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Module 11 - Properties and Metabolism of Lipids

CLIMATE CHANGE REVIEW

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Econ final study cards 338

1. Compensating Differential a difference in wages that compen sates workers for unpleasant aspects of a job

2. derived demand the demand for a factor of production; it depends on the demand for the good the factor produces

3. economic discrimination the practice of paying a person a low er wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender

4. economic rent (pure rent) the price of a factor of production that is in fixed supply

5. Factors of Production labor, capital, natural resources, and other inputs used to make goods and services

6. Human Capital the accumulated knowledge and skills that workers acquire from education and training or from their life experiences

7. Labor Union an organization of employees that has a legal right to bargain with employers about wages and working conditions

8. Marginal Product of Labor the additional output a firm produces as a result of hiring one more worker

9. Marginal Productivity theory of in come distribution

10. monopsony the theory that the distribution of in come is determined by the marginal productivity of the factors of production that individuals own the situation in which a firm is the sole buyer of a factor of production, such as labor

11. personnel economics the application of economic analysis to human resources issues

12. statistical discrimination the practice of assigning the characteristics of a group to an individual who belongs to the group (stereotyping)

13. value of the marginal product of labor the change in a firm's revenue as a result of hiring one more worker

14. Arrow impossibility theorem a mathematical theorem that holds that no system of voting can be de

vised that will consistently represent

the underlying preferences of voters

15. average tax rate total tax paid divided by total income

16. excess burden a measure of the efficiency loss to the economy that results from a tax

having reduced the quantity of a good

produced; also known as the dead

weight loss

17. lorenz curve a curve that shows the distribution of income by arraying incomes from

lowest to highest on the horizontal

axis and indicating the cumulative

fraction of income earned by each

fraction of households on the vertical

axis

18. marginal tax rate the fraction of each individual dollar of income that must be paid in taxes

19. median voter theorem

the proposition that the outcome of a

majority vote is likely to represent the

preferences of the voter who is in the

political middle

20. poverty line a level of annual income equal to three times the amount of money

necessary to purchase the minimum

quantity of food required for adequate

nutrition

21. poverty rate the percentage of the population that is in poverty, according to the federal

definition

22. progressive tax a tax for which people with lower incomes pay a lower percentage of

their income in tax than do people

with higher incomes

23. public choice model a model that applies economic analy sis to government decision making

24. regressive tax a tax for which people with lower in comes pay a higher percentage of

their income in tax than do people

with higher incomes

25. rent seeking attempts by individuals and firms to use government action to make

themselves better off at the expense

of others

26. tax incidence the actual division of the burden of a tax between buyers and sellers in a

market

27. voting paradox the failure of majority voting to always result in consistent choices

28. Business cycle Alternating periods of economic ex pansion and economic recession

29. consumption spending by households on goods and services, with the exception of

purchases of new housing

30. economic growth the ability of the economy to increase the production of goods and services

31. expansion the period of a business cycle during which total production and total em

ployment are increasing

32. final good or service a good or service purchased by a final user

33. GDP deflator a measure of the price level calculat ed by dividing nominal GDP by real

GDP and multiplying by 100

34. government purchases spending on goods and services by local, state, and federal governments

35. Gross Domestic Product (GDP) the market value of all final goods and services produced in a country

during a period of time, usually one

year

36. inflation rate the percentage increase in the price level from one year to the next

37. intermediate good or service a good or service that is an input into another good or service, such as a

tire on a truck

38. investment spending by firms on new factories, office buildings, machinery, and addi

tions to inventories, plus spending by

households and firms on new houses

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Econ chaps 16-25

39. macroeconomics the study of the economy as a whole, including topics such as inflation, un

employment, and economic growth

40. microeconomics The study of how households and firms make choices, how they interact

in markets, and how the government

attempts to influence their choices

41. net exports exports minus imports

42. nominal GDP the value of final goods and services evaluated at current-year prices

43. price level a measure of the average prices of goods and services in the economy

44. Real GDP the value of final goods and services evaluated at base year prices

45. recession the period of a business cycle during which total production and total em

ployment are decreasing

46. transfer payments payments by the government to households for which the govern

ment does not receive a new good or

service in return

47. underground economy (shadow economy or black market)

buying and selling of goods and ser vices that is concealed from the gov ernment to avoid taxes or regulations

or because the goods and services are illegal

48. value added the market value a firm adds to a product

49. consumer price index (CPI) a measure of the average of the prices a typical urban family of four

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pays for the goods and services they

purchase

50. cyclical unemployment unemployment caused by a business cycle recession

51. deflation a decline in the price level

52. discouraged workers people who are available for work but have not looked for a job during the

previous four weeks because they

believe no jobs are available for them

53. efficiency wage an above-market wage that a firm pays to increase workers' productivity

54. employed in government statistics, someone who currently has a job or who is

temporarily away from his or her job

55. employment-population ratio the percentage of the working-age population that is employed

56. frictional unemployment short term unemployment that arises from the process of matching work

ers with jobs

57. labor force the sum of employed and unem ployed workers in the economy

58. labor force participation the percentage of the working-age population in the labor force

59. menu costs the costs to firms of changing prices

60. natural rate of unemployment the normal rate of unemployment, consisting of frictional unemployment

and structural unemployment

61. nominal interest rate the stated interest rate on a loan 6 / 38

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62. producer price index (PPI) an average of the prices received by producers of goods and services at

all stages of the production process

63. real interest rate the nominal interest rate minus the inflation rate

64. structural unemployment unemployment that arises from a per sistent mismatch between the skills

or attributes of workers and the re

quirements of jobs

65. unemployed in the government statistics, some one who is not currently at work but

who is available for work and who has

actively looked for work during the

previous month

66. unemployment rate the percentage of the labor force that is unemployed

67. capital physical assets and intellectual prop erty that are used to produce other

goods and services

68. crowding out a decline in private expenditures as a result of an increase in government

purchases

69. financial intermediaries firms, such as banks, mutual funds, pension funds, and insurance com

panies, that borrow funds from

savers and lend them to borrowers

70. financial markets markets where financial securities, such as stocks and bonds, are

bought and sold

71. financial system the system of financial markets and financial intermediaries through

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which firms acquire funds from

households

72. labor productivity the quantity of goods and services that can be produced by one worker

or by one hour of work

73. long-run economic growth the process by which rising produc tivity increases the average standard

of living

74. market for loanable funds the interaction of borrowers and lenders that determines the market

interest rate and the quantity of loan

able funds exchanged

75. potential GDP the level of real GDP attained when all firms are producing at capacity

76. catch-up the prediction that the level of GDP per capita (or income per capita) in

poor countries will grow faster than in

rich countries

77. economic growth model a model that explains growth rates in real GDP per capita over the long run

78. foreign direct investment (FDI) a firm's purchasing or building of a facility in a foreign country

79. Foreign portfolio investment (FPI) the purchase by an individual or a firm of stocks or bonds issued in an

other country

80. globalization the process of countries becoming more open to foreign trade and in

vestment

81. industrial revolution

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the application of mechanical power

to the production of goods that began

in England around 1750

82. new growth theory a model of long-run economic growth that emphasizes that technological

change is influenced by economic in

centives and so is determined by the

working of the market system

83. patent the exclusive legal right to produce a product for a period of 20 years from

the date the patent application is filed

with the government

84. per-worker production function the relationship between real GDP per hour worked and capital per hour

worked, holding the level of technol

ogy constant

85. property rights the rights individuals or firms have to the exclusive use of their property,

including the right to buy or sell it

86. rule of law the ability of a government to enforce the laws of the country, particular

ly with respect to protecting private

property and enforcing contracts

87. technological change a positive or negative change in the ability of a firm to produce a given

level of output with a given quantity of

inputs

88. aggregate demand (AD) curve a curve that shows the relationship between the price level and the quan

tity of real GDP demanded by house

holds, firms, and the government

(both inside and outside the country)

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89. aggregate expenditure total spending in the economy: the sum of consumption, planned invest

ment, government purchases, and

net exports

90. aggregate expenditure model A macroeconomic model that focus es on the short-run relationship be

tween total spending and real GDP,

assuming that the price level is con

stant

91. autonomous expenditure expenditure that does not depend on the level of GDP

92. cash flow the difference between the cash rev enues received by a firm and the

cash spending by the firm

93. consumption function the relationship between consump tion spending and disposable income

94. inventories goods that have been produced but not yet sold

95. marginal propensity to consume (MPC)

the slope of the consumption func tion: the amount by which consump tion spending changes when dispos able income changes

96. marginal propensity to save (MPS) the amount by which saving changes when disposable income changes

97. Mulitplier the change in equilibrium real GDP dividing by the change in au

tonomous expenditure

98. Multiplier effect the process by which a change in autonomous expenditure leads to a

larger change in real GDP

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99. disposable income = national income - net taxes 100. national income = GDP = disposable income + net taxes

101. MPC = change in consumption/change in in come

102. Aggregate demand and aggregate supply model

a model that explains short-run fluc tuations in real GDP and the price level

103. fiscal policy government implemented changes in federal taxes and purchases that are

intended to achieve macroeconomic

policy objectives

104. long-run aggregate supply (LRAS) curve

a curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied

105. monetary policy the actions the federal reserve takes to manage the money supply and

interest rates to achieve macroeco

nomic policy objectives

106. short-run aggregate supply (SRAS) curve

a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms

107. stagflation a combination of inflation and reces sion, usually resulting from a supply

shock

108. supply shock An unexpected event that causes the short-run aggregate supply curve to

shift

109. ample-reserves regime

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a situation in which banks hold sub

stantially more reserves than the

central bank requires them to hold

110. asset anything of value owned by a person or firm

111. asymmetric information a situation in which one party to an economic transaction has less infor

mation than the other party

112. bank panic a situation in which many banks ex perience runs at the same time

113. bank run A situation in which many deposi tors simultaneously decide to with

draw money from a bank

114. commodity money a good used as money that also has value independent of its use as mon

115. discount loans loans the federal reserve makes to banks

116. discount rate the interest rate the federal reserve charges on discount loans

117. federal open market committee (FOMC)

The Federal Reserve committee that is responsible for open market oper ations and managing the money sup ply in the United States.

118. federal reserve the central bank of the United States

119. fiat money money, such as paper currency, that is authorized by a central bank or

governmental body and that does not

have to be exchanged by the central

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bank for gold or some other commod

ity money

120. fractional reserve banking system A banking system in which banks keep less than 100 percent of de

posits as reserves

121. interest rate on reserve balances (IORB)

the interest the Federal Reserve pays banks on their reserves balances with the Federal Reserve

122. M1 the narrower definition of the money supply: the sum of currency in circula

tion and checking and saving account

deposits in banks

123. M2 a broader definition of the money supply: M1 plus small-denomination

time deposits and non-institutional

money market fund shares

124. money Assets that people are generally will ing to accept in exchange for goods

and services or for payment of debts

125. money multiplier the ratio of the money supply to the monetary base

126. open market operations the buying and selling of treasury se curities by the federal reserve in or

der to control the money supply

127. quantity theory of money a theory about the connection be tween money and prices that as

sumes that the velocity of money is

constant

128. relationship banking the ability of banks to assess credit risks on the basis of private informa

tion about borrowers

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129. reserves deposits that a bank keeps as cash in its vault or on deposit with the Federal

Reserve

130. scarce-reserves regime a situation in which banks hold few re serves beyond those the central bank

requires them to hold

131. securitization the process of transforming loans or other financial assets into securities

132. security a financial asset-such as a stock or bond-- that can be bought and sold

in a financial market

133. transaction costs the costs in time and other resources that parties incur in the process of

agreeing to and carrying out an ex

change of goods or services

134. velocity of money the average number of times each dollar in the money supply is used to

purchase goods and services includ

ed in GDP

135. Velocity of money = (Price level x real GDP) / Money sup ply

136. contractionary monetary policy the Federal Reserve's policy of in creasing interest rates to reduce in

flation

137. expansionary monetary policy the Federal Reserve's policy of de creasing interest rates to increase

real GDP

138. federal funds rate the interest rate banks charge each other for overnight loans

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139. floor operating system the current system under which the fed uses the interest rate on banks'

reserve balances and the interest

rate on overnight loans with financial

firms to establish a floor under the

federal funds rate

140. forward guidance Statements by the Federal Open Market Committee (FOMC) about

how it will conduct monetary policy in

the future

141. inflation targeting a framework for conducting monetary policy that involves the central bank

announcing its target level of inflation

142. overnight reverse repurchase agreements (ON RRP)

a financial transation in which the fed borrows funds overnight from a finan cial firm

143. Quantitative easing (QE) the Fed policy that attempts to in crease aggregate demand by buying

long-term securities, such as 10-year

treasury notes

144. taylor rule a rule developed by John Taylor that links the Fed's target for the federal

funds rate to economic variables

145. 5 factors that shift the market de mand curve for LABOR

146. why do increases in human capital shift the demand for labor curve to the right?

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increase in human capital, technolog ical changes, changes in the price of products, changes in the quantity of other inputs, and changes in the number of firms in the market

the more human capital a worker has, the higher the labor productivity and the value of the marginal product of labor

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147. why do tech changes improvements shift the demand for labor curve to the right?

148. why do increases in the prices of products shift the demand for labor curve to the right?

149. why do increases in the quantity of other inputs shift the demand for labor curve to the right?

150. why do increases in the number of firms in a market shift the demand for labor curveto the right?

151. why do changes in wage not shift the demand for labor curve?

152. why is the supply of labor curve up ward sloping?

153. why is the supply of labor curve also backward bending?

new machinery/software makes workers who use them more pro ductive, assuming the technology doesn't replace the workers entirely

an increase in the price also increas es the value of the marginal product of labor, and vice versa for decreases in price

workers can produce more with more machinery and other inputs, which increases the MPL

with more firms in a market, more labor is needed to produce output, and vice versa for less firms

changes in the wages of workers only affect the quantity of labor demanded by the market, not the demand itself

(like the prices of goods for regular demand)

as wages increase, the substitution effect causes the time worked to in crease

even though the substitution effect causes time worked to increase with wage, the income effect causes it to bend backwards because leisure is a normal good, so as income increases further, leisure becomes more afford able and demand for it rises

154. the market supply of labor = quantity of labor supplied by each worker at each wage, all else con

stant

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155. 3 factors that shift the market sup ply of labor curve:

156. why do increases in population shift the supply of labor curve to the right?

157. why do changing demographics shift the supply of labor curve?

158. why do changing alternatives affect the supply of labor curve?

changes in population, changing de mographics, and changing alterna tives

higher population means a larger number of people in the labor force (also applies to higher pop from immi gration), and vice versa for decreas es in the population

the more people aged 16-65, the greater the labor force and quantity of labor supplied (also was a rightward shift from an increase in labor force participation by women) and vice ver sa

the labor supply in any given mar ket depends somewhat on the labor opportunities available in other mar kets; (eg workers leave the labor mar ket for retail, shifting that curve left, and join other labor markets, shifting those curves right)

159. equilibrium wage = value of the marginal product of labor

160. increases in labor productivity over time cause

161. if the labor demand curve shifts up/right faster than the labor supply curve, or if the supply curve doesn't shift, then...

162. the 3 factors besides economic dis crimination that contribute to the wage gap:

163.

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the demand curve for labor to shift right/up

wages and employment numbers will increase

differences in education, differences in experience, and differences in job preference

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why do differences in education contribute to the wage gap?

164. why do differences in experiment contribute to the wage gap?

165. why do differences in job prefer ence contribute to wage gap?

166. what are the 4 reasons that non-dis criminating competitors of racial ly discriminating firms didn't drive them out of business over time?

167. why did worker discrimination make it difficult to drive racially discrimi nating firms out of business?

168. why did customer discrimination make it difficult to drive racially dis criminating firms out of business?

differences in education leads to dif ferences in human capital, and work ers with more human capital tend to get paid higher wages

workers with less experience, like workers with less education, have lower human capital and labor pro

ductivity than workers with more ex perience, leading them to get paid lower wages

often times, job preference aligns somewhat with demographics, (ex. a woman with children is more likely to work in adolescent education be cause the hours allow her to be home when her kid is), and those prefer ences can have natural differences in wages, due to the industry they're in

worker discrimination, customer dis crimination, negative feedback loops, and statistical discrimination

sometimes, white workers refused to work with black workers, but all black firms failed because black workers were prevented from gaining equal experience to white workers

some white customers refused to purchase goods or services from firms which employed black workers, so racially discriminating firms natu rally received more business

169. when discrimination made it hard for black workers to get a job, their in

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why did negative feedback loops make it difficult to drive racially dis criminating firms out of business?

170. why did statistical discrimination (stereotyping) make it difficult to drive racially discriminating firms out of business?

171. why is economic discrimination less of a contributor to the wage gap than people think?

172. the 3 considerations in setting com pensation systems:

173. why is difficult measuring output a consideration in setting compensa tion systems?

174. why are concerns about quality a consideration in setting compensa tion systems?

175. why is worker dislike of risk a con sideration in setting compensation systems?

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centive to get training for that job de creased, and even non discriminating firms won't find qualified black work ers to hire

when many firms in a market prac ticed statistical discrimination, even market competition by non discrimi nating firms was not enough to com pletely eliminate economic discrimi nation

although economic discrimination ex isted in many firms in industries, mar ket competition from non discriminat ing firms made it harder for discrimi nating firms to be efficient; either they

had to pay higher wages or have low er production--and overtime econom ic discrimination decreased (still not zero)

difficulty measuring output, concerns about quality, and worker dislike of risk

it's hard to attribute output to individ ual workers, making it hard to base compensation on individual produc tivity of workers (especially in assem bly line jobs)

firms worry that if they base compen sation on quantity of units produced, workers will become less concerned with quality

commission based compensation systems increase the risk to workers because output sold can decline for

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reasons unrelated to worker skill/ef

fort (ex salespersons at a swimwear

store who work based on commis

sion will make substantially less in

colder months, despite putting in con

sistent effort)

176. economic/pure rent clarification: economic rent is the price of a fac tor of production that is in fixed sup

ply. the owner of the fixed factor

is the one who receives the 'rent';

since it's fixed, if the price of the fac

tor changes, the quantity of the fac

tor won't/can't change. (ex, there's a

busy highway intersection, but a new

highway is built, diverting much of

the traffic. even though the demand

for the factor changes, the amount of

highway stays the same)

177. the 2 reasons that rent seeking works:

178. what is logrolling and why does it make rent seeking effective?

179. why does rational ignorance make rent seeking effective?

logrolling, and rational ignorance

logrolling is the situation in which a member of congress voters to ap prove a bill in exchange for favorable votes from other members on other bills; firms/individuals can convince a member of congress to vote their way on something because other mem bers of congress will also benefit

learning about the issue at hand re quires time and effort for a low payoff, so voters don't educate themselves on the policies they are voting on be cause they have no incentive to care

180. regulatory capture when a regulatory agency with au thority over industries/products is in

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fluenced by a firm in the industry to

make decisions in the best interest of

the firm rather than the public

181. 5 types of taxes: individual income taxes, social insur ance tax, sales tax, property tax, and

excise tax

182. social insurance tax generates rev enue for...

social security payments, medicare, and unemployment benefits

183. sales tax taxes on retail sales of products

184. property taxes help fund public schools and other gov funded buildings

185. excise tax tax on specific goods, like cigarettes, gas, and beer (usually levied in at

tempts to reduce consumption of

harmful or scarce goods)

186. 5 principles/goals used to evaluate taxes:

187. why are taxes evaluated using the goal of economic efficiency?

188. why are taxes evaluated using the ability to pay principle?

189. why are taxes evaluated using the horizontal equity principle?

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goal of economic efficiency, ability to pay principle, horizontal equity prin ciple, benefits received principle, and the goal of attaining social objectives

government tries to reduce the tax es that have a higher contribution to increased deadweight loss, and vice versa for taxes that don't contribute largely to DWL

a common political/social debate, and the reason for progressive taxes

some economic standings should be treated as equal despite varying fac tors (a person with a much higher net

worth due to assets or generational money but with low income, and a

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person with less wealth but a high

er income, who has the same con

sumption spending should be equally

taxed despite differences in income

or property)

190. why are taxes evaluated using the benefits received principle?

191. to reduce income inequality, the government should...

a common political stance is that people who benefit more from gov ernent programs (such as social se curity, medicare, or unemployment) should pay more taxes to fund them than people who don't benefit (ex, younger, employed, individuals with health insurance)

evaluate taxes and transfer payments and facilitate improvements in human capital to decrease the wage gap

192. 5 factors of income inequality: # of income earners per house, differ ences in returns to factors of produc

tion, tech change/international trade,

assortative mating, and luck

193. why do the number of income earn ers per house affect income in equality?

194. why do the differences in returns to factors of production affect income inequality?

195. why do tech change and interna tional trade affect income inequali ty?

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equal sized households that have only one income earner will make less income for the same amount of dependents/necessary spending

stated by the marginal productivity theory of income distribution, work ers with more human capital/other factors of production have higher la

bor productivity and will naturally re ceive higher wages

both of these factors contribute to decreased demand of un/low skilled workers

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196. why does assortative mating affect income inequality?

people tend to marry others with sim ilar income or education levels, leav ing high income people to become even richer households, and low in come people to become even poorer houses

197. GDP = C + I + G + NX

198. 3 categories of household con sumption component of GDP

199. 3 categories of investment compo nent of GDP

spending on services (medical care, education, haircuts), spending on nondurable goods (food and cloth ing), and spending on durable goods (cars and furniture)

business fixed investment spending by firms (inputs and factors of produc tion), residential investment (hous es/mortgages), and changes in busi ness inventories (stock of goods not sold)

200. 6 shortcomings of GDP: household production, underground economy, exclusion of the value of

leisure, no adjustment for negative

externalities (specifically the prices

to correct them), not adjusted for

changes in crime/other social prob

lems, and GDP measures the size of

the pie, but not how it's divided

201. why is household production a shortcoming of GDP?

when a household provides a good or service to itself (such as childcare), it isn't included in the GDP, but if they then hire someone in their stead, GDP will increase even though pro duction of the service didn't actually increase

202. GDP deflator = (Nominal GDP/Real GDP) x 100 23 / 38

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203. measures of total production/in come besides GDP

Gross national production (GNP), na tional income (=GDP), personal in come, disposable personal income, and the division of income

204. disposable personal income = personal income - net personal taxes 205. unemployment rate = (unemployed/labor force) x 100

206. employment rate = (employed/population of working age) x 100

207. establishment survey provides information on the total number of persons who are em

ployed and on a company payroll

208. drawbacks of establishment survey doesn't provide information on the number of self employed because

they're not on company payroll, may

fail to count some persons as em

ployed at newly opened firms, and

provides no information on unem

ployment

209. where does a worker encounter fric tional unemployment

during initial job searches or season al unemployment

210. structural unemployment example newspaper reporters needing to find new jbs after news gets digitalized,

but only have experience in the news

paper reporting field

211. cyclical unemployment employ ment

restaurant workers being fired during 2020 when restaurants closed/ had reduced capacity

212. full employment means... there is no cyclical unemployment 213. CPI =

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100 x (cost of market basket in cur

rent year/cost of market basket in

base year)

214. Inflation rate = (CPI this year - CPI base year / CPI base year) x 100

215. 4 biases that cause changes in the CPI to overstate the true inflation rate:

216. why does substitution bias cause CPI to overstate the inflation rate?

217. why does increase in quality bias cause CPI to overstate the inflation rate?

218. why does new product bias cause CPI to overstate the inflation rate?

219. why does outlet bias cause CPI to overstate the inflation rate?

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substitution bias, increase in quality bias, new product bias, and outlet bias

the CPI assumes that consumers purchase the same amount of each product in the market basket each month; in reality, consumers will sub stitute cheaper alternatives if the price rises on an item in their market basket

products included in the CPI increase in quality over time (cars, tech), so the price increase is partly due to this quality increase and partly due to inflation; CPI tries to adjust for this, but isn't perfectly accurate

the BLS only updates the market basket every 10 years, so products that come out within those periods aren't included even if consumers spent substantial money on them; also, since prices of newly released products usually decreases in the fol lowing years, these price decreases weren't included in CPI

the BLS collects price statistics from traditional full price retail stores, so when consumers buy from discount

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or internet stores, the CPI doesn't re

flect the prices they actually paid

220. the CPI bias are estimated to over state the inflation rate by ...

221. to calculate the current purchasing power,

222. 4 problems with anticipated in come:

.5-1%

value in $ now = value in $ base year x (CPI now/CPI base)

inevitable redistribution of income, firms/households have to hold some paper money to facilitate buying and selling, stores that mark prices on packages will incur menu costs, and taxes paid by investors increase

223. MPC + MPS = 1

224. growth rate of real GDP = ((GDPnow- GDPbase)/GDPbase) x 100

225. increase in real GDP per capita de pends on...

226. 2 factors tha determine labor pro ductivity:

increase in labor productivity

quantity of capital per hour worked and level of technology

227. retained earnings profits that are reinvested into a firm rather than paid to firm owners

228. 3 securities provided by the finan cial system to savers and borrow ers:

229. risk sharing provided by the finan cial system

230. liquidity provided by the financial system

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risk sharing, liquidity, and information

allows savers to spread their money among many financial investments

more ease with exchanging financial securities for liquid money

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231. information provided by the finan cial system

232. the market demand for loanable funds is determined by...

233. the market supply for loanable funds is determined by...

234. 4 reasons for relative economic sta bility from 1950-2007

banks are tasked with obtaining facts about borrowers and expectations about returns on financial securities, not you

the willingness of firms to borrow to engage in new investment projects

the willingness of households to save and the extent of government sav ing/deficit

increasing importance of services + decreasing importance of goods, est. of unemployment insurance/oth er gov transfer payments, active fed eral gov policies to stabilize economy, and increased stability of the financial system

235. compounding magnifying of even small differences in interest rates over long periods of

time (in the long run, small differ

ences in economic growth rates re

sult in large differences in living stan

dards

236. 3 main sources of technological change:

237. 3 ways that government policy can help increase the accumulation of knowledge capital:

238. why can't other countries complete ly close their GDP per capita gap with the US?

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better machinery and equipment, in creases in human capital, better means of organizing and managing production

protecting intellectual property with patents/copyrights, supporting re search and development, and subsi dizing education

greater flexibility of US markets, greater willingness of people in the US to accept effects of creative de

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struction, and greater efficiency of

the US financial system

239. what are the 4 reasons that some low income countries are growing so slowly?

240. why do weak institutions make it hard for countries to grow GDP?

241. why do wars and revolutions make it hard for countries to grow GDP?

242. why does poor pubic educa tion/health make it hard for coun tries to grow GDP?

243. why do low rates of saving and in vestment make it hard for countries to grow GDP?

weak institutions, wars and revolu tions, poor public education/health, and lower rates of saving/investment

when governments don't have poli cies or courts to enforce contracts or property rights, production becomes inefficient and investors are hesitant to invest in firms

a lot of money must be diverted to military costs and wars also make it difficult to accumulate capital, devel op tech, or conduct any business

poor education and health lead to decreases in human capital and the amount of people in the labor force

firms in high income countries usu ally raise funds for investment from bank loans (which come from house hold savings), stocks and bonds; in low income countries, stock and bond markets don't exist and most house holds have no savings for banks to loan

244. 6 keys to a higher standard of living establish of a rule of law, provide ba sic education and healthcare for pop

ulation, integrate women into work

force economy, increase the amount

of capital per hour worked, adopt the

best tech, and participate in the glob

al economy

245.

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high income (developed/industrial) countries:

Australia, Canada, Japan, New Zealand, US, and western European countries

246. low income (developing) countries: most countries in Africa, Asia, and Latin America

247. 4 components of aggregate expen diture

248. if there is no unplanned change in inventory, then...

249. if there is an unplanned increase in inventory, then...

250. if there is an unplanned decrease in inventory, then

251. 5 most important factors that deter mine level of consumption (C):

252. why does current disposable in come affect consumption?

253. why does household wealth affect consumption?

254. why does expected future income affect consumption?

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consumption, planned investment, government purchases, and net ex ports

Planned investment = actual invest ment; AE = GDP

Planned investment < actual invest ment; AE < GDP

planned investment > actual invest ment; AE > GDP

current disposable income, house hold wealth, expected future income, price level, and interest rate

if a household's disposable income increases, its consumption will in crease (vice versa)(consumption has the same upward trend as disposable income)

a household with wealth spends more than a household with less wealth even with equal disposable incomes, so if household wealth increases, consumption increases (vice versa)

temporary changes in income (com mission based) affects consumption must less than permanent changes

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in wages (most people keep their

consumption steady even if dispos

able income fluctuates significantly

year-to-year; meaning that current in

come is difficult to use to estimate

consumption unless it's not unusu

ally high/low compared to expected

future income)

255. why does the price level affect con sumption?

256. why does the interest rate affect consumption

257. spending on durable goods is volatile because...

258. the value (x) of the MPC tells us that...

changes in the price level affect household wealth, which in turn af fects consumption (if price level in creases, real value of wealth de creases and C decreases)

when the interest rate is high, house holds are likely to save more and spend less, so consumption decreas es (vice versa)

durable goods are long lived, good substitutes exist, high prices make risky purchases, pent up demands follow recessions, and interest rates

fluctuate

households spend (x) * 100% if the increase in their disposable income

259. change in consumption = change in income x MPC

260. 4 variables that determine level of investment:

261. why do expectations of future prof itability affect the level of invest ment spending?

262.

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expectations of future profitability, in terest rate, taxes, and cash flow

if a firm is optimistic that demand will be strong for several years, it's more likely to invest in new production fac tors (eg factories) and vice versa

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why do interest rates affect the level of investment spending?

263. firms and households are con cerned with the cost of borrowing after inflation, so...

264. why do taxes affect the level of in vestment spending?

265. why does cashflow affect the level of investment spending?

because some investment is fi nanced from borrowing, if the interest rate increases it's more expensive to borrow which decreases investment spending (vice versa)

investment spending depends on REAL interest rate

firms are concerned with profit made after taxes, and corporate tax in cludes profit from new investments, so a decrease in corporate taxes will increase investment spending (vice versa)

cash flow doesn't include noncash spending, like the depreciation of ma chinery, so profit is the biggest con tributor; the greater the cashflow of a firm, the greater it's ability to invest (vise versa)

266. cashflow the difference between cash revenue and cash spending of a firm

267. 3 variables with the biggest effect on net exports

268. why does the price level in US REL ATIVE to other countries affect net exports?

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price level in US RELATIVE to price level in other countries, growth rate of GDP in US RELATIVE to other coun tries, and exchange rates between the dollar and other currency

if the price level in the US is higher than in other countries, the demand for US products decrease and the de mand for foreign products increase, so net exports will decrease (vice ver sa); same with the inflation rate be

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cause it affects the growth of the price

level

269. why does the growth rate of GDP in US RELATIVE to other countries affect net exports?

270. why does the exchange rate be tween the dollar and foreign curren cies affect net exports?

if the US GDP grows faster in the US than other countries, US purchas es of foreign goods and services in creases faster than foreign purchas es of US goods and services, so net exports will decrease (vice versa)

if the dollar gains more value com pared to a foreign currency, it'll be cheaper for US purchases of foreign goods and services and more ex pensive for foreign purchases of US goods and services, so net exports will decrease (vice versa)

271. value of a multiplier = 1/(1-MPC); change in GDP/ change in autonomous expenditure

272. 3 reasons for the inverse relation ship between price level (PL) and aggregate expenditure:

273. 3 variables that shift the aggregate demand (AD) curve

274. why do changes in monetary/fiscal policy shift the aggregate demand (AD) curve?

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an increase in PL decreases C by decreasing the real value of house hold wealth, if PL in US rises relative to other countries NX will decrease, and when PL rises firms and house holds need more money to finance buying and selling; if the fed reserve doesn't increase the money supply, the interest rate will increase and i will decrease (vice versa for all)

changes in monetary/fiscal policy, changes in the expectations of households and firms, and changes in foreign variables

monetary and fiscal policies affect the levels of government spending,

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taxes, and interest rates; changes in

these variables shift the AD curve

275. why do changes in the expectations of households and firms shift the aggregate demand (AD) curve?

276. why do changes in foreign variables shift the aggregate demand (AD) curve?

277. 5 variables that shift the short-run aggregate supply curve (SRAS):

278. why do increases in labor force and capital stock shift the SRAS?

279. why do changes in expected future price levels shift the SRAS?

280. why do unexpected changes in prices of important natural re

sources, natural disasters, and pan demics shift the SRAS?

optimism/pessimism about future in comes/prices with increase or de crease both consumption and invest ment spending

changes in foreign variables have af fect the NX value, which shifts the AD curve

increases in labor force and capital stock, tech changes, changes in ex pected future price level, adjustments of workers and firms to errors in past expectations of price level, and un expected changes in price of impor tant natural resources/natural disas ters or pandemics

a firm will supply more output at every level if it has more workers and capi tal stock, shifting the curve right (vice versa)

if workers/firms expect the price level to change, they'll adjust wages and prices accordingly

they are all supply shocks, which al ways shift the SRAS curve, usually to the left

281. the 4 functions of money: medium of exchange, unit of account, store of value, standard of deferred

payment

282. 5 criteria for a suitable asset:

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must be usable by most people, have

standardized quality, be durable,

valuable relative to its weight, and

divisible

283. 2 reasons that the value of money multipliers fluctuate:

fluctuations in the amount of reserves a bank holds relative to its deposits and fluctuations in the amount of cur rency households/firms hold relative to deposits

284. 4 goals of monetary policy price stability, high employment, sta bility of financial markets and institu

tions, economic growth

285. 2 most important monetary policy tools:

286. 2 federal tools for zero lower bounds:

287. 3 traditional tools of monetary poli cy:

IORB and the interest rates on ON RRP

quantitative easing and forward guid ance

open market operations, discount rates, and reserve requirements

288. 2 explanations for market bubbles: investors overestimate the value of stocks and expect profit from buying

stocks at inflated prices if they can

sell at even higher prices before the

bubble bursts

289. an entrepreneur... creates, runs, and destroys the mar kets

290. an entrepreneur can shift out the PPF or bring it to a more efficient state

291. Entrepreneurs are _______, when in an ________ environment, recog nize __________ that most people fail to see and create _______ to

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individuals, uncertain, opportunities, ventures, exploit

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292. aggregate demand and supply mod el explains...

293. the effect of price level on consump tion is called...

294. the effect of the price level on in vestment is called...

short-run fluctuations in real GDP and the price level

the wealth effect

the interest effect

295. savings = investments = income (U) - Consumption (C) - gov ernment spending (G)

296. 2 reasons for a PPF shift: tech changes and increases in capi tal, labor, and natural resources

297. marginal tax rate = change in tax / change in income 298. average tax rate = tax rate/ income

299. the lowest 20% make... 4% of national income 300. the highest 20% make... 52% of national income 301. the highest 1% make... 15.3% of national income 302. the lowest 20% pay... 1% of federal taxes 303. the highest 20% pay... 66.6% of federal taxes 304. the highest 1% pay... 25% of federal taxes

305. absolute poverty the point at which a household's in come falls below the necessary level

to purchase food to physically sustain

its members

306. relative poverty the income gap between top and bot tom earners being very large

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307. what percent of US is currently be low the poverty line?

308. 4 choices to drastically lower the change of poverty:

309. retirement funds, stocks and bonds, and transfer payments...

310. estimated real GDP growth in the US is...

11.5%

gradute high school, don't get preg nant outside of marriage, don't get married before age 21, and work steadily; if you follow all 4, chances of being in poverty are 2%; if you ignore all four, chances are 76%

are not included in GDP

2.7%

311. interest charged = return to bank + interest/inflation rate 312. booms and recessions are both... wasteful

313. number of years to double growth rate =

314. 3 ways to increase the trendline on a GDP vs time graph

70/current growth rate

increase capital, ESPECIALLY hu man capital, advance technology, and enforce property rights

315. actual investment = planned investment + unplanned change in inventory

316. macroequilibrium is when AE = GDP

317. induced consumption consumption that changes depend ing on income

318. value of government deficit -6.6%

319. why is the AD curve downward slop ing?

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wealth effect, interest rate effect, in ternational trade effect

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320. why does the wealth effect con tribute to the AD curve downward slope?

321. why does the interest-rate effect contribute to the AD curve down ward slope?

322. why does the international trade effect contribute to the AD curve downward slope?

323. disadvantages of commodity mon ey:

nominal wealth becomes more valu able in there's deflation; if price index goes down, nominal investment and saving becomes more valuable and GDP goes up

if there's a decrease in the demand for borrowed funds, the 'price of mon ey', or the interest rate, will go down and investment will increase

if prices drop in the US, exports will increase and imports will decrease

concern of quality, unpredictable sup ply, expensive compared to its value

324. advantage of commodity money can be used as a payment and on it's own

325. advantages of fiat money cheap to produce compared to val ue, easy to transport, medium of ex

change, standardized unit, guaran

teed quality

326. disadvantages of fiat money INFLATION, can be stolen easily

327. advantages of credit money easy to transfer, not personally man aged

328. disadvantages of credit money dependent on communication and computers, opportunities for large

fund theft

329. what percent of GDP does con sumption make up?