Macroeconomics Exam 3

More currency

In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold ______ relative to deposits:

treasury notes

Maturity of two to ten years. Semi-annual coupon.

quantity theory of money

a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate

lower interest rates

to increase money supply, what will the Fed do to interest rates?

frictional unemployment

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

d

5. Which of the following actions by the Fed would increase the money supply. a. an open-market purchase of government bonds b. a reduction in banks' reserve requirements c. a decrease in the discount rate on the Fed lending d. all of the above

discouraged workers

Devina lost her job a while ago when the economy contracted. She no longer believes she can get a job and has lost hope of employment. She has several friends in the same scenario. They have all stopped looking for work. This scenario describes:

union

A worker association that bargains with employers over wages, benefits, and working conditions

Firms may find it profitable to pay above-equilibrium wages

According to the theory of efficiency wages, ____________.

is offered by an employer to encourage workers to work harder.

An efficiency wage______.

working but whose skills are not fully utilized

An underemployed person is one who is:

Does not change

Breann takes $100 of currency from her wallet and deposits it into her checking account. The money supply (M1) ________.

year-to-year fluctuations of unemployment around its natural rate.

Cyclical unemployment refers to ________.

lower; induce

In a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to ____ spending today.

Working either full or part time

Employment is the total number of people who are______.

Federal Deposit Insurance Corporation

FDIC

job searching. It is often thought to explain relatively short spells of unemployment.

Frictional unemployment results from ________.

Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.

How is monetary policy different from fiscal policy?

12

How many regional banks does the Federal Reserve have?

I and II

In order to be considered unemployed, the person must: (i) Be actively searching for work (ii) Be available for work (iii) Be skilled (iv) Be over 35 years

forecasts of economic growth, their suggested policy choices, and their ideas on effective communication regarding Fed plans

In order to prepare for each meeting, the Federal Open Market Committee (FOMC) members prepare their responses to queries regarding their:

You are trained to work as a fitness trainer, but due to poor economic conditions, falling consumer incomes, and falling demand for personal trainers, no gyms are hiring.

In which of the following scenarios would you be classified as "cyclically unemployed"?

An underemployed worker

Jim has a part-time job and would prefer to have a full-time job but has been unable to find full-time work. Jim is classified as:

quantity equation

M x V = P x Y

higher the structural unemployment rate

The higher the minimum wage, as compared to the equilibrium wage, the:

Board of Governors and 12 Federal Reserve district banks

The Federal Reserve System is made up of the:

provide stability in the banking sector and the economy

The Federal Reserve was created to:

the Fed charges banks for loans.

The discount rate is the interest rate that:

interest rate at which banks lend reserves to each other overnight.

The federal funds rate is the

discount rate

The interest rate on the loans that the Fed makes to banks

amount of unemployment that the economy normally experiences.

The natural rate of unemployment is the ________.

The natural rate of unemployment but not frictional unemployment

Unions contribute to ____.

Unemployment rate rises

What happens to the unemployment rate when Sue lost her job and beings looking for a new one?

to ensure maximum employment while maintaining stable prices

What is the Federal Reserve's mandate?

borrow more from the Fed and lend more to the public. The money supply increases.

When the Fed decreases the discount rate, banks will:

buys government bonds from the public

When the Federal Reserve conducts open-market operations to increase the money supply, the Federal Reserve:

the FOMC

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

Unemployment rate does not change

Which of following occurs when Sam, the sole earner in his family of 5, just lost his $80,000 as a research scientist. Immediately he takes a part-time job at McDonald's until he can find another job in his field?

People who are not working, but have looked for work during previous 4 weeks and are available for working and

Which of the following describes people who are UNEMPLOYED according to the Bureau of Labor Statistics?

deposits

Which of the following is NOT included in assets in the T-account of banks?

Unemployment rate and the labor force participation rate would rise

Which of the following occurs when a discouraged worker becomes an active job searcher?

Frictional unemployment falls

Which of the following occurs when more workers post their resumes at LinkedIn.com and more employers use LinedIn.com to find suitable workers to hire?

Structural unemployment falls

Which of the following occurs when the government eliminates the minimum wage or a new law bans labor unions?

Mola and Philomena

Which of the following people can be described as "structurally unemployed"? (i) Mola is trained as a textile worker but is currently unemployed. He wants to work in the textile industry, which is unionized. Wages are high, but firms in this industry cannot offer jobs at lower wages due to the union requirements. Therefore, no jobs are available. (ii) Agnes believes that she can get a better job in Alaska. Therefore, she quits her job in West Virginia and is looking for a job in Alaska. (iii) Pratt has just retired after working for 40 years in a candle-making factory. (iv) The minimum wage has just been raised, and Philomena finds that fewer jobs are available in the fast-food industry. She is unable to find a job. (v) Cary will graduate in two months, after being a full-time student for the past four years. She wants to find a job in the investment banking sector.

adults who were waiting to be recalled to a job from which they had been laid off

Which of the following will be unemployed?

An increase in federal funds rate

Which of the following will reduce money supply?

someone who was laid off last month

Who is unemployed?

Discouraged workers

___ would like to work but have given up looking for jobs and classified as "not in the labor force.

Unemployment insurance

_______ reduces income uncertainty that workers face but raises frictional unemployment.

fractional reserve banking

a banking system in which banks hold only a fraction of deposits as reserves

The Money Supply-Demand Diagram

a fall in the value of money (or increase in P) increases the quantity of money demanded

unemployment insurance

a government program that partially protects workers' incomes when they become unemployed

capital requirement

a government regulation specifying a minimum amount of bank capital

T account

a simplified accounting statement that shows a bank's assets and liabilities

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity

inflation and the nominal interest rate both increase

according to the quantity theory of money and the fisher effect, if the central bank increases the rate of money growth....

Velocity

according to the quantity theory of money, which variable in the quantity equation is most stable over long periods of time?

central bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy

medium of exchange

an item that buyers give to sellers when they want to purchase goods and services

store of value

an item that people can use to transfer purchasing power from the present to the future

demand deposits

balances in bank accounts that depositors can access on demand by writing a check

Treasury Bills

short-term government bonds. maturity of a few days to 52 weeks

bank reserves

cash that banks need to keep on hand in order to make payments

commodity money

cigarettes traded in POW camps and gold coins are considered...

open market sales

contractionary monetary policy. goal is to decrease money supply during expansions.

reserves

deposits that banks have received but have not loaned out

shoe leather cost

during hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as...

open market purchase

expansionary monetary policy. goal is to increase money supply during recession.

labor force

full time college students, retirees, and stay at home parents areF not in the ______ _______.

deficit, expansion

hyperinflations occur when the govt runs a large budget _______ , which the central bank finances with a substantial monetary ___________.

money supply increases

if the fed buys a govt bond from a bank...

bank reserves and the money supply decreases

if the fed sells govt bonds...

low relative price

if there is inflation, then a firm that has kept its price fixed for some time will have a...

discouraged workers

individuals who would like to work but have given up looking for a job

the value of money

inflation drives up prices and drives down...

hyperinflation

inflation exceeding 50% per month. This is caused by excessive growth in the money supply.

federal funds rate

interest rate that banks pay on overnight interbank loans

labor force participation rate

labor force/ adult population x 100

treasury bonds

mature in 30 years

nominal

money is neutral in the long run, affecting only _______ variables.

commodity money

money that takes the form of a commodity with intrinsic value

fiat money

money without intrinsic value that is used as money because of government decree

inflation fallacy

most people think inflation erodes real incomes

the fisher effect

nominal interest rate = inflation rate + real interest rate

unemployment rate

number of unemployed/ labor force x 100

Commercial banks

offer services, such as checking accounts, to the general public.

real variables

real incomes are determined by _______ ___________, not inflation rate.

Money Demand

refers to how much wealth people want to hold in liquid form. in the real world, it is determined by the Fed, the banking system, and consumers.

reserve requirements

regulations on the minimum amount of reserves that banks must hold against deposits

real

relative price is a _____ variable

fiat money

the US dollar is considered...

money multiplier

the amount of money the banking system generates with each dollar of reserves

federal reserve (Fed)

the central bank of the United States

menu costs

the costs of changing prices

cyclical unemployment

the deviation of unemployment from its natural rate

liquidity

the ease with which an asset can be converted into the economy's medium of exchange

reserve ratio

the fraction of bank deposits that a bank holds as reserves

money

the inflation tax is a tax on everyone who holds...

natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

Fisher effect

the one-for-one adjustment of the nominal interest rate to the inflation rate

strike

the organized withdrawal of labor from a firm by a union

currency

the paper bills and coins in the hands of the public

labor force participation rate

the percentage of the adult population that is in the labor force

unemployment rate

the percentage of the labor force that is unemployed

collective bargaining

the process by which unions and firms agree on the terms of employment

job search

the process by which workers find appropriate jobs given their tastes and skills

monetary neutrality

the proposition that changes in the money supply do not affect real variables

open market operations

the purchase and sale of U.S. government bonds by the Fed

money supply

the quantity of money available in the economy

velocity of money

the rate at which money changes hands

leverage ratio

the ratio of assets to bank capital

bank capital

the resources a bank's owners have put into the institution

Shoeleather Cost

the resources wasted when inflation encourages people to reduce their money holdings

inflation tax

the revenue the government raises by creating money

money

the set of assets in an economy that people regularly use to buy goods and services from other people

monetary policy

the setting of the money supply by policymakers in the central bank

classical dichotomy

the theoretical separation of nominal and real variables

labor force

the total number of workers, including both the employed and the unemployed

leverage

the use of borrowed money to supplement existing funds for purposes of investment

unit of account

the yardstick people use to post prices and record debts

Federal Open Market Committee (FOMC)

this includes the board of governors and presidents of some of the regional Fed banks. It also decides monetary policy.

raise interest rates

to decrease money supply, what will the Fed do to interest rates?

nominal variables

variables measured in monetary units

real variables

variables measured in physical units

medium of exchange, unit of account, store of value

what are the three functions of money?

commodity and fiat

what are the two kinds of money?

less money in the market.

what is the result of the Fed selling government bonds (t bills) and financial institutions buying them?

inflation tax

when tax revenue is inadequate and ability to borrow is limited, government may print money to pay for its spending.

bank regulations decreasing the availability of credit cards

which of the following led to decreases in money-demand curve?

more workers and employees post their resumes to linkedin.com to find suitable workers to hire

which of the following would be most likely to reduce frictional unemployment?