Macro 1010 Exam 3 StudyGuide
Macro 1010 Exam 3 StudyGuide Econ 1010
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This page Study Guide was uploaded by Caroline meacham on Sunday November 1, 2015. The Study Guide belongs to Econ 1010 at University of Tennessee - Chattanooga taught by John Barnes in Summer 2015. Since its upload, it has received 270 views. For similar materials see Principles of Economics: Macroeconomics in Economcs at University of Tennessee - Chattanooga.
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Date Created: 11/01/15
Macroeconomics Exam 3 Study guide As a disclaimer this is not meant to provide you with the exact material terms or ideas that will be on the test Your own notes and the textbook should also be reviewed Terms to know nondiscretionary spending discretionary spending M1 M2 fiat money FDIC money multiplier pure rate of interest fractional banking nominal interest rate real interest rate sovereign fund transaction demand asset demand Taylor s Rule 2 inflation target Koo rule securitizing credit default swap equation of exchange func onal nance expansionary policy contractionary policy scalyear public debt value in exchange value in use What are the major cases of public debt government spending on wars recessions What tools does congress use to stabilize a recession recession increase government spending and decrease taxes inflation decrease government spending and increase taxes Before action is taken what question is asked Is government too big or too small List the examples of automatic stabilizers progressive income tax system transer payments foods stamps unemployment compensation What would be the outcome if automatic stabilizers weren39t in place There would be no household spending What are the problems with fiscal policy timing issues political business cycle policy reversal contra monetary policy crowding out effect state and local fiscal policy What are the 3 timing issue types recognition lag time between economic shock and when it is realized administrative lag time it takes for Congress to decide what to do operational lag evaluation drafting and plans for construction after a bill is passed Who holds the majority of the US public debt China Japan and the OPEC countries What are the real concerns of the public debt Foreigners have power over the US because they hold the majority of our debt redistribution of income bondsstocks are held mostly by the wealthy What are the approaches to managing fiscal policy balanced budget cyclically balanced budget but the surplus may not offset deficit functional finance need to manage economy so we have GDP growthamp full employment Why will the US theoretically never go bankrupt ability to refinance federal government has unlimited taxing authority future generations have responsibly for past debt How does the central government go intofinance debt bonds and annuities What is the public s view on war funding desires short and swift action will not support actions unless there is a clear and present danger When does a balanced budget occur during peace time expenditures Equation of exchangg PXQMXV GDP M x V What are the functions of money in an economic system help to engage in complete economic transactions unit of account store of account How is M1 different than M2 M2 includes all of M1 plus savings accounts and CDs lt 10000 How and why was the Federal Reserve established by the Federal Reserve Act of 1913 from the Bank Panic of 1907 divided the country unto 12 financial districts What is the Board of Governors 7 people appointed by the President and approved by Congress max term of 14 yrs Chair and vice chair 4 yr term and can be reappointed What is the Federal Open Market Committee responsible of buying and selling bonds comprised of 12 members one representative from the New York district 4 from alternating districts and all the Board of Governors What are the functions of the Federal Reserve issues currency sets the reserve ratio handles all checks makes loans to member banks supervises member banks controls the money supply fiscal agent for Federal Government How did paper currency develop the depositing of precious metals to goldsmith for a paper receipt led to the exchange of receipts instead of withdrawing and trading gold Who makes coins and currency Coins US Mint Currency US Department of Engraving and Printing How is money created Banks create it through loans and interest Destroyed when loans are paid off Ladder of interest rates in increasing order federal funds rate discount rate interest rate on bonds prime rate of interest security backed rates nonsecurity rates loans pure rate of interest What are the tools used by the Fed in monetary policy reserve ratio bonds federal funds rate interest on reserves In a recession what actions do the Federal Reserve take reduce interest rates increase lg consumption and GDP buy bonds decrease the reserve ratio discount rate and interest on reserves In a recovery period what actions do the Federal Reserve take increase interest rates sell bonds decrease lg consumption and GDP increase the reserve ratio discount rate and interest on reserves What are the problems with monetary policy operational lag can be in opposition to fiscal policy cyclical asymmetry In a recessionary period what policy takes the lead fiscal policy because monetary is unpredictable due to cyclical asymmetry In an inflationary period what policy leads monetary policy Transaction demand asset demand demand for money expansionary policy easy money valuepurchasing power of a dollar 1P money multiplier 1reserve ratio What are financial investments investments in new amp old assets financial assets stocks and bonds real assets real estate land buildings equipment etc What are economic investments investments in new and real assets What is the equation of the future value of money FV nvestment1Rquotn R interest rate n of years What is the equation of the present value of money PV Investment 1 Rquotn What is the rule of 70 a way to determine how many years it will take to double the investment divide 70 by the expected rate of return What is the par value the per share amount on stock certificates which is unrelated to the market value What is a beta value the key measurement of a stock s risk standardized to value of 1 What is an actively managed mutual fund a portfolio of stocksbonds bought on customer s behalf with a service fee charged based on the account s value What is an index fund investments only in the index companies SampP 500 passively managed fees are minimal The returns on an investment are subject to inflationdeflation risk income tax default interest rates What is risk premium the difference between the current risk and the potential return Security Market Line
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