chap
The banking system creates money because ______.
a bank that has excess reserves can make loans. When a bank creates a loan, the bank increases the balance of the borrower's account and that increase in deposits is new money
m1
M1 is the sum of currency and traveler's checks, $1 comma 586.4 billion, and checkable deposits $2 comma 071.4 billion, which is $3 comma 657.8 billion.
real interest rate
Nominal interest rate - Inflation rate
he nominal wage rate is the average _____ wage rate measured in _____ dollars. The real wage rate is the average _____ wage rate measured in the dollars of _____ year.
hourly; current; hourly; a reference base
money The three vital functions that money performs are ______.
Both a checkable deposit at the Bank of America and a $ 10 bill serve as a medium of exchange, a unit of account, and a store of value. You are correct that ancient Roman coins are not money. They serve as a unit of account and a store of value, but not as a medium of exchange. And a blank check, a Rembrandt painting, plastic sheets used to make Visa cards, and Cox Communications bonds are not money. Upper A Rembrandt painting and Cox Communications bonds act as a store of value, but not as a medium of exchange or a unit of account. A blank check and plastic sheets used to make Visa cards perform none of the three functions of money. They are not a medium of exchange, a unit of account, or a store of value. medium of exchange, unit of account, and store of value
Which of the following is an example of capital goods
The government will open another public school in the area.
What is a characteristic of an economy at full employment?
The unemployment rate equals the natural unemployment rate.
National debt is the amount of government _____ - _____ that has arisen from past _____.
debtde outstanding; debt; budget deficits
CPI bias is a problem because it ______.
distorts wage agreements linked to the CPI
Subsidies to producers result in ______. If the subsidies (and the taxes that pay them) are decreased, ______.
overproduction and inefficiency; the market for corn and the market for soybean becomes more efficient
The CPI measures the average prices paid by _______ for _______.
urban consumers; a fixed basket of consumption goods and services
The _____ that people devote to produce goods and services is labor
work time, and work effort
The U.S. economy is at full employment when the following events occur: 1. A deep recession hits the world economy. 2. The world oil price rises by a large amount. 3. U.S. businesses expect future profits to fall.
All three events decrease real GDP. Events 1 and 3 lower the price level and Event 2 raises the price level, so we can't tell whether the price level rises or falls.
Which of the following illustrates a tradeoff?
I will study for my exam instead of going for the movie tonight.
CPI
The CPI in 2016 equals (Cost of the CPI market basket in 2016 divided by Cost of the CPI market basket in 2015 ) times 100.
Marginal private benefit is the benefit from ______ of a good or service that the _____ of the good or service receives. Marginal external benefit is the benefit from _____ of a good or service that people other than the _____ of that good or service enjoy.
an additionalan unit; consumer; an additional unit; consumer
The Consumer Price Index is a measure of the _____ of the prices paid by _____ consumers for a fixed market basket of consumption goods and services.
average; urban
Cyclical unemployment is the fluctuating unemployment over the business cycle that increases during _____ and decreases during _____.
a recession; an expansion
An externality is a _____ that arises from production and that falls on someone other than the producer; or a _____ that arises from consumption and that falls on someone other than the consumer.
cost or benefit; cost or benefit
The rise in the minimum wage _______. If the rise in the minimum wage increases the natural unemployment rate, potential GDP ______ and aggregate supply ______.
decreases aggregate supply because firms' costs increase decreases; decreases further
Explain how aggregate demand changes when the government increases taxes by $100 billion. Aggregate demand ______.
decreases by more than $100 billion because the tax increase has a multiplier effect
Full-employment equilibrium occurs when equilibrium real GDP _____.
equals potential GDP
A medium of exchange is an object that is generally accepted in return for _____. Barter is the direct exchange of goods and services for _____, which _____ a double coincidence of wants.
goods andgo services; other goods and services; requires
The main sources of bias in the CPI are ______.
new goods bias, quality change bias, commodity substitution bias, and outlet substitution bias
Marginal social benefit is the benefit enjoyed by society - by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal ______ and marginal ______.
privatepr benefit; external benefit
If the Fed wants to increase the quantity of money, it makes an open market _______. Reserves in the banking system ______. Banks ______ loans. Bank deposits ______ and the quantity of money ______.
purchase increase; make more increase; increases
Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same.
realre GDP; price level
The velocity of circulation is the _____ number of times in a _____ that each dollar of money gets used to buy final goods and services.
average; year
Reserves consist of the currency in the _____ plus the balance on its _____ account at _____.
bank's vaults; reserve; a Federal Reserve Bank
Rent is the income paid for the use of _____. Wages are income paid for the services of _____. Profit (or loss) is the _____ earned by an entrepreneur for running a business. Interest is the income paid for the use of _____.
land; labor; income; capital
unemployment rate
The unemployment rate is the percentage of the people in the labor force who are unemployed. The number of people unemployed equals the labor force minus the number employed, which equals (157.8minus149.9). The unemployment rate is calculated as the number of people unemployed divided by the labor force, all multiplied by 100. The unemployment rate is [ (157.8minus149.9)/157.8] times 100, which is 5.0%.
people; 16
The working-age population is the total number of _____ aged _____ years and over who are not in jail, hospital, or some other form of institutional care or in the U.S. Armed Forces.
Which of the following is an example of absolute advantage?
Tom does his math homework in 2 hours while Harry takes only 30 minutes to do the same task.
Human capital is _______.
the knowledge and skill that people obtain from education, on-the-job training, and work experience
Deadweight loss is the decrease in _____ that results from an inefficient _____ or _____.
total surplus; underproduction; overproduction
Allocative efficiency is a situation in which the quantities of goods and services produced are those that people _____ - it is not possible to produce more of a good or service _____ some of another good that people _____.
value mostva highly; without giving up; value more highly
An increase in expected future profit _______ aggregate demand today, and an increase in expected future income _______ aggregate demand today.
increases; increases
CPI
The CPI is a measure of the average of the prices paid by urban consumers for a fixed market basket of consumption goods and services.
Which of the following statements illustrates monetary policy
The Fed has raised the federal funds rate by 0.3 percent.
List the sequence of events in the transition from a fall in the federal funds rate to a change in the inflation rate.
The Fed lowers the federal funds rate. Other short-term interest rates fall and the exchange rate falls . The quantity of money and supply of loanable funds increase The long-term real interest rate falls . Consumption expenditure, investment, and net exports increase . Aggregate demand increases . Real GDP growth rate increases Inflation rate increases .
What is the Fed and what is the FOMC?
The Fed provides banking services to banks and governments and the FOMC is the Fed's main policy dash making committee.
Which of the following statements illustrates fiscal policy
The US government has proposed a hike in the corporate tax rate.Th
percentage of the household budget
The average household spent $196 on firecrackers and $9 on bandages in the base year, so the total budget is $205. So the percentage of the household budget spent on firecrackers in the base year is ($196 divided by $205) times 100, which is 95.6 percent.
potential GDP line to the right of X(vertical). equilibrium price on X.
The graph shows the aggregate demand curve, AD, and the short-run aggregate supply curve, AS, in the economy of Artica
labor force participation rate
The labor force participation rate is the percentage of the working-age population in the labor force. The labor force participation rate is calculated as the labor force divided by the working-age population, all multiplied by 100. The labor force participation rate is (157.8 divided by 252.0) times 100, which is 62.6%.
wage
The nominal wage rate is the average hourly wage rate measured in current dollars. The real wage rate is the average hourly wage rate measured in the dollars of a reference base year.
The interest rate is 23 percent a year in The Gambia and 8.6 percent a year in South Africa. The inflation rate is 6.8 percent a year in The Gambia and 4.6 percent a year in South Africa. Calculate the real interest rate in The Gambia and South Africa.
The real interest rate in The Gambia is 16.2 percent a year. The real interest rate in South Africa is 4 percent a year.
The reference base period is a period for which the _____ is defined to equal _____. Currently, the reference base period is 1982-1984.
CPI; 100
Which of the following is an example of comparative advantage?
Dave makes 4 pizzas giving up 6 jars of milk shakes while Rob makes 2 pizzas giving up 4 jars of milk shakes.
m2
M2 is the sum of M1, savings deposits, small time deposits, and money market funds.
Real interest rate =
Nominal interest rate minus Inflation rate
Which of the following statements illustrates structural unemployment?
Outsourcing resulted in many job losses in the mid 2000s.
Which of the following statements illustrates frictional unemployment?
Robin is quitting his current job to find another that has better prospects.
Which of the following is an example of entrepreneurship?
Sam Walton created the multinational retail corporation brand Walmart in 1962.Sa
aggregate
When aggregate demand decreases, real GDP decreases and the price level falls. When aggregate supply decreases, real GDP decreases and the price level rises.
Tax incidence is the division of the burden of a tax between the _____ and the _____.
buyer; seller
The production possibilities frontier is the boundary between the combinations of goods and services that _____, given the available factors of production and the state of technology.
can be produced and the combinations that cannot be produced
Economic growth is defined as the _____
sustained expansion of production possibilitiessu
The Fed's chief executive is ______ and the Fed's main policy tools are ______.
the Chairman of the Board of Governors; required reserve ratios, discount rate, and open market operations. In unusual times, extraordinary crisis measures are an additional tool
Which of the following items are examples of fiscal policy that increase aggregate demand?
An increase in government expenditure, a decrease in taxes, and an increase in transfer payments
The U.S. economy is at full employment when the following events occur: Event 1: A deep recession hits the world economy. Event 2: The world oil price rises by a large amount. Event 3: U.S. businesses expect future profits to fall.
Event 1 and Event 3 decrease aggregate demand and Event 2 decreases aggregate supply. Event 1 _______ real GDP and _______ the price level. decreases; lowers Event 2 _______ real GDP and _______ the price level. decreases; raises Event 3 _______ real GDP and _______ the price level. decreases; lowers
A central bank is ______. The ______ is the central bank of the United States.
a public authority that provides banking services to banks and governments and regulates financial institutions anda markets; Federal Reserve System
If the economic recovery slows and the economy slips back into recession, and if the Fed decides not to change the federal funds rate, we would expect ______.
a smaller recessionary gap than would occur with a rise in the federal funds rate
Production efficiency is a situation in which the economy is getting all that it can from its resources and _____ produce more of one good or service without producing _____ of something else.
cannot; less
The Federal Reserve System (the Fed) is the _____ of the United States.
central bank
Which of the following is money?
charlie's checking account deposit at the Bank of America
Total surplus is the sum of _____ and _____.
consumer surplus; producer surplus
The decrease in nonresidential investment ______ aggregate demand. The decrease in federal government spending ______ aggregate demand. The change in exports and imports _______ aggregate demand because _______
decreases; decreases increase; an increase in exports increases aggregate demand and a decrease in imports increases aggregate demand
Classify each of the following items as discretionary fiscal policy or automatic fiscal policy or neither.
neither: The imposition of huge fines on tobacco companies discretionary: A cut in the gas tax rate discretionary: A cut in cross-border (custom) tax rates automatic: The increase in the total amount paid in unemployment benefits as more workers lose their jobs.
As more people in India have access to higher education ______ and in the long run ______.
human capital increases; both potential GDP and aggregate supply increase
Between 1960 and 1999, the labor force participation rate ______.
increased mainly because the number of women who entered the labor force increasedin
Explain how aggregate demand changes when government expenditure on national defense increases by $100 billion. Aggregate demand ______.
increases by more than $100 billion because the government expenditure has a multiplier effect
The federal funds rate is the _____ rate on _____ loans.
interest; interbank
Human capital _____ that people obtain from education, on-the-job training, and work experience. _____ that have been produced in the past and that businesses now use to produce goods and services is capital.
is the knowledge andis skill; Tools, instruments, machines, buildings, and other items
Aggregate supply is the relationship between the quantity of _____ supplied and the _____ when all other influences on production plans remain the same.
real GDP; price level
Macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve.
real GDP; real GDP; AD; AS
A means of payment is a method of _____ a debt.
settling
A cost of living index is a measure of the change in the amount of money that people need to spend to achieve a given _____.
standard of living
