MACRO FINAL

Four functions of money

- Medium of Exchange - Unit of Account - Store of Value - Standard of Deferred Payment

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

allocative efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

Demand Schedule

A table that shows the relationship between the price of a product and the quantity of the product demanded.

Supply Schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied.

In the figure to the​ right, when the money supply increased from MS 1 to MS 2​, the equilibrium interest rate fell from​ 4% to​ 3%. Why?

Initially, firms hold more money than they want relative to other financial assets. B. Increased demand for Treasury securities drives down their interest rate. C. Increased demand for Treasury securities drives up their prices. D. All of the above. D. ALL OF THE ABOVE

Scarcity is central to the study of economics because it implies that

Every choice involves an opportunity cost.

globalization is the process of countries imposing trade restrictions on other countries.

FALSE

if inflation is unanticipated, no redistribution of income can occur

FALSE

If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.

Fallen, Fallen

In economics, the term "free market" refers to a market where no sales tax is imposed on products sold.

False

Expansionary Monetary Policy

Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.

Business Cycle

Fluctuations in economic activity, such as employment and production

Hypothesis

Is a statement about an economic variable that may be either correct or incorrect.

the economy of East Paragon has been experiencing deflation for the last few months, with prices of goods and services declining. Because firms are charging lower prices, they expected higher sales. However, consumption spending did not increase much, resulting in substantial losses for these firms. Which of the following, if true, explains why consumers did not increase consumption in spite of falling prices?

Most people were expecting prices to decline further.

In the long run, what is the level of real GDP determined by?

Number of workers, the level of technology, and capital stock

Scott is a woodworker and charges $125 an hour for his time manufacturing custom-made wood products. For his wife's birthday, he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts?

GDP falls by $1875

Restrictions on catfish imports into the US result in ________________ ________________ prices that __________________ US consumers of catfish. US suppliers of catfish __________________ . Chinese consumers _______________ because they can import __________________ catfish from Vietnam.

Higher Help Gain Gain More

What causes a shift in the AD curve?

Increase in Interest Rates, Decrease in C & I, SHIFTS LEFT Increase in Government Purchases, Increase in G, SHIFTS RIGHT Increase in Taxes, Decrease in C & I, SHIFTS LEFT Increase in household income expectations, Increase in C & I, SHIFTS RIGHT Increase in firms expectations profit in I spending, Increase in I, SHIFTS RIGHT Increase growth of domestic GDP, Decrease in NX, SHIFTS LEFT Increase of Exchange Rate, Decrease in NX, SHIFTS LEFT

In the figure to the​ right, which of the following events is most likely to cause a shift in the money demand​ (MD) curve from MD 1 to MD 2 ​(Point A to Point ​C)​?

Increase in real GDP or increase in the price level

What causes shifts in the SRAS curve?

Increased expectations about price level, Increased wages & prices, SHIFTS LEFT Increase in labor force or capital stock, increase in output, SHIFTS RIGHT Increase in Productivity, Increase in output, SHIFTS RIGHT Adjustment to underestimated price Increase, Increase in wages and prices, SHIFTS LEFT Supply shock, increase in prices, SHIFTS LEFT

What does increasing marginal opportunity costs​ mean?

Increasing the production of a good requires larger and larger decreases in the production of another good.

Main Monetary Policy Goals

Price Stability High Employment Stability of financial markets and institutions Economic growth

What factors influence market supply

Prices of inputs Technological change Prices of substitutes in production Number of firms in the market Expected future prices

Disposable personal income is equal to personal income minus personal tax payments

TRUE

The lengths of the recession and expansion phases and which sectors of the economy are most affects will rarely be the same in any two business cycles.

TRUE

if inflation is unexpectedly high, borrowers will benefit and lenders will be harmed.

TRUE

The Fed uses monetary policy to offset the effects of a recession​ (high unemployment and falling prices when actual real GDP falls short of potential​ GDP) and the effects of a rapid expansion​ (high prices and​ wages). Can the​ Fed, therefore, eliminate​ recessions?

The Fed can only soften the magnitude of​ recessions, not eliminate them.

What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of​ long-run macroeconomic​ equilibrium?

The Fed will pursue a contractionary monetary policy

As a percentage of GDP, imports are grater than exports for which of the following countries?

The United States

What causes movement along the AD curve?

The Wealth Effect: Lowering Consumption The Interest-Rate Effect: Discourages investment The International-Trade Effect: Lower Net Exports

Monetary Policy

The actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives.

Opportunity Cost

The highest-valued alternative given up in order to engage in some activity.

Trade-off

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service Trade offs imply opportunity cost.

Globalization

The process of countries becoming more open to foreign trade and investment

Economics

The study of the choices people make to attain their versions of reality used to analyze real-world economic situations.

Protectionism

The use of trade barriers to shield domestic firms from foreign competition

Real GDP

The value of final goods and services evaluated at base-year prices

Nominal GDP

The value of final goods and services evaluated at current-year prices

If the number of firms producing electric cars increases and consumer preference for electric cars increases, the equilibrium quantity of electric cars will definitely increase.

True

Which of the following best describes scarcity?

Unlimited wants exceed the limited resources available

Which of the following equations sums up the components of Gross Domestic Product (GDP)

Y=C+I+G+NX

Technological Change

a change in the quantity of output a firm can produce using a given quantity of inputs

Phillips Curve

a curve showing the short-run relationship between the unemployment rate and the inflation rate

Aggregate Demand (AD) Curve

a curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government (both inside and outside of the country).

Demand Curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded

Long Run Aggregate Supply Curve (LRAS)

a curve that shows the relationship in the long run between the price level and the quantity of real GDP supplied

Short-run Aggregate Supply (SRAS) Curve

a curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms

Holding everything else constant, an increase in the price of raisins will result in

a decrease in the quantity of raisins demanded

Market

a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

Autarky

a situation in which a country does not trade with other countries

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

centrally planned economy

an economy in which the government decides how economic resources will be allocated

Positive Analysis

analysis concerned with what is (Fact)

Normative Analysis

analysis concerned with what ought to be (Opinion)

Money

any asset that people are generally willing to accept in exchange for goods and services or for payment of debts

Reserves

are deposits that a bank keeps as cash in its vault or on deposit with the Federal Reserve

When the Federal Open Market Committee​ (FOMC) decides to increase the money​ supply, it _______________ U.S. Treasury securities. If the FOMC wishes to decrease the money​ supply, it ________________ U.S. Treasury securities.

buys, sells

Quotas

numerical limits placed on specific classes of imports

Free Market

one with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed

In analyzing markets, we generally assume:

people are rational people respond to economic incentives optimal decisions are made at the margin

If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until

quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

a good measure of the standard of living is

real GDP per capita

Changes in interest rates affect aggregate demand. Which of the following is affected by changes in interest rates​ and, as a​ result, impacts aggregate​ demand? ​(Mark all that​ apply.)

consumption of durable goods, business investment projects, the value of a dollar

Which of the following is not a reason that the economy is considered to have been more stable in the 1950-2007 period than in other periods? During the last half of the twentieth century, the U.S. economy experienced

continually falling oil prices long expansions, interrupted by a relatively short recessions.

which of the following will not occur as the result of a decrease in net taxes?

decreased household saving

In the figure to the​ right, the opportunity cost of holding money _______________ when moving from Point A to Point B on the money demand curve.

decreases

Economic Growth Model

explains growth rates in real GDP per capita over the long run

Automatic Stabilizers

forms of government spending and taxes that automatically increase or decrease along with the business cycle

Commodity Money

goods used as money that also have value independent of their use as money

The production possibilities frontier will shift outward

if resources are used to produce capital goods

Factors that influence market demand

income of consumers prices of related goods tastes population and demographics expected future prices

Which of the following does NOT lead to long-run economic growth?

increase in average wages

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would

increase the measured labor force participation rate

As the economy nears the end of a recession, which of the following do we typically see?

increased spending on capital goods by firms

during a business cycle expansion, total production ________ and total employment __________

increases, increases

Contractionary Monetary Policy

increasing interest rates to reduce inflation

Production Possibilities Frontier (PPF)

is a curve showing the maximum attainable combinations of two goods that can be produced with available resources and technology

Fiat money

is any money, such as paper currency, that is authorized by a central bank or government body and that does not have to exchanged by the central bank for gold or some other commodity money.

Human Capital

is the accumulated knowledge and skills that workers acquire from education and training of from their life experiences

Federal Reserve

is the central bank of the United States.

The federal funds rate

is the rate that banks charge each other for​ short-term loans of excess reserves.

If the quantity of goods and services produced in the economy decreases

it may be possible for nominal GDP to increase

Voluntary Export Restraints (VERs)

limitations on the amount of specific products that one nation will export to another nation

Which of the following is NOT a monetary policy goal of the Federal Reserve bank​ (the Fed)?

low prices

Capital

manufactured goods used to make other goods and services

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost

Fiscal Policy

refers to changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

required reserves

reserves that a bank is legally required to hold, based on its checking account deposits

A consumer price index of 160 in 1996 with a base year of 1982 -1984 would mean that the cost of the market basket

rose 60% from the cost of the market basket in the base year

A decrease in Demand

shifts the demand curve to the left

An Increase in Demand

shifts the demand curve to the right

A decrease in supply

shifts the supply curve to the left

An increase in supply

shifts the supply curve to the right

The ________________ is considered the most relevant interest rate when conducting monetary policy.

short-term nominal interest rate

frictional unemployment

short-term unemployment that arises from the process of matching workers with jobs

A production possibilities​ frontier:

shows the maximum attainable combinations of two goods that may be produced with available resources.

textbook examples of trade between two nations are simplified in oder to show how to nations both benefit from trade. These examples are misleading because:

some individuals in both countries may be made worse off because of trade.

Economic Variables

something measurable that can have different values, such as the number of people employed in manufacturing.

Comparative Advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

Absolute Advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

Real GDP per capita

the amount of production in the economy, per person, adjusted for changes in the price level

Industrail Revolution

the application of mechanical power to the production of goods, beginning in England around 1750.

If cyclical unemployment is eliminated in the economy, then

the economy is considered to be at full employment

Movement along the demand curve

the effect of change in quantity demanded causes movement along the demand curve.

Federal Funds Rate

the interest rate banks charge each other for overnight loans

Gross Domestic Product (GDP) is

the market value of all finals goods and services produced in a country during a period of time.

required reserve ratio (RR)

the minimum fraction of deposits banks are required by law to keep as reserves. **when there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands

natural rate of unemployment

the normal rate of unemployment, consisting of frictional unemployment and structural unemployment

Catch-up

the prediction that the level of GDP per capita (or income per capita) in poor countries will grow faster than in rich countries.

A demand curve shows the relationship between

the price of a product and the quantity of the product demanded.

Long-Run Economic Growth

the process by which rising productivity increases the average standard of living

labor productivity

the quantity of goods and services that can be produced by one worker or by one hour of work

From a trough to a peak, the economy goes through

the recessionary phase of the business cycle

per-worker production function

the relationship between real GDP per hour worked and capital per hour worked, holding the level of technology constant

Suppose that the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect

the unemployment rate to rise

Deflation occurs when

there is a decline in the price level

Economists assume that people are rational in the sense that:

they use all available information as they take actions intended to achieve their goals.

cyclical unemployment

unemployment caused by a business cycle recession

structural unemployment

unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs

Movement of the demand curve

​Income, Prices of related​ goods, ​Tastes, Population and​ demographics, and Expected future prices

Supply Curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Why would government program to inspect catfish be considered an example of protectionism. If repealing the program is "an easy call" as the editorial asserts, why was the program still in place in 2017, more than a year after the editorials was published?

A federal program to inspect catfish creates a barrier to trade. The programs benefits are concentrated

Which of the following statements about a hypothesis is correct?

A hypothesis is a statement that could in principle turn out to be incorrect.

In addition to tariffs and quotas, governments sometimes erect other barriers to trade. Which of the following is an example of a barrier to trade that a government may impose?

All of the above are examples of barriers to trade that a government may impose.

Which of the following statements about an economic variable is correct?

An economic variable is something measurable that can have different values.

mixed economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

market economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Assume that tin recent years the cost of producing microbrew beer in the US has decreased largely due to technology improvements. At the same time, more and more Americans prefer microbrew beer over wine. Which of the following best explains the effect of these events in the microbrew beer market?

Both the supply and demand curves have shifted right. as a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

Some important historical and modern commodity moneys

Cowrie shells in Asia Precious metals Animal pelts and skins Cigarettes in prisons and prisoner-of-war camps

What does the article mean that chinas emergence as a trade powerhouse rattled the US economy? Why didn't economists and policy makers expect the economic effect of imports from china to be as great as it turned out to be? In what sense has the US workforce adapted more slowly than expected?

China began exporting more goods than the US had been producing Economists and policymakers didn't expect the large number of job losses to occur so quickly. The US was slow to retrain its workers with new skills.

Marginal Analysis

Comparing marginal cost and marginal benefit

Real GDP 4 Components

Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX) Adding these gives real GDP: Y=C+I+G+NX

Economic Models

Simplified versions of reality used to analyze real-world economic situations