-
Real GDP
GDP adjusted for inflation
-
Nominal GDP
Market value of GDP
-
Business cycle
Repetitive pattern of increases in production followed by decreases in production
-
Recession
Decrease in Real GDP that last for 2 consecutive quarters or longer
-
Depression
A long lasting and very severe recession(2 years or more)
-
Growth recession
Production increases so slowly that unemployment stays high.
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Consumption good
Goods produced that are used up by consumers
-
Durable good
Goods that last 3 years or more
-
Non-durable goods
Good that last less than 3 years
-
Services
Anything you buy that cannot be stored
-
Investment good
Goods produced that are used repeatedly to produce future goods
-
Depreciation
The wearing out and using up investment goods
-
10. difference between gross investment and net investment
- Gross inv-all new investment spending
- Net inv-gross inv minus depreciation
-
Net domestic product
GDP minus depreciation
-
National income
All the income earned in a year in the US
-
Personal disposable income
After tax income that is received and available to either spend or save
-
How gov. creates difference between national income & personal disposable income
- National income
- -Income tax
- -Social security tax
- +Government benefits
- =personal disposable income
-
Savings
Any part of PDI that is not spent
-
Real personal disposable income
PDI corrected for inflation
-
12. Components of GDP according to expenditure approach
GDP= C + I + G + X - Im
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Exports
Goods & services produced in nation sold in foreign nation
-
Imports
Goods & services produced in foreign nation sold in nation
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Trade deficit
Imports more than exports
-
Trade surplus
Exports more than imports
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13. What caused trade deficit to decrease in 01 and 08
- US has a weaker economy or in recession
- (less PDI buy less imports)
- Foreign trading partners have a strong
- (US sells more exports)
- US has a weaker dollar
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14. What caused trade deficit to increase from 1992-2007
- US has a stronger economy (US buys more exports)
- Foreign trading partners has a weak economy
- US has a stronger dollar
- More US firms outsourcing
- Retailing-imports
- Oil
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15. What commodity usually accounts for 50% of trade deficit
Oil
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16. If lunch is priced 36 pesos in Mexico, exchange rate is $1 = 12 pesos, how much is lunch in $
36/12 = $3
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17. US dollar appreciates, what effect will this have on the price of imports and exports
- Decrease price of foreign made import to US buyer
- US buys more imports
- Helps US consumers
- Increase the price of US made exports to foreign buyer
- US sells fewer exports
- Hurts US business
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18. US dollar depreciates, what effect will this have on hte price of imports and exports
- Increase price of imports to US buyer
- US buys fewer imports
- Hurts US consumers
- Decrease price of exports to foreign buyer
- USA sells more exports
- Helps some US business
-
19. Reason why the dollar might get stronger
- Increase in foreign demand for US dollar
- Increase in demand for US made exports
- Increase in financial investing
- Strong economy
- Low inflation
- Demand Curve shifts right
-
20 Reason why the dollar might get weaker
- Decrease in foreign demand for US dollar
- Decrease in foreign demand for US exports
- Decrease in foreign financial investing
- Lack of confidence
- High inflation
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21. List pros and cons of Free Trade
- the government does nothing to prevent or discourage trade between nations
- Pos
- more competition, quality, lower prices, choices creastes jobs in export industry, inrease profits
- Cons
- Hurt specific industry, losing high paying jobs, create low paying jobs (underemployment), race to bottom (only corporations benefits
-
Money
Anything that is generally accepted as a medium of exchange
-
Barter
Trade specific product for specific product (no medium of exhange)
-
2. Properties of money
- Serves as a medium of exchange
- Serves as a measure of value
- Serves as a way to save
- Way to borrow and repay loans
-
Checkable (Demand) Depostis
Checking Accounts
-
Time Deposits
Savings acounts
-
Assets
Anything you own, or owed to you
-
Liability
Anything you owe
-
M1
- Cash in circulation + Demand Deposits +
- (Travelers Checks)
-
-
3. Essential functions of a commercial (retail) bank
- Hold checking accounts
- Make loans
-
5a. Bank Balance Sheet
- Assets:
- Vault cash
- Deposits in Federal Reserve
- Loans
- Liabilities:
- Demand Depostis
- Owner's equity
-
Owner's equity
Funds provided to bank by it's owners
-
Total Reserves
Vault Cash + Deposits in Federal Reserves
-
Required Reserves
The minimum amount of reserves that banks must hold by law
-
Reserve ratio
The % of funds in checking accounts that the banks must hold as required reserves
-
Excess Reserves
Total Reserves - Required Reserves
-
5b. Compute Total Reserves
Required Reserves
Excess Reserves
- TR=vault cash + Deposits in Fed Reserves
- RR=Demand Deposits X reserve ration
- ER= Total Reserves - Required Reserves
-
5c. Formula to calculate the total increase in M1
excess reserves/ reserve ratio
-
5d. Assumptions you have to make for M1 to change
- All banks lend out all excess reserves
- All loans are spent
- All spending returns to a bank
-
6. When a bank makes a loan, what happens to size of M1
M1 increases by the amount of the loan
-
7. What determines a banks ability to make loans
It's excess reserves
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