econ chapter 2

If the price index moves from 107 to 110, the rate of inflation is:

2.8%

If nominal GDP is 210 and money supply is 30, then what is the velocity?

7

A central bank will use _______ to increase both aggregate demand and the money supply

A. An expansionary monetary policy

Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future

A. Exchange rates or rates of returns

A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be:

A. frictionally unemployed.

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?

GDP Deflator

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

Which of the following institutions determines the quantity of money in the U.S. economy as its most important task?

The Federal Reserve

What do the economies of Greece, Ireland, and Germany all share?

a common currency

The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay.

adverse selection of wage cuts

Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________.

current account balance; goods, services, international income flows, and foreign aid.

The type of unemployment that occurs because of a recession is called:

cyclical unemployment.

The situation where the buying power of money in terms of goods and services increases is called

deflation

An economics professor is discussing a measure of trade that involves a comparison of exports and imports of goods for the year just ended. What name is given to this measurement

merchandise trade balance

The Producer Price Index is based on prices paid for supplies and inputs by

producers of goods and services

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits

swings in exchange rates

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.

the basket of goods

The unemployment rate measures

unemployed workers as a percentage of the labor force

When bank holds excess reserves as they don't see good lending opportunities:

A. It negatively affects expansionary monetary policy

Why would an expansionary monetary policy NO longer be available to combat recession for a country that has pegged its exchange rate?

A. It would depreciate the country's currency and break its hard peg

If the U.S.'s exchange rate is weaker than the PPP rate for several years, which of the following will likely result?

A. Its exports will increase

A central bank that wants to increase money supply will NOT:

A. Revise quantitative easing

When a government uses a ______________ exchange rate policy, it USUALLY allows the exchange rate to be set by the market.

A. Soft peg

Happy Bank is required by law to hold 10% of its deposits as its reserve. Happy Bank policy prevents from holding excess reserves. If the central bank buys $15 million in bonds from Happy Bank, what will be the result?

A. The money supply in the economy increases

If the U.S. dollar depreciates, which of the following parties will NOT benefit?

A. U.S. importers

One of the following groups is NOT participating in the foreign exchange markets. Which one?

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

In the early 1990's extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ___________________.

hyperinflation

A lender demands an interest rate in part to compensate for any expected ___________ so that the money that is repaid in the future will have at least as much buying power as the money that was originally loaned.

inflation

The official unemployment rate may UNDERESTIMATE the true extent of unemployment as it does not account for:

part-time or temporary workers looking for full-time or permanent work; individuals who are employed in a job that is below their skills; those who have stopped looking for employment due to the lack of suitable positions available

The __________________ is the nominal interest rate minus the rate of inflation.

real interest rate

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirements