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183 Cards in this Set

  • Front
  • Back
In perf. comp. mkt w/ horiz. demand MRP=
P*MPL
market labor demand curve
curve indicating the total # of workers all firms in a labor mkt. want to employ at each wage rate
complimentary input
one that increases the marginal product of a certain type of labor
substitutable input
one that decreases the marginal product of a certain type of labor
reservation wage
the lowest wage rate at which an individual would supply labor to a particular labor mkt
labor supply curve
a curve indicating the # of ppl who want jobs in a labor mkt @ each wage
long run labor supply curve
curve indicating how many people will want to work in a lab or mkt after full adjustment to a change in the wage rate.
a pure monopsony labor mkt
one in which a single firm is the only employer
compensating wage differential
a difference in wages that makes 2 jobs= attractive to a worker
property income
income derived from supplying capital, entrepreneurship, land or natural resources
transfer payment
any payment that is not compensation for supplying goods, svcs or resources
poverty rate
the % of families whose incomes fall below the poverty line
Lorenz curve
when households are arrayed according to their incomes, a line showing the cumulative % of income received by each cumulative % of households
compensating wage differential
a difference in wages that makes 2 jobs = attractive to a job seeker
property income
income derived from supplying capital, entrepreneurship, land or natural resources
transfer payment
any payment that is not compensation for supplying goods, svcs or resources
poverty rate
the % of families whose incomes fall below the poverty line
lorenz curve
when households are arrayed according to their incomes, a line showing the cumulative % of income received by each cumulative % of households
capital gains
earnings from selling assets
principal-agent problem
a situation in which an agent maximizes her own well being at the expence of the principal who hired her
present value
the value in today's dollars of a sum of money to be paid or recieved at a specific date in the future
PV=
y/(1+r)^n
discounting
the act of converting a future value into it's present day equivalent
principle of asset valuation
the idea that the value of an asset is equal to the total present value of all the future benefits it generates
financial asset
a promise to pay future income in some form, such as future profits or future interest payments
pure discount bond
a bond that promises no payments except for the principal it pays at maturity
coupon payments
a series of periodic payments that a bond promises before maturity
yield
the rate of return a bond earns for it's owners
primary mkt
the mkt in which newly issued financial assets are sold for the first time
discount rate
interest used in computing PV
dividends
part of a firms current profit that is distributed to it's share holders
SEC
A government commission created by Congress to regulate the securities markets and protect investors
retained earnings
The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet.
Dow jones industrial avg
an indtex of the prices of stocks of 30 large us firms
S& P 500
an index of the prices of stocks of 500 large us firms
fundamental analysis
a method of predicting a stocks price based on the fundamental forces driving the firms future earnings
technical analysis
a method of predicting a stocks price based on it's past behavior
efficient market
a mkt that instantaneously incorporates all available information revelant to a stocks price
pareto improvement
an action that makes at least one person better off and harms no one
total net benefits
the sum of consumer & producer surplus in a particular market
welfare loss
the $ value of potential benefits not achieved due to inefficiency in a particular mkt
tort
a wrongful act that harms someone
antitrust law
1-agreements among competitors
2-monopolization
3-mergers
primary mkt
the mkt in which newly issued financial assets are sold for the first time
discount rate
interest used in computing PV
dividends
part of a firms current profit that is distributed to it's share holders
SEC
A government commission created by Congress to regulate the securities markets and protect investors
retained earnings
The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet.
Dow jones industrial avg
an indtex of the prices of stocks of 30 large us firms
S& P 500
an index of the prices of stocks of 500 large us firms
fundamental analysis
a method of predicting a stocks price based on the fundamental forces driving the firms future earnings
technical analysis
a method of predicting a stocks price based on it's past behavior
efficient market
a mkt that instantaneously incorporates all available information revelant to a stocks price
pareto improvement
an action that makes at least one person better off and harms no one
total net benefits
the sum of consumer & producer surplus in a particular market
welfare loss
the $ value of potential benefits not achieved due to inefficiency in a particular mkt
tort
a wrongful act that harms someone
antitrust law
1-agreements among competitors
2-monopolization
3-mergers
market failure
a mkt that fails to take advantage of every pareto improvement
avg cost pricing
LRATC has built in normal profit (+ opportunity cost of owners) so firm charges lowest possible price so as not to be at loss-regulators strive to set the price equal to cost per unit where the LRATC curve crosses the demand curve
Averch johnson effect
the tendency of regulated natural monopolies to overinvest in capital
externality
a by-product of a good or activity that affects someone not immediately involved in the transaction
coase theorm
when a side payment can be arranged w/o cost, the mkt will solve an externality problem & create the efficient outcome on it's own
MSC marginal societal cost
the full cost of producing another unit of a good including the marginal cost to the producer & any harm caused to third parties
tradable permit
a license that allows a company to release a unit of polution into the environment over some period of time
marginal societal benefit MSB
the full benefit of producing another unit of a good, including the benefit to the consumer and any benefits enjoyed by 3rd parties
rivalry
a situation in which one persons consumption of a unit of a good or svc means that no one else can consume it
excludability
the ability to exclude those who do not pay for a good from consuming it
pure private good
a good that is both rivalous and excludable
pure public good
a good that is both nonrivalous and nonexcludable
tragedy of the commons
the problem of overuse when a good is rivalous but nonexcludable
terms of trade
the ratio at which a company can trade domestically produced products for foreign produced products
quota
the limit on the physical volume of imports
protectionism
the belief that a nations industries should be protected from foreign competition
infant industry argument
the argument that a new industry in which the country has a comparative advantage might need protection from foreign competition in order to floursh
real GDP
total qty of goods and svcs produced by a country in a year ;is how we track economic growth
business cycles
fluctuations in real GDP around it's long term growth trend
goals of marcroeconomics
economic growth , low unemployment, stable prices
intermediate goods
goods used up in producing final goods
expenditure approach
measuring GDP by adding the value of goods and svcs purchased by each type of final user
consumption (C)
the part of GDP purchased by households as final users
capital stock
the total value of all goods that will provide useful svcs in future years
private investment
the sum of business plant, equip, software purchases, construction, inventory changes; EXCLUDES govn't investment, consumer durables, human capital
net investment
investment-depreciation
govn't purchases (G)
spending by fed, state & local govnt on goods & svs (consumption)
net exports
total exports-imports
value added
the revenue a firm receives -the cost of the intermediate good it buys
value added approach
measuring GDP by summing the value added by all firms in the economy
factor payments
payments to the owners of resources that are used in production
factor payments approach
measuring GDP by summing the factor payments earned by all households in the economy
nominal variable
not taking inflation into account
real variable
takes inflation into account
unemployed
not working but seeking a job
frictional unemployment
joblessness experienced by people who are between jobs or who are just entering or re-entering the job mkt
structural unemployment
joblessness arising from mismatches between workers skills and employers requirements or location
cyclical unemployment
joblessness arising from changes in production over the business cycle
full unemployment
cyclical unemployment reached 0 ut still have other types of unemployment
potential output
the level of output the economy could produce if operating at full employement
fed reserve system
the central bank and national monetary authority of the US (1913)
fiat money
anything that serves as means of payment by gvn't declaration
index
a series of #'s to track variables rise or fall over time (relative) always base 100
consumer price index
an index of the cost, through time, of a fixed market basket of goods purchased by a typical household in some base period
inflation rate
the % change in the price level from one period to the next
indexation
adjusting the value of some nominal payment in proportion to a price index, in order to keep the real payment unchanged
real wage=
(nom wage/CPI)*100
GDP price index
an index of the price level for all final goods & svs included in the GDP (all goods purchased by everyone not just households)
nominal interest rate
the annual % increase in a lenders $ from making a loan
real interest rate
the annual % increase in a lender's purchasing power from making a loan
sources of bias in the CPI
substitution; new technology; changes in qty; growth in discounting
classical model
a macroeconomic model that explains the long run behavior of the economy
market clearing
adjust the prices until qty supplied and dem are =
aggregate production function
the relationship showing how much total output can be produced w/ diff qtys of labor, w/ diff qtys of all other resources held constant
say's law
the idea that total spending will be sufficient to purchase the total output produced-supply creates it's own demand
planned investment spending (I^p)
business purchases of plant and equpipment I^p=I-change in inventories
net taxes
govn't tax revenues- transfer payments
disposable income
household income-net taxes which is either spent or saved
household saving
the portion of after tax income that households do not spend on consumption
total spending=
C+I^p+G
leakages
income earned but not spent by household's during a given year
injections
spending from sources other than households
loanable funds mkt
the mkt in which households make their saving available to borrowers
budget defecit
the excess of govnt purchases over net taxes
budget surplus
the excess of net taxes over govn't purchases
supply of funds curve
indicates the level of household saving at various interest rates
business demand of funds curve
indicates the level of investment spending firms plan at various interest rates
govn't demand for funds curve
indicates the amount of govn't borrowing @ varous interest rates (have no effect)
total demand for funds curve
indicates bus. demand + govn't demand
fiscal policy
a change in govn't purchases or net taxes designed to change total spending & thereby change total output
crowding out
a decline in one sector's spending caused by an increase in some other sectors spending
avg standard of living
total output (real GDP) per person
labor productivity
the output produced by the avg worker in an hour
labor force participation rate LFPR
the % of the population who wants to be working
capital per worker
the total capital stock divided by total employment
stock variable
a variable measuring a qty at a moment in time
flow variable
a variable measuring a process over some pd of time
corporate profits tax
a tax on the profits earned by corporations
investment tax credit
a reduction in taxes for firms that invest in new capital
capital gains tax
a tax on profits earned when a financial asset is sold at more than it's acquisition price
consumption tax
a tax on the part of their income that households spend
patent protection
a govn't grant of exclusive rights to use or sell a new technology
spending shock
a change in spending that ultimately affects the entire economy
short run macro-model
a macroeconomic model that explains how changes GDP in the short run
consumption function
a positively sloped relationship between real and disposable income
autonomous consumption spending
the part of consumption spending that is independent of income-also the vertial intercept of the consumption function
marginal propensity to consume
the amout by which consumption spending rises when disposable income rises by $1 0<mpc<1
consumption-income line
a line showing aggregate consumption spending at each level of income or GDP
aggregate expenditure (AE)
the sum of spending by households, business firms, the govn't & foreigners on final goods & svs produced in the US
AE=
C+I^p+G+NX
equilibrium GDP
in the short run, the level of output at which output and aggregate expenditure are =
expenditure multiplier
the amout by which equilibrium real GDP changes as a result of a one dollar change in autonomous consumption, investment spending, govn't purchases or NX
automatic stabilizers
forces that reduce the size of the expenditure multiplier and diminish the impact of spending shocks
demand deposits
checking accounts that do not pay interest
M1
a standard measure of the money supply, incl cash in the hands of the public, checking accounts & travelers checks
M2
M1 plus savings acct balances, retail money market mutual fund balances, & small time deposits
financial intermediary
a business firm that specializes in brokering between savers & borrowers
bond
a promise to pay back borrowed funds, issued by a corporation or govn't agency
reserves
vault cash+ balances held @ the fed
req. resv. ration
the mon fraction of checking acct balances that banks must hold as reserves
federal open market committee FMOC
a committee of fed resv. officials that establish US monetary policy
open market operations
purchases or sales of bonds by the FRS
demand deposit multiplier
the # by which a change in reserves is multiplied to determine the resulting change in demand deposits
run on the bank
an attempt by many of a banks depositors to withdraw theirr funds
wealth constraint
at any point in time, total wealth is fixed
economy wide demand for money
=households & businesses
money demand curve
a curve indicating how much money will be demanded @ each interest rate
money supply curve
a line showing the total qty of $ in the economy @ each interest rate
excess supply of money
the amount of money supplied exceeds demand @ a partic. interest rate
excess demand for bonds
the amt of bonds dem exceeds the amt supplied @ a part. interest rate
monetary policy
control or manipulation of the money supply by the fed reserve designed to achieve a macroeconomic goal
federal funds rate
the interest rate charged for loans of reserves among the banks
aggregate demand (AD)curve
a curve indicating equilibrium GDP @ each price level
aggregate supply (AS) curve
a curve indicating the price level consistent w/ firms with costs & markups for any level of output over the short run
short run macroeconomic equilibrium
a combination of price level & GDP consistent w/ both the AD & AS curves
demand shock
any event that causes the AD curve to shift
supply shock
any event that causes the AS curve to shift
long run aggregate supply curve
a vertical line indicating all possible output & price level combinations at which the economy could end up in the long run
stagflation
the combination of falling output & rising prices
natural rate of unemployment
the unemployment rate when there is not cyclical unemployment
philips curve
a curve indicating the fed's choice between inflation & unemployment in the short run
hawks
want price stability and tolerate unemployment
doves
tolerate higher cost of inflation
long run philips curve
a vertical line indicatino that the long run unemployment must = it's natural rate regardless of the rate of inflation
taylor rule
a proposal rule that would require the fed to change the interest rate by a specified amount whenever the real GDP or inflation rate would deviate form the announced targets