Macro Economics

Front 1

Nominal GDP

Back 1

Total Market Value of all final goods and services produced during the period in the US.

-Determined Quarterly and stated as an annualized rate
-Annual rate is an average the 4 quarterly values

Front 2

2 Basic Ways of Measuring Nominal GDP

Back 2

1. Product Accounts Approach/Expenditure Approach
2. Income Accounts Approach

Front 3

Expenditure Approach/Expenditure Approach

Back 3

Measure the spending on final good and services, along with required adjustments

Front 4

Income Accounts Approach

Back 4

Determine the income or payments to the various factors supplying final goods and services, along with additional charges that must be included.

Front 5

Product Accounts GDP Formula

Back 5

Personal Consumption + Gross Private Domestic INvestment + Gov. Purchases + Net Exports

Front 6

Major Limitations of GDP as a measure of Output

Back 6

1. Non-market Production
2. Underground Economy
3. Leisure and Human Costs
4. Quality Improvements and New Products
5. Harmful Side Effects

Front 7

Non-Market Production (GDP Limitation)

Back 7

fails to account household production because the household production does not involve market transaction

Front 8

Underground Economy (GDP Limitation)

Back 8

fails to count the underground economy, which involves concealed economic activities

Front 9

Leisure and Human Costs (GDP Limitation)

Back 9

Attempts to recognize the value of quality improvements but this is difficult to do.

Hint 9

Also attempts to recognize the value of new products, but also difficult to do

Front 10

Harmful Side Effects (GDP Limitation)

Back 10

No adjustment for natural events

Front 11

Gross Private Domestic Investment

Back 11

Residential Investment + Non-Residential Structures + Producers' durable equipment + change in business inventories

Front 12

Government Purchases

Back 12

Federal Defense Purchases + Federal non-defense purchases + Sate/Local purchases

Front 13

Net Exports

Back 13

exports - imports

Front 14

Real GDP

Back 14

expressed in terms of base year (Currently 2005) dollars.

Hint 14

Allows year to year comparison of real output.

Front 15

GDP Implicit Price Deflator

Back 15

Price Index representing the overall level of prices for the goods and services.

Hint 15

Nominal GDP/Real GDP * 100

Front 16

Approx Relationship

Back 16

Nominal Growth Rate=Real Growth Rate + Implicit Price Deflator Growth Rate (inflation)

Front 17

Income Accounts Approach

Back 17

GDP=Employee Compensation + proprietor & Rental Income + Pretax Corporate Profits + Net Interest and Miscel Payment + Miscel

Front 18

Gross Savings

Back 18

Personal Savings + Gross Business Savings + Government Savings

Front 19

Short-Run Aggregate Demand (SAD)

Back 19

download sloping due to the Wealth Effect.

Front 20

Wealth Effect

Back 20

less real money, the higher the current price level. Less real money results in lower current demand

Front 21

Substitution Effect

Back 21

Substitution of future consumption for current demand the higher the price level (due to wealth effect)

Hint 21

Greater substitution of foreign goods for current domestic goods, the higher the current domestic price level

Front 22

Short Run Aggregate Supply (SAS)

Back 22

upward sloping since the quantity supplied is assumed positively related to price

Front 23

Real GDP: Actual vs Potential

Back 23

Actual > Potential == Inflationary Gap

Potential> Actual == Recessionary Gap

Front 24

Shift vs Movement Along

Back 24

Shift: movement of the entire curve left/right

Movement Along: involves a change in the independent variable only, with all other input variables remaining constant

Front 25

Long Run Aggregate Demand (LAD)

Back 25

downward sloping; demand is inversely related to the price level.

Front 26

Long Run Aggregate Supply (LAS)

Back 26

is vertical at potential GDP/Full Employment GDP

Front 27

Ex Post (after)

Back 27

gross investment=gross saving

Front 28

Ex Ante (before)

Back 28

gross investment != gross savings

Front 29

Keynesian Economics

Back 29

Government may undertake counter cyclical expansionary fiscal polity to try to stimulate the economy

Hint 29

Keynesian economists believe that the economy on its own would rarely operate at full employment, thus government intervention is needed to achieve and maintain full employment.

Keynesian Economics - an activist strategy.

Front 30

Automatic Policy Actions

Back 30

1. Needs tested spending:
(a). Changes in Unemployment Insurance
(b). Other govt. transfer programs, Welfare.

2. Induced taxes:
(a). Changes in personal and corporate income tax collections.

Front 31

Change in Income & Output (Keynesian Economics)

Back 31

Chg in Income & Output = Chg in Govt Exp or Private Invest * Keynesian Expenditure Multiplier

Front 32

Keynesian Tax Model, or Autonomous Tax Multiplier

Back 32

Change in Income & Output = -(Change in Taxes) * (Keynesian Tax Multplier)

Front 33

Balanced Budget Multiplier

Back 33

If Budget is balanced & increase in government expenditures & similar increase in tax revenues

Aggregate demand increases. Keynesian expenditure multiplier > Keynesian tax multiplier

Front 34

Keynesian Expenditure Multiplier

Back 34

4x

Front 35

Keynesian Tax Multiplier

Back 35

3x

Front 36

Balance Budget multiplier

Back 36

Net stimulative effect on economy

Front 37

Problems with Keynesian Economics

Back 37

1. Timing is difficult
2. Appropriate Fiscal Policy Level is uncertain
3. Crowding Out of the private sector

Front 38

Crowding Out Effect

Back 38

is any reduction in private consumption or investment that occurs because of an increase in government spending

Front 39

Ricardo-Barro Effect

Back 39

Is the equivalence of financing government purchases by taxes or by borrowing.

Higher private savings due to higher real interest rates will compensate for likely higher future income taxes to pay for the current budget deficit.

Front 40

Modern Viewpoint about Discretionary Fiscal Policy

Back 40

Can stimulate the economy in a recession.

But may result in higher real interest rates in normal times.

Lots of difficulties with proper timing.

Front 41

Generational Effects of Fiscal Policy

Back 41

Generational Imbalance: the fiscal imbalance between current and future generations.

Major source of the generational imbalance in the U.S. is Medicare.

Front 42

Price Level

Back 42

Price level is the average level of prices as measured by a price index.

Front 43

Inflation

Back 43

Inflation is an ongoing process of the price level rising continuously

Front 44

Causes of Inflation

Back 44

-Demand-Pull

-Cost-Push

-Excessive Money Supply Growth

-Inertial Inflation – people’s expectations about inflation.

Front 45

Effects of Anticipated High Inflation

Back 45

1. Reduced Saving and Investment

2. Hoarding resources

3. Tax effects: Inflation-adjusted after-tax rate-of-return is low even though nominal interest rate is high.
Result: reduced incentive to save, so investment is reduced → GDP drops.

Front 46

Anticipated Inflation Rate

Back 46

Nominal Interest Rate = Real Interest Rate + Anticipated Inflation Rate

Note: Real interest rate is determined in the financial capital market by the investment demand for funds and supply of funds

Front 47

Unanticipated Inflation (Labor Market Effect)

Back 47

- Redistribution of Income
- Departures from Full Employment

Front 48

Unanticipated Inflation (Financial Capital Markets)

Back 48

-Redistribution of Income
-Too Much or Too Little Lending or Borrowing

Front 49

Consumer Price Index (CPI)

Back 49

-Monthly sample of prices for a market basket.
-CPI Tends to Overstate Inflation:
-Substitution Bias
-Sale Bias
-Quality Bias
-New Goods Bias

Front 50

Employment Classifications

Back 50

-Employed
-Unemployed
-Civilian Labor Force
-Not in labor Force

Front 51

Frictional Unemployment

Back 51

moving between jobs, reentering the job market, or looking for first job

Front 52

Structural Unemployment

Back 52

job skills not in demand in the current economy

Front 53

Cyclical Unemployment

Back 53

out of work due to a downturn in the economy

Front 54

Natural Rate of Unemployment

Back 54

the lowest rate of unemployment that can be sustained without an acceleration in the inflation rate

The Natural Rate of Unemployment = Frictional + Structural Unemployment

-Currently believed to be around 4%

Front 55

Short-Term Phillips Curve

Back 55

a downward sloping curve representing the tradeoff between inflation and unemployment

Front 56

Long-Term Phillips Curve

Back 56

vertical at the natural rate of unemployment, or any inflation rate is possible at the natural rate of unemployment

Front 57

Wage Illusion

Back 57

-If actual wage inflation greater than anticipated, unemployment temporarily decreases since firms hire more workers at the lower real wage rate.

-But soon workers catch on and demand higher real wages, then unemployment increases.

Front 58

Functions of Money

Back 58

Medium of Exchange

Unit of Account

Store of Value

Front 59

Demand for Money Balances

Back 59

-Real GDP --> Positive
-Nominal Interest Rate --> Inverse

-Price Level-->Positive
-Financial Innovation-->Inverse

Front 60

U.S. Banking System

Back 60

-Large and decentralized
-Federal Reserve: 10% legal reserve requirement

Front 61

Sources of Funds for Banks

Back 61

-Fed Funds from another bank
-Discount window from the Fed.

Front 62

Economic Functions of Banks

Back 62

1.) Creating Liquidity, but limited by a bank’s excess reserves.
2.) Minimizing the Cost of Obtaining Funds
3.) Minimizing the Cost of Monitoring Borrowers
4.) Pooling Risk

Front 63

Deposit Expansion Multiplier

Back 63

Potential Money Supply Multiplier = 1/RR

-But leakages may reduce this expansion.

Front 64

Monetary Aggregates

Back 64

M1, M2, M3

Front 65

M1 (Monetary Aggregate)

Back 65

currency outside of banks, checking account balances, coins, and travelers checks. (M1 excludes currency and checking deposits owned by the U.S. Government.)

Front 66

M2 (Monetary Aggregate)

Back 66

M1 + savings accounts, money market accounts, & small CDs

Front 67

M3

Back 67

M3 = M2 + business accounts, jumbos, and institution-only money market funds

Front 68

Check

Back 68

It is not money. It merely transfers money from one account to another. Overall money supply does not change.

Front 69

Credit Card

Back 69

represents the promise to pay later to another account, also not changing overall money supply

Front 70

Problems with Money Definitions

Back 70

Movement of funds from checking accounts (M1) into money market funds (M2).

Widespread use of the dollar outside the U.S.

Front 71

Fed Assets (Balance Sheet)

Back 71

- Gold & Forex
- US Govt Securities
- Loans to Banks

Front 72

Fed Liabilities (Balance Sheet)

Back 72

-Federal Reserve Notes
-Bank Deposits
-Other Assets (net)

Front 73

Fed’s Monetary Base

Back 73

Federal Reserve Notes + Banks’ Deposits

Front 74

Fed Policy Instruments

Back 74

1.) FOMC: purchase T-Bills to expand, and sell T-Bills to contract
2.) Discount Rate Change
3.) Reserve requirement for member banks
4.) Margin requirements for stock purchases

Front 75

Key Functions of a Central Bank

Back 75

-Set monetary policy
-Determine how the economy behaves
-Respond to economic and market conditions
-Control money supply
-Regulate the banking system
-Issue currency

(In the U.S. the Treasury Dept. prints currency while the Fed puts it into circulation.)

Front 76

Central Bank Role

Back 76

Controls SHORT-TERM interest rates, not long-term rates.

Enables Liquidity in the banking systems by determining current borrow rates. This in term effects long term borrow rates.

Front 77

Inflation Targeting

Back 77

maintain price level stability

Front 78

Initial Impact of Increase in the Money Supply

Back 78

1.) Increase in real GDP and employment.
2.) Decrease in nominal interest rate and real interest rate.
3.) No change in inflation.

Front 79

Fed Monetary Policy Goals

Back 79

1.) Maintain Price Level Stability
2.) Keep real GDP close to full employment real GDP (potential GDP)
3.) Keep interest rates moderate

Front 80

Price Level Stability v.s. Sustainable Real GDP Growth

Back 80

- inflation does not figure in people’s
- economic calculations (0% to 3%)
-people are willing to save and invest (rather than consume their earnings)

Front 81

Types of Fed Monetary Strategies

Back 81

1.) Instrument Rule
2.) Targeting Rule

Front 82

Instrument Rule

Back 82

set the selected monetary policy instrument to a level based on the state of the economy

Front 83

Targeting Rule

Back 83

set the selected monetary policy instrument to a level that makes the forecast of the policy goal equal to its target

Front 84

Taylor Rule

Back 84

Fed Funds RateTarget = f ( forecast inflation and real GDP gap)

2% target inflation and real interest rate assumed.

Front 85

Timing Effects of Fed Policy Changes

Back 85

- Fed funds rate transmission involves normal ripple effects over 1 to 2 years.

-Time lags are unpredictable and can be longer or shorter

Front 86

McCallum Rule

Back 86

A monetary base instrument rule that specifies the appropriate growth of the monetary base

(assumes the demand for money and the monetary base is quite stable, not so)

Front 87

Money Targeting Rule

Back 87

target growth of the money supply

Front 88

Exchange Rate Targeting Rules

Back 88

target the exchange rate vs. a basket of currencies

Front 89

Inflation Rate Targeting Rule

Back 89

target the inflation rate

Front 90

Classical Economics

Back 90

Little or no govt. intervention, let supply and demand forces operate.

Adam Smith: Invisible Hand

Macroeconomic policy is largely ineffective.

Money wage rates are NOT sticky downward

Front 91

New Classical Economics

Back 91

Govt. spending to stimulate the economy will not be successful because higher spending will have to be financed by borrowing and/or future tax increases that will cool down the economy

Front 92

Keynesian Economics Objectives

Back 92

Government should undertake countercyclical expansionary fiscal policy to try to stimulate the economy.

Money wage rates are assumed to be sticky downwards.

utilize discretionary monetary policy instead of fiscal policy.

Front 93

Monetarist Policy Objectives

Back 93

Avoid trying to “fine tune” the economy. Rather, steady money supply growth.

Problem: movement of funds among
monetary aggregates

Front 94

Supply Side Objectives

Back 94

Govt. should consider the supply side, as well as the demand side.

Key point: lower marginal income tax rates to stimulate the economy.

Front 95

Laffer Curve

Back 95

Shows the relationship between the country’s overall tax rate and the amount of tax revenues collected.

-Increases in tax rates may result in less tax revenue collected

Front 96

Business Cycle Theories

Back 96

1.) Mainstream
2.) Real

Front 97

Mainstream (Business Cycle Theory)

Back 97

occur because of fluctuations of real GDP around potential GDP

Front 98

Real (Business Cycle Theory)

Back 98

business cycles occur due to changes in productivity, resulting from the pace of technological change

Front 99

Factors which Encourage Gross Investment

Back 99

High Production Capacity
Optimistic Business Outlook
Low Interest Rates

Front 100

Impact of Government Savings on Investment Financing

Back 100

Greater Savings, Greater Investment Financing

Less Savings, Less Investment Financing

Front 101

GDP Formula (Definition By Parkin)

Back 101

=C + S + T

Hint 101

where:

C=Personal Consumption Expenditures,

S=Private Domestic Savings,

T=Net Taxes

Front 102

Factors that Shift Aggregate Demand Curve
(Increase Demand)

Back 102

Real Income Higher

Real Interest Rates Lower

Economic Outlook More optimistic

Expected Inflation Higher

Currency Weaker

Front 103

Factors that Shift Aggregate Supply Curve
(Increase Supply)

Back 103

Supply of Labor ==> Increased

Supply of Capital ==> Increased

Productivity ==> Higher

Expected Inflation ==> Lower

Front 104

When Gross Investment > Gross Savings

Back 104

Inventories will begin to fall and business firms will replenish inventories and therefore increase production

Front 105

When Gross Savings > Gross Investment

Back 105

Inventories increase above desired levels, resulting in decreased orders. Production Decreases

Front 106

Planned Aggregate Demand (Keynesian Economics)

Back 106

C+I+G+NX

Hint 106

where:

C=Consumption Expenditures

I=Investment Expenditures

G=planned Government Expenditures

NX=Planned Net Exports

Front 107

The Multiplier Principle in Keynesian Economics is important because

Back 107

Shows why small shifts in investment have a powerful influence on national income

Front 108

GDP Implicit Price Deflator

Back 108

Most Comprehensive Price Index

Determined Quaterly

Not a fixed market basket but mix of each period.

More relavent to recent measurement but not historical

Front 109

Producer Price Index

Back 109

measure prices changed by producers

determined monthly

Front 110

Cost-Push Inflation

Back 110

decrease in short-run aggregate supply because of increase in costs

Due to increase in wages or cost of raw materials

Front 111

Demand-Pull Inflation

Back 111

increase in short-run aggregate demand when the economy is already at full employment

Front 112

Excessive Money Supply Growth Inflation

Back 112

money supply growing at a much faster rate than the economy

Front 113

Inertial Inflation

Back 113

people's expectations to adapting to recent levels of inflation

Front 114

Nominal Interest Rate (Formula)

Back 114

Real Interest Rate + Anticipated Inflation Rate

Front 115

If Actual Inflation Rate > Anticipated Inflation Rate

Back 115

Lenders Lose and

Front 116

CPI Formula (Monthly Value)

Back 116

[Fixed Benchmark Basked Cost (Mont)/Fixed Benchmark Basked Cost in Period] * CPI Value in Base Period

Front 117

CPI Overstatement of Inflation

Back 117

Substitution Bias

Sale Bias

Quality Bias

New Goods Bias

Front 118

Civilian Labor Force Participation Rate

Back 118

Civilian Labor Force/Civilians over Age 16 (Non-institutional)

Hint 118

Best indicator of the willingness of people who are working to take jobs

Front 119

Civilian Employment Rate

Back 119

Civilian Employment/Civilians over Age 16 (Non-institutional)

Front 120

Unemployment Rate

Back 120

Unemployed/Civilian Labor Force

Front 121

Assets on Federal Reserve Balance Sheet

Back 121

Gold and Foreign Exchange

U.S. Government Securities

Loans to Banks

Front 122

Liabilities on Federal Reserve Balance Sheet

Back 122

Federal Reserve Notes & Coins

Banks' Deposits

Other Assets (net)

Front 123

Monetary Base

Back 123

Federal Reserve Notes & Coins + Banks' Deposits

Front 124

Affect of Fed purchasing of Treasury Security

Back 124

Monetary Base will be increased

Hint 124

(by a multiple of the corresponding money supply multiplier)

Front 125

Keynesian Cycle Theory

Back 125

fluctuations in business confidence are the main source of fluctuations in aggregate demand.

Hint 125

Money Wage rate is assume to be rigid

Front 126

Monetarist Cycle Theory

Back 126

fluctuations in both investment and consumption expenditure, driven by fluctuations in growth rate of the quantity of money, are main sources of fluctuations in aggregate demand

Hint 126

Money Wage rate is assume to be rigid

Front 127

New Classical Cycle Theory

Back 127

rational expectations of the price level determine the money wage rate and position of the short-run aggregate supply curve

Hint 127

It is assume that only unexpected fluctuations in aggregate demand bring fluctuations in real GDP around potential GDP

Front 128

New Keynesian Cycle Theory

Back 128

today's money wage rate were negotiated by many past dates, which means that past rational expectations of the current price level influence the money wage rate and the position of the short-run aggregate supply curve

Front 129

Real Business Cycle Theory

Back 129

Business Cycles occur because of fluctuations in Productivity.

Hint 129

Fluctuations are due to changes in:

Technology

International disturbances

natural disasters

climate fluctuations.

Front 130

What are Expansionary open-market operations are for the Fed

Back 130

-Buy Treasury Bills

-Buy Treasury Bonds

-Lower Fed Discount Rate

-Lower Reserve Requirements

Front 131

Supply of Money in the US depends mainly on?

Back 131

Actions of the Fed

Front 132

Short-Run Demand for Real Funds is?

Back 132

An inverse Function of Interest rates

-Corresponds to a Downward sloping demand curve for real funds

Hint 132

(nominal interest rate vs Amount of real funds)

Front 133

Short-Run Supply of real funds is

Back 133

FIXED since the short-run supply curve for real funds is VERTICAL

Front 134

Short-run demand curve for real funds will shift:

Back 134

To the RIGHT if there is an increase in real GDP

To the LEFT if there a decrease in real GDP

Generally to the LEFT if there is a new financial innovation.

Front 135

Increase in the Short-Run Demand for Real-Funds

Back 135

results in an INCREASE in the equilibrium short-run interest rate

Hint 135

a DECREASE in the short-run interest rate results in a Decrease in Short-Run Demand for Real Funds

Front 136

Assumption in the Classical Quantity Theory Of Money

Back 136

In the short-run, the ratio of V/Q remains constant for the equation PQ=MV.

Front 137

Increase in Money Supply (Classical Quantity Theory of Money) Results in

Back 137

Increase in Price Level

Front 138

Assumption in Modern Monetarist Viewpoint

Back 138

In the short run, Price (P) and Velocity (V) REMAIN CONSTANT in the equation PQ=MV

Front 139

Tax Effect with Inflation

Back 139

Higher Tax Rate leads to HIGHER effective tax rate on Income from Capital

Front 140

Unanticipated Inflation Effect on the Labor Markets

Back 140

Redistribution of Income

Departures from Full Employment

**Employers Gain and Employees Lose**

Hint 140

If Actual Inflation Rate > Anticipated Inflation Rate

Front 141

Unanticipated Inflation Effect on the Capital Markets

Back 141

Redistribution of Income

Too much or Too Little Lending or Borrowing

**Lenders lose and Borrowers Gain**

Hint 141

If Actual Inflation Rate > Anticipated Inflation Rate

Front 142

Stagflation

Back 142

Substantial Inflation with declining or slow growth

Front 143

Galloping Inflation

Back 143

High double-digit or triple-digit inflation rate.

Front 144

Hyperinflation

Back 144

Extremely high rate of inflation, such as several thousand percent

Front 145

Disinflation

Back 145

Rate of inflation is decreasing

Front 146

Deflation

Back 146

Decrease in general Level of prices of goods and services

Front 147

Nominal Interest Rate (Adjusted for Anticipated Inflation)

Back 147

Real Interest Rate + Anticipated Inflation Rate

Front 148

Long Term Effects of Expansionary Monetary Policy (in terms of Inflation)

Back 148

Short term, inflation should be UNAFFECTED

Long-Term, inflation should GO UP.

Front 149

Long Term Effects of Expansionary Monetary Policy (in terms of Real GDP)

Back 149

In the Short-Term, Real GDP should GO UP.

In the Long-Term, Real GDP should Be Unaffected

Front 150

Long Term Effects of Expansionary Monetary Policy (in terms of Employment)

Back 150

In the Short-Term, Employment should GO UP.

In the Long-Term, Employment should Be Unaffected

Front 151

Long Term Effects of Expansionary Monetary Policy (in terms of Real Interest Rates)

Back 151

In the Short-Term, Real Interest Rates should GO DOWN.

In the Long-Term, Real Interest Rates should Be Unaffected

Front 152

CPI Inflation Formula

Back 152

[CPI(Y2)-CPI(Y1)]/CPI(Y1)

Front 153

Initial impact of an increase in short-run aggregate demand when the economy is already at a full
employment

Back 153

Real GDP level is a temporary INCREASE in output ABOVE the full employment real GDP level and a corresponding INCREASE in the overall price level

Front 154

With high anticipated inflation, people and firms will tend to???

Back 154

spend any funds they receive
right away, which will considerably reduce savings and investment, so this diverts resources away from producing goods and services.

Front 155

Phillips Curve depicts the relationship between??

Back 155

The rate of inflation and the rate of unemployment.

Front 156

The current consensus among economists is that the short-term Phillips Curve has what shape?

Back 156

Inflation is a downward sloping function of the unemployment rate.

Front 157

If Actual Inflation Rate > Anticipated Rate, what is the effect on the short-term Phillips Curve

Back 157

The Phillips Curve will shift UPWARD in the short-term

Front 158

Incentive to work with High Marginal Tax Rates

Back 158

Rates WEAKEN the incentive to work and DECREASE employment and the Full Employment Real GDP (Potential GDP)

Front 159

Interest Rates with High Marginal Tax Rates

Back 159

WEAKEN the incentive to save/invest which LOWERS the growth rate of real GDP

Front 160

Laffer Curve shows the relationship between what?

Back 160

a country's overall Tax Rate and Tax Revenue Collected

Front 161

An increase in the overall tax rate in the United States would result in??

Back 161

MORE Tax Revenues per dollar earned

LESS work provided and therefore LESS dollars earned

Front 162

Factors that generally encourage greater private savings include???

Back 162

(1) Higher real income

(2) More pessimistic outlook for economy

Front 163

Factors that generally encourage greater private savings also include:

Back 163

(1) Lower tax rates;
(2) Higher interest rates; and
(3) Lower inflation expectations.

Front 164

crowding-out viewpoint

Back 164

argue that budget deficits INCREASES real interest rates.

Front 165

Crowding-out effect due to government discretionary expansionary counter-cyclical fiscal policy
should

Back 165

should be DECREASED to some extent by an INCREASE in private savings, because of the HIGHER real interest rate due to the government fiscal policy

Front 166

What is the effect if Private Savings remains the same and Government Savings are Positive

Back 166

there is a budget SURPLUS which results in INCREASED investment Financing

Front 167

Fiscal imbalance for the government is defined as?

Back 167

B - Tax Revenues

and

B > Tax Revenues


where:
B - the present value of the government's commitments to pay benefits

Front 168

What Effect does having gross investment > gross savings

Back 168

aggregate demand > aggregate supply

this tends to stimulate the economy

Front 169

What is not a Stated Monetary Policy of the Federal Reserve

Back 169

Minimizing unemployment rate

Front 170

Price Level Stability Definition

Back 170

defined as a condition in which the inflation rate does not figure in people's
economic calculations.

Viewed currently at 2%

Front 171

Federal Reserve Affect on Money Aggregate (M1,M2)

Back 171

Can only INDIRECTLY affect money aggregates M1 and M2 with ti's monetary policy instruments

Front 172

How does the Fed change the Fed Funds rate if the Fed has strong Recession Concerns

Back 172

lowers the Fed Funds rate

Front 173

How does the Fed change the Fed Funds rate if the Fed has strong Inflation Concerns

Back 173

the Fed raises Fed funds rate.

Front 174

What is the ripple effect if Fed lowers the Fed funds rate?

Back 174

(1) Quantity of money and supply of loanable funds increases

(2) Aggregate demand increases

(3) Real GDP growth increases

(4) inflation rate increases.

Front 175

What is the ripple effect if Fed increases the Fed funds rate?

Back 175

Quantity of money and supply of loanable funds decreases;

(2) Aggregate demand decreases;

(3) Real GDP growth decreases;

(4.) Inflation rate decreases.

Front 176

Timing Effect of changes in money and bank loans if Fed Fund Rate Changes

Back 176

usually in a few weeks

Front 177

Timing Effect of Inflation if Fed Fund Rate Changes

Back 177

Usually takes about 1-2 years

Front 178

McCallum Rule

Back 178

assumes the demand for money and demand for monetary base are
reasonably stable, which is unrealistic.

Front 179

K-Percent Rule

Back 179

assumes the demand for money is stable and predictable, which is
unrealistic.