Economics - Unit 3 - Macroeconomics
How many regional banks does the Federal Reserve oversee?
12.
When was the Federal Reserve established?
1913.
How does supply behave in the long run? A) Output remains constant. B) Output increases. C) Output cannot be predicted. D) Output decreases.
A
What are the three indicators that economists study?
GDP, unemployment rate, prices
Key areas of macroeconomics
Economic indicators, challenges
Aggregate supply and aggregate demand are similar to supply and demand in that prices must reach _______________ to benefit both producers and consumers.
Equilibrium
In microeconomics, the point at which supply and demand meet is called the ________________ price.
Equilibrium
What are the four phases of the business cycle?
Expansion, peak, contraction, trough
What are the different phases of the business cycle graph?
Expansion, peak, contraction, trough, recovery
Microeconomics
Focuses on direct interactions between producers and consumers
Money in macroeconomics
How money functions in economy, government influence
What can economic models help us do?
Identify patterns, predict changes
What is the relationship between Leaks and Injects in the Foreign Sector?
Imports are leaks, exports are injects
Encouraging Economic Growth: Investing
Investing in resources can encourage growth and offset problems
What are examples of Injector Factors?
Investment, government, consumer spending, net exports
Who benefits from bank profits?
Investors and stockholders.
What are some examples of how the business cycle affects everybody?
Jobs, wages, retirement, clothing, food, selling a home
Economic challenges
Keeping workers employed, prices stable
Determine whether this is an example of an leakage or injector. Savings by individuals outside a bank.
Leakage
Determine whether this is an example of an leakage or injector. Taxes collected by the government sector.
Leakage
The government sector collects taxes, which are considered ___________________.
Leakages
What are the dangers of loaning money?
Less money for banks to loan to others and widespread defaults may cause an economic downturn.
Shrinking Economy: GDP declining
Less money spent
What happened during the Great Depression?
Many businesses failed, wages fell
What is a recovery?
Marked by an increase in GDP, increased production, improved feeling about the economy, growth
What is macroeconomic equilibrium?
When aggregate supply and demand meet
Do banks pay interest to customers?
Yes.
A responsibility the Federal Reserve has is to A) loan money to banks during a crisis. B) loan money to corporations for capital. C) provide banking services to consumers. D) provide financial services to corporations.
A
The circular flow model examines interactions between which two groups? A) households and firms B) households and consumers C) firms and producers D) firms and government
A
When economists determine that a nation's GDP has declined, they can point to this as a sign of A) economic shrinkage. B) economic growth. C) low unemployment. D) poor leadership.
A
The aggregate is A) a type of economic system. B) the total number of goods demanded or supplied. C) a form of revenue. D) the total profit made on sales.
B
To help encourage economic growth, a country can A) stop selling goods to other countries. B) invest in research and development. C) lay off unneeded workers. D) lower requirements for education.
B
When economists study aggregate supply and aggregate demand, what are they studying? A) The supply and demand of a good produced by one company. B) The total supply and demand of goods produced at all price levels. C) The equilibrium price of one good that is produced. D) The reason for a decrease in supply and demand for a specific good.
B
Which banker would a software company most likely visit for help to raise large amounts of capital to acquire, or buy out another company? A) a community banker B) an investment banker C) a commercial banker D) an executive banker
B
Which best describes why taxes and savings are considered leakage factors? A) They take money out of households. B) They take money out of the economic system. C) They take money out of the economic sectors. D) They take money out of the financial sector.
B
How do lower interest rates affect consumers?
They borrow more and invest less.
What is the Federal Reserve?
The central bank of the US.
Which best describes the purpose served by economic models within an economic system? A) Models identify patterns. B) Models determine the business cycle. C) Models control change. D) Models define global demand.
A
Which body or group is most able to use money to influence the economy? A) government B) suppliers C) firms D) producers
A
Which statement best describes the effects of low and high interest rates on the economy? A) Low interest rates encourage consumers to borrow and spend, while high interest rates encourage saving. B) High interest rates discourage consumers from investing, while low interest rates encourage investment. C) High interest rates encourage consumers to borrow and spend, while low interest rates encourage saving. D) Low interest rates encourage consumers to invest, while high interest rates discourage investment.
A
What is a recession?
A contraction in which there are back-to-back quarters of declining GDP
What is interest?
A fee in exchange for borrowing money.
What is a bank?
A financial institution that stores and lends money.
What is a depression?
A serious economic crisis characterized by a decline in GDP over a long period of time, high unemployment, an increase in the number of failed businesses, a sustained drop in sales and the standard of living
What are certificates of deposit (CDs)?
A type of savings account with a fixed term and interest rate.
Which statements best describes why government's actions are important in macroeconomics? Check all that apply. A) Government controls industry through policy. B) Government is both a consumer and a producer. C) Government can prevent changes and challenges. D) Government can use policy to influence the economy. E) Government can accurately predict economic trends.
A, B, D
How do central banks govern the banking industry? Check all that apply. A) by deciding how much banks must keep in reserve B) by overseeing the nation's payment system C) by supervising the loan process at banks D) by printing money for distribution to banks E) by responding quickly to banking crises that occur F) by auditing banks based on current regulations
A, B, E, F
What does macroeconomics focus on trying to understand? Check all that apply. A) The changes that take place within an economic system as a whole. B) The individual interactions of producers and consumers. C) The challenges that economic systems face, such as inflation and unemployment. D) Patterns of change within an economic system, as seen through economic models. E) A nation's economy in isolation, without considering how it integrates with other nations.
A, C, D
What types of investments do banks use to make a profit? Check all that apply. A) opening checking accounts B) starting new businesses C) buying stocks and bonds D) buying several properties E) issuing loans to all customers F) buying the rights to loans
A, C, E
Which of these are among the macroeconomic goals of governments? Check all that apply. A) Steadily increasing the gross domestic product. B) Avoiding overspending at all costs. C) Keeping citizens employed. D) Helping limit economic growth. E) Managing prices throughout the economy.
A, C, E
What is economic growth?
Ability to produce more goods and services
What services does commercial banking offer?
Accounts and loans for capital purchases.
What type of accounts can customers get interest through?
Accounts like savings accounts and certificates of deposit.
What services does retail banking offer?
Accounts, loans, and investments.
What is the importance of holding money in a bank?
Allows consumers to save or withdraw money at any time, protects money from theft, and allows banks to earn a profit through loans and investments.
Supply
Amount of good or service provided by producer to consumers
What is demand?
Amount of good/service consumers buy
What is a savings account?
An account for saving money.
What is the role of central banks in managing the banking industry?
Auditing banks, determining cash reserves, responding to crises, overseeing payment systems.
A long-run equilibrium occurs when long-run aggregate supply and aggregate demand meet. What does having long-run equilibrium indicate about a society? A) The society's supply and demand have stagnated. B) The society is using all of its resources efficiently. C) The society's needs are being fully met. D) The society is not using all of its resources effectively.
B
The Federal Reserve Bank of the United States is also known as the A) people's bank. B) central bank. C) world bank. D) retail bank.
B
Which example best describes how a bank injects money into the economy? A) A bank opens a savings account for a customer. B) A bank approves a loan for a customer. C) A bank buys a company's rapidly growing stock. D) A bank buys property in a bustling business district.
B
The circular flow model examines interactions between which sectors of the economy? Select THREE answers. A) private B) government C) foreign D) tech E) households
B, C, E
Which examples would a student of macroeconomics study? Check all that apply. A) The impact of competition on a bakery. B) The effects of a tax increase on the gross domestic product. C) The influence of economic challenges, such as inflation and unemployment. D) The effect of rising interest rates on the purchasing decisions of individuals. E) The result of a major government spending program on the national unemployment rate.
B, C, E
How is GDP per capita determined?
By dividing total GDP by number of citizens
How do banks earn profits?
By gaining interest on repaid loans.
How do economists measure the business cycle?
By tracking GDP, employment, and other economic indicators
In microeconomics, what occurs when equilibrium is reached? A) Prices decline. B) Prices increase. C) Prices are set. D) Prices fluctuate.
C
Read the Scenario The government of Country M has determined that it needs to take action to encourage the growth of its economy. In order to do this, the government has instituted an incentive policy that offers citizens free education. This is extended to all individuals who sign a contract agreeing to work within their specific industry for the next 10 yrs. How is Country M planning on encouraging economic growth? A) by investing in research to develop goods that can be introduced on a global scale B) by investing in new tech to produce goods that are in great demand C) by investing in education to reduce unemployment and increase production D) by investing in resources that can be traded with other nations.
C
Which best describes what occurs in the product market? A) the exchange of labor for capital. B) the exchange of goods and services for factors of production. C) the exchange of goods and services for money. D) the exchange of money for factors of production.
C
Rabia does not currently have a job, but declined a job offer because she feels her skills merit better pay and a better position. Which terms can be used to describe Rabia? Check all that apply. A) cyclically unemployed B) domestically unemployed C) frictionally unemployed D) structurally unemployed E) still employed F) unemployed
C, F
Cyclical Unemployment
Caused by decrease in economy, rising unemployment
What are the functions of central banks?
Creating policies, managing currency and money supply, serving as bank for banks, regulating and supervising banking.
What is the main goal of producers during a recession?
Cut back production and save money
The GDP within Country D has begun to decline. As a result of decreased production, Thomas has lost his job designing cars. This means that Thomas is ____________________________.
Cyclically Unemployed
How does supply behave in the short run and long run? A) Output remains constant. B) Output increases. C) Output cannot be predicted. D) Output reacts differently.
D
Sometimes an economy cannot grow because of external factors, such as A) lack of skilled labor. B) poor infrastructure. C) low domestic demand. D) low demand for exports.
D
Which BEST describes what injector factors bring to an economic system? A) factors of production B) imports C) consumers D) money
D
Which describes a factor that limits economic growth? A) making investments B) developing technology C) engaging in trade D) having low internal demand
D
Why are imports, which bring goods into a country, considered a leakage factor? A) Imports do not generate domestic income. B) Domestic industry loses ground as imports increase. C) Imports are taxed heavily, which is a secondary leakage. D) The money paid to producers of imports leaves the country.
D
Jim lost his job in a car assembly factory to a robot and his skills will no longer be needed. Which terms can be used to describe Jim? Check all that apply. A) cyclically unemployed B) domestically unemployed C) frictionally unemployed D) structurally unemployed E) still employed F) `unemployed
D, F
What happens during a recession?
Decreasing levels of production, loss of jobs, increasing sense of pessimism
What is the circular flow model?
Demonstrates interactions within economy
What does GNP include?
Domestically owned businesses outside a country
What does an increase in real GDP indicate?
Economic growth
Factors Limiting Economic Growth: Inability to Purchase Goods
Economic growth limited by inability of citizens to purchase goods
Factors Limiting Economic Growth: Lack of Industrial Capacity
Economic growth limited by lack of industrial capacity
Factors Limiting Economic Growth: Lack of Infrastructure or Tech
Economic growth limited by lack of infrastructure or tech
Factors Limiting Economic Growth: Low Demand for Exports
Economic growth limited by low demand for exports
Factors Limiting Economic Growth: Low Domestic Demand
Economic growth limited by low domestic demand
Factors Limiting Economic Growth: Shortage of Workers with Right Skills
Economic growth limited by shortage of workers with right skills
When long-run equilibrium is achieved, a society is using its resources _________________.
Efficiently
Households provide _________________________ to firms, which assists in the production of goods and services.
Factors of production
Investing in education
For labor force
Investing in research and development
For production of goods
What does GNP exclude?
Foreign-owned businesses inside a country
Raquel has just been offered a job, but she has decided not to take it because she feels her skills meant better pay and a better position. This means that Raquel is ____________________________.
Frictionally Unemployed
What is investment banking?
Helping buy and sell securities and assisting in major business transactions.
Cyclical Unemployment and Economic Productivity
High productivity = low cyclical unemployment, Low productivity = high cyclical unemployment
What are the different sectors in the circular flow model?
Households/firms, financial sector, government sector, foreign sector
Determine whether this is an example of an leakage or injector. Government spending by the government sector.
Injector
Determine whether this is an example of an leakage or injector. Investments made by the financial sector.
Injector
Determine whether this is an example of an leakage or injector. Exports purchased by the foreign sector.
Injector
The foreign sector purchases exports, which are considered ____________________.
Injectors.
What does the circular flow model show?
Interactions between households and firms, different sectors
A fee banks charge in exchange for borrowing money is called _________________.
Interest
The interactions of supply and demand between individual producers and consumers is studied within __________________________.
Microeconomics
What is the Circular Flow Model in Macroeconomics?
Model of how money flows through economy
What is the Circular Flow Model?
Model of product and factor markets
What is the business cycle?
Model showing how the economy expands and contracts
What does a bank store?
Money in accounts and investments.
GDP
Money spent by a company
Growing Economy: Unemployment falling
More jobs available
What does a rising GDP indicate?
More money spent
What does GDP per capita measure?
Nation's GDP per person
Shrinking Economy: Real GDP declining
Negative growth rate
What does GDP measure?
Output of a given economy in a given year
What does GNP measure?
Output of a nation's citizens
What happens during the recession to recovery domino effect?
Peak production, falling demand, falling production, loss of jobs, falling demand, rising demand, increased production, increased hiring, rising demand
Growing Economy: Real GDP rising
Positive growth rate
What does a rising real GDP indicate?
Positive growth rate
What is microeconomics?
Price and equilibrium
What affects quantity demanded?
Price and need for good
What drives a recession?
Production and demand
What do economists study?
Production and demand indicators
What is the relationship between Leaks and Injects in the Government Sector?
Taxes are leaks, government spending is injects
What decisions does the business cycle influence for producers?
Production, company growth, hiring, investment
What are some economic indicators used to measure the health of an economy?
Production, employment, GDP
GDP and Hiring
Rising GDP = more hiring, Falling GDP = less hiring
What is the main goal of consumers during a recession?
Save money and spend less
What is the relationship between Leaks and Injects in the Financial Sector?
Savings are leaks, investments are injects
What are examples of Leakage Factors?
Savings, taxes, imports
What is the main goal of the government during a recession?
Stimulate demand and encourage growth
How does the government respond to a recession?
Stimulates demand and encourages growth
What does a bank do?
Stores and holds money, lends money, invests in the economy.
Robert just found out that he is going to be unemployed within a month because his factory has invested in a robotic factor line and his skills are no longer needed. This means that Robert is ______________________.
Structurally Unemployed
Goals of macroeconomics
Study economy behavior and growth factors
Macroeconomics
Study of economic interactions of larger groups
What is the long run?
Supply changes in long term
What is the short run?
Supply changes in short term
What happens during a period of expansion?
Sustained increases in real GDP, high levels of production, rising prices and wages, good feelings about the economy
Short-term aggregate supply happens in a curve instead of a straight line, because economic changes __________________.
Take time
Where are the profits made by the Federal Reserve transferred to?
The US Treasury.
What is the relationship between interest rate and bank profits?
The higher the interest rate, the more money the bank makes when the loan is repaid.
What is the relationship between risk and interest rate?
The higher the risk, the greater the interest rate that is charged.
What is the relationship between Injector and Leakage Factors?
They affect different sectors of the economy
How do higher interest rates affect consumers?
They borrow less and invest more.
What is the purpose of banks loaning money?
To inject money into the economy, allow consumers to buy expensive items, allow entrepreneurs to start businesses, and allow businesses to improve and expand.
Why do banks charge interest?
To make a profit and balance risk and return when making a loan.
What is the purpose of banks investing money?
To make a profit for shareholders, help companies raise capital to expand and make improvements, and benefit the economy as money moves from one party to another.
What are economic models used for?
To understand trends in macroeconomics
What is aggregate demand?
Total demand for goods/services in economy
In macroeconomics, to study the aggregate means to study _____________________.
Total supply and demand
What is aggregate supply?
Total supply of goods/services in economy
Gross Domestic Product (GDP)
Total value of goods and services produced in a country
Unemployment
Unable to find work while actively looking
Impact of studying macroeconomics
Understand government actions and major economic events
Unemployment Rate
Unemployed workers / Number of workers in the labor force
Encouraging Economic Growth: Tech
Use of tech to grow economy
Economic models
Used to identify patterns and predict changes
What are Leakage Factors?
Ways money is pulled out of economy
What are Injector Factors?
Ways sectors bring money into economy
What is equilibrium?
When producers and consumers agree on price
Frictional Unemployment
Workers unemployed by choice, seeking better fit
Structural Unemployment
Workers unemployed due to changing economy, outdated skills
What is retail banking?
Working with consumers and small businesses.
What is commercial banking?
Working with large businesses and corporations.
What was the Great Depression?
Worst economic crisis in US history
