Final

How to find the Real Exchange Rate

(Nominal exchange rate) * Cost in US / Cost elsewhere

How to find velocity

(Price * Quantity of output) / quantity of money

New leverage ratio

(Reserves + Loans + Securities) / Capital

How to find price level

(quantity of money * velocity) / quantity of output

-How to calculate reserves -How to find required reserves

- Demand deposits - Loans - Demand deposits * Required reserve ratio

Dmitri is a famous novelist. He is spending the summer at his lake house in upstate New York, doing a little writing each day but mostly spending his time gardening and reading.

Employed

Shen is a 22-year-old professional tennis player. When he's not competing, he works as a coach at a local tennis club.

Employed

-Rajiv recently lost his job as a dishwasher. Minimum-wage legislation keeps employers from adding more of the low-skill positions for which he qualifies, so he has been unable to find work. -Automobile demand has fallen during a recent recession, and Ana has been laid off from her job on the assembly line. -Simone is a physician who has decided to relocate to California to be closer to her family. She is currently interviewing with several prestigious hospitals in the San Francisco Bay Area.

-Structural -Cylical -Frictional

-Arises from a mismatch between the jobs available in some labor markets and the skills of workers. -Occurs because job seekers and employers need time to find one another. -The form of unemployment associated with business cycles.

-Structural unemployment -Frictional unemployment -Cyclical unemployment

Where a good can be bought in one country at a low price and sold in another at a higher price

Arbitrage opportunities

GDP =

C + I + G + (X-M)

What is the effect of the change in NCO on the market for foreign exchange by shifting either the supply curve, the demand curve, or both.

Shift supply curve right

True or False: Short-term fluctuations in real GDP are irregular and unpredictable.

True

Valerie is a 42-year-old autoworker who was just laid off by her employer. She is trying to find any kind of job to help make ends meet.

Unemployed

What does a Long run aggregate supply curve look like

Vertical

Which of the following groups are better off as a result of the union action in the northern state? Check all that apply. -Employers in the northern state -The original workers in the southern state -Workers who find new jobs in the southern state -Workers in the northern state employed at the union wage

Workers in the northern state employed at the union wage

The short-run economic outcome resulting from the increase in production costs is known as .

stagflation

How to find net exports

Exports - imports

What refers to how quickly an asset can be converted into a medium of exchang

Liquidity

In a large open economy, what is the source of the domestic supply of loanable funds? Net capital outflow National saving and investment Investment National saving

National Saving

How to find quantity of output supplied

Natural level of output+ a * (actual price level- expected price level)

In an open economy, what is the source of supply of dollars in the foreign-currency exchange market? Net exports Exports Net capital outflow Investment and net capital outflow

Net Capital Outflow

In an open economy, why is the supply curve for dollars in the foreign-currency exchange market vertical? -Net capital outflow is determined by real GDP, not the real exchange rate. -Net capital outflow equals net exports. -Net capital outflow is determined by the real interest rate, not the real exchange rate. -Net capital outflow is extremely sensitive to small changes in the real exchange rate.

Net capital outflow is determined by the real interest rate, not the real exchange rate.

In an open economy, what is the source of demand for dollars in the foreign-currency exchange market? Imports Net exports Net capital outflow National saving

Net exports

Caroline is a 10-year-old student at Southside Middle School. She babysits her younger sister and does other chores, so her parents give her an allowance of $25 per week.

Not in the adult population

Antonio is a 41-year-old graphic designer who is taking 2 years off from work to care for his small daughter.

Not in the labor force

Frances is a 29-year-old who lost her job as an associate producer for a radio station. After spending a few weeks out of work and interviewing for several other positions, she gave up on her job search and decided to go back to grad school. She made that decision a few months ago.

Not in the labor force

-There are how many Federal Reserve regional banks. -The Federal Reserve's role as a lender of last resort involves lending to which of the following financially troubled institutions? A) U.S. state governments when they run short on tax revenues B) U.S. banks that cannot borrow elsewhere C) Governments in developing countries during currency crises -Which of the following contributes to making the Federal Reserve an independent policymaking body? A) Its role is written into the U.S. Constitution. B) Members of the Board of Governors are appointed for 14-year terms. C) There are 12 Federal Reserve banks. -There are _____ members of the Federal Reserve Board of Governors.

-12 -U.S. banks that cannot borrow elsewhere -Members of the Board of Governors are appointed for 14-year terms. -7

In a large open economy, what is one of the reasons the demand curve for loanable funds is downward sloping? -A higher real interest rate makes borrowing more expensive. -A higher real interest rate encourages people to save. -A lower real interest rate discourages domestic consumers from buying foreign assets and encourages foreigners to buy domestic assets. -A lower real interest rate discourages investment.

-A higher real interest rate makes borrowing more expensive

Factors that influence international trade In the 1950s, imports and exports of goods and services constituted roughly 4% to 5% of U.S. GDP. In recent years, exports have accounted for approximately 12% of GDP, while imports have more than tripled to over 15% of GDP. Which of the following help to explain the increase in international trade and finance since the 1950s? Check all that apply. -An increasing number of affordable international flights -International trade agreements that lower tariffs and import quotas -Services such as web conferencing and teleconferencing that facilitate international meetings -Changes in property rights

-An increasing number of affordable international flights -International trade agreements that lower tariffs and import quotas -Services such as web conferencing and teleconferencing that facilitate international meetings

-Suppose a period of continuous political instability leads people to believe that the economy will slide into a deep recession. As a result, people become more likely to accept _____ money in exchange for goods and services. -U.S. dollars are an example of _____ money.

-Commodity -Flat

Because of the identity equation that relates to net exports, the _____ in U.S. net exports is matched bya _____ in U.S. net capital outflow.

-Decrease -Decrease

Compared with lower inflation rates, a higher inflation rate will _____ the after-tax real interest rate when the government taxes nominal interest income. This tends to _____ saving, thereby _____ the quantity of investment in the economy and _____ the economy's long-run growth rate.

-Decrease -Discourage -Decreasing -Decreasing

What decreases demand -Wealth -Taxes -Interest rates -The value of the domestic currency relative to the foreign policy -Consumer expectations about future profitability. -Gov spending

-Decrease -Increase -Increase -Appreciate -Worsen -Decrease

In the long run, as a result of the economic turmoil abroad, the price level _____ , the quantity of output _____ the natural level of output, and the unemployment rate _____ the natural rate of unemployment.

-Decreases -Returns to -Returns to

The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system _____ , banks' need to borrow from each other _____ , and the federal funds rate _____ .

-Decreases -Rises -Increases

During the transition from the short run to the long run, price-level expectations will adjust _____ and theshort-run aggregate supply curve will shift to the _____

-Downward -Right

Suppose the government wants to reduce frictional unemployment. Which of the following policies would help achieve this goal? Check all that apply. -Taxing the price of placing a resume or posting a job opening on a job-search website -Establishing government-run employment agencies to connect unemployed workers to job vacancies -Extending the number of weeks for which unemployed workers are eligible for unemployment insurance benefits from the government. -Offering recipients of unemployment insurance benefits a cash bonus if they find a new job within a specified number of weeks -Improving a widely used job-search website so that it matches workers to job vacancies more effectively

-Establishing government-run employment agencies to connect unemployed workers to job vacancies -Offering recipients of unemployment insurance benefits a cash bonus if they find a new job within a specified number of weeks -Improving a widely used job-search website so that it matches workers to job vacancies more effectively

When price is above equilibrium there are when price is below equilibrium there are

-Exports -Imports

In the short run, the decrease in foreign spending on domestic goods associated with recession abroad causes the price level to _____ the price level people expected and the quantity of output to _____ the natural level of output. The economic turmoil abroad will cause the unemployment rate to _____ the natural rate of unemployment in the short run.

-Fall below -Fall below -Rise above

The short-run quantity of output supplied by firms will fall below the natural level of output when the actual price level _____ the price level that people expected.

-Falls below

Why might some firms voluntarily pay workers a wage above the market equilibrium, even in the presence of surplus labor? Check all that apply. -Higher wages attract a more competent pool of workers. -Higher wages cause workers to shirk more of their responsibilities. -Paying higher wages can reduce a firm's training costs. -Paying higher wages enhances workers to adopt healthier lifestyles, enhancing their productivity.

-Higher wages attract a more competent pool of workers. -Paying higher wages can reduce a firm's training costs. -Paying higher wages enhances workers to adopt healthier lifestyles, enhancing their productivity.

Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to _____ , which will: -Shift the long-run aggregate supply curve to the left -Not affect the long-run aggregate supply curve -Shift the long-run aggregate supply curve to the right

-Rise -Shift the long-run aggregate supply curve to the left

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $7.50. Which of the following statements are true? Check all that apply. -In this labor market, a minimum wage of $7.50 is binding. -Binding minimum wages cause frictional unemployment. -If the minimum wage is set at $10.50, the market will not reach equilibrium. -In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium.

-If the minimum wage is set at $10.50, the market will not reach equilibrium. -In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium.

Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and _____ the_____ account.

-Increase -Debt

Suppose the world price of steel rises substantially. The demand for labor among steel-producing firms in Pennsylvania will _____ . The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will _____ . The temporary unemployment resulting from such sectoral shifts in the economy is best described as _____ unemployment.

-Increase -Decrease -Frictional

Effects of capital flight -Real interest rate -Real exchange rate -Net capital outflow

-Increase -Decrease -Increase

The effects of a budget deficit -Real interest rate -Real exchange rate -Trade Balance

-Increase -Increase -Defecit

The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate _____ banks' incentives to borrow reserves from the Federal Reserve, thereby _____ the quantity of reserves in the banking system and causing the money supply to _____ .

-Increases -Increasing -Rise

-An increase in the overall level of prices is called -A decrease in the overall level of prices is called -This example illustrates that, as the price level falls, the value of money _____ .

-Inflation -Deflation -Rises

-The impact of the government's decision to raise revenue by printing money on the value of money is known as the _____ -The unanticipated change in inflation arbitrarily benefits _____

-Inflation tax -Banks

A lower reserve requirement is associated with a _____ money supply.

-Larger

What is necessary to increase short term aggregate supply: -Inflation expectations -Human capital -Technology -Burdensome regulations

-Lower -Improves -Improves -Decrease

-Includes currency -includes currency plus money market deposit accounts, savings account deposits, certificates of deposit (such as Simone's CD), and what are called miscellaneous near-monies.

-M1 -M2

M1 or M2 - Rosa has $7,000 in a six-month certificate of deposit (CD). -Nick has $2,500 in a savings account. -Jake has $10 bill in his wallet

-M2 -M2 -M1 and M2

Change due to a quota - Supply of loanable funds -Real interest rate -Domestic investment -Net exports

-No change -No change -No change -No change

For example, an increase in the money supply, a _____ variable, will cause the price level, a _____ variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a _____ variable. -The notion that an increase in the quantity of money will impact the price level but not the output level is known as_____. -The separation of real variables and nominal variables is known as the _____ .

-Nominal -Nominal -Real -Monetary neutrality -Classical dichotomy

- _____ variables are measured in monetary units - _____ variables are measured in physical units -Monetary neutrality is the proposition that a change in the money supply _____ nominal variables and _____ real variables.

-Nominal -Real -Affects ; Does not affect

-How to find expected real interest rate -How to find actual real interest rate

-Nominal interest rate - expected inflation rate -Nominal interest rate- actual inflation rate

-The horizontal axis of the aggregate demand and aggregate supply model measures the overall _____ -The vertical axis of the aggregate demand and aggregate supply model measures the _____ -The _____ curve shows the quantity of goods and services that firms produce and sell at each price level. -The_____ curve shows the quantity of output that households, firms, the government, and foreign customers want to buy at each price level.

-Quantity of output -Price level -Aggregate supply -Aggregate demand

-Notice that real GDP trends upward over time but experiences ups and downs in the short run. A period of declining real GDP, is known as a _____ -Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short-run fluctuations in real GDP are often referred to as the _____

-Recession -Business cycle

Which of the following probably occurred as the U.S. economy experienced declining real GDP? Check all that apply. -Retail sales declined. -Industrial production increased. -Home sales increased. -Consumer spending declined. -Corporate profits declined -the unemployment rate increased

-Retail sales declined -Consumer spending declined -Corporate profits declined -The unemployment rate increased

Direction of long run aggregate supply curve -The government allows more immigration of working-age adults who find work. -For environmental and safety reasons, the government requires that the country's nuclear power plants be permanently shut down. -An investment tax credit increases the rate at which firms acquire machinery and equipment.

-Right -Left -Right

As the price level rises, the cost of borrowing money will _____ , causing the quantity of output demanded to _____. This phenomenon is known as the _____ effect.

-Rise -Fall -Interest Rate

As the price level rises, the impact on the domestic interest rate will cause the real value of the dollar to _____ in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore _____ , and the number of foreign products purchased by domestic consumers and firms (imports) will _____ . Net exports will therefore _____ , causing the quantity of domestic output demanded to _____ . This phenomenon is known as the _____ effect.

-Rise -Fall -Rise -Fall -Fall -Exchange rate

Which of the following statements help to explain why, in the real world, the Fed cannot precisely control the money supply? Check all that apply. -The Fed cannot control the amount of money that households choose to hold as currency. -The Fed cannot prevent banks from lending out required reserves. -The Fed cannot control whether and to what extent banks hold excess reserves.

-The Fed cannot control the amount of money that households choose to hold as currency. -The Fed cannot control whether and to what extent banks hold excess reserves.

Which of the following is true of the capital requirement? Check all that apply. -It specifies a minimum leverage ratio for all banks. -Its intended goal is to protect the interests of those who hold equity in the bank. -The higher the percentage of assets a bank holds as loans, the higher the capital requirement.

-The higher the percentage of assets a bank holds as loans, the higher the capital requirement.

Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. -The inflation rate -The size of the labor force -The quantity of physical capital -The price level

-The inflation rate -The price level

Which of the following statements correctly describe discouraged workers? (If none of the choices apply, leave all of the checkboxes blank.) Check all that apply. -They have given up on looking for a job. -They are counted as part of the labor force by the Bureau of Labor Statistics. -They are employed workers who want to earn higher wages. -They are full-time workers who would like to work only part-time.

-They have given up on looking for a job

-Money acts as this when providing buyers and sellers a common reference point for valuing goods and services. -Money acts as this when providing a means of transferring purchasing power from the present to the future. -Money acts as this when providing an accepted method of payment for goods and services

-Unit of account -Store of value -Medium of exchange

-Sean can easily determine that the price of the computer is more than the price of the vacation. -Sean has $1,574 in his checking account. -Sean writes a check for $1,299.

-Unit of account -Store of value -Medium of exchange

The Federal Reserve's primary tool for changing the money supply is_____ . In order to decrease the number of dollars in the U.S. economy (the money supply), the Federal Reserve will _____ government bonds. In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve will _____ government bonds.

-open market operations -Sell -Buy

How to find the unemployment rate

100 * (# of unemployed / # in labor force)

How to find inflation rate

100 * (Price -Year one price) / Year one price

how to find percentage gdp

100 *net exports / gdp

How to find the Labor Force Participation Rate

100* (# in labor force / adult population)

The Bureau of Labor Statistics has several measures of joblessness in addition to the official unemployment rate. One alternative is the U-4 measure of labor underutilization, which is calculated as follows:

100* (unemployed + discouraged / labor force + discouraged)

Imports _ Exports 0 _ Net exports Y_ C+I+G Investment _ Saving 0 _ Net Capital Outflow

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If the Bureau of Labor Statistics were to include discouraged workers in the official unemployment rate, the reported unemployment rate would

Increase

If the nominal exchange rate for the U.S. dollar-Brazilian real rises from $0.4755 to $0.5706 per Brazilian real, the Brazilian real _____ in value, or _____ , relative to the U.S. dollar.

Increases Appreciates