Macro Economics

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This flashcard set covers university-level macroeconomics, focusing on key concepts like money, reserves, goods, and rates. It delves into topics such as net capital outflow, trade balances, and the role of banks and assets in the economy. The flashcards also explore the functions of money, inflation, and GDP, including how they are calculated and their impact on economic well-being. Ideal for students and professionals, this set provides a comprehensive overview of macroeconomic principles and their practical applications.

Cartes-fiches

Utilisateurs

Langue

Anglais

Catégorie

Economie politique

Niveau

Université

Créé / Mis à jour

04.03.2016 / 28.03.2016

Fichiers de cartes similaires

Money supply - calculation

money supply = money multiplyer x bank reserves

Open-Market Operations (OMOs) - definition

The purchase and sale of U.S. goverment bonds by the Fed

How the fed influences the reserves

The fed makes loans to banks, increasing their reserves

Traditional method: discount rate - the interest rate on loans the fed makes to banks

New method: term auction facility - the Fed chooses the quantity of reserves it will loan

The fed makes loans to banks, increasing their reserves

Traditional method: discount rate - the interest rate on loans the fed makes to banks

New method: term auction facility - the Fed chooses the quantity of reserves it will loan

How the Fed influences the reserve ratio

Recall: reserve ratio = reserves/deposits - which inversively affects the money multiplyer

Fed sets reserve requirements: regulations on the minimum amount of reserves banks must hold againt deposits

Fed payed interests on reserves bank keep in accounts at the Fed - raising this interest rate would increase the reserve ratio and lower the money multiplier

Recall: reserve ratio = reserves/deposits - which inversively affects the money multiplyer

Fed sets reserve requirements: regulations on the minimum amount of reserves banks must hold againt deposits

Fed payed interests on reserves bank keep in accounts at the Fed - raising this interest rate would increase the reserve ratio and lower the money multiplier

Problems controlling the money supply

if households more of their money as currency, banks have fewer reserves, make fewer loans and money supply falls

If bank hold more reserves than required, they make fewer loans and money supply falls

Fed can compensate for household and bank behavior to retain fairly precise control over the money supply

if households more of their money as currency, banks have fewer reserves, make fewer loans and money supply falls

If bank hold more reserves than required, they make fewer loans and money supply falls

Fed can compensate for household and bank behavior to retain fairly precise control over the money supply

Closed economie

does not interact with other economies in the world

Open economy

interacts freely with other economies around the world

Exports

domestically - produced goods & services sold abroad

Imports

foreign - produced goods & services sold domestically

Net exports (NX) (trade balance)

= value of exports - value imprts

Trade deficit

an exess of imports over exports

Trade surplus

an excess of exports over imports

Balanced trade

when exports equals imports

Net capital outflow (NCO)

domestic residents' purchases of foreign assets - foreigners' purchases of domestic assets

Foreign direct investment

Domestic residents actively manage the foreign investment. e.g. McDonalds opens a fast-food outlet in Moscow

Foreign portfolio investment

Domestic residents purchase foreign stocks or bonds, supplying "loanable funds"to a foreign firm

When NCO > 0

Capital outflow - Domestic purchases of foreign assets exceed foreign purchases of domestic assets

When NCO < 0

Capital inflow -- Foreign purchases of domestic assets exceed domestic purchases of foreign assets.

Variables that influence NCO

Real interest rates paid on foreign assets

real interest rates paid on domestic assets

perceived risks of holding foreign assets

Govt policies affecting foreign ownership of domestic assets

Real interest rates paid on foreign assets

real interest rates paid on domestic assets

perceived risks of holding foreign assets

Govt policies affecting foreign ownership of domestic assets

Microeconomics. (Definition)

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

The study of how households and firms make decisions. And how they interact in markets.

Macroeconomics. (Definition)

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Gross Domestic Product (GDP) - What measures the GDP?

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

measures total income of everyone in the economy.
measures total expenditure on the economy’s output of goods and services.

GDP - Definition

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

Is the market value of all final goods & services produced within a country in a given period of time.

Whar are the components of GDP?

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

Recall : GDP is the total spending.

4 components.

Consumption (C)
Investment (I)
Government Purchases (G)
Net Exports (NX)

Consumption (C) - Definition

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

Consumption is total spending by households on goods and services..

Investment (I) - Definition

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

Investment is total spending on goods that will be used in the future to produce more goods.

includes spending on:

capital equipment (e.g., machines, tools)
structures (factories, office buildings, houses)
inventories (goods produced but not yet sold)

Government Purchases (G) - Definition

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

Goverment Purchases is all spending on the g&s purchased by govt at the federal, state, and local levels.

G excludes transfer payments, such as Social Security or unemployment insurance benefits. They are not purchases of goods and services..

Net Exports (NX) - Definition

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

NX = exports–imports

Exports represent foreign spending on the economy’s goods and services.
Imports are the portions of C, I, and G that are spent on goods and services produced abroad.

Adding up all the components of GDP

Commandes clavier:

= tourner,

= avant/arrière,

= faire défiler

Y = C + I + G + NX

Nominal GDP

values output using current prices
notcorrected for inflation

Compute nominal GDP for each year: Price x Quantity (+ Price x Quantity) = GDP

Compute level of increase: (start value - end value) / start value x 100 = %

Real GDP

values output using the prices of a base year
is corrected for inflation

Compute real GDP in each year, using the Price from base year:

Price (base) x Quantity (+ Price (base) x Quanity) = GDP

GDP Deflator -Definition

The GDP deflator is a measure of the overall level of prices.

GDP Deflator = 100 x (nominal GDP / real GDP)

to measure the economy’s inflation rate is to compute the percentage increase in the GDP deflator from one year to the next.

GDP and Economic Well-Being

Real GDP per capita is the main indicator of the average person’s standard of living.

But GDP is not a perfect measure of well-being.

GDP does not value:

The quality of the environment

Leisure time

Non-market activity, such as the child care a parent provides his or her child at home

An equitable distribution of income

Inflation - Definition

Inflation is an increase in the general price level of goods and services in an economy over a period of time.

Inflation Rate - Definition

Percentage change of general price level in comparison to the previous period.

Consumer Price Index (CPI) - Definition

CPI measures the typical consumer’s cost of living

How the CPI is calculated

Fix a "basket" with all important goods and services and find out the prices.and compute the basket's cost.

CPI = 100 x (basket cost current year / basket cost base year)

Inflation Rate:

((CPI current year - CPI last year) / CPI last year) x 100

Real Interest Rate

corrected for inflation

the rate of growth in the purchasing power of a deposit or debt

Real Interest Rate = nominal interest rate – inflation rate

1 / 50

Cartes-fiches

Variables that influences net exports

consumers' preferences for foreign and domestic goods

prices of goods at home and abroad

incomes of consumers and abroad

the exchange rates at which foreign currency trades for domestic currency

transportation costs

Trade deficit

an exess of imports over exports

Trade surplus

an excess of exports over imports

Balanced trade

when exports equals imports

Net capital outflow (NCO)

domestic residents' purchases of foreign assets - foreigners' purchases of domestic assets

Foreign direct investment

Domestic residents actively manage the foreign investment. e.g. McDonalds opens a fast-food outlet in Moscow

Foreign portfolio investment

Domestic residents purchase foreign stocks or bonds, supplying "loanable funds"to a foreign firm

When NCO > 0

Capital outflow - Domestic purchases of foreign assets exceed foreign purchases of domestic assets

When NCO < 0

Capital inflow -- Foreign purchases of domestic assets exceed domestic purchases of foreign assets.

Variables that influence NCO

Real interest rates paid on foreign assets

real interest rates paid on domestic assets

perceived risks of holding foreign assets

Govt policies affecting foreign ownership of domestic assets

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Macro Economics

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