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### 40 Cards in this Set

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 Macroeconomics deals with the economy as a what? whole The market value of all final goods and services produced within a country in a given period of time Gross Domestic Product (GDP) ___ = C+I+G+NX Y (or GDP) In the equation for GDP, C stands for what and what percentage of GDP does it make up? consumption, 69% In the equation for GDP, I stands for what and what percentage does it make up? investment, 16% In the equation for GDP, G stands for what and what percentage does it make up? government spending, 18% In the equation for GDP, NX stands for what and what percentage does it make up? net exports, -3% The percentage GDP components of C+I+G can be greater than 100% if ____ is greater than X M A measure of the overall cost of the goods and services bought by a typical customer Consumer Price Index (CPI) How many steps does it take to calculate CPI? 5 What are the steps to calculate CPI? 1. Fix the basket 2. Find the price of each good in each year 3. Compute the cost of the basket in each year 4. Choose one year as the base year and compute the CPI for each year 5. Use the CPI to compute inflation rate from previous year ______ = (CPI year x - CPI base year)/CPI base year *100 rate of inflation What are three problems with CPI? substitution bias, introduction of new goods, unmeasured quality change GDP deflator reflects the prices of all goods and services produced domestically, while CPI reflects the prices of all goods and services _______________. bought by consumers CPI compares the price of a FIXED basket of goods and services to the price of the basket in the base year, while GDP deflator compares the price of ________ _________ goods and services to the price of the same goods and services in the base year. currently produced This is the equation for inflation adjustment. dollars in year x = dollars in year y * (CPI year x/CPI year y) automatic correction of a dollar aount for the effects of inflation by law or contract indexation Indexation is important for ______, _________, ________, and ____________. long-term contracts cost-of-living allowance social security federal income tax brackets rule of 70 is: # of years required to double = 70/growth rate certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond (like an IOU) bond represents ownership in a firm and is claim to the profits that a firm makes stock financial institutions through which savers can DIRECTLY provide funds to borrowers financial markets financial institutions through which savers can INDIRECTLY provide funds to borrowers financial intermediaries saving is what: putting money into a bond or stock investing is what: purchase of new capital what are three functions of money medium of exchange, unit of account, store of value what is liquidity the ease with which an asset can be converted into the economy's medium of exchange what is the difference between commodity money and fiat money? commodity money takes the form of a commodity with intrinsic value (has value even if not used as money, i.e. gold coins), and fiat money has no intrinsic value Federal Reserve System has ___ members with ___ year terms, a chair with a __ year term, and ___ regional Federal Reserve Banks in major US cities. 7, 14, 4, 12 Jobs of ________________ include: regulate banks and ensure the health of the banking system, and control quantity of money in economy through the FOMC Federal Reserve System Which group has the power to increase or decrease the number of dollars in the economy? Federal Open Market Committee money multiplier = reciprocal of reserve ration (if ration is 1/10, multiplier = 10) Open-Market Operations are what? purchase and sale of US government bonds by the Fed What are reserve requirements? regulations on the minimum amount of reserves that banks must hold against deposits What is discount rate? interest rate on the loans that Fed makes to banks When depositors suspect that a bank may go bankrupt and go to the bank to withdraw their deposits, it is called a ___________. bank run What protects banks from a bank run? FDIC M2 includes: certificates of deposit, checkable deposits, traveler's checks real interest rate = ? nominal interest rate - inflation rate when banks hold only a fraction of deposits in reserve, banks.....? create money