Final Exam Study Guide
Final Exam Study Guide Econ 1051
Popular in General Economics
verified elite notetaker
Popular in Economcs
This 7 page Study Guide was uploaded by Lauren Pike on Wednesday December 16, 2015. The Study Guide belongs to Econ 1051 at University of Missouri - Columbia taught by George Chikhladze,Martha Steffens in Fall 2015. Since its upload, it has received 208 views. For similar materials see General Economics in Economcs at University of Missouri - Columbia.
Reviews for Final Exam Study Guide
These are great! I definitely recommend anyone to follow this notetaker
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: 12/16/15
Ch 12 Aggregate Demand and Supply Aggregate Demand 0 def schedulecurve that shows qtys of nation s output real GDP that buyers want to collectively purchase at each possible price level 0 relationship between price level GDP price index and amount of real output demanded is inverse o downsloping curve 0 determinants of AG 0 consumer spending C 0 investment spending I o gov spending G 0 net export spending N I Dollar depreciation increases net exports and increases AD I Dollar appreciation increases imports and decreases AD Aggregate Supply AS 0 schedulecurve showing relationship between a nation s price level and amount of real domestic outputs firm in econ produce varies depending on time horizons 0 short run I output prices flexible input prices sticky slopes upward bc w inputs fixed changes in price level raiselower profits 0 long run I inputs and outputs flexible vertical line bc in long run econ will produce the full employment output level no matter what the price level is I changes in price level doesn t affect productive capabilities o determinants of AS 0 change in input prices 0 change in productivity 0 change in legal institutional environment Equilibrium Price Level and Real GDP 0 changes in price level and real GDP 0 if AS and AD increase proportionally over time real GDP will expand and neither demand pull inflation or cyclical unemployment will occur 0 increase in AD beyond full employment causes demandpull inflation bc price level is being pulled up by increase in AD 0 decrease in AS can be caused by a supply shock and lead to costpush inflation o downward price inflexibility o deflation rare in US econ 0 prices sticky on the downside because fear or price wars menu costs wage contracts morale effort and productivity minimum wage o the multiplier effect 0 def of multiplier ratio of change in GDP to an initial change in spending 0 Multiplier also stated as A real GDP multiplier gtlt initial Aspena ing Ch 14 Money Banking and Financial Institutions Functions of Money 0 medium of exchange 0 used of buy and sell goods 0 unit of account 0 goods valued in dollars 0 relative worth of goods and services 0 store of value 0 hold some wealth in money form Money Definition M1 0 M1 includes 0 currency coins and paper money 0 checkable deposits everything in checking account 0 Institutions offering checkable deposits 0 commercial banks firms that engage in the business of banking 0 savings and loan associations 0 mutual savings banks 0 credit unions Money Definition M2 0 M2 includes 0 M1 and nearmonies 0 savings deposits including money market deposit accounts MMDA o smalldenominated time deposits certificate of deposit CD 0 money market mutual funds MMMF 0 money market instruments short term very liquid debt securities financial asset paper What Backs Money Supply 0 backed by gov s ability to keep value of money stable no intrinsic value alone 0 money not backed w anything tangible fiattoken money 0 gov free to manage nation s money supply The Federal Reserve Banking System 0 Fed Reserve system central component of US banking system consisting of the Board of Governors of the Fed Reserve and 12 regional Fed Res banks 0 major goal to control supply of money insuring stability of banking system 0 Board of Governors 7member group that supervises and control the money and banking system of US headquarters in DC 0 appointed by pres but approved by senate o 14 yr terms 0 12 Fed Res Banks banks chartered by US gov to control money supply and perform other func ons o quasipublic banks 0 banker s banks 0 Federal Open Market Committee FOMC o 12 voting members 7 govs 5 pres of district banks 0 makes imp monetary policy decisions 0 meets 8 times per yr 0 Fed Res functions and responsibilities 0 issue currency set reserve requirements lend money to banks discount window collect checks act as fiscal agent for US gov provider of financial services supervise banks control money supply 0 Fed Res Independence Congress purposely made Fed ind from gov to protect from political pressures Fed policies can t be reverse freedom to pursue own objectives enables Fed to take actions to increase interest rates in order to stem inflation as needed not always politically popular 0 opponents say I undemocratic I unaccountable I not transparent Financial Crisis of 20072009 c the mortgage default crisis 0 causes I subprime mortgage loans highinterestrate loans to buyers w higherthan average risk 0 borrowers not likely to pay back loans I gov programs that encouraged home ownership I declining real estate values I bad incentives provided by mortgage lenders 0 securitization process of slicing up and bundling groups of loans mortgages corporate bondsother financial debts into distinct new securities shadow banking system ended up everywhere 0 mortgagebacked securities MBS bonds backed by mortgage payments bonds that represent claims to all part of monthly mortgage payments from pools of mortgage loans made by lenders to borrowers insurance co s insured those securities 0 when interest rates increased and real estate values fell lots of homeowners defaulted on mortgage loans 0 Failures and nearfailures of financial firms The Post Crisis US Financial Services Industry 0 FDIC shut down many banks and transferred deposits to larger banks 0 Wall Street Reform and Consumer Protection Act Dodd Frank eliminate Office of Thrift Supervision and gives broader authority to Fed create Financial Stability Oversight Council est process for Fed gov to sell off liquidate assets of large failing institutions provide fed regulated oversight of MBS and other derivatives require companies selling assetbacked securities to retain portion so sellers share risk 0 creation of Bureau of Consumer Financial Protection The Fractional Reserve System 0 loan officers at banks and thrifts create checkable deposits that make of half of M1 0 fractional reserve banking system only a fraction of total money supply is held in reserve as currency characteristics 0 banks create money by lending 000000 0000 00000 o vulnerable to panics or runs I unlikely if reserve and lending policies are prudent The Banking System Multiple Deposit Expansion 0 The Bank System s Lending Potential 0 comm banking system can lend by a multiple of its collected reserves even though indiv banks can safely lend only amount to its excess reserves 0 The Money Multiplier 0 money multiplier 1 1 m or m R I represents max amount of new checkabledeposit money that can be created by a single dollar of excess reserves given value of R o D E gtltm I D checkable deposit money I E excess reserves Ch 15 Interest Rates and Monetary Policy Interest Rates 0 price paid for use of money 0 represents cost of borrowing o reward for lending o the demand for money 0 transaction demand Dt demand for money as a medium of exchange I level of nominal GDP is main determinant o asset demand Da amount of money ppl want to hold as a store of value I varies inversely w interest rate 0 total money demand Dm sum of the transactions demand and asset demand for money result is downsloping line 0 the equil interest rate 0 determined by demand and supply in the money market 0 occurs equil interest rate ie Tools of Monetary Policy 0 fed has 3 main tools for monetary control that it can use to alter money supply 0 openmarket operations buying and selling of US gov securities by fed I most imp tool 0 reserve ratio I raisinglowering RR increasesdecreases amount of required reserves bank must keep I fed changes this sparingly 0 discount rate interest Fed reserve banks charge on loans they make to comm banks and thrifts I in providing loan fed res bank increases reserves of borrowing comm bank I not common for fed to change this until 20072008 financial crisis 0 easy money and tight money 0 if in recession Fed can increase supply of money to increase AD by I buying securities I lower reserve ratio I lower discount rate 0 EASY money policy fed actions designed to increase money supply decrease interest rates and expand real GDP o if inflationary spiral fed tries to decrease AD by contracting supply of money by I selling securities I increase ratio I increase discount rate 0 TIGHT money policy fed actions to decrease growth of nation s money supply increased interest rates and restrain inflation Monetary Policy in Action 0 2 advantages over fiscal policy 0 speed and flexibility o isolation from political pressure 0 focus on the federal funds rate 0 def interest rate banksthrifts charge one another on overnight loans made of of their excess reserves I bc fed can control supply of fed funds can control interest rate of these funds I easy for fed to target 0 prime interest rate benchmark interest rate that banksthrifts use as reference pt for wide range of loans businesses and indivs 0 problems and complications 0 lag I monetary policy faces operational lag but not as long as fiscal policy bc changes can be implemented in a few days I recognitional lag bc it s difficult for fed to see right away when econ is recedingincreasing inflation o cyclical asymmetry and liquidity trap I less reliable pushing econ from severe recession I cyclical asymmetry potential problem of monetary policy successfully controlling inflation during expansionary phase of bus cycles but failing to expand spending and real GDP during recessionary phase I liquidity trap adding more liquidity to banks and has littleno positive effect on lending borrowing and investment or AD Ch 16 International Trade and Exchange Rates The Foreign Exchange Market 0 exchange rates rates which national currencies trade for one another equil prices in foreign exchange market 0 depreciation and appreciation 0 exchange rates can change daily bc of change in supply and demand for that particular currency 0 depreciation of a currency decrease in value of a currency relative to another currency exmore units of a dollar are needed to buy single unit of a pound o appreciation of a currency increase in value of currency relative to another currency extakes fewer units of a dollar to buy 1 pound I when dollar depreciates dollar price of foreign currencies increase US exports increase US imports decrease I when dollar appreciates dollar price of foreign currencies decrease US exports decrease and US imports increase 0 determinants of exchange rates 0 tastes relative income relative interest rates change in relative expected returns on stocks real estate production facilities speculation 0000 Gov and Trade 0 trade protections and subsidies o tariffs taxes imposed by nation on imported goods I protective tariffs shield domestic producers from foreign competition shift sales toward domestic goods 0 import quotas limits on qtystotal value of specific items that may be imported in some penod o nontariff barriers NTBs all impediments other than protective tariffs that nations use to impede imports includes I import quotas I licensing requirements I unreasonable product quality standards I unnecessary bureaucratic detail in customs procedures 0 voluntary export restriction VER foreign firms voluntarily limit amount of exports to a particular country 0 export subsidies gov payments to domestic producers to export goods 3 Arguments for Protection 0 increased domestic employment argument 0 argument saves US jobs used in times of recession 0 achieve shortrun domestic goods by making trading partners poorer o SmootHawley Tariff Act 1930 meant to decrease imports and stimulate US production high tariffs prompted adversely affected nations to retaliate w equally high tariffs I decreased output and income for all nations I cause of Great Depression 0 cheap foreign labor argument 0 gov must shield domestic firms and workers from ruinous comp of countries where wages are low 0 assumes not beneficial for rich and poor to trade 0 protection against dumping argument 0 tariffs are needed to prevent from dumping foreign producers I can lead to mono power I unfair trade practice most nations prohibit it Multilateral Trade Agreements and FreeTrade Zones 0 nations have worked together to decrease tariffs over time 0 World Trade Organization VVTO o GATT s successor est 1993 o oversees trade agreements and rules on disputes relating to them also provides forums for further rounds of trade negotiations o Doha Round latest sequence of trade negotiation by members of the VVTO named after Doha Qatar where negotiations began o GATT and WTO positive forces in trend toward liberalized world trade 0 European Union EU 0 freetrade zonebloc o association of 27 european nations that has eliminated tariffs and quotas among them est common tariff for imported goods from outside the member nations decrease barriers to free movement of capital created other econ policies 0 North American Free Trade Agreement NAFTA 0 made of Canada Mexico US trade bloc o 1993 agreement over 15yr period a free trade zone
Are you sure you want to buy this material for
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'