Economic study guide

1. Investment spending in 2001 in U.S. decreased.

2. Major contribution to why consumers are cautious of spending: because of the recessed
economy
3. 9/11 is viewed as a stock market drop
4. Cigarette taxes increase, consumers will buy less, AD will decrease
5. Nominal wages increase, productivity will remain the same
6. Inflation causes price to increase and purchasing power to decreases
7. Increases in debt causes economic instability
8. Gold prices: $1,100
9. Education and capital does not stimulate economy in the long run
10. Clear indicator of efficiency is cost of producing is low as possible
11. MPC most highest in an economy of high disposable income
12. Increased investment and technology will cause growth
13. Relationship between income consumption and income saving: S=DI-C
14. Immediate determinates of investment are expected rate of net profit, real rate of interest
15. Government purchasing causes GDP to decrease
16. Increased AD beyond full employment level of real GDP causes demand-pull inflation
17. 7 ways individual banks can make money: 1. Creating a bank 2. Acquiring
property/equipment 3. Accepting deposits 4. Depositing reserves in Fed. Res. Bank 5.
Clearing a check 6. Granting a loan 7. Buying government security
18. Demand-pull inflation: AD outpaces AS, real GDP rises, inflation, unemployment
decreases
19. Underground economy GDP type is understated
20. EU is not a free trade zone for all nations
21. Determinants of investment: 1. Real interest rates 2. Expected returns
22. Consumer and investment spending are major determinants of AD
23. AS varies directly with AD
24. 3 counsel of academic advisors, 3 economists for President
25. AD is affect by spending, not AS
26. Taxes affect AD, not AS, which cause a decrease in AD
27. (When recession occurs) Expansionary fiscal policy: 1. Increase government spending 2.
Reduce taxes 3. Use some combination of the two
28. (When demand-pull inflation occurs) Contractionary fiscal policy: 1. Decrease
government spending 2. Raise taxes 3. Use some combination of those two policies
29. GDP manipulated through $-value, and AD/AS
30. Real $-value does not affect real GDP
31. Expected U.S. debt: $20 trillion
32. In 2007, interest rates were too low
33. Iceland went bankrupt
34. Feds can affect money value by money supply and interest rates
35. Unethical behavior causes stockholders to doubt a firms integrity and reputation, which
will produce poor business for the firm
36. Economic growth is based primarily on GDP
37. Fed Res creates money supply
38. Monetary policy: issued by Feds

39. Fiscal policy: issued by government

40. Discount rate: a rate thats low
41. Supply of money is perfectly inelastic
42. Lag periods: the period of time that it takes for an economy to react to a policy
43. Extreme consumption and spending in early 2000s
44. Lag period is now-unemployment
45. Cyclical symmetry: something that is supposed to be done, but the exact opposite
happens
46. Unemployment rate: 10.2%
47. $ is extremely weak
48. When inflation occurs, GDP is overstated
49. Stimulant of an economy: bonds-money supply rises-AD rises-AS is unaffected-real GDP
rises
50. High inflation: increased interest rate-money supply falls-investment spending decreasesAD decreases
51. Decrease in real GDP-recession to depression-more aggressive monetary policyconnected AD/AS
52. Fed Res was hurt more than consumers and commercial banks
53. AS of money is perfectly inelastic
54. Government buys bonds back to decrease national debt
55. Financial investments: present value is not the same as market value
56. Common stock: larger dividends than preferred stock, but greater risk
57. Preferred stock: less risk than common stock, but fewer dividends
58. U.S. bonds are most conservative
59. Beta: a measure of undiversified risk (portfolio is compared to the market portfolio)
Risk and expected rate of return: direct
60. Security market line shows the average expected rate of return of all financial
investments at each level of non-diversifiable risk
61. Decrease in $-value, and increase in AD will cause net exports to increase
62. Reduction in interest rates-more $ in economy
63. Corruptive government causes a change in supply of money (AS moves to right)
64. B of A was fined because of misleading investors ($33 million)
65. Obamas counsil of advisors: Christina Romer, Austan Goolsbee, Cecilia Rouse
66. Board of governors of Fed Res: Ben S. Bernanke, Donald L. Kohn, Kevin M. Warsh,
Elizabeth A. Duke, and Daniel K. Tarullo
67. Standardized budget: comparing government spending with taxes, occurring in a fully
employed economy
68. Current economy: high unemployment, low inflation
69. Non-diversified risks: beta
70. Diversified portfolio is good
71. Interest rates and reserve ratio affect money supply
72. M1: includes currency in circulation and checkable deposits
73. M2: includes M1, savings deposits, including money market deposit accounts, MMDA,
small time deposits, money market mutual finds, MMMF
74. 2001-2009 deficit resulting from debt (spending)
75. Currently in an expansionary phase

76. Trade deficit: imports exceed exports

77. Trade surplus: exports exceed imports
78. U.S. $257 billion trade deficit with China
79. Progressive tax: average tax rate rises with GDP.
80. Proportional tax: average tax rate remains constant as GDP rises
81. Regressive tax: average tax rate fall as GDP rises
82. Income effect: lower price increases purchasing power of income
83. APC is the fraction of total income that is consumed
84. Hyperinflation is extraordinarily rapid inflation that can have devastating impact on real
output and employment
85. Nominal GDP: unaffected by inflation or deflation to show GDP value
86. Real GDP: affected by inflation or deflation to reflect GDP value
87. Human capital: knowledge, know-how that earns income because of it
88. GNP: value of goods and services that are the product of property and labor of people
within the country
89. There can be effectiveness without efficiency, but not efficiency without effectiveness
90. Normal goods demand varies directly with money income
91. Inferior goods demand varies inversely with money income
92. Production possibility: more of product x can be produced if less of product y is produced