Macroeconomics Exam 3
More currency
In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold ______ relative to deposits:
treasury notes
Maturity of two to ten years. Semi-annual coupon.
quantity theory of money
a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
lower interest rates
to increase money supply, what will the Fed do to interest rates?
frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
d
5. Which of the following actions by the Fed would increase the money supply. a. an open-market purchase of government bonds b. a reduction in banks' reserve requirements c. a decrease in the discount rate on the Fed lending d. all of the above
discouraged workers
Devina lost her job a while ago when the economy contracted. She no longer believes she can get a job and has lost hope of employment. She has several friends in the same scenario. They have all stopped looking for work. This scenario describes:
union
A worker association that bargains with employers over wages, benefits, and working conditions
Firms may find it profitable to pay above-equilibrium wages
According to the theory of efficiency wages, ____________.
is offered by an employer to encourage workers to work harder.
An efficiency wage______.
working but whose skills are not fully utilized
An underemployed person is one who is:
Does not change
Breann takes $100 of currency from her wallet and deposits it into her checking account. The money supply (M1) ________.
year-to-year fluctuations of unemployment around its natural rate.
Cyclical unemployment refers to ________.
lower; induce
In a recessionary situation, we expect the Federal Open Market Committee (FOMC) to _____ interest rates to ____ spending today.
Working either full or part time
Employment is the total number of people who are______.
Federal Deposit Insurance Corporation
FDIC
job searching. It is often thought to explain relatively short spells of unemployment.
Frictional unemployment results from ________.
Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.
How is monetary policy different from fiscal policy?
12
How many regional banks does the Federal Reserve have?
I and II
In order to be considered unemployed, the person must: (i) Be actively searching for work (ii) Be available for work (iii) Be skilled (iv) Be over 35 years
forecasts of economic growth, their suggested policy choices, and their ideas on effective communication regarding Fed plans
In order to prepare for each meeting, the Federal Open Market Committee (FOMC) members prepare their responses to queries regarding their:
You are trained to work as a fitness trainer, but due to poor economic conditions, falling consumer incomes, and falling demand for personal trainers, no gyms are hiring.
In which of the following scenarios would you be classified as "cyclically unemployed"?
An underemployed worker
Jim has a part-time job and would prefer to have a full-time job but has been unable to find full-time work. Jim is classified as:
quantity equation
M x V = P x Y
higher the structural unemployment rate
The higher the minimum wage, as compared to the equilibrium wage, the:
Board of Governors and 12 Federal Reserve district banks
The Federal Reserve System is made up of the:
provide stability in the banking sector and the economy
The Federal Reserve was created to:
the Fed charges banks for loans.
The discount rate is the interest rate that:
interest rate at which banks lend reserves to each other overnight.
The federal funds rate is the
discount rate
The interest rate on the loans that the Fed makes to banks
amount of unemployment that the economy normally experiences.
The natural rate of unemployment is the ________.
The natural rate of unemployment but not frictional unemployment
Unions contribute to ____.
Unemployment rate rises
What happens to the unemployment rate when Sue lost her job and beings looking for a new one?
to ensure maximum employment while maintaining stable prices
What is the Federal Reserve's mandate?
borrow more from the Fed and lend more to the public. The money supply increases.
When the Fed decreases the discount rate, banks will:
buys government bonds from the public
When the Federal Reserve conducts open-market operations to increase the money supply, the Federal Reserve:
the FOMC
Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?
Unemployment rate does not change
Which of following occurs when Sam, the sole earner in his family of 5, just lost his $80,000 as a research scientist. Immediately he takes a part-time job at McDonald's until he can find another job in his field?
People who are not working, but have looked for work during previous 4 weeks and are available for working and
Which of the following describes people who are UNEMPLOYED according to the Bureau of Labor Statistics?
deposits
Which of the following is NOT included in assets in the T-account of banks?
Unemployment rate and the labor force participation rate would rise
Which of the following occurs when a discouraged worker becomes an active job searcher?
Frictional unemployment falls
Which of the following occurs when more workers post their resumes at LinkedIn.com and more employers use LinedIn.com to find suitable workers to hire?
Structural unemployment falls
Which of the following occurs when the government eliminates the minimum wage or a new law bans labor unions?
Mola and Philomena
Which of the following people can be described as "structurally unemployed"? (i) Mola is trained as a textile worker but is currently unemployed. He wants to work in the textile industry, which is unionized. Wages are high, but firms in this industry cannot offer jobs at lower wages due to the union requirements. Therefore, no jobs are available. (ii) Agnes believes that she can get a better job in Alaska. Therefore, she quits her job in West Virginia and is looking for a job in Alaska. (iii) Pratt has just retired after working for 40 years in a candle-making factory. (iv) The minimum wage has just been raised, and Philomena finds that fewer jobs are available in the fast-food industry. She is unable to find a job. (v) Cary will graduate in two months, after being a full-time student for the past four years. She wants to find a job in the investment banking sector.
adults who were waiting to be recalled to a job from which they had been laid off
Which of the following will be unemployed?
An increase in federal funds rate
Which of the following will reduce money supply?
someone who was laid off last month
Who is unemployed?
Discouraged workers
___ would like to work but have given up looking for jobs and classified as "not in the labor force.
Unemployment insurance
_______ reduces income uncertainty that workers face but raises frictional unemployment.
fractional reserve banking
a banking system in which banks hold only a fraction of deposits as reserves
The Money Supply-Demand Diagram
a fall in the value of money (or increase in P) increases the quantity of money demanded
unemployment insurance
a government program that partially protects workers' incomes when they become unemployed
capital requirement
a government regulation specifying a minimum amount of bank capital
T account
a simplified accounting statement that shows a bank's assets and liabilities
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
efficiency wages
above-equilibrium wages paid by firms to increase worker productivity
inflation and the nominal interest rate both increase
according to the quantity theory of money and the fisher effect, if the central bank increases the rate of money growth....
Velocity
according to the quantity theory of money, which variable in the quantity equation is most stable over long periods of time?
central bank
an institution designed to oversee the banking system and regulate the quantity of money in the economy
medium of exchange
an item that buyers give to sellers when they want to purchase goods and services
store of value
an item that people can use to transfer purchasing power from the present to the future
demand deposits
balances in bank accounts that depositors can access on demand by writing a check
Treasury Bills
short-term government bonds. maturity of a few days to 52 weeks
bank reserves
cash that banks need to keep on hand in order to make payments
commodity money
cigarettes traded in POW camps and gold coins are considered...
open market sales
contractionary monetary policy. goal is to decrease money supply during expansions.
reserves
deposits that banks have received but have not loaned out
shoe leather cost
during hyperinflations, people desire to hold less money and will go to the bank more frequently. This waste of resources due to the high rate of inflation is known as...
open market purchase
expansionary monetary policy. goal is to increase money supply during recession.
labor force
full time college students, retirees, and stay at home parents areF not in the ______ _______.
deficit, expansion
hyperinflations occur when the govt runs a large budget _______ , which the central bank finances with a substantial monetary ___________.
money supply increases
if the fed buys a govt bond from a bank...
bank reserves and the money supply decreases
if the fed sells govt bonds...
low relative price
if there is inflation, then a firm that has kept its price fixed for some time will have a...
discouraged workers
individuals who would like to work but have given up looking for a job
the value of money
inflation drives up prices and drives down...
hyperinflation
inflation exceeding 50% per month. This is caused by excessive growth in the money supply.
federal funds rate
interest rate that banks pay on overnight interbank loans
labor force participation rate
labor force/ adult population x 100
treasury bonds
mature in 30 years
nominal
money is neutral in the long run, affecting only _______ variables.
commodity money
money that takes the form of a commodity with intrinsic value
fiat money
money without intrinsic value that is used as money because of government decree
inflation fallacy
most people think inflation erodes real incomes
the fisher effect
nominal interest rate = inflation rate + real interest rate
unemployment rate
number of unemployed/ labor force x 100
Commercial banks
offer services, such as checking accounts, to the general public.
real variables
real incomes are determined by _______ ___________, not inflation rate.
Money Demand
refers to how much wealth people want to hold in liquid form. in the real world, it is determined by the Fed, the banking system, and consumers.
reserve requirements
regulations on the minimum amount of reserves that banks must hold against deposits
real
relative price is a _____ variable
fiat money
the US dollar is considered...
money multiplier
the amount of money the banking system generates with each dollar of reserves
federal reserve (Fed)
the central bank of the United States
menu costs
the costs of changing prices
cyclical unemployment
the deviation of unemployment from its natural rate
liquidity
the ease with which an asset can be converted into the economy's medium of exchange
reserve ratio
the fraction of bank deposits that a bank holds as reserves
money
the inflation tax is a tax on everyone who holds...
natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates
Fisher effect
the one-for-one adjustment of the nominal interest rate to the inflation rate
strike
the organized withdrawal of labor from a firm by a union
currency
the paper bills and coins in the hands of the public
labor force participation rate
the percentage of the adult population that is in the labor force
unemployment rate
the percentage of the labor force that is unemployed
collective bargaining
the process by which unions and firms agree on the terms of employment
job search
the process by which workers find appropriate jobs given their tastes and skills
monetary neutrality
the proposition that changes in the money supply do not affect real variables
open market operations
the purchase and sale of U.S. government bonds by the Fed
money supply
the quantity of money available in the economy
velocity of money
the rate at which money changes hands
leverage ratio
the ratio of assets to bank capital
bank capital
the resources a bank's owners have put into the institution
Shoeleather Cost
the resources wasted when inflation encourages people to reduce their money holdings
inflation tax
the revenue the government raises by creating money
money
the set of assets in an economy that people regularly use to buy goods and services from other people
monetary policy
the setting of the money supply by policymakers in the central bank
classical dichotomy
the theoretical separation of nominal and real variables
labor force
the total number of workers, including both the employed and the unemployed
leverage
the use of borrowed money to supplement existing funds for purposes of investment
unit of account
the yardstick people use to post prices and record debts
Federal Open Market Committee (FOMC)
this includes the board of governors and presidents of some of the regional Fed banks. It also decides monetary policy.
raise interest rates
to decrease money supply, what will the Fed do to interest rates?
nominal variables
variables measured in monetary units
real variables
variables measured in physical units
medium of exchange, unit of account, store of value
what are the three functions of money?
commodity and fiat
what are the two kinds of money?
less money in the market.
what is the result of the Fed selling government bonds (t bills) and financial institutions buying them?
inflation tax
when tax revenue is inadequate and ability to borrow is limited, government may print money to pay for its spending.
bank regulations decreasing the availability of credit cards
which of the following led to decreases in money-demand curve?
more workers and employees post their resumes to linkedin.com to find suitable workers to hire
which of the following would be most likely to reduce frictional unemployment?