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100 Cards in this Set
- Front
- Back
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Guide to kansie |
rosetta stone |
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consider is lm model--- |
slope increases and economy expands |
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if there is a increase in money if cut in property tax |
IS shifts north east or upward |
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central bank cuts money supply, |
LM shifts right and up |
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in islm model when govt spending increase |
govt spending is autonomis so intersept is effected is is driven up north east |
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islm money supply increases |
lm shifts south east stimulating economy and decrease interest rates increasing gdp |
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what is a problem of islm model |
doesnt correctly show what the central banks do |
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3 islm models |
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2 sector •Y= C + I •C= a + b*Y •I= Ia – a = autonomous consumption spending – Ia = autonomous investment spending –AD = AS –Induced Saving = AutonomousInvestment 3 •Y= C + I + G •C= a + b*Yd •Yd = Y – T •T= Ta •I= Ia •G= Ga |
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fiscal drag |
happens due to income tax, any pump prime economy multiplier prices won't go as far due to drag automatic stabalizers |
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paradox of thrift |
no change in end result |
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Post Keynesian |
all keynesian ideas are wrong |
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school of econ thinking |
statist- keyn, new key, post key, mark Free market - classical, monetarist, new classical, supply side |
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What is says law |
supply creates own demand saving -->interest no involuntary unemployment in equilibrium |
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Key about money
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money is nutral
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What is short run economics
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capital is fixed
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what happens when static models are made dynamic
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allows to see transitions and disequilibrium equations |
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steps to the equasions
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1 model given by prof
2 solve for equilibrium by plugging in 3 solve for y which is were economy is stuck, but might not be full unemployment 4 find multiplier 5 make picture |
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kains solution |
govt spending increases public investment spending
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autonomous change in aggregate spending |
leads to a chain reaction in which the total change in real GDP is equal to the multiplier times the initial change in aggre- gate spending . The size of the multiplier , 1 /( 1 ? MPC ),P. 336 |
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Marginal propensity to consume MPC |
the fraction of an additional dollar of disposable income spent on consumption
Larger MPC = larger multiplier = larger change in GPD Y= C + S (Y/Y)= (C/Y) + (S/Y) 1= APC + APS |
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Marginal propensity to save MPS |
MPS= 1-MPC
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Consumption function |
shows how an individuals consumer spending is is determined by its current disposable income
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aggressive consumption function |
shows the relationship for the entire economy |
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planned investment spending |
depends negatively on the interest rate and on existing production capacity
depends positively on expected future real GDP |
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the accelerated principle |
says that investment spending is influenced by expected growth rate of real GDP
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Inventories
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list of goods, inventory investment is positive when adding and negative when subtracting. changes due to forecasting mistakes result in unplanned inventory investment.
Actual investment spending is the sum of planned and unplanned investment spending |
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Income expenditure equilibrium, planned aggregate spending
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some of consumer and planned investment spending which is equal to real GDP
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at the expenditure equilibrium GDP , or Y * |
unplanned inventory investment is zero . When planned aggregate spending is larger than Y *, unplanned inven- tory investment is negative ; there is an unanticipated reduction in inventories and firms increase produc- tion . When planned aggregate spending is less than Y *, unplanned inventory investment is positive ; there is an unanticipated increase in inventories and firms reduce productionP. 336 |
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the Keynesian cross |
hows how the economy self adjusts to expenditure equilibrium through inventory adjustments |
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the aggregate demand curve
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shows the relationship between the aggregate price level and the quality of aggregate output demand
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why is the aggregate demand curve downward sloping
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Wealth effect on the change of aggregate price level - higher aggregate price level lowers the purchasing power of households wealth reducing consumer spending interest rate effect - reduces purchasing power of firms and household leading to a rise in interest rates and a fall in investment and consumer spending |
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what can be used to shift aggregate demand curve |
fiscal and monetary policy
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the aggregate supply curve shows |
the relationship between aggregate price level and the quantity of aggregate output supplied
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short run aggregate supply curve
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is upward sloping because nominal wages are sticky
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in the long run
supply curve |
all prices are flexible and economy produces a potential output. long run aggregate supply curve is vertical |
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in AD-AS model, short run macro equillibrium |
is when the short run aggregate supply and demand cross |
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a demand shock to AD-AS |
causes aggregate price level and aggregate output to move in the same direction
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a supply shock to AD-AS |
causes aggregate price level and output to shift in opposite directions
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stagflation |
inflation and falling aggregate output
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monetary aggregate M1 |
containing only currency in circulation, travelers checks, and checkable bank deposits
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near money M2 |
other forms of bank deposits |
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deposite insurance |
protects users from bank runs which occur if a bank is going out of business
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monetary base
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consists of money in circulation and is controlled by the federal reserve, central bank of us
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money multiplier |
ratio of money supply to the monetary base |
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open market operations by feds
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are the principle tool of monetary policy |
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commercial banks vs investment banks |
commercial banks are covered by deposit insurance |
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money demand curve |
arises from a trade off between the opportunity cost of holding money and the liquidity that money provides
shifted by changes in aggregative price level, real GDP and technology and institutions |
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opportunity cost depends on |
short term interest rates
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federal reserve changes interest rate in short term by |
shifting the money supply curve
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Expansionary monetary policy . Contractionary monetary policy . |
E-reduces the interest rate by increasing the money supply . This increases investment spending and consumer spending , which in turn increases aggregate demand and real GDP in the short run C-raises the interest rate by reducing the money supply . This reduces investment spending and consumer spending , which in turn reduces aggregate demand and real GDP in the short run |
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Who tries to stabilize economy? |
Federal reserve and other central banks
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Under a Taylor rule for monetary policy |
, the target federal funds rate rises when there is high inflation and either a posi- tive output gap or very low unemployment ; it falls when there is low or negative inflation and either a negative output gap or high unemployment . |
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monetary neutrality |
changes in money supply have no real long term effect on economy |
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what is used for analyzing high inflation |
classical model 0f the price level - changes in money supply lead to proportionate changes in aggregate price |
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what can banks to do fix budget deficits |
print money |
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short run phillips curve |
downward sloping relationship between unemployment and inflation |
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NIRU |
non accelerating inflation rate of unemployment = natural rate of unemployment |
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problems of deflation |
debt deflation, zero bound, liquidity trap |
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severe banking crises lead to... |
long deep recessions |
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Monetarism |
a doctrine that called for a monetary policy rule as opposed to discretionary monetary policy and that argued — based on a belief that the velocity of money was stable — that GDP would grow steadily if the money supply grew steadilyP. 546 |
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Rational expectations claims that |
individuals and firms make decisions using all available information . According to the rational expectations model of the economy , only unexpected changes in monetary policy affect aggregate output and employment ; expected changes merely alter the price levelP. 546 |
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The natural rate hypothesis |
became almost uni- versally accepted , limiting the role of macroeconomic policy to stabilizing the economy rather than seeking a permanently lower unemployment rateP. 546 |
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Real business cycle theory claims that |
changes in the rate of growth of total factor productivity are the main cause of busi- ness cyclesP. 546 |
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New Keynesian economics argues that |
market imperfections can lead to price stickiness , so that changes in aggregate demand have effects on aggregate output after all .P. 546 |
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classical model` |
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monetarianism |
•Changesin money supply cause changes in output and employment in the short run but only changes in inflation in thelong run •Inthe long run, unemployment seeks its natural rate Thus,in the long run there can be no involuntary unemployment |
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•Keynes’two fundamental psychological assumptions: |
–As income increases the amount ofspending by the household sector increases•Y ® C –As income increases the fraction ofincome spent by the household sector decreases•Y ® C/Y ¯ |
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kens multipliers |
2 sector Keynesianautonomous consumption multiplier:∆Y/∆a= 1/ (1 – b) •Keynesianinvestment multiplier:∆Y/∆Ia = 1 / (1 – b) •Keynesianautonomous tax multiplier:∆Y/∆Ta = -b / (1 – b) BalancedBudget Multiplier =∆Y/∆Ga + ∆Y/∆Ta = [1 / (1 – b)] + [-b / (1 – b)]=(1 – b) / (1 – b) = 1 Three sector •Keynesianconsumption multiplier:∆Y/∆a= 1/ (1 – b + b*t) •Keynesianinvestment multiplier:∆Y/∆Ia = 1 / (1 – b + b*t) •Keynesiangovernment spending multiplier:∆Y/∆Ga = 1 / (1 – b + b*t) |
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Taylor rule |
•Central banks in capitalist economies aresaid to (implicitly) follow a Taylor Rule: •It = Inft* + rt* + a*(Inft- Inft*) + b*(yt – yt*) •It = Target Federal Funds Rate• •Inft = Rate of inflation (measured by GDPdeflator)• •Inft* = Desired rate of inflation• •rt* = Real interest rate consistent withfull employment (usually thought to be 2%)• •yt = Real GDP• •yt* = Potential real GDP |
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IS no LM model |
Exogenous Decrease in Investment Spending in the IS-No LM Model |
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policy changes can effect ISLM model |
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crowding out vs no crowding out |
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what does steepness of curve show |
the effectiveness of the policy change |
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classical vs keynes |
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Levy-Kalecki Profits Equation |
Private Sector wealth increases when the government sector runs adeficit and net exports rise balancing federal budget is a bad idea •TheValue of the Dollar closely tracks the Government Sector Balance |
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functional finance |
•Governmentfiscal policy (spending, taxation, borrowing, repayment of loans, issue ofmoney, withdrawal of money) shall be undertaken only with an eye to the results on theeconomy and not to any traditional doctrine about whatis “sound” or “unsound.” –The first responsibility of government isto keep the total rate of spending on goods and services neither greater orless than the rate which, at current prices, it will buy all of the goods andservices that it is possible to produce. •Taxing is never to be undertaken because thegovernment needs to make money payments.•Taxes should be imposed only when it is desirable that thepublic should have less money to spend. |
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tally sticks |
•Whenthe king wanted to buy a sheep from you he would issue you a tally stick. You’daccept this in payment for the sheep you sold to the king. The tally stick wassplit into stockand stub to keepa record. |
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what is money |
•ASocial Unit of Account• •Almostalways a state/government money of account.• •Arecord of a debit or a credit.• •Adollar is like an inch or a foot or a pound or a liter.• •It’s a measuring unit. |
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what backs up our money? |
•Fiat (i.e., by authoritative order)? taxes give value to currency |
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central bank policy |
•Central banks always operate with an overnight interest rate target(irrespective of what they say they are doing). •Itcan buy anything it wants (aslong as its denominated in its currencyunit) by creditingbank accounts.• •Itdoesn’t need its own money from its population, it creates its own money everytime it spends.• •Itnever needs to borrow!In fact, it can’t borrow its own currency. |
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things said vs not said |
said - •Agovernment that issues its own currency faces no financial constraints. Itcannot become insolvent in its own non-convertible currency• •“Non-convertiblecurrency” means that the government doesn’t promise to exchange its currencyfor gold or another currency at a fixed exchange rate.• •Butit can only purchase that which is for sale in its own currency.• •Forthe U.S. this is not a problem b/c everything that is for sale is for sale indollars.• •Thisis not always true elsewhere, however (even in nations that issue their owncurrencies), and this can be a problem. not said - Thegovernment should purchase everything that is for sale. •Deficitscannot be inflationary• •Deficitsthat are too big can be inflationary •Deficitscannot affect exchange rates |
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Lauren Meckler "Democrats rethink social security strategy" |
many experts in both parties have long argued it is necessary to have benefit cuts and tax increase in order to extend the solvency of the program liberal democrats are pushing the party to defend and increase benefits The ss program suffers a demographic imbalance of increase in retirees collecting benefits and a decrease in number of workers paying taxes president obamas grand margin was to Cut benefits by trimming the cost of living adjustment |
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Heather haddon, Janet Hook and Nick Timiraos "Christie calls for social security cuts" |
the proposal among the most provocative and risky is scaled back social security benefits The political third party rail is Social security the details of Paul Ryan's plan are allowing workers of 54+ to put social security into private retirement savings gradually increasing retirement age |
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Ira Iosebashvili and Min Zeng "Speeding Dollar Begins to Sputter" |
The dollars downshift reflects increase concerns that economy is cooling Brightening outlook for struggling economies is also pressuring the US currency Widespread implications both good and bad of a stalling out of the dollar rally are exports are at a disadvantage, but relief is given to energy sectors why do long term trends favor a strong dollar |
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Alan S Blinder "The Fed Can be Patient about Raising Interest Rates" |
The two things fed wants to see before it is reedit raise interest rates are Improvement in labor market and inflation guaranteed to reach 2% Inflation forcasted to reach 2% in year 2017 Core inflation 1.3-1.7%, Headline is 0% inorder to sustain higher inflation we need wage increases FOMC waiting for Unemployment below 5.2% |
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Brian Blackstone "Germany's Rising Wages Bode Well for US rest of the World" |
gotta find |
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James Ramage "Bearish Bets Better Loonie" |
A loonie is a drag on canadas growth spurring a ... US biggest trading partner and crude oil supplier is Canada Fall in both oil prices and energy sector investment are two factors causing the slow down of Canadian economy Strengthening us dollar caused by raising us benchmark interest rates and oil prices lowering loonies |
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Greg IP "Theory meets evidence in rate debate" |
Two biggest names in macroeconomics taking the battlefield of the blogosphere to debate why interest rates are so low are Larry Summers and Ben Bernakes secular stagnation is decrease in growth, inflation and interest rates. Larry summers says this is the reason for low interest rates Ben Bernanke attributed the weak 2002-2006 recovery to to Global saving glut the two supply side elements that could also be involved are slower growing labor force or slower productivity |
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Emese BArtha, Chiara Albanese, and Anthony harrup |
swiss sold 10 year bond, mexico lined up transaction to borrow and repay 1 century from now at 4.2% yield due to europe forcing interest rates down and swiss interest rates below zero Stock investors and bond holders also win |
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Kate Davidosn "Prices and Wages Show Early Signs of Rising" |
Stabilizing energy prices are helping headline inflation measures move higher The threshold of has the fed preferred inflation gauge not risen above 1% an intersting conundrum is that what happens if growth remains tepid as prices begin to rise |
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Phil Gramm "Whats wrong with the golden goose" |
us economy has outperformed european economy because more market driven economic policies at current GPC of GDP it will take 31 years to reach PCIG already achieved Implicit in the Feds overly optimistic economic forecast is the belief that there has been no fundamental change in the economy the literature on economics development shows US states and nations prosper when tax rates are low The highest corporate tax rate in the world is owned by the US large banks are regulated as if they are public utilities under Dodd-Frank The government controls 1/7 of economy under obamacare |
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Nick Timiraos "Congress Eases Up on Spending Curbs" |
a sequester is an across the board spending curb two exhibits that illustrate the euro of spending restraint is easing are the approval of busting sequesters and the new formula to calculate doctor pay fiscal restraints are easing due to Spending cuts and increasing economy two possibilities for what happens next are federal shut down, or parties reach a deal that rolls back sequesters |
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Josh Zumbrun and Carolyn Cui "World Awash in Too Much of Almost Everything" |
The world is Awash in Commodities like oil, cotton, iron, capital and labor The classical notion is we can't have oversupply central to the problem is cooling china economy with tepid demand among developing countries few governments have the political will to unleash more fiscal stimulus Producers have their own share of the blame because they are reluctant to cut production in order to maintain market shares is says law true? I DONT KNOW but ill guess yes |
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why does the AD curve slope downward 1)health effect2)interest rate effect3)exchange rate effect Why would AD curve shift? consuption, investment, govt purchases, net exports |
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why does short run AS curve slope upward? *1) sticky wage theory2)sticky price theory3)misperceptions theory why might AS curve shift laborcapitalnatural resourvestechnologyexpected price level in short run, shifts in AD cause fluctuations in economy's output of G&S in long run, shifts in AD effect overall P but not GDP stagflation is a period of recession with increasing prices shifts in AS can cause stagflation policy makers who can influence AS cant effect both effects stumultaneously |
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Which demand management policy Keynes thought was not effective in a recession? |
Monetary Policy |
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govt multiplyer= |
1/(1-MPC) |
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theory of liquidity preference |
keyens's theory that the interest rate adjusts to bring money supply and money demand into balance |
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In classical economics, AS and AD are ? |
AS is vertical and establishes real output AD is stable and establishes price level |
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In Keynesian economics, AS and AD are ? |
AS is horizantal at less-than-full-employment AD is unstable (grpah is same as Classical Theory) |
