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