Econ Test 2

Front 1

how does the money market affect the goods market? (what variable)what is the link.

Back 1

r

Front 2

what is the link from the goods market to the money market

Back 2

Y

Front 3

M1=

Back 3

C + D

Front 4

money multiplier equation

Back 4

Change in M1= initial change in M1 x (1/rr)

Front 5

investment multiplier

Back 5

1/mps

Front 6

tax multiplier

Back 6

-mpc/mps

Front 7

leakages and injections equation

Back 7

s + T = I + G

Front 8

Saving identity

Back 8

S=Y-C

Front 9

flow variable

Back 9

must attatch a time period like in GDP

Front 10

stock variable

Back 10

does not need a time period

Front 11

What determines C for HHs?

Back 11

1. income
2. wealth
3. interest rates
4. expectations about future

Front 12

planned agg. expenditure identity

Back 12

AE=C+I+G

Front 13

equilibrium condition for AE

Back 13

Y=AE

Front 14

Disequilibrium scenarios:
1.AE<Y
2.AE>Y

Back 14

1.inventories are increasing, expenditures are greater than production, actual I is greater than I
2. inventories are depleting, sales are greater than production, actual I is less than I

Front 15

Why does the multiplier eventually have an end?

Back 15

because some of the money leaks from the system as savings

Front 16

investment multiplier

Back 16

1/MPS

Front 17

investment multiplier formula

Back 17

change in Y=change in I (1/MPS)

Front 18

Y identity

Back 18

Y=C+S+T

Front 19

what does gov't spending include?

Back 19

federal, state and local
(7% and 12% of GDP)

Front 20

who controls the spending?

Back 20

congress and the president

Front 21

when congress can't decide on a budget

Back 21

continuing resolution, same budget as previous year

Front 22

budget effective from when to when?

Back 22

Oct 1-Oct 31

Front 23

net taxes equation

Back 23

=taxes-transfer payments which are SS, welfare, etc.

Front 24

budget deficit equation

Back 24

=G-T

Front 25

disposable income indentity

Back 25

=Y-T

Front 26

tax multiplier equation

Back 26

change in Y= NEG change in T (MPC/MPS)

Front 27

is the tax or gov't multiplier bigger?

Back 27

Government because it has a 1 on top instead of MPC

Front 28

why is the tax multiplier equation negative?

Back 28

because GDP and taxes are inversely related

Front 29

Balanced Budget multiplier equation

Back 29

change in Y=change in G (1)

evern though the balance budget isn't changed, Y is still affected

Front 30

who gives budget numbers?

Back 30

BEA

Front 31

how should we compare deficits?

Back 31

as a % of GDP,
2005=4% of GDPwhich is historically average

Front 32

treasury bond

Back 32

maturity date greater than one year

Front 33

treasury bill

Back 33

maturity date less than one year

Front 34

how is the gov. budget affected by economy?

Back 34

1.tax revenues
2.gov. expendtures
3.automatic stabilizers
4.fiscal drag
5.full-employment budget

Front 35

purpose of full employment budget

Back 35

helps establish a benchmark for evaluating fiscal policy

Front 36

structural deficit

Back 36

deficit that remains at full employment

Front 37

cyclical

Back 37

deficit that occurs because of a downturn in business cycle

Front 38

uses of money

Back 38

1.medium of exchange
2.store of value
3.unit of accout(consistent way of quoting prices)

Front 39

liquid money to less liquid

Back 39

currency and coin
checks
time deposit (CD)
retirement account

Front 40

commodity money

Back 40

has intrinsic value like gold coins

Front 41

fiat money

Back 41

has no intrinsic value like USA's money

Front 42

what kind of money is M1?

Back 42

transactions money, more liquid
=currency outside of banks and demand deposits and traveler's checks and other checkable deposits

Front 43

demand deposits

Back 43

checkaing accounts and savings accounts

Front 44

what kind of money is M2?

Back 44

broad money
=M1+savings accounts with time restrictions and money market accounts and other monies

Front 45

money market accounts

Back 45

checking accounts with time restrictions

Front 46

jobs of the Fed

Back 46

1.regulate and monitor private banking system
2.control monetary policy
3.loans to private banks

Front 47

current chair of board of governors of federal reserve system

Back 47

Ben Bernanke (prev. Alan Greenspan)
18 year term limit

Front 48

what kind of system do banks operate on?

Back 48

fractional reserve system

Front 49

required reserve ratio

Back 49

rr=R/D
currently 10%

Front 50

how many regional Fed banks?

Back 50

12

Front 51

tools of monetary policy

Back 51

1.reserve requirement
2.discount rate
3.open market operations

Front 52

moral suasion

Back 52

previous pressure Fed exerted on member banks to discourage heavy borrowing from Fed

Front 53

what does supply curve for money look like when Ms isn't influenced by interest rate?

Back 53

vertical line

Front 54

FOMC

Back 54

federal open market committee is in charge of monetary policy, headed by Bernanke, regular meetings every 6 weeks to decide money supply changes

Front 55

discount rate

Back 55

rate to borrow from the Fed

Front 56

fed funds rate

Back 56

rate to borrow from other bank

Front 57

is fed funds or discount rate higher?

Back 57

discount (6.25 vs 5.25%)

Front 58

why is money demand curve downward sloping?

Back 58

because at higher interest rates, ppl will want to hold more bonds than at lower rates

Front 59

2 things that shift Md curve

Back 59

1. change in income/output Y
2. change in price level P