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