ec205 test 1

monetary policy

controlled by federal reserve

Frictional unemployment is unemployment:

due to the time it takes for employers to search for workers and for workers to search for jobs.

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that the:

economy is experiencing an economic downturn.

contractionary policy

fiscal: greater taxes, less spending; monetary: higher interest; decreases GDP

expansionary policy

fiscal: more spending, less taxes; monetary: lower interest; increases GDP

According to the Playposit video on macroeconomic growth, which institution below is NOT included in the list of institutions economists agree are important to spur economic growth?

market power for firms

How to find Real GDP

nominal GDP/(price index/100)

flexible prices

product prices that freely move upward or downward when product demand or supply changes

Real GDP per capita

real GDP/population

seasonal unemployment

unemployment linked to seasonal work

frictional unemployment

unemployment that occurs when people take time to find a job

structural unemployment

unemployment that occurs when workers' skills do not match the jobs that are available (tech advancement)

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

full employment

when the unemployment rate is equal to the natural rate of unemployment (frictional + structural)

Percent change

(CPI new-CPI old/CPI old) x 100

unemployment rate

(number of unemployed/labor force) x 100

Calculating CPI

(total expenditure in year x/total expenditure in base year) x 100

People not included in the labor force

- retirees - homemakers - full-time students - those on active military service - those in prison - those in hospitals - people who have looked in last 12 months, but not last 4 weeks (could be do to transportation or childcare issues) - discouraged workers

big 3 indicators

1. GDP 2. Inflation rate 3. Unemployment

How to keep an economy steady

1. Keep economy growing over time 2. Limit unemployment 3. Keep prices stable

3 Goals of FED's monetary policy

1. Price stability 2. Maximum employment 3. Economic growth

Lags

1. Recognition 2. Implementation 3. Impact

how to keep economy steady

1. keep economy growing over time 2. limit unemployment 3. keep prices stable

What does CPI mean

100= base year, <100, decreased, >100 increased

Hyperinflation

50% per month

Inflation

A general and progressive increase in prices

expansionary fiscal policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

Core Index

CPI minus food and energy because they are volatile

fiscal policy

Congress controls it, govt spending and taxes

What does GDP include

Consumption + Investment + Government + (Exports-Imports)

contractionary monetary policy

FED controls interest rates

Which of following people can be classified as structurally unemployed?

Florrie, who has decided that she wants to start a new career as a train driver but does not have the skills needed to do so.

Business Cycle

Fluctuations in economic activity, such as employment and production

Professor Drew has published a best-selling book on inflation. In the book he talks about measuring inflation over time using a basket of goods comprised of all the components of GDP. Which measure is he talking about?

GDP deflator

A nation's prosperity is sometimes measured in terms of

GDP per capita

_______ is based more on what a country's citizens and firms produce anywhere, wherever they are located, and _______ is based on what happens within a certain country's geographic boundaries.

GNP;GDP

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

expenditure multiplier

Keynesian concept that asserts that a change in autonomous spending by govt causes a more than proportionate change in real GDP

Resources

Natural resources, labor, human capital, physical capital, tech, institutions, property rights

Incentives for an economy

Political stability, competitive and open markets,

sticky prices

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded.

Deflation

a decrease in the general level of prices

CPI

a measure of the overall cost of the goods and services bought by a typical consumer

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

Disinflation

a reduction in the rate of inflation

During the Great Recession, the United States Congress increased the length of time that unemployment benefits could be received from 52 weeks to 99 weeks. This change caused:

an increase in the costs for the government.

Which of the following factors contribute to economic growth?

an increase in the proportion of the population that is college educated

money supply

the quantity of money available in the economy

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth