Econ 203- Final Exam
What is the formula for the value of money?
1/P
Who is the current chairman of the FOMC?
Ben Bernanke
Which side of a T account is Loans
Debit (Asset)
When Money Supply rises, what happens to the value of money?
Goes Down.
What is a bank run?
Holding more currency than is deposited.
Lowering the discount rate?
Increases the money supply.
How does unemployment insurance actually create more frictional unemployment?
It gives unemployed more time to search for a job that is a more perfect match.
To Increase the Money Supply, the Fed would ___ the reserve requirement?
Reduce
What interest rate is used with an interbank loan?
The Federal Funds Rate
Money Supply is not affected by changes in the Price Level. (True of False)
True.
What is an interbank loan?
When one bank loans money to another.
What are the three functions of money?
1. A Medium of Exchange 2. A Unit of Account 3. Store of Value
What is the problem with a barter system?
1. Creates the double coincidence of wants 2. Does not allow people to specialize
What two assets are part of money supply?
1. Currency 2. Demand Deposits
What are the two type of money?
1. Fiat Money 2. Commodity Money
What are the two parts of natural unemployment?
1. Frictional Unemployment 2. Natural Unemployment
What three types of public policy affect unemployment?
1. Government Employment Agencies 2. Public Training Programs 3. Unemployment Insurance (UI)
What are the 3 reasons for structural unemployment?
1. Minimum Wage Laws 2. Labor Unions 3. Efficiency Wages
What are the Fed's 3 tools of Monetary Control?
1. Open Market Operations (OMO) 2. Reserve Requirements (RR) 3. The Discount Rate
What are the three components of the Federal Reserve?
1. The Board of Governors (7 Governors) 2. 12 Regional Fed Banks 3. Federal Open Market Committee (FOMC)
What is the formula for the money multiplier?
1/R
What is the current reserve requirement?
10%
How is Labor force participation rate calculated?
100 x ( labor force / total population )
How is the unemployment rate calculated?
100 x (unemployed/labor force)
If R=20%, what is the money multiplier?
5
What type of banking system do we have?
A Fractional Reserve Banking System
What is the quantity theory of money?
Asserts that the quantity of money determines the value of money.
Which side of a T account is deposits
Credit (Liability)
What is included in M1?
Currency, Demand Deposits, and other checkable items
What are the two type of unemployment? (General Unemployment)
Cyclical Unemployment and Natural unemployment
Which side of a T account is Reserve
Debit (Asset)
What is included in M2?
Everything in M1+long term deposit accounts.
What does an increase in P (price) do to money demanded.
Increases the amount of money demanded
What do bank runs cause money supply to fall?
It increases R
How do labor unions affect unemployment?
Labor Unions also raise the wage above the equilibrium to create excess supply of workers.
What if fiat money?
Money without intrinsic value, used as money because of government decree.
How are Price (P) and the value of money related? (Positive or Negative Correlation)
Negatively Related
What is the Federal Reserve's monetary policy of choice?
Open Market Operations
What are the pros and cons of unions?
Pros: Insiders earn 20% higher than outsiders Counters the market power of large firms Cons: Unions are cartels that use their market power to raise the wage rate above the equilibrium rate.
How does Minimum wage increase unemployment?
Puts the wage above the equilibrium price causing there to be excess supply of labor force
What is money supply?
Quantity of money in the economy
To decrease the money supply, the fed would ___ the reserve requirement?
Raise
What is Commodity Money?
Takes the form of a commodity with intrinsic value.
What is a reserve requirement?
The amount of money banks must reserve to hold against deposits.
What is the Federal Reserve?
The central bank of the United States
What is the Discount Rate?
The interest rate on loans the fed makes to banks.
What is cyclical unemployment?
Unemployment on a cyclical rate usually short term with business cycles.
A Fractional reserve banking system creates money, but not ___?
Wealth
What is a sectoral shift?
When changes in the composition of demand across industries or regions of the country.
What are efficiency wages?
When firms voluntarily pay above the minimum wage rate to boost productivity.
What is a barter system?
When one good or service is exchanged for another.
What is unemployment?
When people aren't working and have been looking for unemployment for 4 weeks.
What is structural unemployment?
When there are fewer jobs than workers.
What is frictional unemployment?
When workers spend time finding the job that is the most perfect match
What is a money multiplier?
the amount of money the banking system generates with each dollar of reserves.