Ecn Final

Front 1

determinants of productivity

Back 1

1. physical capital (bldgs and structures)
2. human capital (knowledge and skills)
3. natural resources
4. technical knowledge

Front 2

principle of diminishing returns

Back 2

the benefit from an extra unit of input declines as the quantity of the input increases

Front 3

why is the worker productivity graph in such a slope

Back 3

positive slope: b/c more capital brings more output
decreasing slope: b/c of diminishing returns

Front 4

catch up effect

Back 4

less developed countries can increase their GDP MORE RAPIDLY B/C THEY BENEFIT MORE THAN DEVELOPED COUNTRIES FROM CAPITAL INVESTMENT OF SIMILAR SIZES

less productive countries befefit more b/c its on the part of the graph with a steeper slope

Front 5

municipal bonds

Back 5

issued from gov't
owners dont pay income tax on it
lower interest rate

Front 6

debt finance

Back 6

bond market

Front 7

equity finance

Back 7

stock market

Front 8

index funds

Back 8

mutual funds that automatically buy stocks in a given stock index

Front 9

PUBLIC SAVING

Back 9

T-G

Front 10

PRIVATE SAVING

Back 10

Y-T-C

Front 11

NATIONAL SAVING

Back 11

S=I= Y-C-G
Y=GDP
economy income that remains after consumption and gov't purchases (closed economy)

Front 12

unemployed

Back 12

available for work but not employed (trying to find work for over 4 weeks)

Front 13

not in labor force

Back 13

student, retired person, discouraged worker

Front 14

unemployment rate

Back 14

# of unemployed/
labor force
x 100

Front 15

natural rate of unemployement

Back 15

normal rate

NOT CYCLICAL

Front 16

cyclical rate of unemployment

Back 16

deviation from natural rate

Front 17

frictional unemployment
...why?

Back 17

searching
(short term)

b/c 1. sectoral shifts: changes in demand among different industries/regions
2. always changing economy

Front 18

structural unemployment
...why?

Back 18

waiting
(long term)

b/c 1. min wage laws
2. unions
3. efficiency wages

Front 19

Efficiency Wages

Back 19

thoery that firms operate more efficiently if wages are higher

worker
1. health
2. turnover (keeps workers, low training cost)
3. quality
4. effort

Front 20

3 requirements of "money"

Back 20

1. MEDIUM OF EXCHANGE
2. UNIT OF ACCOUNT (comparable prices)
3. STORE OF VALUE (purchasing power in the present and in the future)

Front 21

commodity money

Back 21

money with intrinsic value

Front 22

fiat money

Back 22

no intrinsic value
established by gov't

Front 23

M-1 money

Back 23

checkable deposits
cash

Front 24

M-2 money

Back 24

M-1 plus
savings
mutual funds
small-time deposits

Front 25

Board of Governers

Back 25

decide
-discount rate
-rr
-fed funds rate

Front 26

Federal Open Market Committee
(FOMC)

Back 26

control
open market operations
(purchasing and selling of gov't bonds)

Front 27

money multiplier

Back 27

amt of $ that a banking system generates
-reciprocal of rr
-higher rr means a smaller mm

Front 28

3 ways Fed can change money supply

Back 28

1. OPEN MARKET OPERATIONS
2. DISCOUNT RATE (interest rate on the loans that the fed makes to banks)
3. RESERVE REQUIREMENTS

Front 29

Federal Funds Rate

Back 29

interest rates that banks charge each other

fed decides on a target rate

Front 30

Classical dichotomy theory

Back 30

2 types of variables:
1.REAL: measure in terms of relativity (GDP, interest rate, unemployment)
2. NOMINAL: measure in terms of money ($ supply, price level)

real variables don't depend on nominal variables

REAL ARE THE ONLY THING THAT MATTER IN THE LONG RUN

Front 31

money neutrality thoery

Back 31

changes in money supply affect NOMINAL variables but NOT real

Front 32

what makes AD SHIFT

Back 32

Changes in GDP
C
I
G
NX

Front 33

what makes LRAS SHIFT

Back 33

changes in supplies of
1.LABOR
2. CAPITAL
3. NATURAL RESOURCES
4. TECHNOLOGY

Front 34

what makes SRAS SHIFT

Back 34

everything that shifts LRAS
AND expected price level

if Pe increases, shift left
in the long run,
expected price = actual price

Front 35

why AD slopes downward

Back 35

1. wealth effect
2. interest rate effect
3. exchange rate effect

Front 36

why SRAS slopes upward

Back 36

1. sticky wage theory
2. sticky price thory
3. misperceptions theory

Front 37

natural rate of output

Back 37

what an economy produces when unemployment is at its normal rate

economy gravitates toward this in the LONG RUN

Front 38

STAGFLATION

Back 38

stagnation = falling output

inflation = rising prices

Front 39

demand for money

Back 39

interest rate determines opp. cost of holding $ cash

Front 40

fiscal policy

Back 40

1. gov't spending
2. taxation

long run : CROWDING OUT EFFECT

Front 41

monetary policy

Back 41

changing money supply/interest rate by changing money supply

Front 42

CPI

Back 42

CONSUMER PRICE INDEX
CPI current yr/
CPi base yr x 100

Front 43

inflation rate calculation

Back 43

CPI2-CPI1/ x 100
CPI1
or
GDP deflator 2-GDP deflator 1/ x100
GDP deflator 1

Front 44

why CPI doesn't perfectly measure standard of living

Back 44

1. substitution bias (consumers substitute toward goods that have become relatively less expenseive)
2. introduction of new goods
3. unmeasured quality change (if quality increased, dollar value increased)

Front 45

GDP deflator vs CPI

Back 45

GDP is only domestically
"currently produced" GS

CPI is products bought by a "typical" consumer
basket is FIXED

Front 46

real interest rate

Back 46

nominal interest rate - inflation rate

Front 47

REAL GDP

Back 47

production of goods and services valued at CONSTANT PRICES

reflects growth change

base yr prices with current year amounts

Front 48

GDP deflator

Back 48

nominal GDP/ x 100
real GDP


reflects changes in prices

Front 49

President of fed reserve

Back 49

BEN BURNANKE

Front 50

unemployment in CA
unemployment in SAC

Back 50

CA: 12%
sac: 10%

Front 51

crowding out

Back 51

gov't budget deficits (spending) cause a decrease in overall investment

Front 52

how can interest rates AND investments increase

Back 52

if EXPECTED RETURN on increasing investment is HIGH

Front 53

spending multiplier effect

Back 53

AD demand shifts extra

multiplier = 1/1-MPC

applies to C I G and NX

Front 54

MPC

Back 54

marginal propensity to consume

extra income that househods consume instead of save

Front 55

automatic stabilizers

Back 55

stimulate AD durring a recession without policy makers doing anything!

1. taxes: fall during a recession (like a tax cut)

2. gov't spending increases (for unemployment benefits, etc...stimulates AD)

Front 56

perfectly competitive market (4)

Back 56

1. many buyers and sellers
2. free entry
3. price takers
4. homogenous goods