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ECON
Final
| Question | Answer |
|---|---|
| money | grease of the economy |
| functions of money | means of exchange, store of value, unit of account, standard of deferred payment |
| barter | trading one good for another |
| double coincidence of want | two people each want the good or service that the other provides |
| money characteristics | durable, valuable, standardized, divisible, generally accepted |
| commodity money | have value outside of being used as currency (coca beans) - specie currency: special metals |
| commodity-backed currency | paper money backed by a commodity, usually gold |
| fiat currency | no value except for the fact that a government declares it is a countries legally sed currency |
| liquidity | how quickly you can use a financial asset to buy a good |
| M1 money supply | most liquid - coins and cash in circulation, demand deposits, and savings deposits |
| M2 money supply | M1 plus added components; money market funds (deposits into short term low risk securities), time deposits (deposit with a committed time length) |
| plastic money counted | debit cards |
| plastic money not counted | credit cards = loan, smart cards=gift cards, WID |
| role of banks | a firm that gives out loans, financial intermediary between savers and borrowers |
| fractional reserve banking | keep a portion of reserves and loans out of the rest |
| reserve requirement (rr) | % of deposits a bank legally has to hold onto - no rr in the US |
| money multiplier (mm) | determine the total amount of money created throughout multiple rounds of lending that occur from an initial deposit = 1/rr |
| FED banking services | ensure enough currency flowing through economy to meet demand - banks following consumer protection laws |
| FDIC | federal deposit insurance commission - banks pay a premium and if bank fails FDIC uses money to give depositors their money back, up to $250,000 |
| FED - bank regulation | maintain solvency and avoid excessive risk by monitoring balance sheets |
| FED - lender of last resort | Fed can give a loan to a bank that is unable to set fund from anywhere else |
| federal funds rate | interest rate at which depository institutions trade federal funds (balances held at FED) w/ each other (price of borrowing reserves from another bank) |
| open market operations | non-ample reserves framework: buying and selling of US treasury bonds, influence level of reserves and interest rates |
| discount rate | interest rate banks pay on loans of last resort |
| set administrative rates | ample reserves framework: price controls on interest rates |
| interest on reserve balances (IORB) | interest rate banks get for keeping reserves in bank account at the FED, sets price floors on interest rates - increase interest = decrease AD |
| overnight reserve repo facility | the FED sells securities and buys them back the next day - same as IORB but for non-banks |
| expansionary monetary policy | decrease interest rates to stimulate borrowing |
| contractionary monetary policy | increase interest rates to decrease borrowing |
| counter cyclical | the goal of monetary policy - counterbalance business cycle |
| aggregate supply | total quantity of output (real GDP) firms produce and sell at a price level |
| short run aggregate supply | positive upward slope relationship between price level and GDP |
| long run aggregate supply | represent GDP at full employment (potential GDP) – vertical line, not affected by price level |
| shifts in aggregate supply | productivity growth, change in price of inputs, supply shocks |
| real welath effect | AD shifter - a change rate in the price level, changes the purchasing power of assets causing consumers to buy more or less goods |
| money market/ interest rate change | AD shifter - a change in price level, changes the amount of savings in the economy which changes the interest rate, leads to change in borrowing and investing |
| international substitution/exchange rate effect | AD shifter - a change in price level changes the amount that people from other countries are willing and able to purchase |
| consumption based demand shifters | income taxes, autonomous taxes |
| investment based demand shifter | changes in interest rate, cost of making an investment |
| net exports based demand shifter | increase in imports = reduce AD, exchange rate, trade policy |
| keynesian zone | flat portion of AS - recession/high unemployment, tradeoff to increasing employment is low in terms of prices |
| intermediation zone | middle portion of AS - unemployment and inflation have an inverse relationship |
| neoclassical zone | steep portion of AS - cyclical unemployment is low, changes in AD have little effect on unemployment, a lot of effect on prices |
| keynesian perspective | short run, recession; AD not high enough to provide firms w/ incentive to hire workers, assumes wages are sticky |
| expenditure multiplier | some change in spending is going to cause a larger/more than proportional change in GDP = change in Y/change in spending >1 - one persons spending is another persons income |
| expansionary fiscal policy - keynesian | tax cuts increase government spending |
| contractionary fiscal policy - keynesian | tax spikes decrease government spending |
| neoclassical perspective | long run, economy fluctuate around GDP and full employment |
| budget deficit | spending > tax revenue |
| budget surplus | spending < tax revenue |
| balanced budget | spending = tax revenue |
| federal budget | entitlement spending = 2/3 (mandatory spending - social security, medicare) discretionary spending = 1/3 (optional spending - defense spending) |
| state budget | most states have to maintain a balanced budget requirement - property, sales and income taxes (different each state) |
| individual income tax | tax on all forms of earnings accumulated during the year - progressive: the more you earn the more you pay in taxes |
| payroll taxes | tax based on pay received from employer - funds social security and medicare |
| estate and gift tax | taxes on assets passed to the next generation |
| Kansas taxes | 3-legged stool: property, sales and income taxes |
| national debt | total amount of money gov has borrowed and hasn’t paid back - $ value of all outstanding treasury bonds |
| crowding out | when governments have to go to the loanable funds market in order to cover their deficits - increase demand by government for borrowing leads to higher interest rates - reduces investment and consumption |
| money characteristics | durable, valuable, standardized, divisible, generally accepted |
| automatic stabilizers | programs that adjust spending and tax level depending on the business cycle - SNAPS, medicaid, etc |
Created by:
kayleejh0829