Macroeconomics Midterm
Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is:
Not in the labor force
Supply curve
A curve illustrating supply
Inflation
A rise in the general level of prices in an economy.
Demand
A schedule showing the amounts of a good or service that buyers wish to purchase at various prices during some period of time.
In a fractional reserve banking system
A banking system in which banks keep less than 100 percent of deposits as reserves
National income accounting
The techniques used to measure the overall production of the economy and other related variables for the nation as a whole.
The value of a price index in the base year Is always 100
True
The wants of consumers are expressed in the product market with "dollar votes"
True
Inferior goods
a good or service whose consumption declines as income rises, prices are held constant.
Inventory
goods that have been produced but remain unsold
Commercial banks and thrift institutions
have become increasingly similar in recent years.
Supply
A schedule showing the amounts of a good or service that sellers will offer at various prices during some period of time.
Economic Principle
A widely accepted generalization about the economy behavior of individuals or institutions.
Consumption of fixed capital
An estimate of the amount of capital worn out or used up (consumed) in producing the GDP aka depreciation.
Business cycle:
Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.
A major advantage of the built- in or automatic stabilizers is that they
Require no legislative action by congress to be made effective
Describe the distinction between a banks actual reserves and its required reserves. Which is a larger amount
Required reserves are the amount of funds equal to a specified percentage of the banks own deposit liabilities Actual reserves are the amount of funds that we control
The two topics of primary concern in macroeconomics are
Short-run fluctuations in output and employment, and long- run economic growth
Macroeconomics is mostly focused on
The economy as a whole
Personal consumption expenditures (C)
The expenditures of households for durable and nondurable consumer goods and services.
Unemployment
The failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.
What "backs" the us money supply, making us willing to accept it as payment
The federal reserve
Entrepreneurial ability
The human resources to produce a product, makes non routine decisions, innovates, and bears risks.
Expenditures approach
The method that adds all expenditures made for final goods and services to measure the GDP
Income approach
The method that adds all the income generated by the production of final goods and services to measure the GDP.
Macroeconomics
The part of economics concerned with the economy as a whole; with such major aggregates as the house-hold, businesses, and government sectors; with measures of the total economy.
Competition
The presence in a market of independent buyers and sellers competing with one another along with the freedom of buyers and sellers to enter and leave the market.
Equilibrium price
The price in a competitive market at which the quantity demanded and the quantity supplies are equaled, there is neither a shortage nor a surplus, and there. Is no tendency for price to rise or fall.
When economists describe "a market," they mean
The price of the product itself
"invisible hand"
The tendency of firms and resource suppliers that seek to further their own self interests in competitive markets to also promote the interests of society.
Utility
The want- satisfying power of a good or service; that satisfaction or pleasure a consumer obtains from the consumption of a good or service. ( or from the consumption of a collection of goods and services.)
Economists who are willing to accept mild inflation consider it to be a necessary by -product of high and growing spending that produces high levels of output, full employment, and economic growth.
True
Excess reserves are the amount by which required reserves exceeded actual reserves
True
Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.
True
Increases in household and business pending are a demand factor in economic growth
True
Net exports are positive when exports are greater than imports
True
Property rights have a positive effect in a market economy because they encourage owners to maintain their property
True
Strong patent laws encourage innovation and promote economic growth
True
Tax revenues automatically increase during economic expansions and decrease during recessions
True
The M2 money supply is larger than the M1 money supply
True
The business cycle is so named because upswings and downswings in business activity are predictably equal in terms of duration and intensity
True
The guiding function of prices tends to keep resources flowing toward their most highly valued uses
True
U.S. Gross domestic product measures the market value of all goods and services produced by Americans in one year
True
the higher the reserve requirement , the lower the monetary multiplier
True
The primary purpose of the legal reserve requirement is to
What "backs" the us money supply, making us willing to accept it as payment
Is economic growth desirable yes or no and why
Yes economic growth lessens the burden of scarcity, improves products and services, and adds leisure.
Improvements in education and training explain about 80 percent of the historical growth of U.S. labor productiviy
False
One of the most important resources is money
False
Real GDP per capita is found by dividing real GDP by the size of the labor force
False
Subprime mortgage loans are so named because the rates charged are below the prime interest rate
False
Surpluses drive market prices up; shortages drive them down
False
The Value of a sale of a share of stock is considered to be an investment in national income accounting
False
The twelve federal reserve banks are governmentally owned but privately controlled
False
An example of final goods in national income accounts would be
Flower pots purchased by homeowner kenny
Real GDP
GDP adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal.
Nominal GDP
GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation.
Final goods
Goods that have been purchased for final use and not for resale or further processing or manufacturing
An important routine function of the federal reserve is to
Help large commercial banks develop correspondent relationships with smaller commercial banks
Capital
Human made resources (buildings, machines ) used to produce goods and services; goods that do not directly satisfy Hyman wants; AKA capital goods.
Growth is advantageous to a nation because it
Lessens the burden of scarcity
What are the two main tools that the government uses to implement fiscal policy changes are they effective and why?
Low taxes get people to go out and spend more money. High government spending can create jobs which grows the economy
The two general types of economic systems that exist today are?
Market systems and capitalism
Land
Natural resources used to produce goods and services.
Economic growth is best defined as an increase in
Nominal GDP
Economics:
is a social science that deals with the production, distribution, and consumption of goods and services.
Inflation reduces the purchasing power of a persons income and savings
true
The public debt is the accumulation of all deficits and surpluses that have occurred through time
true
When the economist describe a "market" they mean
A place where stocks and bonds are traded
An increase in quantity supplied might be caused by an increase in production costs
False
Any person without a job is considered to be unemployed.
False
Balance sheets always balance because reserves must always equal liabilities plus net worth
False
Demand -pull inflation can be restrained by increasing government spending and reducing taxes
False
Economists and policymakers are generally more concerned about nominal GDP than real GDP.
False
Economists refer to purchases of stocks and bonds as investments
False
The law of demand states that as price Increases, other things being equal, the quantity of the product demanded increases
True
The natural rate of unemployment in the US is about 4-6 percent
True
Expansionary fiscal policy is named because it involves an expansion of the nations money supply
False
Shocks
Sudden, unexpected changes in demand or supply.
Growth is a widely held economic goal primarily because it creates a more equal distribution of wealth and income
False
Demand curve
A curve showing demand
An appropriate fiscal policy for a severe recession is
A decrease in tax rates
Which would be considered an investment according to economists
A fishing company owner buys Google shares
Normal goods
A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
Budget Line
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
Economic system
A particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types.
Recession
A period of declining real GDP, accompanied by lower real income and higher unemployment.
Money functions are
A store of value A unit of account A medium of exchange
GDP is the market value of
All final goods and services produced in an economy in a given year
Price Index
An index number that shows how the weighted average price of a market basket of goods changes over time.
Market
Any institution or mechanism that brings together buyers ( demanders) and sellers (suppliers) of a particular good or service.
Economic scarcity
Applies to all economies
If two goods are substitutes, a decline in the price of one will cause an increase in the demand for the other
False
For an economy to increase investment it must
Buy more stocks and bonds
What does it mean when economists say that home buyers are "underwater" on their mortgages
Buyers are financially incapable of repaying their mortgages and bankruptcy is inevitable
Given the annual rate of economic growth, the "rule of 70" allows one to:
Calculate the number of years required for real GDP to double
Examples of command economies are
Cuba and North Korea
Contractionary fiscal policy is named because it
involves a contraction of the nations money supply
Saving
Disposable income not spent for consumer goods; equal to disposable income nuns personal consumption expenditures; saving is a flow.
The production of durable goods varies more than the production of nondurable goods because
Durables purchases are postponable
Government purchases (G)
Expenditures by government for goods and services that government consumes in providing public goods and for the public capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services.
Gross private domestic investment (I)
Expenditures for newly produced capital goods such as machinery, equipment, tools, and buildings. And for additions to inventories.
Net exports (X)
Exports minus imports
Is hyperinflation desirable yes, no why
In economics, hyperinflation is very high and typically accelerating inflation. It quickly erodes the real value of the currency, as the prices of most or all goods increase. This causes people to minimize their holdings in that currency as they usually switch to more stable foreign currencies.
Investment
In economics, spending for the production of accumulation of capital and additions to inventories.
Strong property rights are important for modern economic growth because:
People are more likely to invest if they don't fear that others can take their returns on investment without compensation
Labor
Peoples physical and mental talents and efforts that are used to help produce goods and services.
Inflexible prices ("sticky prices")
Product prices that remain in place even though supply or demand has changed; stuck prices or sticky prices.
Complimentary good
Products and services that are used together. When the price of one falls, the demand for the other increases,( and conversely.)
Substitute good
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
Intermediate goods
Products that are purchased for resale or further processing or manufacturing.
Self-interest
That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain.
invisible hand
The Unity of private and social interest 1776 Wealth of nations by Adam smith
opportunity cost
The amount of other products that must be forgone or sacrificed to produce a unit of a product.
Other - Things equal assumption
The assumption that factors other than those being considered are held constant; Ceteris paribus assumption
Which would most likely move the economy into a recession in the short term
The central bank printing less money than was anticipated
Marginal analysis
The comparison of marginal ( "extra" or " additional") benefits and marginal costs, usually for decision making.
As a result of the decrease in the price of hamburger, consumers buy more hamburger and fewer frankfurters this is an illustration of
The substitution effect
Define GDP price index
To base inflation off previous years Always gets based off 100
Which of the following is a primary use for national income accounts
To measure changes in the value of production and income in the economy
A government subsidy per unit of output increases supply
True
A recession is defined as a situation where the average price level of the economy is rising
True
Changes in business inventories are included as part of investment in the national income accounts
True
Checkable deposits are a liability on a banks balance sheet
True
Checkable deposits held in saving and loan institutions, mutual savings banks and credit unions are part of the M1 definition of the money supply
True
Commercial bank reserves are an asset to commercial banks but a liability to the federal reserve bank for holding them
True
Shocks to the economy are
When expectations are unmet
Define market equilibrium price
Where the supply in the market is equal to the demand in the market
Define the business cycle
a cycle or series of cycles of economic expansion and contraction.
When a check is drawn and cleared the
bank against which the check is cleared loses reserves and deposits equal to the amount of the check.
People who work part time, but desire to work full time are considered to officially unemployed
false
Broadly defined, competition involves
independently acting buyers and sellers and freedom to enter or leave markets.
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
The demand curve shows the relationship between
price and quantity demanded
Inflation means that
prices on average are rising, although some particular prices may be falling.
Microeconomics
the part of economics concerned with single factors and the effects of individual decisions
When the receipts given by goldsmiths to depositors were used to make purchases
the receipts became in effect of paper money