MacroEcon Test 2
A surplus of labor is eliminated by ________ in the real wage rate and a shortage of labor is eliminated by ________ in the real wage rate.
a decrease; an increase
Minimum Wage Policy
a government-mandated floor on the price of labor.
bequest saving
for leaving inheritence
Pre cautionary saving
for unexpected situations
Real GDP=Potential GDP, Actual U-rate=NROU
full employment
the supply of loanable funds is from
households and the government if it has a budget surplus.
supply of labor
is the relationship between the quantity of labor supplied and the real wage rate when all other influences on work plans remain the same.
Quantity of labor demanded
is the total labor hours that all the firms in the economy plan to hire during a given time period at a given real wage rate.
An increase in the supply for loanable funds ...
leads to a fall in the equilibrium interest rate
A decrease in the demand for loanable funds . . .
leads to a fall in the equilibrium interest rate.
An increase in the demand for loanable funds . . .
leads to a rise in the equilibrium interest rate.
A decrease in the supply for loanable funds...
leads to a rise in theequilibrium interest rate
The demand for loanable funds curve illustrates
the quantity of loanable funds demanded at any given level of the real interest rate.
Which of the following events would result in higher equilibrium interest rate and greater equilibrium quantity of loanable funds?
The demand for loanable funds shifted rightward.
NROU
The natural rate of unemployment is a combination of frictional and structural unemployment that persists in an efficient, expanding economy when labor and resource markets are in equilibrium.
crowding-out effect
The tendency for a government budget deficit to raise the real interest rate and decrease investment
crowding-out effect.
The tendency for a government budget deficit to raise the real interest rate and decrease investment is called the
Why does the govt. borrow
To fund social security payments To buy office supplies, etc. To pay down its outstanding debts To finance a deficit To invest in some megaprojects
Standard of living declines when growth rate of population is greater than growth rate of Real GDP
True
Supply of loanable funds
the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same.
Quantity of loanable funds demanded
the total quantity of funds demanded to finance investment, the government budget deficit, and international investment or lending during a given period.
Potential GDP
the value of Real GDP when all of the economy's factors of production are fully employed. Potential GDP = (natural rate of employment) ÷ (actual rate of employment) * (actual GDP)
why do households borrow
to buy houses
why does the govt. save
to improve public sector
Why do firms borrow
to invest
job rationing
when the real wage rate is above the full-employment equilibrium level
Gr. rate of RGDP per capita
(RGDP t- RGDP t-1)/ (RGDP t-1)
Budget balance
T-(G+Tr)
Checkable bank deposits
are bank accounts on which people/businesses can write checks.
the demand for labor curve
downward sloping, showing that the quantity of labor demanded increases when the real wage falls.
diminishing returns
each additional hour of labor employed produces a successively smaller additional amount of real GDP
Currency in circulation
is cash held by the public. It is the paper bills and coins in the hands of the (non-bank) public
Demand for Labor
is the relationship between the quantity of labor demanded and real wage rate when all other influences on firms' hiring plans remain the same.
Functions of FED
1. THE FED MAKES LOANS TO BANKERS WHEN THEY WANT TO BORROW. 2. THE FED SUPPLIES CURRENCY TO THE ECONOMY. 3. THE FED PROVIDES A SYSTEM OF CHECK COLLECTION AND CLEARING. 4. THE FED HOLDS RESERVES FROM BANKS AND OTHER DEPOSITORY INSTITUTIONS AND REGULATES BANKS. 5. THE FED CONDUCTS MONETARY POLICY.
When the real interest rate ________ the equilibrium real interest rate, there is a ________ of loanable funds and the real interest rate ________.
is less than; shortage; rises
Assumptions
1. There is only one financial market. 2. All savers deposit their saving in this market. 3. All borrowers take out loans from this market. 4. There is one interest rate, which is both the return to saving and the cost of borrowing.
Quantity of labor supplied
is the number of labor hours that all the households in the economy plan to work during a given time period and at a given real wage rate.
Demand for loanable funds
is the relationship between the quantity of investment demanded and the real interest rate, other things remaining the same.
store of value
A store of value is any commodity or token that can be held and exchanged later for goods and services.
FED
America's central bank. created in 1913. The FED in the US consists of the Federal Reserve Banks, the Board of Governors, and the FOMC. 12 federal reserve districts
Cause demand curve for loanable funds to shift
Changes in perceived business opportunities Expected profits Changes in the government policies Government budget deficit
Causes supply of loanable funds to shift
Changes in private savings behavior Change in disposable income Change in wealth Change in expected future income Changes in capital inflows Change in government policies Budget surplus
M1
Currency in circulation + travelers' checks + checkable deposits owned by individuals and businesses.
Borrowers
Firms, households, government
Growth rate of real GDP per person
Growth rate of Real GDP - Growth rate of population
Who are savers in the loanable funds market
Households
M2
M1+ savings deposits + small time deposits + money market mutual funds + other deposits
facts about M1 and M2
M2 is the broader measure of money commonly used and is used by economists to estimate the entire supply of money within an economy. The most basic measure of money in the US is M1. M2 is a key economic indicator used to forecast inflation.
Functions of money
MONEY SERVES AS A MEDIUM OF EXCHANGE, MONEY SERVES AS A UNIT OF ACCOUNT, MONEY SERVES AS A STORE OF VALUE,
NGDP per capita
NGDP/Population
Labor productivity
RGDP/# of labor hours
RGDP per capita
RGDP/Population...Standard of living
A nation's standard of living is best measured by its
Real GDP per person
Money market mutual funds
allow you to write checks and make electronic transfers, but most accounts establish a minimum dollar amount. Electronic, telephone and pre-authorized transactions are limited by federal regulations to six per month, with no more than three being by check, draft or debit card.
What is obtainable?
anything on or inside the curve
Holding all other influences constant, the quantity of labor supplied in a given time period depends
directly on the real wage rate so that a higher real wage increases the quantity of labor supplied.
When the labor market is in equilibrium,
i. the quantity demanded of labor equals the quantity supplied. ii. there is full employment. iii. potential GDP is produced
If real GDP grows at a faster rate than does population, then the standard of living, as measured by real GDP per person,
imrpove
The idea of "diminishing returns" means that real GDP ________ as the quantity of labor increases.
increases at a slower rate
A govt. budget surplus...
increases quantity of loanable funds, decreases interest rate
Union Wage
is a wage rate that results from collective bargaining between a labor union and a firm.
Other things remaining the same, the ________ the real interest rate, the ________.
lower; greater the quantity of loanable funds demanded
3 reasons for structural employment
minimum-wage laws, labor unions, and efficiency wages.
Structural Employment
occurs when there are fewer jobs than workers
Loanable funds
refers to all income that ppl. have chosen to save and lend out. the amount of money that investors have chosen to borrow.
production function
relationship that shows the maximum quantity of Real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same
traveler's check
s a preprinted, fixed-amount check designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege.
Efficiency Wage
s a real wage rate that is set above the full-employment equilibrium wage rate to induce greater work effort.
Life-cycle saving
saving to meet long term objectives (Retirement, new house, car
If the real interest rate is less than the equilibrium real interest rate, there is a ________ of loanable funds, and ________.
shortage; some borrowers cannot find the funds they want