ECON 100 FINAL STUDY GUIDE
ECON 100 FINAL STUDY GUIDE Econ 100
Long Beach State
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This 5 page Study Guide was uploaded by Astrea Presley on Tuesday May 3, 2016. The Study Guide belongs to Econ 100 at California State University Long Beach taught by Dan Pynn in Spring 2016. Since its upload, it has received 229 views. For similar materials see Principles of Macroeconomics in Economcs at California State University Long Beach.
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Date Created: 05/03/16
Econ 100-04 Final Study Guide Ch 8 Consumer price index (CPI): Measure of price level based on the consumption patterns of a typical consumer. How well does CPI measure inﬂation? Sometimes not very well. Ignores law of demand, quality, and basket problems. What is a base period? “A particular time period for which data is gathered and used as a benchmark against which economic data from other periods is measured.” Real numbers are adjusted for inﬂation, nominal is not. 3 types of inﬂation: Demand-pull - inﬂation from high demand for goods and low unemployment. cost-push - inﬂation caused by sudden decrease in the supply of goods, which would increase goods prices. monetary based - is a sustained increase in the money supply Be able to draw a recessionary gap, inﬂationary gap Using monetary policy and ﬁscal policy, how you close the gap Fiscal: Tax and spend Monetary: change interest rate change money supply change reserve requirement Ch 11 Know the rule of 70*: if natural annual growth rate is x the size of the variable doubles every 70 years. How can the economy expand? Change in natural resources Change in ﬁscal capital Change in technology Others: private property rights Rule of law and stability competitive open markets efﬁcient taxes stable money and prices *More sophisticated than phillips curve Ch 12 Aggregate demand and aggregate supply curves with labels Why is the aggregate demand curve downward sloping: Wealth effect Interest rate effect International trade effect What causes the aggregate demand curve to move? Out is +, In is - Wealth Income Expected prices Foreign income Value of the dollar What causes the aggregate supply curve to move? Supply shocks Expected future prices Some type of correction of past errors in expectations Ch 15 Deﬁne transfer payments and ﬁscal policy Transfer payments: are payments made to groups or individuals when no good or service is received in return Fiscal policy: Ch 16 Deﬁne expansionary and contractionary ﬁscal policy Expansionary ﬁscal policy occurs when the government increases spending or decreases taxes to stimulate the economy Contractionary ﬁscal policy occurs when the government decreases spending or increases taxes to slow expansion. Deﬁne progressive, regressive, and proportional taxes: Progressive: taxes increase as income increases (current US tax policy) Regressive: taxes increase as income gets smaller (opposite of US tax policy) Proportional: same percentage of taxes taken from all Deﬁne government budget and deﬁcit: Budget done once a year by the president and deﬁcit is the excess of expenses that occurs each year, national debt is the summation of deﬁcits. MPC Marginal propensity to consume: Is a portion of additional income that is spent on consumption Multiplier deﬁned as 1/1-MPC Automatic stabilizers: Things that automatically occur in the economy that the government does nothing to create. I.e. unemployment, welfare, minimum wage Ch 17 Monetary policy Deﬁne the 3 functions of money: Means of exchange - Money can be used for buying and selling goods and services Unit of account - Money is the common standard for measuring relative worth of goods and service. Store of value - Money is the most liquid asset (Liquidity measures how easily assets can be spent to buy goods and services). Money’s value can be retained over time. It is a convenient way to store wealth. How does the federal reserve control the money supply? Change in money supply Change in reserve ratio Change in interest rate What is stagﬂation? Rising prices and unemployment at the same time How do we deﬁne money supply? Form of liquidity most liquid is M1 next is M2 which is all of M1 plus savings account. Pg 520 Deﬁne fractional reserve banking: When a deposit is made the bank has to keep a certain amount in reserve, the rest can be used What effect does expansionary monetary policy have on a, b, c a: interest rates - down b: price level - up c: GDP - up Contractionary monetary policy: a central banks action to decrease money supply Expansionary monetary policy: a central banks action to increase the money supply What is the equation of exchange? MB = PQ Becomes the quantity theory of money when B and Q is constant Pg 530 What is the money multiplier: 1/Reserve Requirement Deﬁne discount rate and fed funds rate: Discount: Rate banks are charged when they borrow money from fed reserve Fed funds: Rate banks are charged when they borrow money from each other Pg 535 Open market operations: Buying and selling of us securities to increase or decrease money supply Ch 18 What is expansionary monetary policy and contractionary monetary policy Expand: decrease interest rate, increase money supply, relieve pressure on reserve ratio Shrink: increase interest rates decrease money supply and put pressure on reserve ratio What is monetary growth rule: Money supply should only grow as fast as GDP Keynesian transition mechanism: If money supply goes up interest rates should fall which causes investment to rise and GDP to then rise. Rises by the change in I x 1/1-MPC Functions of federal reserve: Lender of last resort Controls fed funds and discount rate Conducts open market operations Manages the food stamp program Manages fair credit and reporting act Maintains the value of US currency Test is 20 questions with two optional credits, two questions do not need to be answered.
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