×

Let's log you in.

or

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

×

Create a StudySoup account

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

or

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

Already have a StudySoup account? Login here

Exam 2 Study Guide

by: Alexis Ibarra

27

1

5

Exam 2 Study Guide ECN 150

Marketplace > La Salle University > Economcs > ECN 150 > Exam 2 Study Guide
Alexis Ibarra
La Salle
GPA 3.89

Preview These Notes for FREE

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

×
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

About this Document

Study guide for exam 2
COURSE
Macroeconomics
PROF.
Francis Thomas Mallon
TYPE
Study Guide
PAGES
5
WORDS
CONCEPTS
Economics, Macroeconomics
KARMA
50 ?

Popular in Economcs

This 5 page Study Guide was uploaded by Alexis Ibarra on Friday April 15, 2016. The Study Guide belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 27 views. For similar materials see Macroeconomics in Economcs at La Salle University.

×

Reviews for Exam 2 Study Guide

×

×

What is Karma?

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

Date Created: 04/15/16
Exam 2 Study Guide  Income, spending and savings schedule  o Income and spending are directly proportional o Table of income, spending, and savings o Useful because it gives the components to which we can calculate the mpc and  mps  Marginal rates of consumption and savings o Marginal propensity to consume (MPC)  Change in consumption over change in disposable income o Marginal propensity to save (MPS)  Change in savings over change in disposable income o MPC+MPS=1  Incorporating a 45 degree line to graph maintainable GDP o Aggregate expenditure (AE)= C + I o If C+I line exceeds 45ᵒ line=  expansion in output production o If C+I line is less than 45ᵒ line= contraction in output production  Savings and dissavings identified on a graph with a 45 degree line and consumption line   o  Calculation of the multiplier o Spending multiplier  1/MPS  o Tax multiplier  MPC/MPS    o Balanced budget multiplier  = 1  Application of the spending multiplier o Government spending (infused spending) x spending multiplier = increase in  output  Components of investment spending o Purchases of new machinery and equipment plus changes in business inventories  Planned investment vs actual investment o Planned investment  Projected or desired amount of [investment] o Actual investment  Actual level realized of [investment]  Includes items such as unplanned changes in inventories o Actual > Planned= Contraction o Actual < Planned= Expansion  Effect on maintainable GDP when planned and actual investment differ  o GDP wouldn’t be maintainable if there is extra unwanted inventory accumulation  Fiscal policy impact on maintainable GDP o The President and Congress represents our fiscal policy makers. Their tool is the  control of the tax and spend decisions of the government. o Increase income and therefore increase consumption  Government spending can potentially increase GDP due to the multiplier  effect  Government can increase GDP by lowering taxes  Fiscal policy action impact on budget deficit or surplus o Deficit  Increase taxation o Surplus  Increase spending  Expansionary and contractionary fiscal policy o Fix an underperforming economy   Balanced­budget multiplier o If there are like changes that offset one another between government spending and taxation, the change in GDP will be equal to the change in government spending  (G).  Government increased spending by %50 billion but they don’t want that to cause debt, so they increase taxes by \$50 billion. So the effect on the  deficit is 0. So the change in GDP = change in government spending.  o The difference between the spending multiplier and tax multiplier o Balanced budget multiplier =1  Government spending × 1  Definition of money o M1­ Currency, coins (not in bank), demand deposits (checks)  Functions of money o Medium of exchange, Standard of Value, Store of Value  Backing of the U.S. money supply o Trust/ Fiat currency   Value of money o Money demand = Transaction demand + asset demand o Its relative scarcity gives it value  Transaction demand for money o Money that we need to spend on goods and services (rent, food, clothes, etc) o Graphically seen as a vertical line  Asset demand for money o Money that we set aside to keep and save as assets o Graphically seen as a downward sloping line  Effect of changes of the money supply on interest rates o An expansion in the money supply results in lower interest rates which entices  consumers to spend more and hence raise GDP and lower unemployment o A contraction of the money supply results in higher interest rates which decreases  spending   Reduces risk of inflation  Structure of the federal reserve system  Responsibilities of the federal reserve open market committee o Controls money supply o Make decisions that affect the size of the money supply and therefore affect  interest rates   Functions of commercial banks o Accepting deposits and making loans to consumers  Fractional reserve banking o Certain percentage of deposits is required to be left alone and not used to give out  loans  Required reserves and excess reserves o Required reserves  Amount of reserve set by federal government that commercial banks have  to have o Excess reserves  Excess reserve. The bank is able to lend this out.  Money supply creation o Banks use excess reserves to loan out money and therefore can create money  o Monetary multiplier= 1/Legal reserve requirement  Tools of the federal reserve system used to control the money supply o Buy/sell government services (bonds)  Market value = price at which bond was purchased & daily value  Face value = value of bond when it reaches maturity  Lowering/raising the rate or return for bonds  Interest return (rate of return)= face value – market value  Most frequently used tool  Selling bonds results in contraction of money supply  Will put currency and coin out of circulation and add bonds into  circulation  Decrease the market price of bonds to entice people to buy bonds o Interest rates will go up  Buying bonds results in expansion of money supply  Will put currency and coin into circulation and bonds out of  circulation  Increase the market value of bonds to entice people to sell their  bonds o Interest rates will go down  Market value and interest have an inverse relationship o Lowering/raising the Discount rate  Rate of interest charged by the federal reserve to member banks who wish  to borrow from the federal government   Amount of interest banks pay to borrow money from the government   Increasing rate results in contraction of money supply  Banks are less inclined to borrow money from fed and will not  have money to give to consumers  Decreasing the rate results in expansion of money supply  Banks are more inclined to borrow money from fed and hand out  money to consumers   Used regularly but not as much as selling and buying bonds o Raising/lowering Legal reserve requirements  The minimum amount of reserve banks can keep  Increase in reserve requirements will result in contraction of money supply  Banks will be forced to keep higher percentage of deposits and  have less to lend out  Decrease in reserve requirements will result in expansion of money supply  Banks will not be able to keep a lower percentage of deposits and  have more money to lend out  Very powerful tool, used by government very rarely  o Graphically an expansion of money supply will shift to the right and contraction  of money supply will shift to the left  Expansionary and contractionary monetary policy o Expansionary monetary policy: If the FOMC wanted to increase the market  money supply: buy government securities, lower discount rate, lower legal reserve requirements. Causes Curve shifts outward to the right o Contractionary monetary policy: If the FOMC committee wanted to decrease the  market money supply: Sell government securities, raise discount rate, raise legal  reserve requirements. Causes Curve shifts inward to the left

×

×

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."

Jennifer McGill UCSF Med School

"Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over \$500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

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

STUDYSOUP CANCELLATION 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 support@studysoup.com

STUDYSOUP REFUND POLICY

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: support@studysoup.com

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 support@studysoup.com

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.