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Pros of Unions

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1. Increase wages for union members 2. Increase benefits 3. Decrease opportunities for uneducated and unskilled

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Cons of Unions

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1. Increase company costs 2. Increase price of goods/services 3. Reduce profits 4. Reduce value of the firm

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4 stages of population

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-Preindustrial societies a) high death rate, high birth rate -Early industrial development b) better health increases population -Urbanization and education c) persuades to have more children -Mature society d) couples want 2-3 children

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National income accounting

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-a bookkeeping system that a national government uses to measure the level of the country's economic activity in a given time period

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Which is a primary use for national income accounting?

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It provides a basis for assessing the performance of the economy

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GDP provides an indication of society's valuation of the relative worth of goods and services because of it

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a monetary measure

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To include the value of parts used in production of automobiles turned out during a year in gross domestic product is an example of

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multiple counting

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Which of the following is a public transfer payment?

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the social security benefits sent to a retired worker

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sale of an automobile in year 2, which was produced in year one would be:

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non production transaction

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Babysitter staying at home while her parents are out, doing it for free

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non-market transaction

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Which would be considered an economic investment?

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construction of a new computer chip factory

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Annual charge estimates the amount of private capital equipment used up in each year's production is called

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depreciation

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the allowance for the private and publically owned capital used in consumed producing the year's gdp is

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consumption of fixed capital

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Gross private domestic investment

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Net private domestic investment + consumption of fixed capital

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Net exports

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US exports - US imports

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Expenditure Approach to GDP

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Y = C + I + G + NX Y = GDP, output, total income, total expenditure C = consumption I = investment G = government purchases of goods and services NX = export - imports

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Income approach to GDP

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W+R+I+P+S= net + consumption of fixed capital

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Net domestic product

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GDP - depreciation

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National income

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NDP - IBT - Business transfer payments + Net Foreign + Government subsides - surplus of government enterprises - statistical discrepancy

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Personal income

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NI+TP-Taxes on production and imports-SSC-CIT-Undistributed corporate profits

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Discretionary income

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Personal income - personal taxes

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Fiscal Policy

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functions: tax, spend *if spending exceeds taxes = deficit which means that debt goes up

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Expansionary fiscal policy

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-increase in government purchase of goods and services and decrease in taxes to increase aggregate demand

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Discretionary fiscal policy

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-deliberate changes in taxes and government spending to promote employment and economic growth

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Eminent domain

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-when government takes your land *must provide adequate compensation

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Contractionary fiscal policy

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decrease in government purchases of goods and services and increase in taxes to decrease aggregate demand and reduce inflation

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The federal reserve

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central bank of the united states a) oversees the banking system b) regulates the money supply

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Equation of exchange

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Mathematically speaking, the effect of the money supply on the economy can be summarized by the formula MxV = PxY in which M is the money supply V is velocity, which is the number of times each dollar is spent on GDP P is the price level (or the ratio of the current year's prices to the base year) Y is real GDP

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Open market operations

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-directed by federal open market committee -conducted by federal reserve bank of NY -buying and selling securities -primary source of money supply fluctuations

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Discount rate

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-fed is lender of last resort -sets interest rate of the member banks -creates economic expectation

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Reserve Requirement

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A. % of deposits financial institutions must keep in accounts with the fed B. disadvantage 1. causes immediate problems for bank's liqudity 2. costly to administer C. Money multiplier

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Board of governors --> Chair=Yellen

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-federal open market committee --> 12 members, 8 fixtures 4 member rotations -federal advisory council -12 federal reserve banks -member banks -7 board of governors, every term, appointed by president, confirmed by congress

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Fed's three policy tools

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-open market operations "fine adjustment to economy" -buy and sell bonds and treasury notes -changes to the discount rate (when economy is growing too quickly) -rate at which banks borrow from the federal reserve -fed funds rate: rate at which banks borrow amongst each other -when the fed raises/lowers interest rates, they control money supply and direction of the economy

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Independence of the fed

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-doesn't need appropriations from congress, made $17 billion last year from treasury securities -board of governors are appointed to 14 year terms one every two years (new member) -chairman of the board of governors -serves a 4 year term: non-concurrent with presidential term No audits No accountability Closed meetings No guidelines or objectives major economic influence-power

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Arguments for independence

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-greater focus on long term objectives -less pressure to finance deficit -more likely to pursue unpopular policies

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Arguments against independence

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-accountability for mistakes -coordination of fiscal and monetary policy -president is responsible for economic policy but has no control over the fed -no evidence of benefits or performance by independence -no other agency has independence

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Why banks have excess reserves

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avoid cost of: 1. borrowing from other banks or competitors 2. selling securities 3. borrowing from the fed 4. calling in or selling off loans

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Bank Balance sheet

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lists assets and liabilities a. reserves b. deposits at other banks c. securities d. loans e. other assets 2. Liabilities sources of funds a. checkable deposits b. non transaction deposits c. borrowings d. bank equity capital

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Bank balance sheet: fractional reserve checking

answer

Assets: reserves 1. Reserves are: a. bank deposits held at fed b. currency held at the bank 2. reasons to hold resources: a. % of deposits required by law b. required reserves 1. meet depositors obligations 2. highly liquid

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