Economics Unit 4 Test

As a result of the experience of the Great Depression and an analysis of its events, what did the Federal Reserve System learn?

- the importance of money, credit and a safe and sound financial system. - -That ensuring a strong economy requires sound economic policies to make certain that fluctuations in prices, output and employment do not grow into major economic catastrophes

Inflation is measured by changes in the:

Consumer price index

What are considered economic indicators in macroeconomics?

Consumer price index, gross domestic product, unemployment rates, etc.

The type of unemployment associated with recessions is called:

Cyclical unemployment

The largest contributor to increases in the productivity of American labor is:

Technological advance

What body makes monetary policy decisions for the United States?

The Federal Reserve System

What is the Federal Reserve System?

The central bank of the United States

Some suggest that the Smoot-Hawley tariff and protectionist trade policies were the cause of the Great Depression. What are some truths and some misconceptions concerning these policies?

Truths: -A tariff is a tax on an imported good -Tariffs lead to a decrease in international trade Misconception: -Tariffs lower the price of imported goods relative to the price of domestic goods

Monetary policy refers to:

actions of the Federal Reserve to influence the amount of money and credit in the economy

Open market operations are:

conducted by the Federal Reserve to manage the money supply

Which type of unemployment is caused by a recession?

cyclical unemployment

What happens to the amount of money and credit in the economy if the Fed buys securities?

increases

According to historians and economists, what was NOT considered a cause of The Great Depression?

inflation

What is the impact of a shrinking money supply?

lower interest rates/ expansionary monetary policy/ deflation

What is expansionary monetary policy?

expands money supply, boosts economic activity, mainly by keeping interest rates low to encourage borrowing by companies, individuals and banks

The national debt is the:

financial obligations of the federal government resulting from deficit spending.

Who is the best choice to use monetary policy to help stabilize the US economy?

the Federal Reserve

By studying the Great Depression, economists have come to understand:

the importance of money, credit and a safe and sound financial system

Real gross domestic product is:

the market value of all final goods and services produced within a country in a year, adjusted for inflation

What is fiscal policy?

the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy/ It is the sister strategy to monetary policy through which a central bank influences a nation's money supply

The unemployment rate represents:

the percentage of the labor force that is 16 years of age or older, does not currently have a job and is actively looking for employment

From 1929 to 1933 (The Great Depression): What major issues arose in the American Economy?

the unemployment rate was increasing AND GDP was decreasing

Deflation occurs when:

there is a sustained decrease in the overall price of goods and services.

Inflation occurs when:

there is a sustained increase in the overall price of goods and services

What was the impact of government spending during President Roosevelt's administration?

1. Deficits contributed to national debt 2. the fed gov increased its role in the US economy

The four "parts" of a complete business cycle include:

1. Expansion 2. Peak 3. Contraction 4. Recession/Trough

What all contributed to the Great Depression becoming the most significant economic event of the 20th century?

1. The Smoot-Hawley tariff reduced international trade. 2. The stock market crash of 1929 reduced wealth. 3. There was an outflow of gold from the U.S. banking system. 4. The Bank of the United States failed

What are the 3 macroeconomic indicators?

1. Unemployment rates 2. GDP 3. Inflation rates

What are the three main types of unemployment?

1. cyclical 2. frictional 3. structural

What happens if a bank goes out of business in the U.S.?

In most cases, the FDIC would arrange another bank to take over the deposits at the failed bank and the customers continue on without harm. When the FDIC couldn't find a buyer, it paid out the insured balance from its own fund

What are some things we could do that would increase productivity and economic growth?

Increase in GDP, decrease in unemployment rates, etc.

What is the Smoot-Hawley tariff and why was it significant?

It was meant to give American producers an opportunity to gain market share in the domestic market, but the tariff decreased international trade at a time when it should have been encouraged

Which of the following indicators is best to use to determine standard of living?

Real GDP

The purpose of New Deal programs was to provide?

Relief, recovery, and reform/ to have short-range relief and immediate recovery

How did the stock market crash, the closing of the Ford Model T plant and the collapse of the farming industry contribute to the economic collapse known as the Great Depression?

These destroyed jobs, wealth and people's confidence in the economy

Which of the following were included in President Roosevelt's plans to address the economic problems of the Great Depression?

To impose a bank holiday AND to pass banking legislation

What are the functions of the Federal Reserve?

To make monetary policy and to regulate and supervise banks

The purpose of Roosevelt's New Deal legislation was:

To provide relief programs to help immediately, to provide recovery programs to help rebuild, and to provide reform programs to prevent the disaster from reoccurring

What is GDP per capita?

a measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country.

What is a recession?

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

What is a depression?

a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a recession, which is a slowdown in economic activity over the course of a normal business cycle

What happened when banks would went out of business or failed during the Great Depression?

bank panics/ rushed to withdraw funds

What happens to the amount of money and credit in the economy if the Fed sells securities?

decreases

The money supply is the amount:

of currency, coins, and checking account deposits available in an economy

What are some similarities between deflation and inflation:

people and businesses have difficulty planning for the future

What does per capita mean?

per person

What is the impact of a growing money supply?

rising interest rates/ contractionary monetary policy/ inflation

A depression is a:

severe period of declining real output across sectors of the economy and regions of the country

What is contractionary monetary policy?

used to fight inflation which involves decreasing the money supply in order to increase the cost of borrowing which in turn decreases GDP and dampens inflation