Macro Chapter 5

The unemployment rate equals

(labor force-employed)/labor force

If Congress increases government spending, it is using

fiscal policy

If the labor force is 500 and employment is 450, then the unemployment rate is

10% (500-450)/500

TRUE OR FALSE:Macroeconomics is concerned with the market price and equilibrium quantity of each good or service

FALSE

Which of the following is a CORRECT statement? A) Companies issue shares but don't issue bonds. B) The government issues both bonds and shares. C) Bondholders earn dividends but shareholders don't. D) Shareholders earn dividends but bondholders don't.

Shareholders earn dividends but bondholders dont

TRUE OR FALSE:Macroeconomic behavior is the sum of all the microeconomic decisions made by individual households and firms

TRUE

Deflation

a decrease in the overall price level

Circular Flow

a diagram showing the income received and payments made by each sector of the economy

Stagflation

a situation of both high inflation and unemployment

What is a topic studied in Macroeconomics?

aggregate behavior of households and industries

Recession

aggregate output declines. Conventionally when aggregate output declines for two consecutive quarters

In a business cycle, a peak represents the end of

an expansion

Inflation

an increase in overall price level

Transfer Payments

cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. Ex: Social Security benefits, Welfare payments, and Veterans' Benefits

The concept of "market clearing" is adopted and defended by

classical economists

Business Cycle

cycle of short term ups and downs in the economy

Related to the Economics in Practice on p. 417: F. Scott Fitzgerald's The Great Gatsby is set in the "Roaring '20s." This decade in U.S. history was characterized by

economic expansion and low unemployment.

Shares of Stock

financial instruments that give to the holder a share in the firm's ownership and therefore the right to share in the firm's profits

Fiscal Policy

government policies concerning taxes and spending

The federal Reserve affecting the supply of money is known as

monetary policy

Contraction/Recession/Slump

period in the business cycle from a peak down to a trough during which output and employment fall

Expansion/Boom

period in the business cycle from a trough up to a peak which output and employment grow

Hyperinflation

period of rapid increases in the overall price level

Fine-Tuning

phrase used by Walter Heller to describe the governments role in regulating inflation and unemployment

According to Classical models, the level of employment is determined primarily by

prices and wages

Sticky Prices

prices that don't always adjust rapidly to maintain equality between the quantity supplied and quantity demanded

Depression

prolonged and deep recession

Corporate Bonds

promissory notes issued by firms when they borrow money

Treasury Bonds/Notes/Bills

promissory notes issued by the federal government when it borrows money

A household that spends less than it receives in income during a given period is

saving

The government implements fiscal policy when it changes

taxes and/or spending

Macroeconomic policies became more influenced by Keynes' theories starting with,

the Great Depression

Aggregate Behavior

the behavior of all households and firms

Unemployment Rate

the percentage of the labor force that is unemployed

Dividends

the portion of a firm's profits that the firm pays out each period to its shareholders

Monetary Policy

the tools used by the Federal Reserve to control the short-term interest rate

Stagflation occurs when the economy's inflation rate is high and

the unemployment rate is high

The major lesson of the circular flow diagram is that

total income in the economy must always equal total spending

In the circular flow diagram, the different payments made by firms to households include

wages and profits