macroeconomics

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problems with GDP

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Economics

9th

117 Terms

1

problems with GDP

-double counting

-underground economy

GDP per capita

-inflation

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-

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open market operation

buying and selling of securities between the FED and selected financial institutions

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5

federal funds rate

the market-based interest rate which banks charge each other on overnight loans of their reserve balances held at the FED

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6

who is responsible for fiscal policy?

government

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7

difference between automatic stabilizer and discretionary stabilizers

automatic: involve unemployment, welfare, and taxes; happen right away-natural occurrences in circular flow

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8

when to use contractionary fiscal policy?

during expansions to slow the economy

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9

when to use expansionary fiscal policy?

during contractions to grow the economy

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10

criticisms of fiscal policy

-long recognition and administration lags

more political nature of trying to get re-elected than making difficult decisions

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11

-

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12

who oversees monetary policy?

the Federal Reserve (FED)

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13

tight monetary policy

causes money supply to decrease

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14

loose monetary policy

causes money supply to increase

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15

reserve ration under tight and loose monetary policy

loose: decreases

tight: increases

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discount rate under tight and loose monetary policy

tight: rises

loose: lowers

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19

open market transactions under tight and loose monetary policy

tight: sell

loose: buy

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interest ratio under tight and loose monetary policy

tight: increases

loose: decreases

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23

inflation under tight and loose monetary policy

tight: decreases

loose: increases

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unemployment under tight and loose monetary policy

tight: increases

loose: decreases

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economic growth under tight and loose monetary policy

tight: discorages

loose: encouraged

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money

cash in circulation and amounts people and businesses have in bank accounts

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30

credit

amounts that banks and other lenders can lend

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31

fiscal policy-automatic stabilizers

-things that happen no matter what

-always functioning in the background

-created by government

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fiscal policy-discretionary

-actions taken by government

-can become automatic

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monetary policy

-actions taken by the FED

-objective is to influence the availability and cost if money and credit

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stabilizers

-what can be done to help the economy

-can be fiscal or monetary

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40

the way to get out of a contraction

spending

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41

complete circular flow

shows how a domestic economy functions within the context of the larger global economy

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42

simple circular flow

shows how people and businesses interact in the market

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43

computing real GDP

current dollar (nominal) GDP/adjustment for inflation

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deflation

-decline in price levels

-sign of weak economy

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hyperinflation

money rapidly looses its value

-excessive and rapid rise in price levels

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causes of inflation

-too much money in the economy

-demand exceeds supplies(demand pull)

-costs of inputs go up(cost pull)

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inflation

-money becomes less valuable

-a rate of increase in the general price level of all goods and services

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double counting

-occurs when the value of a contributor is counted more than once into GDP

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53

-often happens with the re-sale of goods and services

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54

underground economy

-unpaid housework

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-barter

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-black market

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GDP per capita

-gives you a better perspective of the wealth of a nation

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net foreign exports

the difference between exports and imports

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(exports-imports)

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trade deficit

when net foreign exports is negative

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consumer spending

total spending on all durable goods, nondurable goods, and services

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business investments

the physical investment in capital to make businesses better

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government spending

guns and butter

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ways to calculate GDP

income approach: total of all incomes earned in a year

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expenditure approach: total spending for new goods and services produced for a year

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growth rates for GDP

3-4%=average

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5%=good

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7-8%=great

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Gross Domestic Product (GDP)

-total market value of a nation's final output of goods and services

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-helps determine value of an economy

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subsidy

money injected into the economy by government

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bail out

when government intervenes to get the economy out of distress

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pains in market fluctuations

during recession or contraction: high unemployment

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during expansion: high inflation

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leading economic indicators

-GDP

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-inflation rates and CPI (consumer price index)

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-unemployment rate

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-interest rates

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unemployment rate

the percentage of the labor force that does not have a paying job

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-labor force includes all those 16+ who are working or actively looking for a job

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interest rates

a rate which is charges to paid for the use of money

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trough

-period before expansion or economic growth and recovery

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-extreme low of the economy

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-productivity is low and unemployment is high

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depression

-a severe prolonged decline in the level of economic activity

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-hard to define; no specific time period

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recession

-a period of at least 6 months 92 business period) in which the economy does not grow

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contraction

-prosperity begins to wear off

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-economy begins to slow

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peak

-period prior to contraction

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-period of high prosperity

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-economy is very productive

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expansion

-economic recovery

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-people are spending

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95

business cycle

a series of rises and falls in the overall level of economic activity, measured by read GDP

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deficit rule of thumb

-households and firm never want a deficit

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-government doesn't want a deficit but will have one most likely (necessary evil)

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austerity

cut back

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reserve requirement

the amount of money banks must keep at reserve at the FED

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discount rate

applies to the short-term loans made directly to commercial banks from the FED

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