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ECON 200 Final

TermDefinition
Employed Paid employees, self-employed, and unpaid workers in a family business.
Unemployed People not working who have looked for work during previous 4 weeks.
Natural rate of unemployment Normal rate of unemployment around which the unemployment rate fluctuates.
Cyclical unemployment The deviation of unemployment from its natural rate.
Frictional unemployment Occurs when workers spend time searching for the jobs that best suit their skills and tastes.
Structural unemployment Occurs when number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one, usually longer term. Occurs when wage > equilibrium.
Sectoral shifts Changes in the composition of demand among industries of regions.
Minimum wage laws May exceed the equilibrium wage for the least skilled and least experienced workers, Quantity of labor supplied > Quantity of labor demanded.
Unions worker association that bargains with employers. Exert their market power to negotiate higher wages for workers. The typical union worker earns 10-20% higher wages and gets more benefits. Quantity of labor demanded decrease which results in unemployment.
Insiders vs. Outsiders Insiders are workers who remain employed, are better off. Outsiders are workers who lose their jobs and are worse off. Some outsiders go to non-unionized labor markets which increase labor supply and increase wages in those markets.
3 efficiency wages 1. Worker Health: pay higher wages to get healthier workers. 2. Worker Turnover: paying higher wages to give workers more incentive to stay. 3. Worker quality: pay higher wages attracts better job applicants, increase quality.
Barter Exchange one good or service for another.
Medium of Exchange Item that buyers give to sellers when they want to purchase goods and services.
Unit of Account Yardstick people use to post price and record debts.
Store of Value Item that people can use to transfer purchasing power from the present to the future.
Liquidity The ease with which an asset can be converted into the economy's medium of exchange.
Commodity Money Money that takes the form of a commodity with intrinsic value.
Fiat money Money without intrinsic value, used as money because of government decree.
Money stock The quantity of money circulating in the economy.
Currency Paper bills and coins in the hands of the public.
Demand deposits Balances in bank accounts that depositors can access on demand.
M1 Currency, demand deposits, traveler's chcks, and other checkable deposits.
M2 Everything in M1 plus saving deposits, small time deposits, money market mutual funds, and a few minor categories.
Central Bank Oversee banking system and regulate money.
2 Roles of the Central Bank 1. Regulate banks and ensure banking health: monitors each bank's financial condition, facilitates bank transactions, makes loans to banks. 2. Monetary policy of FOMC: control the money supply ~ quantity of money available in the economy.
Fractional reserve banking system Banks keep a fraction of deposits as reserves and use the rest to make loans.
Reserve requirements Regulations on the minimum number of reserves that banks must hold against deposits.
Reserve Ratio, R Fraction of deposits that banks hold as reserves.
T-account A simplified account statement that shows a bank's assets and liabilities. Bank's liabilities include deposits, assets include loans and reserves.
The money mutiplier The amount of money the banking system generates with each dollar of reserves.
Bank capital (owner's equity) The resources a bank obtains by issuing equity to its owners.
Leverage The use of borrowed funds to supplement existing funds for investment purposes.
Leverage ratio The ratio of assets to bank capital.
Capital requirement a government regulation that specifies the minimum amount of capital, intended to ensure banks will be able to pay off depositors and debts.
Credit crunch The shortage of capital induced in the banks to reduced lending.
The Fed can change the money supply by Chaing quantity of reserves, changing the reserve ratio and the money multiplier.
Open Market Operations (OMOs) The purchase and sale of U.S. gov bonds by the fed.
To increase the bank reserves and money supply -The fed buys a gov. bond from a bank -> pays by depositing new reserves in that bank reserve account. -> with more reserves, the bank can make more loans and increase the money supply.
Under fractional-reserve banking banks don't have enough reserves to pay off all depositors which means banks have to close.
The Federal Funds Rate Interest rate at which banks make overnight loans to other banks.
Inflation vs. deflation vs. hyperinflation I: Increase in the overall level of prices. D: Decrease in the overall level of prices. H: extraordinarily high rate of inflation.
P = price level The price of a basket of goods measured in money.
Relative price Price of one good relative to (divided by) another.
Real wage Price of labor relative to price of output.
Classical Dichotomy The theoretical separation of real and nominal variables.
The Neutrality of Money The proposition that changes in the money supply do not affect real variables.
The velocity of Money The rate at which money changes hands.
Inflation Tax When tax revenue is inadequate and ability to borrow is limited, government may print money to pay for its spending.
Inflation fallacy Most people think inflation erodes real outcomes.
Shoe leather costs The resources wasted when inflation encourages people to decrease money holdings.
Menu costs The costs of changing prices.
Misallocation of resources from relative price variability Firms don't all raise prices at the same time, so relative prices can vary, which distorts the allocation of resources.
Confusion and inconvenience Inflation change the yardstick we use to measure transactions.
Tax distortions Inflation makes nominal income grow faster than real income.
Closed economy The economy doesn't interact with other economies in the world.
Open economy Economy that interacts freely with other economies around the world.
Exports Goods and services that are produced domestically and sold abroad.
Imports Goods and services that are produced abroad and sold domestically.
Trade surplus Country sells more goods and services abroad.
Trade deficit County sells less goods and services abroad.
Net capital outflow (net foreign investment) Purchase of foreign affairs by domestic residents.
Capital outflow Domestic purchases of foreign assets.
Capital inflow Foreign purchases of domestic assets.
The nominal exchange rate Rate at which one country's currency trades for another.
Appreciation Increase in the value of a currency as measured by the amount of foreign currency it can buy.
Real exchange rate Rate at which goods and services of one country trade for the goods and services of another.
Purchasing Power Parity A theory of exchange rates, whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.
Law of one price A good should sell for the same price in all locations.
Arbitrage Take advantage of price differences for the same item in different markets.
Trade policy A government policy that directly influences the quantity of goods and services that a country imports or exports.
Tariff A tax on imports.
Import quota A limit on the quantity of imports.
"Voluntary export restrictions" The government pressures another country to restrict its exports.
Capital Flight A large and sudden reduction in the demand for assets located in a country.
Created by: SenatoHX
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