econ study guide 3

  1. econ development
    process that produces sustained & widely shared gains in per capita real GDP
  2. import substitution
    strategy of blocking most imports & substituting domestic production of those goods
  3. economic growth (define)
    • long run process that occurs as an economy's potential output increases
    • increase in real GDP
  4. compound growth
    rate of growth applied to a growing base every year
  5. GDP growth
    future GDP =current GDP(1+r)^n
  6. per capita real GDP
    real GDP/population
  7. growth rate
    • (present value - past value)/past value
    • multiple answer by 100
  8. productivity growth
    • aggreated productivity function graph of real GDP to total employment
    • X value is total employment
    • Y value is Real GDP
  9. doubling time
    • rule of 72 is the number of years required for an amount to double in value
    • 72/annual rate of growth answer is years
  10. tariff
    tax imposed on imported goods and services
  11. quota
    ceiling on quantity of specific goods and services that can be imported, reducing world living standards
  12. balance of payments (define)
    balance between spending inflowing into a country and spending flowing out of it
  13. open trade
    trade that does not impose restrictions on it
  14. dumping
    practice of foreign firm charging a price in other countries below the price it charges in its home country
  15. exchange rate
    • US price = foreign currency / exchange rate
    • foreign price = dollar price x exchange rate
    • exchange rate = foreign price / dollar price
  16. exchange rate - appreciate
    • buys more of foriegn goods increases imports
    • increase in foreign demand of U.S. goods, services & assets; decrease in U.S. demand for foeign goods, services & assets; decrease in U.S price level relative to foreign price level; increase in U.S. interest rates relative to foreign interest rates; decrease in U.S. growth rates relative to foreign growth rate
  17. echange rate - depreciate
    • buys less foreign goods, decreasing imports
    • decrease in foreign demand of U.S. goods, services & assets; increase in U.S. demand for foeign goods, services & assets; increase in U.S price level relative to foreign price level; decrease in U.S. interest rates relative to foreign interest rates; increase in U.S. growth rates relative to foreign growth rate
  18. balance of payments (apply)
    current account balance = - (capital account balance)
  19. current account
    • spending flowing in - spending flowing out
    • imports, exports, net investment income, net transfers
  20. capital account
    • assets flowing in - assets flowing out
    • all long term payment flows including sale of assets & securitities between countries (asset remains where it is but ownership changes hands
  21. currency demand & supply (apply)
    quantity of currency demanding = quantity of currency supplied
  22. quantity of currency demanded
    sum of exports + rest of world purchases of domestic assets
  23. quantity of currency supplied
    sum of imports + domestic purchases of rest of world assets
  24. absolute advantage (define)
    ability of country (party or firm) to produce more of a good or service using the same amount of resources
  25. unilateral transfers (apply)
    net of balance of payments statement showing amount of money sent or received as gifts
  26. agg demand & phillips (relationship)
    As real GDP & price level increases shifting AD to the left inflation decreases as unemployment increases in Phillips Phase
  27. stagflation (define)
    phase where inflation remains high & unemployment increases a lack of growth in the economy
  28. Phillips curve - define
    curve that suggests neg relationship between inflation and unemployment (unemployment increases inflation falls)
  29. phillips phase - define
    period in which inflation rises as unemployment falls
  30. stagflation phase - define
    period in which inflation remains high while unemployement increases
  31. recovery phase
    period in which inflation & unemployment both decline
  32. inflation-unemployment cycle
    pattern consisting of a phillips phase followed by a stagflation phase and then a recovery phase
  33. phillips curve - apply
    • Y is price inflation
    • X is unemployment
    • long run is a vertical line
  34. keynes economics
    • body of thought that asserts changes in AD can create gaps between actual & potential levels of output that can be prolonged
    • stresses use of fiscal & monetary policy to close gaps
    • AD plays dominate role in determining GDP & employment
    • prices are fixed (horizontal AS) at all levels of GDP
    • govt responsible for stablizing economy by managing AD
  35. New Keynes economics
    • similar to traditional
    • prices & wages sticky on short run
    • disequilibrium prevails
    • focus on structural impediments to adj
    • recognize role of money in creating inflation
  36. classical theory
    • body of thought associated with British economist Ricard
    • focus on long run & forces that determine & produce growth in economy's potential output
    • Real GDP determined by AS & equilibrium
    • price level determined by money supply
    • wages & prices perfectly flexible
    • markets are always in equilibrium
    • expectations formed rationally so only unexpected changes affect output & employment
  37. adaptive expectations
    people form expectations about future based on what has happened in past
  38. monetarist
    they hold changes in money supply are primary cause of changes in nominal GDP
  39. effect time lag
    • period of time between 2 events
    • stimulus & response (cause & effect)
    • time period between fiscal or monetary policy change & how it effects the economy
Card Set
econ study guide 3
econ study guide 3