Term
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Definition
1) medium of exchange (used as payment for goods and services)
2) unit of account (used for measuring the value of goods and services)
3) store of value (used to maintain purchasing power over time) |
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Definition
| commodity, commodity-backed, and fiat currency |
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Definition
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Definition
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Term
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Definition
| actual physical dolla dolla bills |
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Term
| 2 functions of commercial banks |
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Definition
1) middleman in the loan market (take out loans from households, loan out to firms)
2) monetary policy channel (given power from the Fed - reserve requirements) |
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Term
| Three major duties of the Fed |
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Definition
1) monetary policy
2) regulate banks
3) a bank for commercial banks |
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Term
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Definition
| portion of deposits banks are required to hold on reserve |
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Term
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Definition
| reserves held beyond requirements |
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Term
| money multiplier equation |
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Definition
| money multiplier = 1/reserve requirement |
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Term
| Two possible monetary policy actions from the Fed |
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Definition
1) change reserve requirements
2) open market operations |
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Term
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Definition
| the Fed being more creative with their buying to try to expand the macroeconomy (shift from short-run T-bills to long-run treasury securities and mortgage-backed securities) |
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Term
| Explain rotunda statement #2 |
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Definition
| inflation is a monetary phenomenon because raising the money supply in SR changes P and Y in equal (though smaller) proportions, but in the LR all it does is raise the price level significantly |
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Term
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Definition
| nominal interest rates change with inflation expectations (know formula) |
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Term
| Two reasons why governments inflate |
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Definition
1) monetize debt
2) stimulate economy |
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Term
| Three expectations theories (inflation) |
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Definition
1) No expected inflation
2) Adaptive expectations
3) Rational expectations |
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Term
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Definition
| shows the relationship between inflation and unemployment (that was later proven not to exist because of expectations) |
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Term
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Definition
| the ability to produce using fewer resources than others |
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Term
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Definition
| used to show that specialization and trade are beneficial even if a nation enjoys an absolute advantage in everything - ability to produce at lower relative cost |
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Term
| 2 LR trends of imports and exports |
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Definition
1) both are growing (globalization)
2) gap (trade defecit) widening |
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Term
| 4 reasons to impose trade barriers |
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Definition
1) infant industries
2) anti-dumping (preventing foreign firms from selling at a loss)
3) national defense (e.g. steel restrictions)
4) special interests (subsidizing domestic industries) |
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Term
| 4 results for an economy with an absolute advantage |
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Definition
1) more wealth
2) less physical work
3) merchandise trade defecit (imports exceed exports)
4) capital account surplus |
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Term
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Definition
| record of transactions between one country and all others (accounting record of all payments across borders) |
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Term
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Definition
| includes goods and services, exports and imports, current income, and gifts and is settled when time=0 |
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Term
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Definition
| includes ownership rights to real and financial assets and loan extensions and are ongoing obligations |
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Term
| 2 routes to a current account defecit |
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Definition
1) import driven economy
2) investment driven economy
(either create a defecit in the current account or a surplus in the capital account - by definitions) |
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Term
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Definition
| with annual growth of x percent, the level of a variable doubles every 70/x years |
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Term
| economic growth can also be defined as... |
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Definition
| the growth rate of per capita real GDP |
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Term
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Definition
| focused on capital (tools) and made 2 observations: (a) developed countries have more/better tools and (b) investment and growth go hand in hand. came to the conclusion that more K yields more Y, but that there are diminishing returns to scale (Y=F(L,K)) |
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Term
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Definition
| when there is no change in capital because the marginal returns from capital are zero or less than zero) |
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Term
| 3 implications of a steady state situation |
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Definition
1) no net investment
2) no new growth
3) convergence (...but that hasn't happened) |
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Term
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Definition
| technology matters too because it gives sustained and vaired growth, tech. advances are exogenous and completely random...so we should give investment goods (technology) to developing countries and aid for investment - unfortunately lead to no convergence and failures in gifted technology |
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Term
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Definition
| caused by factors inside the organism or system, produced or systhesized within the organism or system |
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Term
| main point behind modern growth theory |
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Definition
| LR sustainable growth must come from within (can't be gifted or mandated) and is therefore ENDOGENOUS - institutions are the essential ingredient |
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Term
| 4 factors that diminish expected returns from investment |
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Definition
1) political risk
2) corruption
3) inflation risk
4) high tax rates |
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Term
| 8 institutions that foster growth |
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Definition
1) political stability and rule of law
2) private property rights
3) stable money and prices
4) taxes high enough for effective government
5) taxes low enough for profitable production
6) international trade
7) flow of capital across borders
8) competitive markets |
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