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Flashcards by Dani Young, updated more than 1 year ago
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Created by Dani Young
almost 2 years ago
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| Question | Answer |
| What are the four sub groups that the working age population is divided into? | - Labour force - Those of the labour force employed - Those of the labour force unemployed - Those of the labour force inactive (not seeking employment. |
| What are the three commonly reported ratios derived from the working age population sub groups? | - Participation rate, labour force/working age population - Unemployment rate, Unemployed/labour force - Employment rate, employed/labour force |
| What is Employment Rent? | The value of having a job compared to the value of not having one, determined by the formula Wage/reservation wage-disutility of work. Determined by wages, benefits of the jobs like company cars or disutility of work like transportation costs. |
| What is a Labour Union? | A collection of people representing an industry who gather together to negotiate wages and working conditions for workers, i.e TSA, TEU or E Tu. |
| What are the four functions of money? | -Medium of exchange - Unit of account (agreed measure of the value of goods and services) - Standard of deferred payment (contracts to be written for future receipts and payments) - Store of value that can be exchanged later for goods and services |
| What is Base Money? | Case held by the households, firms and banks, and the balances held by commercial banks in their accounts in the central bank, known as the reserves. A liability to the central bank. |
| What is Bank Money? | Money in the form of bank deposits, created by the commercial banks when extending credit to firms and households. |
| Broad Money | The amount of Broad money in the economy is measured by the stock of money in circulation. The sum of bank money plus Base money that is in the hands of the non bank public. |
| What is a balance sheet? | What the household or firm owns or owes to others, its' assets and liabilities. |
| What is Net worth? | The difference between ones' assets and liabilities, what it owns, what it owes to others an what is owed to them. |
| What is the Policy Rate? | The interest rate set by the central bank, which applies to commercial banks that borrow base money from each other and the central bank. |
| What is the Bank Lending Rate? | The average interest rate commercial banks charge to households and firms. Typically above the policy rate to allow banks to make decent profit margins. |
| Government Bond | Financial instruments issued by the government to raise funds, paying flows of money at specific intervals |
| What is a Yield? | the implied interest rate of return that they buyer gets on their money when buying a bond at it's market price |
| Present Value | The today value of a stream of future income or other benefits |
| What is a Reserve balance? | A1-The cash a bank holds plus its balance in it's account with the central bank-Base money. |
| What is a Banks own Financial assets? | (A2)- Instruments banks use as collateral while borrowing in the money market. Borrowing the replenish balances (if running deficit) |
| Bank Deposits | (L1)- The bank owes these to households and firms. |
| Secured borrowing | This is what banks have borrowed from households and firms and other banks in the money market |
| Leverage Ratio | The value of assets divided by the equity stake in those assets. |
| How to calculate the Marginal rate of transformation | MRT is the tradeoff between current and future consumption (1=r) |
| Diminishing marginal returns to consumption | The value to the individual of an additional unit of consumption declines the more consumption the individual has |
| Discount rate | A measure of a persons pure impatience, how much a person values an additional unit of consumption now over an additional unit of consumption later (slope of the indifference curve) MRS. |
| Pure impatience | Characteristic of a person who values an additional unit of consumption now over later because of myopia or weakness of will. |
| Collateral | An asset that a borrower pledges to a lender as a security for a loan |
| Recession | A period when output is declining. Or when the level of output is lower than it should be |
| Okun's Law | The growth the GDP is negatively correlated with the rate of unemployment |
| Aggregate output | The total output across the entire economy, across sectors, firms and households |
| Value added | The value of output minus all the value of inputs |
| GDPP | Total domestic production, measured as value added |
| GDPE | Total expenditure on domestic products (goods and services) |
| Government Transfers | Spending by the government in the form of payments to households or individuals |
| Self insurance | Saving by a household in order to smooth consumption, maintaining a consistent level of consumption after a temporary shock to income. |
| Co-insurance | A means of pooling savings across households in order for a household to maintain consistent level of consumption after a temporary shock to income. |
| Capacity utilisation rate | A measure of the extent to which a firm, household or entire economy is producing as much as the stock of capital goods and current knowledge would allow |
| Investment coordination game | Game in which there are two Nash equilibria, of which one may be Pareto efficient (better than the other). i.e a two firms will invest, or not invest in the coordination game as this is a better outcome over one investing over the other and vice versa. |
| Inflation | An increase in the general price level of the economy |
| Consumer price index (CPI) | A measurement of the general level of prices that consumers have to pay for a bundle of goods and services, including consumption taxes |
| GDP Deflator | A measure of the level of prices for domestically produced output. |
| What is autonomous consumption, and what is autonomous demand? | - Consumption that is independent of current income - Components of AD that are independent of current income |
| Multiplier process | Mechanisms through which the direct and indirect effect of a change in autonomous spending on aggregate output |
| Marginal Propensity to Consume | The change in consumption when income changes by one unit |
| Marginal Propensity to import | The change in imports when income changes by one unit |
| consumption Function | Shows how consumption spending in the economy as a whole depends on other variables |
| Investment Function | Equation showing how investment spending in the economy as a whole depends on other variables |
| Goods market equilibrium | Point at which output meets aggregate demand in the home economy |
| Target wealth | The level of wealth a household aims to hold, based on its economic goals |
| Financial Accelerator | Mechanism through which firms and households ability to borrow increases when the value of the collateral they pledged to the lender increases |
| Automatic Stabilisers | Characteristics of the tax and transfer system that have the effect of offsetting and expansions or contractions, i.e unemployment benefits |
| Fiscal stimulus | Combinations of tax cuts or decreases as well as increased transfers or other spending as a means of increasing aggregate demand |
| Paradox of Thrift | What holds true for an individual household does not always hold true for the entire economy. If a household saves and smooths consumption due to a temporary shock they are better off, if all households do this as a result of an economy wide shock output and aggregate demand will eventually decrease. |
| Government Budget balance Government budget deficit Government budget surplus | - The difference between tax revenue and spending - when the government budget balance is negative - when the government budget balance is positive |
| Primary deficit | The government deficit, its revenue minus expenditure (excluding interest repayments) |
| Sovereign debt crisis | Situation in which government bonds come to be considered too risky that the government is rendered unable to borrow |
| Positive Feedback Negative feedback | Process whereby some initial change sets in motion a change that amplifies the initial change process where some initial change sets in motion a change that dampens the initial change |
| Aggregate economy side components of supply and demand | How labour and capital are used to produce goods and services (labour market model) also wage and price setting model How spending decisions generate demand for goods and services (multiplier model) |
| Long run, medium run and short run models | Long run cost curve, refers to costs when the firm can fully adjust all its inputs In medium run, this refers to everything exogenous, capital stock, technology and institutions In short run what is exogenous is prices, wages, capital stock, technology. |
| Disinflation | A decrease in the rate of inflation |
| Real interest rate | The interest rate corrected for inflation (nominal interest rate-rate of inflation) |
| Protectionist policies | Government policies to limit trade to reduce the amount of imports into the economy. |
| Bargaining gap | The difference in between real wages that firms wish to offer in order to provide incentives to work and the real wage that allows firms the markup that maximises profits given the level of competition |
| Market Interest rate or Bank lending rate | Market Interest rate that banks set, that is above the policy interest rate that firms and households pay when taking out a loan |
| Asset prices | Financial assets in the economy like government bonds and shares issued by companies |
| Profit expectations and confidence | Influences the confidence and investment decisions of firms. Central banks try to build confidence through consistent policymaking and good communication to keep investment consistent. |
| AD= | C0+C1(1-t)Y+1(r)+G+X-mY |
| What component of AD equation represents consumption spending? | C0 |
| What component of AD equation represents the interest rate? | r or (r) |
| What component of AD equation represents Investment | I or I(r) |
| What are the two Important Limitations to the usefulness of monetary policy in stabalisation? | - The short term nominal interest rate cannot go below 0 - A country without its own currency cannot use monetary policy |
| Zero lower bound | The interest rate cannot go below negative |
| Quantitative easing | Central banks purchases of financial assets aimed at reducing interest rates on those assets when conventional monetary is not possible. |
| Supply shock | An unexpected change on the supply side of the economy |
| Demand shock | An unexpected change in the demand side of the economy, could be due to changes in autonomous consumption, investment or imports |
| Capacity constrained | When a firm has more orders for its output than it can fill |
| Creative destruction | Old technologies and the firms that are unable to adapt are swept away by the new because they cannot compete |
| Marginal product of capital | The additional amount of output that is produced if a particular input was increased by one unit, keeping all other inputs constant |
| Diminishing marginal product of capital | Each additional unit of capital or inputs results in a smaller increment in total output than did the previous unit |
| Beveridge curve | The inverse relationship between the unemployment rate and the job vacancy rate |
| Labour market matching | The ways in which employers seeking employees to fill vacancies meet employees |
| Diffusion Gap | The lag between the first introduction of an innovation and its general use |
| Adjustment Gap | The lag between some outside change in labour market conditions and the movement of the economy to its new equilibrium. |
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