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37 Cards in this Set
- Front
- Back
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Macroeconomics
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Macroeconomics study of collections of people and firms and how their interactions through markets determine the overall economic activity in a country or region
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Economic fluctuations
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Economic fluctuations Movements in the aggregate economy over the short run: the term typically refers to movements in GDP
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Endogenous variables
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Endogenous variables One of the unknowns, or outcomes of a model. Examples include the level of output in the Solow model and the level of inflation in the short run model. To solve a Model is to solve for the endogenous variables as a function of the parameters and exogenous variables
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Exogenous Variables
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Exogenous variables A component of an economic model that changes over time in an exogenous fashion
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The Long Run
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The long run a long period of time, more than several years. In our models, the long run often refers to the steady state
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Parameters
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Parameters, A part of an economic model that stands for a particular number. Examples include the investment rate in the Solow Model and the sensitivity of a Central bank’s monetary policy rule to inflation. We often study one-time changes in a parameter value to see how the economy responds
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Potential output
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Potential output, the amount of output an economy would produce if all factors were fully employed and all prices were completely flexible
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the short run
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The short run, the portion of production not explained by the long run trend. Short-run output is a key variable studied in the theory of economic fluctuations. It is commonly measured in Percentage terms and denoted by the variable Y. for example, Y= 1% above potential. Similarily, Y=-2% says the economy is slumping, with out put 2 percent below potential
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Solow Growth model
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Solow growth model, a model key to understanding the macroeconomy in the long run. The Solow model emphasized the roles played by capital and labor in production
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Captial
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Capital, the stock of machines, buildings, equipment and factories in an economy. Somewhat confusingly, the word is also used to represent financial assets. For example, we speak of “international capital flows” in describing the flow of financial assets across countries
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chain weighting
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Chain weighting, A method of computing real GDP that is robust to changes in relative prices over time
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depreciation in production
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Depreciation,in production: the wear and tear that reduces capital during the production process. Machines wear out and buildings decay. In international finance: a currency depreciates when it loses value relative to other currencies. That is , a depreciation is a decline in the exchange rate
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Economic Profits
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Economic profits, economists distinguish between accounting profit and economic profit. Accounting profit refers to total revenues less payments to labor and is therefore equal to payments to capital. Accounting profit can be thought of as payments to the owners of the firm. Economic Profit subtracts out payments to all factors, including capital. Under perfect competition, economic profits are zero: all revenue is paid out to some factor of production.
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Exchange rate
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Exchange rate, the price at which currencies are traded. For example, $1 may trade for .8 euros
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Gdp deflator
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Gdp deflator,,, deflate is to convert a nominal value into a real value. Recall from Chapter 2 that a nominal value is equal to areal value times a price level. When we divide the nominal value by the price level to get the real value, we say we are deflating the nominal value. Commonly used deflators include the Consumer Price Index and the GDP deflator
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Gross domestic product
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Gross domestic product, the market value of final goods and services produced by and economy during a period(typically a year)
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Inflation rate
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Inflation rate The Percentage change in the aggregate price level of an economy
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National Income Identity
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National income identity, Y= C+I+G+EX-IM the left side of this identity is GDP, and the right side describes the various ways this GDP can be used in the economy
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Laspeyres index
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Laspeyres index A method of comparing reall GDP at two points in time that uses prices from the earlier time period
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Paasche index
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Paasche index, A method of comparing real GDP at two points in time that uses prices from the later time period
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Nominal versus real GDP
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Nominal versus real GDP, nominal is GDP valued using current prices… Real GDP is GDP valued in a way to facilitate comparisons over time or across countries. As a simple example, real GDP may be computed by valuing production using 2006 prices in every year, so that nominal differences in prices are removed from the comparison
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Production
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Production, the production function is the equation that describes how inputs such as capital and labor combine to produce an output good. The Cobb- Douglas production function Y=K^1/3L^2/3 is an example
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trade balance
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Trade balance, Another name for net exports. A country that exports more than it imports runs a trade surplus. A country that imports more than it exports runs a trade deficit.
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Value added
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Value added, the amount of new value a firm creates in production, equal to total revenues less the cost of intermediate goods that are used along the way. For example, the value-added by an automobile manufacturer is not the total value of the cars that are created, but rather this value less the amount paid for steel, tires, and other parts
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the classical dichotomy
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The classical dichotomy, the notion that changes in nominal variables (like the money supply or the nominal interest rate) have only nominal effects on the economy. In particular , they do not affect real variables, such as the amount of real GDP. The classical dichotomy supposes that the nominal and real sides of the economy are largely separate. This is not quite accurate, however as real variables can effect nominal variables—think about the quantity theory of money
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Deflation
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Deflation, A negative rate of inflation. Under deflation the aggregate price level is declining over time
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The Fischer Equation
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The Fischer equation, It=Rt+(pie)t the fisher equation says that nominal interest rates are equal to real interest rates plus inflation
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Hyperinflation
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Hyperinflation, Extraordinarily high rates of inflation, such as 500 percent per year
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The inflation tax
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The inflation tax(seignorage), the amount of funds the government obtains by issuing new money; another name for seignorage. It can be viewed as a tax paid by holders of existing currency who find that their currency is worth less in real terms because of the higher prices associated with inflation
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Monetary base
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Monetary base, A narrow definition of money in an economy, equal to the amount of currency in circulation plus the amount of reserves held by banks
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The neutrality of money
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The neutrality of money, the notion that changes in the money supply do not have real effects on the economy; they only affect nominal variables
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Nominal Interest rate
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Nominal interest rate, the rate at which a unit of currency, such as a dollar, can be traded for other units in the future. For example a nominal interest rate of 5 percent says that a dollar today can be exchanged for $1.05 a year from now
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Quantity Equation
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Quantity equation, MtVt=PtYt a central prediction of the theory is that the money supply is a key determinant of the price level. This means that the growth rate of the money supply is a key determinant of the inflation rate
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Quantity theory of money
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The Quantity theory of money, Based on the equation MtVt=PtYt. A central prediction of the theory is that the money supply is a key determinant of the price level. This means that the growth rate of the money supply is a key determinant of the inflation rate
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Real interest rate
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Real interest rate, The rate at which current units of output can be traded for future units of output. For example, a real interest rate of 5 percent says that 1 unit for real consumption today can be exchanged for 1.05 units a year from now. Savers may earn this real interest rate by saving a unit of output, and borrowers must bpay this real interest rate in order to borrow a unit of output
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Reserves
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Reserves, Funds that pay no interest that are held by banks in an account with the central bank. They are held “in reserve” in case many depositors seek to withdraw their deposits at the same time
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The velocity of money
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The velocity of money, the number of times a given piece of currency changes hands in a particular period (such as a year). Velocity plays a key role in the quantity theory of money
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