ECON 200 Final
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| Employed | Paid employees, self-employed, and unpaid workers in a family business.
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| Unemployed | People not working who have looked for work during previous 4 weeks.
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| Natural rate of unemployment | Normal rate of unemployment around which the unemployment rate fluctuates.
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| Cyclical unemployment | The deviation of unemployment from its natural rate.
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| Frictional unemployment | Occurs when workers spend time searching for the jobs that best suit their skills and tastes.
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| 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.
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| Sectoral shifts | Changes in the composition of demand among industries of regions.
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| Minimum wage laws | May exceed the equilibrium wage for the least skilled and least experienced workers, Quantity of labor supplied > Quantity of labor demanded.
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| 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.
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| 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.
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| 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.
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| Barter | Exchange one good or service for another.
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| Medium of Exchange | Item that buyers give to sellers when they want to purchase goods and services.
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| Unit of Account | Yardstick people use to post price and record debts.
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| Store of Value | Item that people can use to transfer purchasing power from the present to the future.
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| Liquidity | The ease with which an asset can be converted into the economy's medium of exchange.
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| Commodity Money | Money that takes the form of a commodity with intrinsic value.
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| Fiat money | Money without intrinsic value, used as money because of government decree.
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| Money stock | The quantity of money circulating in the economy.
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| Currency | Paper bills and coins in the hands of the public.
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| Demand deposits | Balances in bank accounts that depositors can access on demand.
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| M1 | Currency, demand deposits, traveler's chcks, and other checkable deposits.
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| M2 | Everything in M1 plus saving deposits, small time deposits, money market mutual funds, and a few minor categories.
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| Central Bank | Oversee banking system and regulate money.
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| 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.
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| Fractional reserve banking system | Banks keep a fraction of deposits as reserves and use the rest to make loans.
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| Reserve requirements | Regulations on the minimum number of reserves that banks must hold against deposits.
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| Reserve Ratio, R | Fraction of deposits that banks hold as reserves.
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| T-account | A simplified account statement that shows a bank's assets and liabilities. Bank's liabilities include deposits, assets include loans and reserves.
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| The money mutiplier | The amount of money the banking system generates with each dollar of reserves.
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| Bank capital (owner's equity) | The resources a bank obtains by issuing equity to its owners.
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| Leverage | The use of borrowed funds to supplement existing funds for investment purposes.
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| Leverage ratio | The ratio of assets to bank capital.
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| 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.
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| Credit crunch | The shortage of capital induced in the banks to reduced lending.
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| The Fed can change the money supply by | Chaing quantity of reserves, changing the reserve ratio and the money multiplier.
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| Open Market Operations (OMOs) | The purchase and sale of U.S. gov bonds by the fed.
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| 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.
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| Under fractional-reserve banking | banks don't have enough reserves to pay off all depositors which means banks have to close.
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| The Federal Funds Rate | Interest rate at which banks make overnight loans to other banks.
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| 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.
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| P = price level | The price of a basket of goods measured in money.
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| Relative price | Price of one good relative to (divided by) another.
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| Real wage | Price of labor relative to price of output.
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| Classical Dichotomy | The theoretical separation of real and nominal variables.
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| The Neutrality of Money | The proposition that changes in the money supply do not affect real variables.
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| The velocity of Money | The rate at which money changes hands.
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| Inflation Tax | When tax revenue is inadequate and ability to borrow is limited, government may print money to pay for its spending.
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| Inflation fallacy | Most people think inflation erodes real outcomes.
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| Shoe leather costs | The resources wasted when inflation encourages people to decrease money holdings.
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| Menu costs | The costs of changing prices.
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| 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.
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| Confusion and inconvenience | Inflation change the yardstick we use to measure transactions.
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| Tax distortions | Inflation makes nominal income grow faster than real income.
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| Closed economy | The economy doesn't interact with other economies in the world.
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| Open economy | Economy that interacts freely with other economies around the world.
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| Exports | Goods and services that are produced domestically and sold abroad.
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| Imports | Goods and services that are produced abroad and sold domestically.
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| Trade surplus | Country sells more goods and services abroad.
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| Trade deficit | County sells less goods and services abroad.
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| Net capital outflow (net foreign investment) | Purchase of foreign affairs by domestic residents.
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| Capital outflow | Domestic purchases of foreign assets.
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| Capital inflow | Foreign purchases of domestic assets.
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| The nominal exchange rate | Rate at which one country's currency trades for another.
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| Appreciation | Increase in the value of a currency as measured by the amount of foreign currency it can buy.
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| Real exchange rate | Rate at which goods and services of one country trade for the goods and services of another.
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| 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.
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| Law of one price | A good should sell for the same price in all locations.
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| Arbitrage | Take advantage of price differences for the same item in different markets.
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| Trade policy | A government policy that directly influences the quantity of goods and services that a country imports or exports.
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| Tariff | A tax on imports.
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| Import quota | A limit on the quantity of imports.
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| "Voluntary export restrictions" | The government pressures another country to restrict its exports.
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| Capital Flight | A large and sudden reduction in the demand for assets located in a country.
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