Macro Final

• GDP

  Total market value of all final goods and services produced for marketplace within a country during a given time period
• CPI

  Measure of the overall cost of goods and services bought by a typical household
• Financial systems

  Group of institutions that help match one person's savings with another's investments
• GDP deflator

  Measure of the overall level of prices
• Formula for GDP deflator

  Nominal GDP/Real GDP x 100
• CPI

  Measure of changes in the cost of living
• Problems using CPI to measure cost of living

  • Substitution bias
  • Introduction of new goods
  • Unmeasured quality change
• Determinants of productivity

  • Physical capital per worker
  • Human capital per worker
  • Natural resources per worker
  • Technological knowledge
• Foreign direct investment

  Owned and operated in foreign company- Hondamaha, a motorcycle manufacturing firm headquartered in Japan, builds a production plant in Arizona
• Financial markets

  Financial institutions through which savers can directly provide funds to borrowers
• Mutual funds

  Financial institution that sells shares to public and uses proceeds to buy portfolio of stocks and bonds
• Nominal interest rate


  Percent change in number of dollars
• Real interest rate

  Percent change in purchasing power
• Foreign portfolio investment

  Financed with foreign money but operated by domestic residents
• Financial intermediaries


  Financial institutions in which savers can indirectly provide funds to borrowers
• Debt financing


  Sale of bonds to raise funds
• Equity financing


  Sale of stock
• Economics


  Study of choice under conditions of scarcity
• Productivity determines living standards
• Positive statement


  Descriptive and factual
• Factors of production

  • Land
  • Labor
  • Capital
  • Entrepreneurship
• Working age population

  Those who are 16 and older and are non-institutionalized
• Labor force

  Employed and unemployed people
• Unemployment equation

  Unemployment / labor force x 100
• Types of unemployment

  • Cyclical
  • Frictional
  • Structural
• Problems with measuring unemployment include discouraged workers not counted, involuntary part-time workers, and people lie
• Labor force participation rate

  Labor force / working age population x 100
• Functions of money

  • Medium of exchange
  • Unit of account
  • Store of value
• Inflation

  Printing of too much money
• Fiat money


  Money that has value because the government says so
• Commodity money

  Money that has another purpose
• Jobs of the Fed

  • Regulate the banks
  • Control money supply (Monetary policy)
• OMO (Open market operations)

  Affects the money supply
• To raise the money supply

  Buy bonds
• To lower the money supply

  Sell bonds
• Federal funds rate

  Bank to bank interest rate
• Money multiplier equation

  MM= 1/ RR
• Change in money supply equation

  Change in money supply = MM x deposit
• Money supply


  Fixed and vertical
• Expansionary monetary policy

  Interest rate falls, Spending increases, GDP increases