Macro Test 2
Shifts in Aggregate Supply
can be caused by changes in costs of production due to import prices, natural disasters, changed tax policies or other events
in an economy which has high levels of inflation, disinflation is:
possible only if policy makers are willing to accept higher rates of unemployment and a temporarily depressed economy.
_____ costs are the increased costs of transactions caused by inflation.
shoe leather
In the short run, the equilibrium aggregate price level and aggregate output occur at the intersection of:
short-run aggregate supply and aggregate demand.
short-run aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed
long-run aggregate supply curve
shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible
When the economy is in income-expenditure equilibrium, planned aggregate spending _____ aggregate output.
Equals
A person who has been out of work for two years, but who has not looked for a job in the last six weeks, is counted as:
Not part of the labor force
If wages and prices fall at the same rate in the economy, then:
Real wages are not effected
____ is the process of pooling individual loans and selling shares in that pool.
Securitization
The increased transaction costs caused by inflation are known as _____ costs.
Shoe-Leather
Which is a liability from a bank's perspective?
Sue's checking account deposit of $500 at the bank
financial assets
Is a paper claim that entitles the buy to future income from seller
Once a share of stock has been issued:
It may or may not pay dividens
Inflation rate
Larger year-Lower year/Lower yearx100
Shoe Leather Cost
Loss of value of cash balances
Unit of advancement
Value of the dollar to enter contracts and to make calculations changes
financial intermediaries
firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers
All of the following are financial assets EXCEPT
gold
a limited amount of frictional unemployment may be:
good for the economy because it allows workers to take time to match their skills to jobs where they are the most productive.
liability
an amount owed
Union
an association of workers that bargins collectively with employers over wadges, benefits, and working conditions
Which will cause the natural rate of unemployment to decrease?
an increase in the median age of the labor force
The aggregate consumption function will _____ if the marginal propensity to consume decreases.
become flatter
recessionary gap
behind the long run
inflationary gap
infront of the Long Run
financial assets
intangible assets, such as savings accounts and securities, that are acquired for some promised future return
If the percent goes down
interest rate goes up
Diversification
investing in several different assets with unrelated or independent risks; reduces risks
The loanable funds market is efficient because:
investment spending projects with the highest payoffs are those that are financed.
In a period of deflation:
lenders benefit, because they are repaid dollars with greater real value than they anticipated when signing the loan contract.
A fall in aggregate demand will result in:
lower aggregate output and a falling aggregate price level.
An increase in the market interest rate will MOST likely
make any given investment project less profitable.
The _____ interest rate is the interest rate expressed in dollar terms
nominal
The _____ is the dollar amount of the wage paid
nominal wage
Crowding out
occurs when a government budget deficit drives up the interest rate and leads to reduced investment spending
Surplus Units
participants who receive more money than they spend, such as investors
Deficit Units
participants who spend more money than they receive, such as borrowers
What is the natural rate of unemployment
the sum of frictional and structural unemployment
Aggregate Supply
the total amount of goods and services in the economy available at all possible price levels
Aggregate Demand
the total demand for final goods and services in an economy at a given time
Employment
the total number of people currently have jobs, either full time or part time
Nominal wage
the wage measured in current dollars; the dollar amount on a paycheck
real wage
the wage rate divided by the price level
which would be the most important objective of policy makers related to the stability of prices in an economy?
to keep inflation stable
Financial Risk
uncertainty about future outcomes that involve financial losses and gains
_____ refers to the number of people who are actively looking for work but are not currently employed.
unemployment
structual unemployment
unemployment arising from a persistent mismatch between the skills and attributes of workers and the requirements of jobs
cycical unemployment
unemployment that rises during economic downturns and falls when the economy improves
Costs that arise from the way that inflation makes money a less reliable unit of measurement are called _____ costs.
unit-of-account
menu costs
Cost of changing prices of list price change
Real interest rate
nominal - inflation
Liquidity
A measure of how quickly an asset can be converted into cash with relatively little loss of value; can be converted to cash quickly if not it is illiquid
In the nation of Erewhon, 10 million workers are unemployed, and 140 million workers are employed. The total population is 300 million and the population that is aged 16 and older is 200 million. The labor force of Erewhon is _____ million workers.
140+10= 150 million
The significance of unemployment rate
A good but imperfect indicator of how easy or difficult it is to find a job
frictional unemployment
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
Labor Force
All the people (16-older) that have jobs but looking for one It is the sum of the employed and unemployed
multiplier effect
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.
financial markets
Any place or system that provides buyers and sellers the means to trade financial instruments, including bonds, equalities, various international currencies, and derivatives.
The _____ is the difference between tax revenue and government spending when tax revenue is less than government spending.
Budget deficit
The _____ is the difference between tax revenue and government spending when tax revenue exceeds government spending
Budget surplus
The marginal propensity to consume (MPC) refers to the increase in _____ spending when disposable income increases by $1.
Consumer
All of the following are part of the labor force EXCEPT _____ workers.
Discouraged workers
An individual can engage in _____ by investing in several different things so that the possible losses are independent events.
Diversification
When the actual unemployment rate is low, most unemployment is:
Frictional
In the long run, the aggregate price level _____ the quantity of aggregate output supplied.
Has no effect
The present value of a future payment is smaller if the interest rate is:
Higher rather than lower
If prices fall and a person's income remains constant, then that person's real income will:
Increase
If expected future growth rate of real GDP increases, then:
Increases
If the median price of homes increases, the intercept of the consumption function _____ and the slope of the consumption function _____.
Increases;Remains the same
_____ is an increase in the overall level of prices.
Inflation
The _____ effect occurs when an increase in the aggregate price level reduces the purchasing power of households' and firm's money holdings, leading to an increase in interest rates and falling consumption and investment.
Interest rate
Cyclical unemployment is caused by:
The business cycle
Marginal Propensity to Save (MPS)
The fraction of any change in disposable income that households save; equal to the change in saving divided by the change in disposable income.
To define the multiplier, the text makes which of the following assumptions?
The interest rate is given
Labor force participation rate
The percentage of adults in the labor force
goals of macroeconomic policy?
The primary goals of macroeconomic policy are price stability and low unemployment
Discouraged workers
Those who have given up looking for a job because their are no jobs available
Marginally attached workers
Those who looked for work in the past 12 months not 4 weeks but stopped looking
Unempolyed
Total number of adults (16-older) willing and able to wokr and actively looking for a job
Jerry lost his job as a teacher last year because of budget cuts at the school board. He is looking for another full-time teaching position, but meanwhile, he is working part time as a math tutor. Jerry is classified as a(n) _____ worker
Underemployed
At the income-expenditure equilibrium, unplanned inventory investment is
Zero
aggregate supply curve
a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level
aggregate demand curve
a curve that shows the quantity of goods and services that households, firms, the government, and customers abroad want to buy at each price level
Deflation
a sustained decrease in the general price level
Inflation
a sustained increase in the general price level
Physical assets
a tangible object that can be used to generate future income
Shifts in aggregate demand curve
changes in expectations, changes in wealth, size of the existing stock of physical capital, fiscal policy, monetary policy
The role of financial markets and institutions in achieving long-run economic growth is to:
channel savings into investment spending.
In a closed economy with no government, planned aggregate spending is the sum of:
consumption and planned investment.
If businesses become more optimistic about future opportunities for investment spending, the:
demand for loanable funds will increase, and the equilibrium interest rate will increase.
Consumer spending and current disposable income are _____ correlated.
positivley
According to the text, a binding minimum wage generally leads to
structural unemployment, because more people want to work than can find jobs at the minimum wage.
transaction costs
the expenses of negotiating and executing a deal
If the minimum wage is set above the market equilibrium wage rate, then
the government has established a binding price floor with the minimum wage.
Marginal Propensity to Consume (MPC)
the increase in consumer spending when disposable income rises by $1
planned investment spending
the investment spending that businesses intend to undertake during a given period
The natural unemployment rate would decrease if the:
the labor force is older than the norm
Unemployment rate
the percent of the total number of people in the labor force who are unemployed