ECON FInal

What is the likely impact on each of the following if the Federal Reserve sells government bonds to commercial banks and the public:

1. Bond prices: DOWN 2. Bank reserves Interest: UP 3. Interest Rate: UP 3. Rates Aggregate Demand: DOWN 4. Real GDP: UP 5. Price Level: DOWN

What has happened to the value of the dollar if the exchange rate was $1 US dollar purchased 1 Japanese yen, but now $1 US dollar purchases 0.5 Japanese yen?

$1= 0.5yen: The dollar appreciated and yen depreciated $1 = 1yen:

Answer the following questions using the table:

1. For each year, identify the phase of the business cycle. 2. How many recessions occurred in these years? 3 3. In which year did the purchasing power of the average household income decline the greatest? 2009

What is the real interest rate if the nominal interest rate is 6% and the anticipated inflation rate is 1%?

6%- 1%= 5%

Explain the M1 and M2 definition of money. Identify what is included in each definition of money.

M1 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks M2 money supply is less liquid in nature and includes M1 plus savings and time deposits, certificates of deposits, and money market funds.

Explain the economizing problem.

The choice necessitated because society economize wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce)

Define the foreign exchange market.

The market in which people or firms use one currency to purchase another currency

How will the depreciation of the US dollar relative to the Japanese Yen impact US exports and imports?

US will export more and imports will be less.

Explain the relationship between capital investments and economic growth

What do economists mean by investment, or business spending? In calculating GDP, investment does not refer to the purchase of stocks and bonds or the trading of financial assets. It refers to the purchase of new capital goods, that is, new commercial real estate (such as buildings, factories, and stores) and equipment, residential housing construction, and inventories. Inventories that are produced this year are included in this year's GDP—even if they have not yet sold.

Explain how each of the following impact aggregate supply, and the likely impact on the price level, GDP, and unemployment:

a. A decrease in input prices b. An appreciation of the dollar c. An increase in productivity d. An increase in regulations and business taxes

Explain how each of the following will impact the value of the US dollar:

a. A decrease in the Japanese demand for US imports b. The U.S. interest rate increases sharply c. The U.S. experiences inflation relative to other major trading partners.

Explain the following:

a. Aggregate demand b. Long-run aggregate supply c. Short-run aggregate supply

explain how each of the following impact aggregate demand, and the likely impact on the price level, GDP, and unemployment:

a. An increase in disposable income b. A decline in real interest rates c. An increase in personal income taxes d. An increase in consumer confidence e. An appreciation of the dollar

Explain each of the following:

a. Discretionary fiscal policy b. Automatic / Built-in stabilizers

Define the following terms:

a. Employed b. Unemployed c. Labor Force

Define and be able to identify examples of the following terms:

a. Inflation b. Deflation c. Disinflation

Define and be able to identify examples of the following terms:

a. Structurally unemployment b. Frictionally unemployment c. Cyclical unemployment d. Full Employment

How do trade restrictions to protect special interests such as the auto industry impact each of the following:

a. US consumers b. Domestic auto producers c. Foreign auto producers d. Domestic producers of non-auto industries

A bank currently has $50 million in deposits, $5 million in reserves, and $5 million in government securities. The reserve ratio is 10 percent. A new deposit is made of $100.

a. What is the maximum size loan the bank can make once the check clears? b. What is the maximum increase in the money supply if banks lend out all their excess reserves and all borrowers redeposit these loans into the banking system?

What are the three tools of Monetary Policy?

open market operations, the discount rate and the reserve requirement.

If consumption is $100 million, fixed investment is $100 million, increases in inventories is $50 million, imports are $50 million, and exports are $100 million, and government spending on goods and services are $100 million. What is GDP?

GDP= C+Ig+G+Xn (X-M) C= 100 Ig= 150 G= 100 Xn= 50 GDP= 400M

Define/explain economic growth

Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-owned companies. If they are located within the country's boundaries, the government counts their production as GDP. The components of GDP are: Personal Consumption Expenditures plus Business Investment plus Government Spending plus (Exports minus Imports). Now that you know what the components are, it's easy to calculate a country's gross domestic product using this standard formula: C + I + G + (X-M).