Dawson Macroeconomics Exam 2

Front 1

Living Standards

Back 1

Determines the Quality of life in a given place.

Front 2

Productivity

Back 2

The ability to produce at a level of efficiency.

Front 3

Resources

Back 3

Are used in the production of goods and services.

Front 4

Economic Growth (+3 facts about it)

Back 4

Growth of the production of goods and services that can be measured by money.
1)Living Conditions vary greatly from country to country
2) Everyone Used to be in poverty
3) There are growth miracles (like Japan) and growth disasters (like Bangladesh)

Front 5

Investment

Back 5

The input of money to but capital for companies that will later use that to produce goods or services. (Coffee machines for a new Starbucks are Investments)

Front 6

Physical Capital

Back 6

Tools and machinery used in the production of the goods and services

Front 7

Human Capital

Back 7

Knowledge, training, and skills used in production of goods and services.

Front 8

Education

Back 8

Development of Human Capital

Front 9

Technology

Back 9

The result of Research and Development (R&D) that benefits productivity.

Front 10

Property Rights

Back 10

One of the 5 institutions of economic stability. With secure property rights one is more likely to invest in land and equipment that will pay off for them later.

Front 11

Institutions

Back 11

Laws, regulations, customs, practices, organizations--Rules of the game-- that structure economic incentives.
5 Listed: Property rights, Dependable Legal system, political stability, free and open market, Honest Government

Front 12

Political Stability

Back 12

When the likelihood of political collapse is low then investment is more likely. A politically stable country is not too controlling (corruption) or too standoffish (Anarchy).

Front 13

Money

Back 13

Anything that is generally accepted as payment in exchange for goods and services.

Front 14

Money Supply

Back 14

Monetary Base (MB): Currency (Coins and Bills)
M1: Currency+Checking Deposits+Travelers Checks
M2: Currency+Checking Deposits+Travelers Checks +Savings+Money Market Mutual Fund+Cyclical deposits<$100,000
M3: M2+Cyclical Deposits>$100,000+Government Bonds

Front 15

Federal Reserve System

Back 15

Created by 1913 Federal Reserve act with the intention of overseeing and regulating the US Banking system.
Controls the Money Supply
Central Bank for US

Front 16

Board of Governors

Back 16

7 Governors serve 14 year terms in Washington, DC.
12 regional Fed banks

Front 17

FOMC

Back 17

Consists of 7 Governors and president+ 4 from reserve banks

Front 18

Monetary Base

Back 18

Currency

Front 19

Fractional Reserve Banking

Back 19

When a bank holds a fraction of the money it actually has.

Front 20

Bank Reserves

Back 20

Money not loaned out by banks

Front 21

Required Reserves

Back 21

Required minimum fraction of reserves set by the Fed

Front 22

Excess reserves

Back 22

Reserves exceeding the amount of required reserves that are available to be loaned out

Front 23

Money Creation

Back 23

Money can be created by banks loaning out reserves. The Fed can also create money (With the three tools of monetary policy).

Front 24

Money Multiplier

Back 24

1/Reserve Ratio
How many dollars can be created from each single dollar
If $10 is loaned for every $1 in Reserves then MM=10

Front 25

Reserve Ratio

Back 25

Amount of money held in reserves/amount of money loaned out

Front 26

Three Tools of Monetary Policy

Back 26

1)Open Market Operations
2)Adjusting the Discount Rate
3)Changing the Required Reserve Ratio and Interest paid on reserves

Front 27

Open Market Operations

Back 27

Buying and Selling Bonds on the market
Buying Bonds increases money supply
Selling Bonds decreases money supply

Front 28

Discount Rate

Back 28

Rate of lending to banks in need of money when they cannot afford the Fed Funds Rate. The Fed is a Lender of last resort and only used by distressed banks

Front 29

Fed Funds Rate

Back 29

Overnight lending rate set by market value of lending from bank to bank. This can be adjusted by the Fed using the three tools of Monetary policy.

Front 30

Costs of Inflation

Back 30

Everything in relation to the dollar changes with inflation: income, wages, price, & value of the dollar

Front 31

Shoe-leather costs

Back 31

Cost of prematurely spending money with the mindset of "spend it before it is worthless."

Front 32

Menu Cost

Back 32

Cost of printing off new indicators of price (menus)

Front 33

Quantity Theory of money

Back 33

1) Sets relationship between inflation, money, real output, and prices
2) Presents role of money supply in regulating the level of prices

Front 34

Monetary Neutrality

Back 34

The idea that only nominal variables are affected by the change of money supply. (Prices, wages, and exchange rates with no real effect on Employment, Real GDP, and real consumption)

Front 35

Velocity of money

Back 35

The average number of times a dollar is spent on final goods and services in a year

Front 36

Total Yearly Spending Equation

Back 36

Money Supply x Velocity of money=Price level x Real GDP

All Money x # of times that money is spent