Unit 9 Test

FAC

-assists the Board of Governors -there are 12 members who represent each Federal District Bank -meets quarterly (4 times a year) and provides status updates to the Board of Governors

Board of Governors

-supervises the 12 Federal Reserve district banks -there are 7 full-time members of the board whom are appointed by the President -members serve on the board fro q4 years, and terms are staggered so that new members are introduced every 2 years -a member may not serve more that 1 term -decisions of the board are not subject to the approval of the President of Congress

What are examples of lagging indicators?

1. avg. length of unemployment 2. size of manufacturing and trade inventories 3. labor cost per unit of output in manufacturing

What are examples of leading indicators?

1. avg. weekly hrs for production workers in manufacturing 2. weekly initial claims for unemployment insurance 3. new orders for consumer goods

What are examples of coincident indicators?

1. number of nonagricultural workers who are employed 2. personal income minus transfer payments 3. rate of industrial production 4. sales of manufacturers, wholesalers, and retailers

How many Federal Reserve Districts are there?

12

What are some ways to measure the economy's performance

GDP

Aggregate Demand Curve

a graphed line showing the relationship between the aggregate quantity demanded and the average of all prices as measured by the implicit GDP price deflator

Aggregate Supply Curve

a graphed line showing the relationship between the aggregate quantity supplied and the average of all prices as measured by the implicit GDP price deflator

how could you describe the US economy during the 1930's?

a recession turned into a depression

Coincident Indicators

economic indicators that usually change at the same time as changes in overall business activity

DPI

income remaining for people to spend or save after all taxes have been paid

Depreciation

loss of value because of wear and tear to durable goods and capital goods

Trough

lowest part of the business cycle in which the downward spiral of the economy levels off

Depression

major slowdown of economic activity

PPI

measure of the change in price over time that U.S. producers charge for their goods and services

Contraction

part of the business cycle during which economic activity is slowing down

Expansion

part of the business cycle in which economic activity slowly increases

Recession

part of the business cycle in which the nation's output declines for at least six months

Peak/boom

period of prosperity in which economic activity is at its highest point

Inflation

prolonged rise in the general price level of final goods and services

Aggregate Supply

real domestic output of producers based on the rise and fall of the price level

What is the primary responsibility of the Fed?

regulating money supply

Leading indicators

statistics that point to what will happen in the economy

Aggregates

sum of all the individual parts in the economy

Fed

the Federal Reserve System created by Congress in 1913 as the nation's central banking organization

NI

total income earned by everyone in the economy

PI

total income that individuals receive before personal taxes are paid

Real GDP

GDP that has been adjusted for inflation by applying the price deflator

FOMC

12-member committee in the Federal Reserve System that meets 8 times a year to decide the course of action that the Fed should take to control the money supply

CPI

a statistical measure of the average of prices of a specific set of goods and services purchased by typical consumers in city areas

What happens to aggregate demand when price levels rise or fall?

as price level goes down, larger quantity of real domestic output is demanded per year

What happens to aggregate supply when price levels rise or fall?

as price level goes up, quantity supplied goes up because it is direct

Why is NDP a better measurement tool than GDP?

because it accounts for the fact that some production is lost to depreciation

What are the characteristics of the business cycle?

growth leads to an economic boom; real GDP levels off and begins to decline and a contraction occurs; if contraction lasts long enough and is deep enough economy can continue downward until it slips into a recession

Lagging indicators

indicators that seem to lag behind changes in overall business activity

Who makes the decisions to raise or lower interest rates?

the federal open market committee

What happens when inflation occurs?

the purchasing power of the dollar goes down

Aggregate Demand

the total of all planned expenditures in the entire economy

What are the main functions of the Federal Reserve System?

to control the money supply, check clearing, acting as the federal government's fiscal agent, supervising banks, holding reserves and setting reserve requirements, supplying paper currency, regulation the money supply

GDP

total dollar value of all final goods and services produced in a nation in a single year

NDP

value of the nation's total output minus the total value lost through depreciation on equipment