intermediate macro
Terms
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- Federal funds rate
- interest rate on overnight loans of reserves from one commercial bank to another in the US. The rate is used as a target for monetary policy by the Fed.
- Natural rate of unemployment
- The unemployment rate such that the real wage chosen in wage setting is equal to the real wage implied by price setting.
- Velocity of money
- the inverse of the ratio Md/$Y. Refers to the rate money changes hands, measured by number of transactions.
- Value added
- The value added by a firm is defined as the value of its production minus the value of the intermediate goods it uses in production. From the income side, value added refers to the sum of labor income and capital income.
- Out of labor force
- People not in the labor force--that is, neither working nor looking for work. Examples: stay-at-home moms, the incarcerated, full-time students.
- Mark-up
- (1-mu), or Per-unit profit share resulting from selling goods at a price level that exceeds their cost.
- Collective bargaining
- Bargaining between firms and unions, or a group of unions and a firm for wage determination.
- Government transfers
- Payments like social security, Medicare that are included in total government spending but not counted as G in the GDP.
- Paradox of saving
- The short-run effects of thrift: if consumers save more, their consumption is by definition decreased, which results in a decrease in demand and a decrease in output. Saving under these conditions implies that income (Y) is lower, which decreases saving. So, even if people save more, they will be saving at lower incomes and netting no real change in saving.
- Reservation wage
- The wage that would make workers indifferent between working or being unemployed.
- Traumatized worker
- Typically refers to a worker in the time since the late 1990s who is traumatized because s/he lacks bargaining power despite low unemployment and high productivity growth; competing with global workforce and employer who can outsource or hire elsewhere for less.
- Reserve army of the unemployed
- Unemployed who are ready to be employed when asked by capitalist class and thus help to depress wages of working class in general
- Give two or three reasons why GDP is not a good measure of economic welfare.
- 1) excludes labor of homemakers and volunteerism, crucial to economy. 2) Does not separate costs from benefits. ex: environmental pollution--clean-up costs of spills are considered positive. 3) GDP masks breakdown of natural resources; worse, counts this as income.
- Measures other than GDP that are suited to measure economic welfare
- 1) HDI: takes into account GDP but also health and education which indirectly show what GDP misses. That is, pollution: the effects of high pollution would be reflected in a reduced life expectancy. Also literacy and enrollment catches inequality within society which is another aspect GDP misses. Education is a good measure of future economic health. GPI (General Progress Indicator) includes things like depreciation of natural resources. It also subtracts the costs of social breakdown like divorce and crime.
- List 3 neoliberal developments that weaken the bargaining power of workers.
- 1) When the Fed used tight monetary policy in the early 80s, rate of unemp. fluctuated bet. 7 and 10% for 7 years. This helped weaken the unions and thus the barg. power of workers. 2) Ease of firms to get labor elsewhere 3) Firms have shifted jobs from permanent status to temp, which leaves workers without security or benefits.
- According to Marx, what are two mechanisms that automatically solved problem of low profit?
- 1) If profits are low, firms stop investing which results in a slowdown of growth and then an eventual rise in unemployment. 2) Higher wage costs prompt employers to adopt time-saving technology and replace workers w/machines.