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Game theory
Dominant strategy equalibrium
Nash equalibrium (coordination games) |
DSE: There is a better choice for a decision maker regardless of what the other chooses.
Nash: Choosing choice based on which is most beneficial overall to both chooser and other chooser. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Reserve Requirements(rr) |
% of money from a deposit that a bank is required to keep in it's vault. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Money Multiplier (checkable deposits) and how money is made |
m=1/rr
Max amount of money made by a bank: (Amount deposited*(1-rr)*m |
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zeetrit Fri, 09 Dec 2011 13:33:37 GMT |
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| Total Money Demand |
Transaction demand+Asset Demand graphs. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Asset Demand |
Amt. of money demanded to hold as storage of wealth. Inversely proportional to nominal interest rate. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Transaction Demand |
Amt. of money demanded for transactions. Not affected by nominal int rate. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Liquidity |
The ease with which something can be used to buy another thing. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| M3 |
= M2 + large time shares/less liquid assets |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| M2 |
= M1 + savings accounts, MMDAs, small time deposits, MMMF.
Used in calc. money demand curve |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| M1 |
= currency + checkable deposits |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Full-Employment Deficit/Surplus |
=Actual Def/Surp -- Cyclical Def/Surp |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Balanced-budget multiplier |
When government spending and taxes increase or decrease by an equal amount, GDP increases or decreases by that same amount. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Amount that a given change in taxes/spending will change GDP= |
=given change X MPS X M
B/c part of initial money is absorbed by saving immediately and is never used in consumption. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Multiplier |
M=1/MPS
or 1/(1-MPC)
Occurs because money is used more than once in consumption. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Investment Schedule |
Amount of investment at different levels of GDP. This is a horizantal line detirmined by the amount investment given by the invest demand curve. |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Investment Demand Curve |
In terms of int rate or rate of return (same graph effect) and amount of cumulative investment |
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zeetrit Sun, 30 Oct 2011 22:49:43 GMT |
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| Real interest rate |
nominal int rate--inflation premium
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zeetrit Sun, 30 Oct 2011 22:02:27 GMT |
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| profits= |
=revenue--cost of production--cost of investment |
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zeetrit Sun, 30 Oct 2011 22:00:38 GMT |
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| Expected rate of return= |
=profits/cost of investment |
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zeetrit Sun, 30 Oct 2011 22:00:38 GMT |
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| Marginal-benefit-marginal-cost analysis |
The way bizs make decisions. As long as expected rate of return (marginal benefit)>real interest rate for borrowing $ (marginal cost), biz will make investment. See investment demand curve. |
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zeetrit Sun, 30 Oct 2011 21:54:17 GMT |
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Progressivity of Taxes
Progressive
Proportional
Regressive Taxes |
Progressivity: Amount of built in stability in a system.
Progressive -- Taxes increase as GDP inc.
Proportional -- Taxes same as GDP inc.
Regressive -- Taxes decrease as GDP inc. |
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zeetrit Sun, 30 Oct 2011 20:43:04 GMT |
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| Detirminants of Consumption and Saving |
Wealth
Expectations of Price or Income
Taxation
Household Debt
*Consumption and Savings are inversly related |
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zeetrit Sun, 30 Oct 2011 20:43:04 GMT |
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| Marginal Propensity to Save |
MPS=Change in S/Change in DI
or 1-MPC |
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zeetrit Sun, 30 Oct 2011 20:29:40 GMT |
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| Marginal Propensity to Consume |
MPC=Change in C/Change in DI
or 1-MPS |
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zeetrit Sun, 30 Oct 2011 20:29:40 GMT |
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| Average Propensity to Save |
APS=S/DI
or 1-APC |
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zeetrit Sun, 30 Oct 2011 20:30:09 GMT |
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| Average Propensity to Consume |
APC=C/Disposable Income(DI)
or 1-APS |
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zeetrit Sun, 30 Oct 2011 20:29:53 GMT |
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| Long Run Aggregate Supply Curve |
Analogous to Production Possibilities Frontier
Vertical line b/c AS is not dependant on PL in the long run (wages are eventually adjusted and a constant number of people are employed in the long run. |
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zeetrit Sun, 30 Oct 2011 16:11:04 GMT |
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| Graph a growing economy |
AS and AD to the right, stable PL |
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zeetrit Sun, 30 Oct 2011 16:11:04 GMT |
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| Decrease in AS causes... |
cost-push inflation |
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zeetrit Sun, 30 Oct 2011 16:11:04 GMT |
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| The Crowding Out Effect |
When the government borrows money from the public, the demand for money increases, which means the interest rate at which debts must be paid back with increases. This in turn discourages (crowds out) some investors, and Ig decreases, partly offsetting the expansionary fiscal policy. |
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zeetrit Sun, 30 Oct 2011 15:05:30 GMT |
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| Draw demand-pull inflation and the fiscal policy response |
Inflationary graph.
FP:
Raise Taxes
Reduce Spending
Consquences:
Budget Surplus
-Sit on money (politically unpopular)
-Pay back debt to public
Problem:
Somewhat negates contractionary effect b/c it transfers money back into market. |
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zeetrit Sun, 30 Oct 2011 15:05:30 GMT |
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| Draw an economy in recession and the fiscal policy response. |
Recessionary graph.
FP:
Lower Taxes
Increase Spending
Consequences:
Budget Deficit
-Funded by making more money
-Or selling bonds to public
Problem:
Crowding out effect may occur |
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zeetrit Sun, 30 Oct 2011 15:05:30 GMT |
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| Detirminants of Aggregate Supply |
Changes in CELL prices and market power (monopolies etc)
Changes in productivity
Changes in legal environment (taxes/subsidies and regulation) |
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zeetrit Sun, 30 Oct 2011 15:05:30 GMT |
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| Detirminants of Aggregate Demand |
AD=C+Ig+G+Xn
So:
Change in Consumer spending
Depends on:
-Consumer wealth
-Consumer expectations
-Household indebtedness
-Taxes
Change in Investment spending
Depends on:
-Real interest rate
-Expected returns
Change in Government spending
Change in Net Export spending |
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zeetrit Sun, 30 Oct 2011 15:05:30 GMT |
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