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67 Cards in this Set
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GDP price index |
GDP(n) / GDP(r) |
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GDP real |
the economic output adjusted for inflation |
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GDP nominal |
the economic output |
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Who is hurt by inflation? |
-People who lend money (without interest) -People on fixed incomes -People with contract salary |
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What does inflation do for suppliers? |
Inflation encourages suppliers because prices are going up which means more money, more investments, and this creates more jobs |
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What does inflation do for the demand side? |
If consumers are expecting prices will rise, they will buy more today. Salaries are raised, more spending is done |
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Are economists afraid of inflation or deflation? |
Deflation |
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What is Disinflation? |
Decelerated inflation. The prices are still going up from year to year but not as high as the year before |
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What is demand pull inflation? |
This is excess spending relative to output or when the central bank issues too much money. (Too much money chasing too few goods) |
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What is cost push inflation? |
Cost push inflation is inflation caused by an increase in prices of inputs like labor, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. -supply shocks |
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Moonlighting |
Staying late at work, getting a 2nd job on top of a full time job |
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Hyperinflation |
When money was cheaper than wall-paper so they used that instead. baskets of money couldn't even buy bread |
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Does the power of money rise or fall when more money is printed? |
The power decreases |
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Velocity of money |
When $100 worth of transactions can be made with the same $20. |
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What is the equation for velocity of money? |
M * V = P * Y or M = PY / V |
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What is the equation for inflation? |
% change M + % change V = % change P + %change Y |
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If the GDP increases 3%, the money provided needs to..... |
increase by 3% |
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% Change in price level is also the |
rate of inflation |
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Why do we need to know the size of our economy? |
This measures our standard of living |
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Real GDP per capita grows faster or slower than real GDP? |
It can be either |
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What is not a supply factor in economic growth? |
Aggregate expenditures of households, businesses and govt. |
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The amount of times money is exchanged in different hands |
Velocity of money |
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What is nominal income? |
Income that is the numbers presented that year for income |
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What is real income? |
This is nominal income that has been adjusted for inflation |
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How do you calculate real income? |
Nominal income / price level |
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So if you have the same amount of money, but prices go up, will you be able to buy more or less? |
You will be able to buy less |
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People on fixed incomes and who save their money are hurt hurt more or less because of inflation? |
They are hurt more |
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How do you find the nominal interest rate? |
Real interest rate + expected inflation |
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How do you find the real interest rate? |
nominal interest rate - real inflation |
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Aggregate expenditures = ... |
C + I + G + Xn |
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What is disposable income? |
Income you have left over after taxes |
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What is an example of a booming economy? |
When people are making more money so they put more money aside |
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What is an example of an economic recession? |
When people are not making as much as the prices are demanding so they give up saving |
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What does the Keynesian Cross graph explain? |
This graph shows the relationship between expected or (planned) expenditure and |
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What happens if the relationship btwn C and DI is above the 45 degree line? |
You are dis-saving |
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What happens if the relationship btwn C and DI is below the 45 degree line? |
Your saving is positive |
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What is the RR(ex) |
Expected rate of return |
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The higher the expected rate of return the... |
the riskier |
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Should the RR(ex) be greater than or less than and equal to the interest rate? |
The RR(ex) should be greater than or equal to the interest rate |
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What is a rate of return? |
The gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s cost. |
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How do you find the actual rate of return? |
Take the difference btwn the RR and your bank interest rate. ( so your opportunity cost is taken into account) |
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How do you calculate the rate of profit ( aka the expected rate of return ) |
(Total Rev - Total Cost / Total Cost ) (100) |
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Changing the banking interest rate will move you along the line or will shift the line? |
Changing the banking interest rate will move you along the line |
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When total rev goes up or total cost goes down, your rate of return will change which will cause the line to what? |
shift left or right |
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What are sunk costs? |
Costs you can never recover from, you can't recover through revenue |
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What products hurt the most in a recession? |
capital goods and durable goods |
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What is MPC |
Marginal propensity to consume |
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What is marginal propensity to consume |
The concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income |
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What is the multiplier effect? |
Refers to the increase in final income arising from any new injection of spending. The size of the multiplier depends upon household's marginal decisions to spend (mpc), or to save (mps). |
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What is the equation for the multiplier effect? |
change of Y = (1 / MPS) * (change of C) |
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Multiplier = |
= change in GDP / initial change in spending |
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Change in GDP = |
= multiplier * initial change in spending |
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The higher the MPC the stronger / weaker it makes the for the change in Y (economy) |
The stronger |
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What are aggregate expenditures? |
The current value of all the finished goods and services in the economy |
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What is planned inventory? |
Inventory that won't be sold, but is good b/c it gives customers options and will never leave you empty handed |
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Unplanned inventory in the negatives is bad for the economy or good for the economy? |
When you have less inventory left over than you planned on, it is good. so if your planned inventory to have after 1 day is 40 but you only have 36, your unplanned inventory is -4. This is good, it means you sold more than expected |
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AE and Y and GDP production should equal... |
C + I |
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How do you find the potential GDP level? |
When cyclical unemployment = 0 |
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What happens to the keynesian cross graph during a stock market crash? |
The whole AE line shifts down |
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When the whole AE line shifts down... |
this creates unplanned inventories, and a new equilibrium. (just because it is in equilibrium, doesn't mean the economy is doing good) |
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What is happening when exports are greater than imports? |
trade surplus |
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What is happening when exports are less than imports? |
trade deficit |
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What is trade balance? |
When Xn = 0 or X = M |
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Should we care about GDP of Germany/ China/ Russia? |
Yes, we sell and export products to them. Our exports = function of foreign GDP X = f(GDP(f))
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What is prosperity abroad mean? |
caring about other country's GDP level |
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Do we want to appreciate or depreciate the dollar to increase exports? |
Depreciate |
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Should you welcome appreciation of the US. dollar? |
No, it now becomes more expensive for the foreigners to visit and spend money here, or for foreigners to import our goods. |
