New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Econ 111

by: Megan Flory

Econ 111 Econ 111

Megan Flory
GPA 3.4

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Every chapter Zirlott covers in class. Excellent notes, notes only on what you need, not any fluff notes.
Kent 0. Zirlott
Econ, Economics, Macro, Macroeconomics
75 ?




Popular in Macroeconomics

Popular in Department

This 16 page Bundle was uploaded by Megan Flory on Monday March 28, 2016. The Bundle belongs to Econ 111 at University of Alabama - Tuscaloosa taught by Kent 0. Zirlott in Fall 2016. Since its upload, it has received 24 views.


Reviews for Econ 111


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 03/28/16
Chapter 5 1. Elasticity: measures how much one variable responds to changes in another variable a. One type of elasticity measures how much demand for your websites will fall if you raise your price 2. Price elasticity of demand a. Percentage change in QD/percentage change in P b. (P2-P1/midpoint) / (Q2-Q1/midpoint) c. Elasticity is a pure number 3. Inelastic: relativily steep 4. Chapter 10 1. Income and Expenditure a. Gross Domestic Product i. Measures total income of everyone in the economy ii. Measures total expenditure of the economy’s output of g&s 1. INCOME = EXPENDITURE iii. Market value of all final goods and services produced within a country in a given period of time 1. Final goods: intended for the end user 2. Intermediate goods: used as complements/ingredients in the production of other goods a. Are not include in GDP 3. Tangible goods are included a. DVDs, mountain bikes, beer 4. Intangible services not included a. Dry cleaning, concerts, cell phone service 5. Includes currently produced goods, not produced in the past 6. Even if it’s a foreign company, if it’s produced in the US, it is included a. Not included if American but not in America 7. Usually a year or 3 months iv. Components: 1. Consumption 2. Investment 3. Government purchases 4. Net Exports 5. Y = C + I + G + NX v. Consumption 1. Total spending by households on g&s 2. Food is always included 3. Note on housing costs: a. For renters – consumption includes rent payments b. For homeowners – consumption included the imputed rental value of the house, but not purchase price or mortgage vi. Investment 1. Total spending on goods that will be used in the future to produce more goods a. Equipment b. Buildings/factories c. Inventories d. Houses vii. Government Purchases 1. All spending on the g&s purchased by government a. Excludes transfer payments viii. Net Exports 1. Exports – imports b. Real vs Nominal GDP i. Nominal: current output, current prices 1. Current price x current quantity and then add them all up for the current year ii. Real: corrected for inflation 1. Base year will be given, use that year’s price and whatever quantity c. GDP Deflator i. A measure of overall level of process ii. 100 x (nominal GDP/real GDP) MUST MULTIPLY BY 100 iii. Measures inflation rate iv. Inflation rate: (new-old)/old 2. GDP and Economic Well-Being a. Real GDP per capita is the main indicator of the average person’s standard of living b. Not perfect measure of well-being c. Does not include: i. Quality of environment ii. Leisure time iii. Non-market activities iv. Equitable distribution of income d. Having a large GDP enables a country to afford better schools, a cleaner environment, health care, etc. e. Many indicators of quality of life are positively correlated with GDP Chapter 13 1. Financial Institutions a. Financial system: the group of institutions that helps match the saving of one person with the investment of another b. Financial markets: institutions though with savers can directly provide funds to borrowers i. The Bond Market 1. Bond: certificate of indebtedness ii. The Stock Market 1. Stock: claim to partial ownership in a firm c. Financial intermediaries: institutions through which savers can indirectly provide funds to borrowers i. Banks ii. Mutual fund: financial institutions that sell shares to the public and use the proceeds to buy portfolios 2. Different kinds of savings a. Private saving i. = The portion of households’ income that is not used for consumption or paying taxes ii. = Y-T-C b. Public saving i. Tax revenue less government spending ii. = T-G c. National saving i. Private saving + public saving ii. (Y-T-C) + (T-G) iii. Y-C-G iv. The portion f national income that is mot used for consumption or government purchase d. Saving and Investment i. Y=C+I+G+NX ii. I=Y-C-G (national savings=investment) e. Budget deficits and surpluses i. Budget surplus 1. And excess of tax revenue over govt spending 2. T-G 3. Public saving ii. Budget deficit 1. A shortfall of tax revenue from govt spending 2. G-T 3. –(Public saving) a. If you are given a budget deficit, just make public savings negative f. The meaning of saving of investment i. Private saving: income remaining after households pay their taxes and pay for consumption 1. Example: a. Buy corporate bonds or equities b. Purchase a timed deposit c. Buy shares of a mutual fund d. Let accumulate in saving or checking account ii. Investment: purchase of new capital g. The market for loanable funds i. A supply-demand model of the financial system ii. Supply of funds come from saving h. Equilibrium i. Interest rate adjusts to equate supply and demand ii. E quantity of loanable funds = E investment and E saving iii. Policy 1: Saving incentives 1. Cut tax, more people will save = supply curve will go to the right, E interest rate falls, E quantity of LF will rise 2. Changes in income 3. Expectations iv. Policy 2: investment incentives 1. Demand curve shift to right, interest rate rise 2. Technological progress 3. Expectations i. Crowding out i. Increase in budget deficit causes fall in investment. Govt borrows to finance its deficit, leasing funds less available for investment ii. Investment is important for long-run economic growth, budget deficits reduce the economy’s growth rate and future standard of living j. US Govt Debt i. Govt finances deficits by borrowing ii. Persistent deficits lead to a rising govt debt iii. Ratio of govt debt to GDP is a useful measure of the measure of the govt’s indebtedness relative to its ability to raise tax revenue Chapter 11 1. CPI a. Measures typical consumer’s cost of living b. Basis of cost of living adjustments (COLAs) in many contracts and in social security c. Calculations: i. Fix the “basket” 1. Bureau of Labor Statistics surveys consumers to determine what’s in the typical consumer’s shopping basket ii. Find the prices iii. Compute the basket’s cost iv. Choose base year and compute index 1. 100 x (cost of basket in current year/cost of basket in base year) v. Compute inflation 1. 100 x (new-old/old) 2. CPI for base year is 100 always Chapter 2 Assumptions and Models 1. Assumptions: simplifies the complex world, makes it easier to understand 2. Models: a simplified representation of a more complicated scenario 3. Circular-Flow Diagram a. Visual model of the economy, shoes how dollars flow through markets through households and firms b. Two markets: i. Market for goods and serves ii. Market for “factors of production” 1. Resources the economy uses to produces goods and services a. Labor (people) b. Land (natural resources) c. Capital (buildings, machinery) d. Entrepreneurship (idea) 4. Production Possibilities Frontier a. A graph that shoes the combinations of two goods the economy can possibly produce given the available resources and the available technology b. PPF and opportunity cost: i. Moving along a PPF involves shifting resources from the production of one good to the other ii. The slope of the PPF tells you the opportunity cost of one good in terms of the other iii. Rise/run = opportunity cost c. Points: i. Points on PPF 1. Possible 2. Efficient ii. Points under PPF 1. Possible 2. Not efficient iii. Points above PPF 1. Currently unobtainable 5. Positive statements: describes the world as it is, fact 6. Normative statements: prescribes the world how it should be, opinion Chapter 4 1. Market: a group of buyers and sellers of a particular product 2. Competitive market: many buyers and sellers, each has a negligible effect on price 3. Demand a. Quantity demanded: amount that buyers are willing and able to purchase at a specific price i. Specific point on the demand curve b. Demand curve: set of various quantities demanding at corresponding prices i. The curve itself, downward sloping c. Law of demand: quantity demanded of a good falls when the price of the good rises d. Demand schedule: a table that shows prices and QD e. Demand Curve shifters i. Change in price: move along demand curve ii. Non-price determinants: entire curve shifts iii. Normal goods: income goes up, demand goes up iv. Inferior good: income goes up, demand goes down 4. Supply a. Supply demanded: amount that sellers are willing and able to sell for at a specific price i. Specific point on the supply curve b. Supply curve: quantities supplied at corresponding prices i. The curve itself, upward sloping c. Law of supply: quantity supplied of a good rises when the price of the good rises d. Supply Curve shifters i. Price: move along the curve ii. Input prices: entire curve shifts iii. Technology: entire curve shifts TO THE RIGHT iv. # of sellers: entire curve shifts TO THE RIGHT v. Expectations: entire curve shifts vi. Chapter 15 Unemployment 1. Labor Force Statistics a. Employed b. Unemployed c. Not in the labor force d. U rate = 100 x (#of unemployed/labor force) e. Labor force participation rate = 100 x (labor force/adult population) f. Labor force = employed + unemployed 2. What does U Rate measure a. Not perfect indicator because: i. Excludes discouraged workers ii. Does not distinguish between full time and part time iii. Misreport work status iv. Does not include workers being paid “under the table” 3. Most duration of unemployment is less than 5 weeks Chapter 16 1. Money a. A set of assets that people use to buy g&s b. Without money, trade would require barter c. Most people would have to spend time searching for others to trade with – a huge waste of resources d. Functions: i. Medium of exchange 1. An item buyers give to sellers when they want to purchase g&s ii. Unit of account 1. Yardstick people use to post prices and record debts iii. Store of value 1. An item people can use to transfer purchasing power from the present to the future e. Kinds: i. Commodity money 1. Intrinsic value 2. Gold, diamonds ii. Fiat money 1. No intrinsic value, used as money because govt decree 2. US dollar f. Supply i. Quantity of money available in economy ii. Currency 1. Paper bills and coins in the hands of the (non- bank) public iii. Demand deposits 1. Balances in bank accounts g. Measures i. M1: currency, demand deposits, traveler’s checks, other checkable deposits ii. M2: M1 plus savings deposits, small time deposits (less than $100,000), money market funds (mutual fund you can write a check on), and a few minor categories iii. M3: M1 and M2 plus large time deposits (over $100,000), repurchase agreements, and other categories h. Where is all the currency i. 2013: $1.1 trillion currency outstanding 1. Average adult: has $4490 ii. Much is held abroad iii. Much is held by drug dealers, tax evaders, and other criminals iv. Currency is not a good way to hold wealth i. Central banks and monetary policy i. Central bank: institution that oversees the banking system and regulates money supply ii. Monetary policy: setting of the money supply by policymakers in the central bank iii. Federal Reserve: central bank of US j. Fed’s Organization i. Federal Reserve 1. Created in 1913 from Fed Res Act 2. After a series of bank failures in 1907 3. “Panic of 1907” also called “knickerbocker Crises” … failure of Knickerbocker Trust Company 4. Purpose: to ensure the health of the nation’s banking system ii. Board of governors 1. 7 members, 14 year terms a. Appointed by president and confirmed by senate 2. Chairman a. Directs Fed staf b. Presides over board meetings c. Testifies regularly about Fed policy in front of congressional committees d. Appointed by president e. Janet Yellen (current chairwoman) iii. System 1. Federal Reserve Board in Washington DC 2. 12 regional Fed Reserve Banks a. Major cities around the country b. The presidents – chosen by bank’s board of director c. Tuscaloosa is in Atlanta d. Missouri has 2 iv. Fed’s job 1. Regulate banks and ensure the health of the banking system a. Regional Federal Reserve Banks b. Monitors each bank’s financial condition c. Facilitates bank transactions – clearing checks d. Acts as a bank’s bank e. Lender of last resort 2. Control the money supply a. FOMC 3. Monetary policy v. FOMC 1. 7 members of the board of governors 2. 5 of 12 regional bank presidents a. All 12 regional presidents attend each FOMC, but only 5 get to vote b. NY regional president always votes 3. Mets every 6 weeks in DC 4. Discuss the condition of the economy 5. Consider changes in monetary policy vi. Bank reserves 1. Fractional reserve banking system 2. Fed establishes reserve requirements 3. Banks may hold more than minimum amount (excess reserves) 4. Reserve ratio, R = fraction of deposits that banks hold as reserves 5. Money supply = currency/loans + deposits 6. In a 100% reserve banking system, banks do not afect the size of money supply 7. When banks make loans, they create money a. Does not create wealth, borrower has to pay it back vii. Money multiplier 1. Amount of money the banking system generates with each dollar of reserves 2. 1/R viii. Fed Tools of Monetary Control 1. Open-Market Operations: the purchase and sale of US govt. bonds by the Fed a. Number one choice, very easy to conduct, very efective i. To increase money supply -> Fed buys govt bonds, paying with new dollars, which are deposited in banks, increasing reserves, which banks use to make loans, causing the money supply to expand ii. To reduce money supply -> Fed sells govt bonds, taking dollars out of circulation, and the process works in reverse 2. Reserve Requirements: afect how much money banks can create by making loans a. Rarely uses RR to control money supply, frequent changes would disrupt banking i. To increase money supply -> Fed reduced RR, banks more loans from each dollar of reserves, which decreases the reserve ratio and increases the money multiplier and the money supply ii. To reduce money supply -> Fed raises RR, banks make fewer loans and the process works in reverse. The reserve ratio increases and the money multiplier and the money supply decrease. 3. The Discount Rate: the interest rate on loans the Fed makes TO BANKS a. When banks are running low on reserves, they may borrow reserves from the Fed i. To increase money supply -> Fed lowers discount rate, which encourages to borrow more reserves from Fed 1. Banks can then make more loans, which increases the money supply ii. To reduce money supply -> Fed can raise discount rate ix. Federal Funds Rate 1. On any given day, banks with insufficient reserves can borrow from banks with excess reserves a. The interest rate on these loans is the federal funds rate 2. The FOMC uses OMOs to target the Fed funds rate 3. Many interest rates are highly correlated, so changed in the Fed funds rate cause changes in other rates and have a big impact in the economy x. Graphs 1. Fed sells bonds to cause fed funds rate, reduces supply, causes interest to rise, supply goes to the left xi. Problems controlling money supply 1. If households hold more of their money as currency, banks have fewer reserves, make fewer loans, and money supply fails 2. If banks hold more reserves than required, they make fewer loans, the money multiplier decreases, and the money supply falls 3. Yet, Fed can compensate for household and bank behavior to retain fairly precise control over the money supply xii. Bank Runs and the Money Supply 1. Run on banks: a. When people suspect their banks are in trouble, they may “run” to the bank to with=draw their funds, holding more currency and less deposits b. Under fractional-reserve bank, banks don’t have enough reserves to pay of ALL depositors, hence banks may have to close c. Alco banks may make fewer loans and hold more reserves to satisfy depositors d. These events increase R, reverse the process of money creation, cause money supply to fall 2. The Financial Crisis of 2009-2009 a. Bank capital i. Resources a bank’s owners have put into the institution ii. Used to generate profit b. Leverage i. Used of borrowed money to supplement existing funds for purposes of investment c. Leverage ratio i. Ratio of assents to bank capital 1. (reserves + loans + securities) / capital d. Capital requirement i. Govt regulation specifying a minimum amount of bank capital ii. Depends on the type of assets a bank holds iii. The safer the assets… the lower the requirement e. If bank’s assets – rise in value by 5% i. Because some of the securities the bank was holding rose in price ii. $1000 of assets would now be worth $1050 iii. Bank capital rises from $50 to $100 iv. So for a leverage rate of 20 1. A 5% increase in value of assets increases the owners’ equity by 100% f. If bank’s assets – reduces in value by 5% i. Because some people who borrowed from the bank default on their loans ii. 1000 of assets would be worth 950 iii. Value of the owners’ equity calls to zero iv. So for a leveraged ratio of 20 1. A 5% fall in the value of the bank assets leads to a 100% fall in bank capital g. Banks in 2008 and 2009 i. Shortage of capital 1. After they had incurred losses on some of their assets a. Mortgage loans b. Securities backed by mortgage loans c. “Subprime mortgage crisis” 2. Reduce lending (credit crunch) a. Contributed to a serve downturn in economic activity h. US Treasury and the Fed i. Put many billions of dollars of public funds into the banking system 1. To increase the amount of bank capital 2. Called TARP ii. It temporarily made the US taxpayer a part owner of many banks iii. Goal: to recapitalize the banking system 1. Bank lending could return to a more normal level a. Occurred by late 2009 2.


Buy Material

Are you sure you want to buy this material for

75 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.