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Studied by 83 peoplemacroeconomics final
- Ceteris paribus - Latin phrase meaning holding all else constant
- 3 characteristics of money - Is a benchmark for price comparisons, Stores value for future purchases, A widely accepted form of payment
- M2's part of the money supply is not the most "liquid" portion of the money supply
- M1’s part of the money supply is the most “liquid” portion of the money supply
- Speculative Demand - The type of demand for money used for investment opportunities.
- The demand for money tells us it is not always in our best interest to hold as much money as possible
- A financial system connects savers and borrowers in an economy
- Financial systems connect unused funds to people willing to pay to have access to them
- Spending on finished goods/services directly causes inflation
- Monetary Policy - When a country uses credit controls and changes to the money supply to influence the economy
- The minimum amount of reserves banks in the U.S. are required to have and not lend out to borrows is not set by law, but there is an industry standard
- Excess Reserves - Reserves held by banks above what they are required to hold
- Bond - a certificate of debt issued by governments and businesses
- Leakages to the circular flow model - paying taxes, saving for retirement, and importing from abroad
- components of GDP - Investment Spending, Net Exports (X-M), Government Spending (excluding transfer payments), Consumption Spending
- Fiscal Policy - when a country uses changes to taxes and spending to influence the macroeconomy
- Demand pull inflation - something a country risks from a government continuing to pursue expansionary fiscal policy once full-employment has been reached
- The deficit - occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets in a particular year
- Fiscal Restraint - can reduce the amount a country owes
- Full-employment GDP - how much total market output corresponds with "price stability" in the economy
- examples of automatic stabilizers - one-time tax cuts or refunds, government investment spending, or direct government subsidy payments to businesses or households, Personal and Corporate Income Taxes, Unemployment Insurance
- Crowding out - One reason governments attempt to reduce spending automatically when an economy approaches full employment
- The full-employment rate of output in an economy is also known as the long-run level of aggregate supply because that is where the factors of production are being fully utilized.
- Structural Unemployment - When the unemployed in a town are trained to do one job but can't be hired at local jobs because they require different skills
- Cyclical Unemployment - When a worker loses their job due to a decrease in demand in the economy
- Frictional Unemployment - When someone quits one job to find another job
- People or businesses earning commission or with other variable incomes are most harmed by deflation ceteris paribus
- equilibrium price - Where the market supply curve intersects the market demand curve.
- Production in the modern economy does not require a business to produce everything required for the end product. Producers buy intermediate goods, capital, and labor from others to help in production
- Examples of Macroeconomic topics - Growth of production and levels of exports and imports, The level of inflation or price levels within an economy, Government deficits and spending, The number of employed/unemployed people
- Both businesses and governments purchase factors of production
- If an economy goes through a recession and is now producing at a point INSIDE the production possibilities frontier (PPF), this is inefficient production because more production is possible
- a car factory can increase its PPF by buying more machines, Purchasing more steel and tires, Hiring more workers
- The market mechanism - how prices and sales signal desired output
- full employment - when virtually all who are able and willing to work are employed
- discouraged worker - someone who is unemployed for a long period of time and stops looking for work
- jobless DOES NOT EQUAL unemployed
- people who are not a part of the labor force - People under the age of 16, Persons in prison or the military, Persons not looking for work but old enough to
- Structural Unemployment - Someone who has certain skills and is a hard worker but the jobs available require other skills
- Frictional Unemployment - The time someone is unemployed while they transition to a new position at a different company or when their new job hasn't started yet
- Structural Unemployment - Someone who wants to work but doesn't live where jobs are located and is unable to move there.
- money illusion - When someone uses nominal dollars rather than real dollars to estimate their current wealth
- Price Stability - when the average price level doesn't go up or down too quickly in an economy
- Average prices increase AND decrease in an economy.
- Increased spending directly causes an increase in amount of inflation within an economy
- the core inflation excludes price of energy and food in its calculation
- People with debt benefit from unpredicted inflation, ceteris paribus
- People or businesses earning commission or with other variable incomes are most likely to be harmed by deflation, ceteris paribus
- components of a country's Aggregate Demand - Investment Spending, Government Spending, Consumption Spending, Net Exports
- Full-employment GDP - the value of total market output (stuff being made in the economy) that corresponds with price stability in the economy
- If an economy isn't producing enough to be at the full-employment rate of output (x-axis), we have higher unemployment because we don't need as much labor when we produce less stuff
- The business cycle - alternating periods of economic growth and contraction
- The level of long-run aggregate supply is equal to the full-employment rate of output in an economy.
- The aggregate supply and demand model can help us model inflation in an economy
- natural rate of unemployment - the long term rate of unemployment
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