AP Macro-Economics > 10 Macro Last Min. Notes > Flashcards

10 Macro Last Min. Notes Flashcards

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1
Q

Who controls Monetary Policy

A

The fed

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2
Q

What does Monetary Policy change

A
  1. Res. Req.
  2. Fed. Funds/Discount Rate
  3. Open Market Ops
  4. Interest Rates
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3
Q

Monetary Policy impact on graph

A

LFM: Supply
MM: Supply

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4
Q

Monetary Policy impact on AD

A

C, Ig, Xn

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5
Q

Monetary Policy side effects

A

none

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6
Q

Who controls Fiscal Policy

A

Congress

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7
Q

What does Fiscal Policy change

A

G spending

Personal income tax

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8
Q

Fiscal Policy impact on AD

A

C, G

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9
Q

Fiscal Policy side effects

A

crowding out

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10
Q

Explain crowding out

A
  1. Demand in LFM +
  2. Supply in LFM —
  3. Interest rate +
  4. Ig –
  5. AD –
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11
Q

Types of Non-Discretionary

A

“Automatic”
Progressive Tax system
Transfer Payments

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12
Q

Que es Progressive Tax system

A

Reduce Tax in Recession

Increase in D-P

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13
Q

Que son Transfer Payments

A

Welfare

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14
Q

Side effects of Non-Discretionary

A

G deficit in recession

G surplus in D-P

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15
Q

Regressive Tax system

A

poorest pay highest %

  • Sales tax
  • Consumption tax
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16
Q

Proportional Tax system

A

Equal everyone

- Soc. Sec.

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17
Q

Staglflation

A

Reaganomics

  • Shift SRAS to right
  • Decr. PUP/Biz. Tax
  • Trickle down (decr. tax on rich)
  • Laffer curve
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18
Q

work, save and invest

A

Reaganomics

  • Laffer curve
  • Cutting tax will increase incentive to work!
  • Decrease tax
  • Since working, more $$ in bank
  • Supply +, Int. rate +
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19
Q

Less tax rev. due to a progressive tax system is what kind of tax

A
  • non-discr.
  • expansionary
  • counter-cyclical
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20
Q

Equilibrium Int. Rate Inctr. in LFM what effects to Ig

A

Only move up on demand of Inv. Demand graph. Quantity decreases (Crowding out)

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21
Q

Tariff

A

tax on imports

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22
Q

Quota

A

how much can enter

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23
Q

Embargo

A

ban

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24
Q

When ¥ strengthens compared to $, good wise…

A

J ppl can buy more A stuff

  • Imports +, Exports –
  • Xn –
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25
Interest Rates and International: think...
BONDS | ppl want BONDS with higher interest rates
26
Relationship b/w Xn and IR
inverse - If other countries are doing well, they want your stuff - Want prosperous trade partners
27
What changes PL
G spending incr, + World-wide craze for domestic good (Xn+) Domestic optimism + (C, Ig +) Interest rates +, PL --
28
Why does Biz Tax + PL effect not be determined
SRAS go Left AD go left Both graphs shift but cannot determine how much
29
For ∆ PL to be most effective for ∆GDP,
SRAS flat part | super bad economy
30
Steeper AS curve, greater or weaker expansionary effect?
weaker
31
Printing $$s can...
- amplify expansionary effect of budget deficit | - neutralize crowding out
32
Reserve Requirement
% | ment-percent
33
Jobs of The Fed
``` Issuing currency Setting RR and holding Reserves Lending to Banks Clearing Checks Acting as Fiscal Agent Supervising Banks Controlling $ supply (Monetary Policy) ```
34
Monetary Policy Expansionary
RR Fed. Funds/Discount Rate OMO Moral Succession down down buy the water
35
Monetary Policy Contractionary
RR Fed. Funds/Discount Rate OMO Moral Succession up up sell tight
36
Fed. spending $ creation go into what?
LFM | G incr, # of LFM +
37
M1
Currency Demand deposit Debit card (not credit card)
38
M2
M1 + Total supply of $$ in country What they usually have in Money Market graph saving accounts
39
M3
M2 + larger CDs
40
What are not $$
``` credit cards ( a loan) Resources ```
41
Advantages of Monetary Policy
Faster Not as political No crowding out effect (∆ in interest rates are intended)
42
Effective interest rate= Yield=
Coupon amount/Price paid
43
When stock market is going well, want to sell or buy bonds?
sell to get cash
44
When demand for bonds increases, what happens to yield?
bonds + Prices + Yield --
45
Money Market graph Demand shift Right
When GDP +, ppl want more stuff | When PL+, need more $ to buy
46
Monetary Policy is most effective when..
Demand for LF is steep | Ig is flat
47
What shifts the supply in Money Market
The Fed through lending habits of banks
48
Velocity of $ means?
Average # of times each dollar is spend on final goods and services in a year
49
``` Income: Land Capital Labor Entrepreneurial Ability ```
Rent Interest Wages Profit
50
Command economy AKA
Communism
51
Normative Economics
Analyze data | Opinion
52
Positive Economics
Just gather data | facts
53
Accounting cost (explicit)
material labor energy
54
Economic cost (implicit)
.opportunity cost
55
LFM graph is keeping it real with what
Inv Demand graph
56
Effects on Exchange $ markets with PL + in Japan
Demand of USD +
57
Credit
$ entering country
58
Debit
$ leaving country
59
Current account
Records imports/exports of goods and services Exports - inpayments- credit Import - outpayments- debit
60
Financial account
``` Flow of $ sale/purchase of Realestate Capital Financial capital Foreign financial capital ```
61
Balance of Payment Surplus | " Deficit
Net result of the Current AND Financial accounts
62
Official Reserves Account
Balances out discrepancies between Current account and Financial account
63
Product Market
Demander: households Supplier: biz
64
Resource Market
Demander: biz Supplier: household
65
Injections
Investment Government spending Exports
66
Leakage
Savings Taxes Imports
67
Gross Investment (Ig)
Total spending on capital goods (by biz)
68
Net Investment (In)
Total net additions to the stock of capital goods
69
Net investment =
Gross investment- Capital Consumption Allwance
70
Capital consumption allowance
The amount of money a country has to spend each year to maintain its present level of economic production.
71
Inventory
Goods produced but not yet sold | ∆inventory is counted in gdp
72
Not counted in GDP
``` Housewife work Intermediate Trans Public Transfer Payments (welfare) Private Transfer (donation) Security Transaction (stocks and bonds) ```
73
Negative Net investment means
Depreciation> gross Investment | Stock of cpaital is going down
74
Find Nominal GDP Expenditures method
C + Ig + Xn + G
75
Find Nominal GDP Income method
wages + rent + interest + profit + ind. biz tax + CCA
76
Okun's Law
For every 1% that actual unemployment exceeds hte Natural, a 2% loss of GDP is generated
77
Who does unexpected high inflation hurt?
fixed income ppl | Retired people
78
Who does unexpected high inflation benefit?
``` Fixed expenditures (rent) Fixed inflation rate (loan) ```
79
Who does variable interest loan protect?
creditor (lender)
80
Rule of 70
70/% annual change= # of years to double
81
COLA
Cost of Living Adjustment Protection against inflation If J got $1000 last year and COLA was 4%, he'll get $1040
82
Classical Economies
Smith | Say's Law
83
Say's Law
Classical economies Supply creates its own demand wage flexibility is important
84
Keynesian Economies
``` John Mayred Keys More G involvement to stabilize economy Believe Recessions are caused by excessive savings (which decreases AD) Prevent slumps through AD control Focus on short-term ```
85
Rational Expectation Theory (think w graph)
People are smart and aware G should keep out People will ask for raises when they see PL + AS - (cuz PUP +) AD + (cuz C +) Therefore PL increases but GDP stays the same
86
Adaptive Expectation Theory (think w graph)
Adapt expectations on past ONLY | Ignore G's plans always on past
87
If AET is true.. Expansionary will... GDP Wages SRAS
GDP + Wages + SRAS --
88
``` If RET is true.. Expansionary will... GDP PL Wages SRAS ```
GDP no ∆ PL + Wages + SRAS --
89
Crowding out effect deficit can be avoided by
printing $$
90
Budget deficit has greatest expansionary effect when...
financed by newly printed $
91
When G purchases bonds, the $ the bank attained is...
all excess reserves
92
If the Fed sells Bonds on OMO Supply of LF Interest rate
LF: Increase | Interest rate: decrease
93
PPC curves assum
All resources and technology: fixed | All resources : fully-employed.
94
Disinflation
When an economy experiences a lower inflation than the last year
95
Largest component of expenditure
Consumption
96
``` Improved schools will affect AS AD Real GDP PL ```
AS + AD+ Real GDP + PL CBD
97
A Government program increases the incentive for banks to lend more money.
``` # of LF + ---> RIR -- ---> Ig+ --> AD PUP is not affected. Therefore AS constant GDP and PL + ```
98
What would decrease investment demand
cost
99
Better technology
Aggregate Supply + Aggregate Demand + Real GDP + PL:l can not be determined.
100
If a country runs a deficit, mostlikely will fund with
selling G bonds
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