AGEC Final
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capital requirement of 4-10%
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Dudd-Frank Act (2010)
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the fraction of extra income that a household consumes rather than saves
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Marginal Prosperity to Consume (MPC)
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additional shifts in aggregate demand from the impact of expansionary fiscal policy on consumer spending
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Multiplier Effect
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cost of maintaining low money supplies (higher in countries with less technology)
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Shoeleather Costs
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separation of commercial banks and riskier investment banks
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Glass-Steagall Act (1933)
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allowed commercial banks to purchase securities (stocks and bonds), repealed Glass-Steagall Act (1933)
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Gramm-Leach-Bliley Act (1999)
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The ratio of assets to banks capital
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Leverage Ratio
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using borrowed money to obtain assets
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Leverage
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the rate at which banks can borrow from the Fed
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Discount Rate
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rate of borrowing between banks to maintain reserves
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Federal Funds Rate
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minimum required ratio of RR/DD
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Reserve ratio
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a banking system in which banks hold only a fraction of deposits as reserves
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Fractional Reserve Banking
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conducts market policy, 12 members total
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Federal Open Market Committee (FOMC)
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7 members appointed by President and approved by congress, report to Congress periodically
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Board of Governors
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price stability and full employment
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Dual mandate
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balances in bank accounts that depositors can access on demand by writing a check
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demand deposits
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paper bills and coins in the hands of the people (outside the banking system)
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currency
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money without intrinsic value, but given value by government mandate (ex: paper bills)
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Fiat money
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money that takes the form of the commodity within it (ex: nickel= 4.5 cents)
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commodity money
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the ease with which one can transfer an asset into a medium of exchange within an economy
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liquidity
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an item that can be used in exchange for a good or service
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medium of exchange
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money needs to provide a unit of measurement for prices, assets, and debts
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unit of account
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productivity and growth
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real assets
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desired amount to lend goes up as interest rate goes up
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Loanable Funds Market Supply
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desired amount borrowed goes up as interest rates go down
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Loanable Funds Market Demand
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the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks
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diversification
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less energy and food due to fluctuation in these items
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Core CPI
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a price index that measures the cost of goods and services purchased by a typical consumer, measures the cost of living
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Consumer Price Index (CPI)
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value of output by domestic citizens
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Gross National Product (GNP)
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includes public consumption and investment, includes state, local, and federal level
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Government spending (G)
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private spending on capital and inventory, household spending on new housing
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investment (I)
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claim on a percentage ownership of a firm
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stock
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one bank in each of 12 regions overseeing over 300 member banks and activities
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Federal Reserve Banks
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set of stocks and bonds sold in a single fund
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mutual funds
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claim on future payments
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bond
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obtaining capital to grow larger business and make higher profits
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investment
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paying workers higher wages than equilibrium to retain employees and receive a better effort
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efficiency wages
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not looking for work in 4 weeks but still technically available
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marginally attached workers
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the market value of all (new) final goods and services produced within a country (or economy) in a greater period of time
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Gross Domestic Product (GDP)
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rate (Ex: yearly deficits)
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flows
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which one has the lower opportunity cost of production
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comparative advantage
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"What should be?", "What should we do?" (mainly politicians)
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normative economics
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"just the facts" What is occuring/going to occur
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positive economics
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single unit change, added amount in one thing from changing something else
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marginal
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as you consume more, that marginal utility decreases
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diminishing marginal utility
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which one can produce more
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absolute advantage
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occurs when resources are utilized in a way in which they can focus on producing a good for which they have a comparative advantage
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specialization
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minimum price in the market
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price floor
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maximum price in the market set by the government
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price ceiling
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ways of collecting revenue based on our vices/sins, sold as a way to cut down on the negative activity
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sin taxes
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many buyers and sellers, identical products, price takers (don't have any control of the price of the good)
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perfect competition
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one seller, unique product, price-maker (controls the price in the market)
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monopoly
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degree to which individual sellers have some control over price, states that the world does not exist at the two extremes
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monopoly power/market power
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many firms, slightly different products
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monopolistic competition
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few firms (2-6), unique or different products
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oligopoly
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total or aggregate income of everyone in the economy
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national income
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household spending other than on new housing
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consumption (C)
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Exports- Imports
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Net Exports (NX)
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use P in each year's current dollars
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Nominal GDP
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use P in dollars from a chosen base year
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Real GDP
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growth rate in the price level
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Inflation
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marginally attached due to a job market reason
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Discouraged workers
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caused by the time it takes for workers to search for the best job
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frictional unemployment
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the normal rate of unemployment due to built in frictions and structures
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natural rate of unemployment
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one buyer (a lot of market power to set prices)
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monopsony
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less developed countries may have larger growth rates due to lower capital levels
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catch-up effect
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delaying current consumption and investment to consume and invest in the future
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savings
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studies how people allocate resources over time in the presence of risk
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finance
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when you leave your interest earned in an account so that it earns interest
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compounding of interest
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a dislike of uncertainty
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risk adversion
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risk that affects 1 company
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firm specific risk
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risk that affects an entire market
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market risk
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paying a fee to be financially protected from a large negative risk
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insurance
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length of bond
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term (bond)
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how likely is the borrower to pay back?
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credit risk
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some state/local bonds are tax free (federal/corporate bonds are not tax free)
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tax level (bonds)
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no trade outside nation (no net capital inflows)
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closed economy
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funds lent out for private investment
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loanable funds
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an economy which trades with other global economies
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open economy
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an item that transfers purchasing power from the present to the future
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store of value
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deposits that banks receive (checking, savings, etc.) and have not loaned out
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reserves
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the setting of the money supply by policymakers in the central bank
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conducting monetary policy
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quantity of money available in the economy
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the money supply
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how often each dollar is used in the economy
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velocity
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costs of changing and printing prices
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menu costs
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lowering of the price level
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deflation
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added up over whole economy
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aggregate
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how much real GDP the economy wishes to supply as a function of the price level
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aggregate supply
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the real GDP demanded by the economy as a function of the price level
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aggregate demand
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significant short run fluctuations in real variables
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Business Cycle Theory
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people feel richer as prices go down
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Wealth effect
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Does hosting the Olympics decrease the unemployment rate?
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Which of the following questions is NOT in the area of microeconomic study? -What determines the number of hours an individual works? -What causes a single business owner to hire a worker? -Does hosting the Olympics decrease the unemployment rate? -Does a family's use of health care change when they are insured?
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Normative
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___ statements say something about how the world ought to be.
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Positive
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___ statements say something about how the world currently is.
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Positive
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Is this a positive or normative statement? A reduction in the reserve requirement is a form of expansionary monetary policy.
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Normative
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Is this a positive or normative statement? The government is right to continue to financially support third world countries through foreign aid programs.
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Normative
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Is this a positive or normative statement? The price of oil should be increased because it has a negative impact on the environment.
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Positive
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Is this a positive or normative statement? Normative statements are studied in many economic classes.
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Positive
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Is this a positive or normative statement? If the price of Coca-Cola rises, this will probably lead to people celebrating in the streets of Atlanta (where Coca-Cola headquarters are located).
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Normative
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Is this a positive or normative statement? Good childhood nutrition should form a key part of any government public health program.
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decreases
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The law of Diminishing Marginal Utility means that the more of a good that a person receives, the added utility from each additional unit ____.
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the satisfaction experienced from consuming a good or service
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utility
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Opportunity Cost
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What principle of economics best fits this scenario: On black friday, there are huge sales for electronics at many retail stores. David must decide between buying a camera at one store and a TV at another store, buying one means losing out on the opportunity of buying the other.
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Marginal Decisions
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What principle of economics best fits this scenario: An educational software company wants to expand the number of economics questions that it offers and is considering hiring another economist. It compares how much adding another worker will improve the product with the additional cost.
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Resource Scarcity
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What principle of economics best fits this scenario: Ava finds that there is not enough time after work to have dinner, exercise, and watch TV, and she must make choices on how to use her limited time.
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Responding to Incentives
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What principle of economics best fits this scenario: To entice students to keep up-to-date with economic current events, an instructor offers extra credit to students for participating in an online discussion forum, and this sparks a lively debate about environmental policy.
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True
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True or False: The invisible hand is a key idea of microeconomics.
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It is downward sloping with respect to quantity due to diminishing marginal utility.
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What does the graph look like for marginal value?
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An increase in income when the good is an inferior good.
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Each of the following increases marginal values for all quantities of a good (shifts the marginal value curve upward) except: -Increase in tastes for the good due to aggressive marketing. -The governments decision to offer consumers a subsidy for buying the good. -An increase in income when the good is an inferior good. -An increase in the price of a different good which can be used as a substitute.
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True
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True or False: Marginal Cost is upward sloping with respect to quantity due to increasing opportunity costs.
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allocative efficiency
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When the last unit produced is valued by a consumer at a level equal to the cost of producing that unit, this exemplifies ____.
