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87 Cards in this Set
- Front
- Back
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economics
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the science of scarcity, how people and society deal with scarity
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positive economics
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the study of WHAT is in economics matters; data, facts
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normative economics
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study of WHAT SHOULD BE in economic matters; subjective, judgmental
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utility
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satisfaction one recieves from a good
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disutility
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the dissatisfaction someone recieves from a bad
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land, labor, capital
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the materials, the people, the machines, and things used to help the production
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entrepreneurship
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the talent someone has to organize the land labor and capital to produce goods, and seek new branches of oppurtunities
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rationing device
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means for deciding who gets what of availible resources
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maginal benefits
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the additional benefits
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fallacy of composition
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the view that what is good for the individual, is not necessarily good for the group
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abstract
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the process of foucusing on a limited number of variables to explain of predict an event
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how often does federal head decide interest rate
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8 times
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exante
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before trade
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expost
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after trade
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law of dimiishing marginak utlity
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for a given time period the amount of benifit gained by consuming equal units of a good will decrease as the amount consued increases
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demand schedule
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the numerical tabulation of quanity demanded at different prices
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normal good
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as income rises demand rises
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inferior good
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as income rises demand falls
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nuetral good
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as income rises, demand does not change
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substitute goods
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2 goods that fulfill similar needs or desires
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complement goods
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2 goods that are used jointly in consumtion; if the demand for one rises the price of the other falls
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law of supply
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as the price of a good rises, the supply of a good will rise
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law of demand
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as the price of a good rises, then the demand for the good will fall
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supply schedule
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the numerical tabulation of the amount of a good supplied at different price levels
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total surplus
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the addition of consumer surplus + SUPPLIER SURPLUS
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tie-in sale
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the sale in which a good can only be purchasesd if another good is purchased with it
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deadweight loss
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the cost to society of not producing the compeitive, or demand-supply determined level of output
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CPI
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the average price of goods an average conusmer buys
TE($) in current yr * 100 ------------------------- TE in base year |
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base year
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1982-1984 CPI = 100
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unemployment rate
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# of unemployed
--------------- civilian labor force |
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Change in price level
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CPI later- CPI earlier
----------------------- CPI earlier * 100 |
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Real Income
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Nominal income
---------------- CPI * 100 |
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$ in todays &
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$ in earlier * CPI of now
------------ CPI of earlier |
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employment rate
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# of employed
------------- noninstitutional population |
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GDP (expediture)
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Consumtion
Investment government spending exports - imports |
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Consumtion
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C =
C(initial)+MPC*Y(d) Y(d) = disposible income Y(d) = Y - taxes |
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Keynesian TE
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Consumtion
Investment Govnerment Expeditures |
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Multiplier
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1
------- 1 - MPC |
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Real balance Effect
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Change in Purchasing power of $
- denominated assests that results from price level changes |
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Monetary wealth
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Value of a persons Cash
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International trade effect
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Change in foriegn sector spending as there is a change in the price level
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Menu Costs
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Costs of changing prices
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Aggregate demand changes if
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CIGE changes
C = wealth, expected prices, interest rate, isncome taxes I = interest rate, expected sales, buisness taxes G = Governemtn Spending E = Forieg Real Income, Exchange rate |
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says law
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supply creates its own demand, the supply will create enough demand for the all the goods and services to be bought up
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marginal propensity to consume
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change in saving
------------------------ change in dispoable income |
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progressive income tax
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income tax system in which tax rate rises as ones taxabe income rises
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proportional income tax
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an income tax system in which ones tax rate is the same no matter what ones taxable income is
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regressive income tax
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in income tax system in which ones taxable income rate decreases as ones taxable income increases
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cyclical deficit
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part of the budget deficit that is a result of a downturn in economic activity
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structural deficit
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part of the budet deficit that would exisit even if the economy were opperating at full employment
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fiscal policy
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changes in the government expeditures and\or taxes to achieve economic goals (low employment, stable prices, economic growth)
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expansioinary fiscal policy
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increases in govenment expediture, and decresing in taxes
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automatic fiscal policy
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chnges in governemnt expediture and/or taxes to achieve particular economic goals
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laffer curve
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a curve that shwos the relationship between tax rate and tax revenue
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tax base
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when refering to income taxes the total amount of taxable income.
tax revenue = tax base * avg. tax rate |
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money
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good widely accepted for purposes of exchange and repayment of debt
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Federal reserve notes
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pape rmoney issues by fed
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M2
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M1 + savings + small demnomination time deposits + money market
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simple deposit multiplier
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1
-- r (reserve ratio) |
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cash leakage
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when funds are held as currency instead of being saved
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open market operations
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buying and selling of governemnt securities by the fed
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federal opne market committee
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FOMC - 12 members/ policy making body of the fed / has the authority to conduct open market operations
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monetary policy
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changes in the money supply to ahcieve particular macroeconomic goals
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us trasury securities
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bonds and bondlike securities issued by the tresury when it is borrowing money
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federal funds rate
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the interest rate that banks charge one another for loans
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discount rate
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interest rate the fed charges depository institutions to borrow money
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equation of exchange
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an equation that states the money supply ties the velocity must equal the price level time real GDP
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velocity
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Average number of times a dollar is spent to buy final goods and servicies a year
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simple quanity theory of money
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theory that assumed velocity and real GDO ae constant and predicts changes in the money supply lead strictly proportional changes in the price level
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one shot inflation
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one time increase in the price evel; increase in the price level that doesnt continue
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continued inflation
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continued increase in the price level
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liquidity effect
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change in the interest rate due to a change in the supply of loanable funds
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income effect
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change in the interest rate due to a change in the real GDP
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price level effect
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change interest rate due to a change in the price level
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expectations effect
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change in interest rate due to a change in the expected inflation rate
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nominal interest rate
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real interest rate + expected inflation rate
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transmissioin mechanism
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states that ripple effects created in the money market eventually effects the goods and services market
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liquidity trap
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the horizontal portion in the demand curve for money
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activists
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people that believe that monetary and fiscal policies should be diliberatly used to smooth out the buisness cycle
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non activists
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the opposite of acitivits
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fine tuning
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the use of montary and fiscal policy to get rid of small undesirable things in the buisness cycle
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phillips curve
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the curve that shows the relationship between wage inflation and unemployment
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staginflation
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the simultaneous occurence of high inflation and high unemployment
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friedman natural rate theory
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Long Run unemplyment, is the natural unemployment
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adaptive expectation
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expectations that an individual forms from past experience and modify as the present and future become the past
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rational expectations
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expectations that an individual bases off past experiences and off future expectations
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policy uneffetiveness proposition
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if policy change is correctly anticipated, and individuals form rational expectations and wages and prices are flexible, then neither fiscal nor monetary policies are effective
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