Macroeconomics Midterm 2

Front 1

monetary base

Back 1

sum of federal reserve notes, coins, and depository institution deposits to at the fed

Front 2

exchange rate

Back 2

price at which one currency exchanges for another currency in the foreign exchange market

Front 3

nominal exchange rate

Back 3

value of the U.S. dollar expressed in units of foreign currency per U.S. Dollar

Front 4

real exchange rate

Back 4

relative price of U.S. produced goods and services to foreign produced goods and services

Front 5

Purchasing Power Parity

Back 5

a theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. This means that the exchange rate between two countries should equal the ratio of the two countries' price level

Front 6

Long Run Aggregate Supply (LRAS)

Back 6

relationship between the quantity of real GDP supplied and the price level when the money wage rate (total money wage costs per production employee) changes in step with the price level to achieve full employment

Front 7

LRAS curve

Back 7

vertical line. Why? because potential GDP is independent of price level. Price level and money wage rate while change the same percentage

Front 8

Short Run Aggregate Supply (SRAS)

Back 8

relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.

Front 9

Aggregate Demand

Back 9

relationship between the quantity of real GDP demanded and the price level

Front 10

AD Curve

Back 10

Slopes Downward. Why? Wealth effects and substation effects. WE - price level rises then real wealth decreases. SE - price level rises interest rates rise

Front 11

Fiscal Policy

Back 11

governments attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services

Front 12

Disposable Income

Back 12

Aggregate Income - Taxes + Transfer Payments
MORE AI more Consumption

Front 13

Monetary Policy

Back 13

Changes in the interest rate and in the quantity of money in the economy

Front 14

Short-Run Macroeconomic Equilibrium

Back 14

quantity of real GDP demanded equals the quantity of real GDP supplied

Front 15

Long-run Macroeconomic Equilibrium

Back 15

real GDP equals potential GDP. Intersection of LRAS and AD curve

Front 16

Above Full Employment Equilibrium

Back 16

real GDP exceeds potential GDP. Inflationary Gap

Front 17

Below Full employment Equilibrium

Back 17

Potential GDP exceeds real GDP. Recessionary GAp

Front 18

Classical View

Back 18

economy is self regulating and always at full employment

Front 19

New classical View

Back 19

Business cycle fluctuations are efficient responses of a well functioning market economy.

Front 20

Keynesian

Back 20

left alone, economy would rarely operate at full employment and to achieve full employment, active help from fiscal policy and monetary policy is required

Front 21

Keynesian Views on AD

Back 21

AD fluctuations are based on EXPECTATIONS - optimism and pessism lead to recession or good economic times.

Front 22

Monetarists

Back 22

economy is self regulating and that it will normally operate at full employment provided that monetary policy is not erratic

Front 23

Monetarists View of AD

Back 23

AD fluctuations are base don quantity of money, determined by fed.

Front 24

Bond

Back 24

promise to make specified payments on specified dates

Front 25

Stock

Back 25

certificate of ownership and claim to firm's profits

Front 26

Nominal Interest rate

Back 26

number of dollars that a borrower pays and a lender receives in interest in a a year expressed as a percentage

Front 27

real interest rate

Back 27

nominal interest rate adjusted to remove the effects of inflation on buying power of money