ECON Test #3
New Growth Theory
- Holds that real GDP per person grows because of choices that people make in the pursuit of profit and that growth can persist indefinitely - The theory begins with two facts about market economies: discoveries result from choices; discoveries bring profit and competition destroys profit
Cyclical Unemployment
-The higher than normal unemployment at a business cycle trough and lower than normal unemployment at a business cycle peak - A worker who is laid off because the economy is in a recession and is then rehired when the expansion begins experiences cyclical unemployment
If the CPI was 132.5 at the end of last year and 140.2 at the end of this year, the inflation rate over these two years was
140.2-132.5= 7.7 7.7/132.5= 5.8
An increase in the price level is defined as
Inflation
Aside from being a means of payment, the other functions of money are
Medium of exchange, unit of account, and store value
In any year, real GDP
Might by greater or less than potential GDP
The term capital, as used in macroeconomics, refers to
Physical capital
GDP does not directly include intermediate goods because
That would count the intermediate goods twice
Monetary policy is conducted
only by the Federal Reserve
Major role of commercial banks is to
receive deposits and make loans
Definition of Barter
the exchange of goods and services directly for other goods and services
What is classified as unemployed
- No job - Has looked for a job within 4 weeks, waiting to be called back, or killing time until new job starts in 30 days
What is classified as the working age population
- People older than 16 - Not in jail - Not in the hospital - Not in the military
Neoclassical Growth Theory
- The proposition that real GDP per person grows because technological change induces a level of saving and investment that makes capital per hour of labor grow - Growth ends only if technological change stops because of diminishing marginal returns to both labor and capital
Classical Growth Theory
- The view that the growth of real GDP per person is temporary and that when it rises above the subsistence level, a population explosion eventually brings real GDP per person back to the subsistence level - Malthusian population trap
Frictional Unemployment
- Unemployment that arises from normal labor market turnover -The creation and destruction of jobs requires that unemployed workers search for new jobs -Increases in the number of people entering and re-entering the labor force and increases in unemployment benefits raise frictional unemployment -Permanent and healthy (growing economy)
If Nike, an American corporation, produces sneakers in Thailand this would
Add to Thailand's GDP but not to U.S. GDP
What does Velocity mean
Amount of time money is changing hands
Economic growth is measured by
Changes in real GDP
The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the
Classical Growth Theory
All of the following would increase the growth rate of the economy EXCEPT
Discouraging international trade
The monetary policy making body of the Federal Reserve is the
Federal Open Market Committee
In the United States, the central bank is the
Federal Reserve System
The interest rate banks change other banks for overnight loans is
Federal funds rate
Gross domestic product is a measure of the total value of all
Final goods and services produced in an economy over a period of time
The funds to buy and operate physical capital are
Financial capital
The business cycle refers to
Fluctuations in the level of real GDP around potential GDP
The three types of unemployment are
Frictional, structural, and cyclical
How to calculate the value of GDP
GDP= C+I+G+NX
If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate
I= r + ∏ 8= r + 3 r= 5%
If a banks net worth is negative, then the bank definitely is
Insolvent
U.S. currency
Is composed of the bills and coins held by individual and businesses
What is a description of someone that is considered to be apart of the labor force
Labor Force= employed + unemployed
A bank creates money by
Lending its excess reserves
What is M2
M1 + time deposits + money market + certificates of deposits + savings M2 is always larger than M1 because it includes M1
Comparing M1 and M2 we know that
M2 is larger because it contains M1 and other assets
What is M1
MO + travelers checks + demand deposit + checking deposits
What equation represents the equation of exchange
MV PY
What is this an example of: this person was laid off last year when new equipment was installed at the plant, reducing the number of workers needed. Shortly after being laid off, this person looked for a new job, was unable to find one and then stopped looking, even though this person still wants a job and is available for work
Marginally Attached Workers
The labor force participation rate shows the percentage of
Non- institutionalized working age people who are actually working or seeking employment
In the above figure, the letters A, B, C represent which positions in the business cycle
Peak, recession, expansion
Cigarettes served as money in some POW camps during World War II. Given this fact, we would expect to observe
Prices of other goods expressed in terms of cigarettes Cigs= money in this situation
The major role of a commercial bank is to
Receive deposits and make loans
Which of the following items is NOT part of government expenditure on goods and services in the GDP accounts
Social security expenditures
When the automobile replaced horse-drawn carriages as the principal means of transportation firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing
Structural unemployment
Potential GDP is
The max amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation
Real Gross Domestic Product is
The value of total production linked back to the prices of a single year
Frictional unemployment includes
Unemployment caused by normal labor turnover associated with people leaving and entering the labor force
The interest rate banks charge other banks for overnight loans is..
federal funds rate
Which of the following is using money as a store of value
keeping $200 on hand for an emergency
When you buy a hamburger for lunch, you are using money as a...
medium of exchange
The double coincidence of wants problem is
resolved by the use of money
Which of the following is NOT included in the M1 measure of money
savings deposits
Who is considered officially unemployed
unemployment rate= unemployment/ employed + unemployed