open market operation
buying and selling of securities between the FED and selected financial institutions
federal funds rate
the market-based interest rate which banks charge each other on overnight loans of their reserve balances held at the FED
who is responsible for fiscal policy?
government
difference between automatic stabilizer and discretionary stabilizers
automatic: involve unemployment, welfare, and taxes; happen right away-natural occurrences in circular flow
when to use contractionary fiscal policy?
during expansions to slow the economy
when to use expansionary fiscal policy?
during contractions to grow the economy
criticisms of fiscal policy
-long recognition and administration lags
more political nature of trying to get re-elected than making difficult decisions
-
who oversees monetary policy?
the Federal Reserve (FED)
tight monetary policy
causes money supply to decrease
loose monetary policy
causes money supply to increase
reserve ration under tight and loose monetary policy
loose: decreases
tight: increases
discount rate under tight and loose monetary policy
tight: rises
loose: lowers
open market transactions under tight and loose monetary policy
tight: sell
loose: buy
interest ratio under tight and loose monetary policy
tight: increases
loose: decreases
inflation under tight and loose monetary policy
tight: decreases
loose: increases
unemployment under tight and loose monetary policy
tight: increases
loose: decreases
economic growth under tight and loose monetary policy
tight: discorages
loose: encouraged
money
cash in circulation and amounts people and businesses have in bank accounts
credit
amounts that banks and other lenders can lend
fiscal policy-automatic stabilizers
-things that happen no matter what
-always functioning in the background
-created by government
fiscal policy-discretionary
-actions taken by government
-can become automatic
monetary policy
-actions taken by the FED
-objective is to influence the availability and cost if money and credit
stabilizers
-what can be done to help the economy
-can be fiscal or monetary
the way to get out of a contraction
spending
complete circular flow
shows how a domestic economy functions within the context of the larger global economy
simple circular flow
shows how people and businesses interact in the market
computing real GDP
current dollar (nominal) GDP/adjustment for inflation
deflation
-decline in price levels
-sign of weak economy
hyperinflation
money rapidly looses its value
-excessive and rapid rise in price levels
causes of inflation
-too much money in the economy
-demand exceeds supplies(demand pull)
-costs of inputs go up(cost pull)
inflation
-money becomes less valuable
-a rate of increase in the general price level of all goods and services
double counting
-occurs when the value of a contributor is counted more than once into GDP
-often happens with the re-sale of goods and services
underground economy
-unpaid housework
-barter
-black market
GDP per capita
-gives you a better perspective of the wealth of a nation
net foreign exports
the difference between exports and imports
(exports-imports)
trade deficit
when net foreign exports is negative
consumer spending
total spending on all durable goods, nondurable goods, and services
business investments
the physical investment in capital to make businesses better
government spending
guns and butter
ways to calculate GDP
income approach: total of all incomes earned in a year
expenditure approach: total spending for new goods and services produced for a year
growth rates for GDP
3-4%=average
5%=good
7-8%=great
Gross Domestic Product (GDP)
-total market value of a nation's final output of goods and services
-helps determine value of an economy
subsidy
money injected into the economy by government
bail out
when government intervenes to get the economy out of distress
pains in market fluctuations
during recession or contraction: high unemployment
during expansion: high inflation
leading economic indicators
-GDP
-inflation rates and CPI (consumer price index)
-unemployment rate
-interest rates
unemployment rate
the percentage of the labor force that does not have a paying job
-labor force includes all those 16+ who are working or actively looking for a job
interest rates
a rate which is charges to paid for the use of money
trough
-period before expansion or economic growth and recovery
-extreme low of the economy
-productivity is low and unemployment is high
depression
-a severe prolonged decline in the level of economic activity
-hard to define; no specific time period
recession
-a period of at least 6 months 92 business period) in which the economy does not grow
contraction
-prosperity begins to wear off
-economy begins to slow
peak
-period prior to contraction
-period of high prosperity
-economy is very productive
expansion
-economic recovery
-people are spending
business cycle
a series of rises and falls in the overall level of economic activity, measured by read GDP
deficit rule of thumb
-households and firm never want a deficit
-government doesn't want a deficit but will have one most likely (necessary evil)
austerity
cut back
reserve requirement
the amount of money banks must keep at reserve at the FED
discount rate
applies to the short-term loans made directly to commercial banks from the FED
Note 
Flashcard (76)