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Principles ECON

by: Rhett Bergnaum

Principles ECON ECON 1113

Rhett Bergnaum
GPA 3.53

William Clark

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William Clark
Class Notes
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This 4 page Class Notes was uploaded by Rhett Bergnaum on Monday October 26, 2015. The Class Notes belongs to ECON 1113 at University of Oklahoma taught by William Clark in Fall. Since its upload, it has received 42 views. For similar materials see /class/229249/econ-1113-university-of-oklahoma in Economcs at University of Oklahoma.


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Date Created: 10/26/15
ECON 1113Exam 11 Terms Hello everybody This document contains a list of terms which we have been developing since the last test These are potential terms andor lists which I feel may be good to know for your next exam Every week which we have added to the list we have defined the new terms so I encourage you to look to your notes for the definitions of these terms I repeat look to your notes not a textbook The purpose of this document is to help to attach significance to some of these terms Memorizing these significances will not necessarily earn you full credit on the exam There is no guarantee that every term on the exam will come from this list nor that the significance here will earn full marks This is only to give you an idea of the importance of the terms on which you can ponder and hopefully expand If in the course of your studying you find additional terms which you would like help with significance on email me and I will possibly add them to the list Brian Piper ECON 1113Exam 11 Terms GDP Gap GDP gap measures the real or nominal economic costs of unemployment It allows us to assign dollar and percentage values to the problem ofunemployment which in turn allows us to better correct for unemployment with targeted changes in fiscal or monetary policy Without a GDP gap we know what directions things need to change but not by how much to restore full employment Real GDP Real GDP is one of the best measures of the overall productivity of an economy It measures output in real terms and is good for comparing year to year as a measure of growth It is used as a target variable in policy making Nominal GDP Nominal GDP serves many of the same purposes as real gdp but it doesn t separate changes in real growth from changes in the overall price level in an economy It is however much easier to calculate when we don t have or don t need full information about an economy Inflation Inflation and Unemployment are the two major macroeconomic problems High or varying inflation rates destabilize an economy and discourage investment and savings because of their effects on borrowers and lenders Inflation can be fought with fiscal or monetary policy but it is politically unpopular to make the changes necessary to combat inflation ie decreased government spending or higher taxes When inflation reaches a certain level it is called hyperinflation Effects of unanticipated inflation on creditors Important because these effects force creditors to raise interest rates to unnaturally high levels in unstable environments These rates decrease borrowing and slow capital investment hindering economic growth Disinflation A slowing of a positive inflation rate shows economic stabilization and is a generally good sign Consumer Wealth Consumer wealth serves much the same purpose as income and as such is a buffer against economic instability CPIThe best measure of the overall price level that is used as a comparison tool across time periods and currencies Real Interest Rate Important in lending because it reflects economic expectations and uncertainties while nominal rates do not Unemployment One of the two major macroeconomic problems Unemployment prevents output from reaching its potential It can be measured in economic terms by the GDP gap but unemployment has more subtle effects that aren t measured economically Can be combated with fiscal and monetary policy It does not affect all groups equally FrictionalStructuralCyclical Important to distinguish between desirable and undesirable unemployment as well as unemployment that is best countered at government level versus industry level ECON 1113Exam 11 Terms Full Employment GDP Used as a measuring stick and target in policy making NonEconomic Costs of Unemployment Important as an indicator of impact of economics on social issues as well as an impetus on governments to act against economic problems The Keynesian Consumption Function Important because it separates consumption into major parts and allows us to predict consumption levels and consumer behavior at various levels of income Planned Total Expenditure Keynes believed that Planned TE was the major determinant of economic activity specifically that aggregate supply would match Planned TE Also breaks output up into its major components and allows for dynamic analysis of individual parts Determinants of Consumption The major factors that affect consumption particularly important because consumption is considered to be the single largest part of Planned TE APC Demonstrates difference in consumptionsavings percentages across different income levels and allows for economic policy to target consumption and savings better MPC Used in calculating various effects of changes in components of Planned TE Autonomous Consumption Portion of consumption that is not affected by changes in income Inventory adjustment mechanism Buffers against demand shocks and information lapses in the macro economy making the transition to equilibrium smoother Fiscal Policies Policies that target macroeconomic variables such as employment and GDP with changes in taxes or government spending These are the major tools of governments to affect the real economy The Multiplier Concept Allows policy makers to anticipate the actual effects of changes to avoid nai39ve experimentation and disastrous effects on real variables Various multipliers are calculated differently Aggregate InjectionsWithdrawals Breaks the Keynesian model into two sets of factors whose components all work in the same direction giving an alternate view of equilibrium in the macro economy The Monetary Sector of the Economy Used by the Fed to accomplish Monetary Policy goals Three Functions of Money Provide incentives to hold nominal cash as opposed to interest bearing assets Factors in money demand The Quantity Theory of Money Separates changes in key variables into nominal and real components allowing for evaluation of monetary policy Legal Reserve Requirements Not often used tool of the Fed In general legal reserve requirements prevent the danger of runs on banks inspiring confidence in the financial structure and stabilizing the macroeconomy ECON 1113Exam 11 Terms Excess Reserves An added buffer against runs on banks but they have an opportunity cost of the interest they could earn if lent out Discount Rate Important primarily as an indicator of Fed goals Open Market Operations Primary tool of monetary policy makers to reach goals Maturity Value Value of past test scores in teaching macroeconomics students to study harderbetter for future exams Ha Ha Maturity Value refers to the value of an IOU at the end of its life Not as important as the interest yield on the bond Default risk Affects the price of bonds as well as interest rates given out by creditors


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