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36 Cards in this Set
- Front
- Back
Living Standards
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Determines the Quality of life in a given place.
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Productivity
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The ability to produce at a level of efficiency.
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Resources
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Are used in the production of goods and services.
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Economic Growth (+3 facts about it)
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Growth of the production of goods and services that can be measured by money.
1)Living Conditions vary greatly from country to country 2) Everyone Used to be in poverty 3) There are growth miracles (like Japan) and growth disasters (like Bangladesh) |
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Investment
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The input of money to but capital for companies that will later use that to produce goods or services. (Coffee machines for a new Starbucks are Investments)
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Physical Capital
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Tools and machinery used in the production of the goods and services
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Human Capital
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Knowledge, training, and skills used in production of goods and services.
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Education
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Development of Human Capital
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Technology
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The result of Research and Development (R&D) that benefits productivity.
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Property Rights
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One of the 5 institutions of economic stability. With secure property rights one is more likely to invest in land and equipment that will pay off for them later.
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Institutions
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Laws, regulations, customs, practices, organizations--Rules of the game-- that structure economic incentives.
5 Listed: Property rights, Dependable Legal system, political stability, free and open market, Honest Government |
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Political Stability
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When the likelihood of political collapse is low then investment is more likely. A politically stable country is not too controlling (corruption) or too standoffish (Anarchy).
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Money
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Anything that is generally accepted as payment in exchange for goods and services.
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Money Supply
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Monetary Base (MB): Currency (Coins and Bills)
M1: Currency+Checking Deposits+Travelers Checks M2: Currency+Checking Deposits+Travelers Checks +Savings+Money Market Mutual Fund+Cyclical deposits<$100,000 M3: M2+Cyclical Deposits>$100,000+Government Bonds |
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Federal Reserve System
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Created by 1913 Federal Reserve act with the intention of overseeing and regulating the US Banking system.
Controls the Money Supply Central Bank for US |
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Board of Governors
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7 Governors serve 14 year terms in Washington, DC.
12 regional Fed banks |
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FOMC
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Consists of 7 Governors and president+ 4 from reserve banks
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Monetary Base
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Currency
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Fractional Reserve Banking
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When a bank holds a fraction of the money it actually has.
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Bank Reserves
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Money not loaned out by banks
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Required Reserves
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Required minimum fraction of reserves set by the Fed
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Excess reserves
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Reserves exceeding the amount of required reserves that are available to be loaned out
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Money Creation
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Money can be created by banks loaning out reserves. The Fed can also create money (With the three tools of monetary policy).
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Money Multiplier
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1/Reserve Ratio
How many dollars can be created from each single dollar If $10 is loaned for every $1 in Reserves then MM=10 |
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Reserve Ratio
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Amount of money held in reserves/amount of money loaned out
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Three Tools of Monetary Policy
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1)Open Market Operations
2)Adjusting the Discount Rate 3)Changing the Required Reserve Ratio and Interest paid on reserves |
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Open Market Operations
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Buying and Selling Bonds on the market
Buying Bonds increases money supply Selling Bonds decreases money supply |
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Discount Rate
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Rate of lending to banks in need of money when they cannot afford the Fed Funds Rate. The Fed is a Lender of last resort and only used by distressed banks
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Fed Funds Rate
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Overnight lending rate set by market value of lending from bank to bank. This can be adjusted by the Fed using the three tools of Monetary policy.
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Costs of Inflation
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Everything in relation to the dollar changes with inflation: income, wages, price, & value of the dollar
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Shoe-leather costs
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Cost of prematurely spending money with the mindset of "spend it before it is worthless."
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Menu Cost
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Cost of printing off new indicators of price (menus)
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Quantity Theory of money
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1) Sets relationship between inflation, money, real output, and prices
2) Presents role of money supply in regulating the level of prices |
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Monetary Neutrality
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The idea that only nominal variables are affected by the change of money supply. (Prices, wages, and exchange rates with no real effect on Employment, Real GDP, and real consumption)
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Velocity of money
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The average number of times a dollar is spent on final goods and services in a year
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Total Yearly Spending Equation
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Money Supply x Velocity of money=Price level x Real GDP
All Money x # of times that money is spent |