unit three econ test
If a contraction lasts for 6 months or two quarters then it is usually considered a
recession.
Price stability
refers to minimizing increases in the price level over time so that a country's money will retain its purchasing power over time.
peak
refers to the highest point of real GDP between the end of an economic expansion and the beginning of an economic contraction.
Full employment
refers to the state of the economy when virtually all who are willing and able to work have the opportunity to do so. Countries have many ways to measure full employment
Aggregate Demand
refers to the total quantity of all goods and services consumers are willing and able to purchase at each price level in a given period of time.
recovery
when real GDP becomes positive after a period of negative real GDP
surplus
when the amount of income received exceeds the amount of expenses paid.
deficit
when the amount of income received falls short of the amount of expenses paid.
structural unemployment in an economy is someone
whose job skills do not match the economy's needs
In October, Bill is laid off from his job as a Halloween costume maker solely because of a slow Halloween season.
Bill is cyclically unemployed
When the Federal Reserve buys government securities on the open market, what effect does this action have on the nation's money supply and aggregate demand
Money Supply Aggregate Demand increases increases
stagflation is problematic to correct
Solutions that address inflation tend to make existing unemployment worse and vice versa
finding the amount of real gdp produced at all possible price levels will determine
aggregate supply
business cycle
an economic model illustrating how economic activity fluctuates over time. looks a graph of waves from the field of Physics.
which is the FED most likely to do in the event of a recession?
buy treasury bonds on the open market
If the Federal Reserve System wanted to stimulate the U.S. economy and reduce unemployment, it would
cause interest rates to decrease because low interest rates encourage business growth and expansion
monetary policy is defined as the
decisions of the federal reserve system that determine the money supply
which component of the federal reserve system holds the most powerful regards to day to day monetary policy
federal open market committee
The aggregate demand curve (AD)
is downward-sloping showing an inverse relationship between price level and real GDP.
Economic growth
is increasing production of goods and services over time.
steady economic growth
is usually associated with things like entrepreneurs starting new businesses, firms becoming more productive by adding capital or new technology, workers becoming more productive through increases in knowledge and skills, and productive resources being available in greater quantities for the economy
How is the unemployment rate calculated?
number of people unemployed divided by the number of people in the civilian labor force multiplied by 100
The wealth effect
occurs when a rising price level reduces the purchasing power of consumers thus lowering the amount of consumption spending due to higher prices.
When does cyclical unemployment take place?
occurs when the economy downturns
contraction
phase of the business cycle is a period in which real GDP is declining.
The Federal Reserve System conducts its business directly with
the government and banks
trough
the lowest point of real GDP between the end of a contraction and the beginning of a recovery
Net exports
the monetary value of all final goods and services produced in one country but sold outside the country's borders minus the monetary value of all final goods and services produced outside the country's borders but sold within the country in a given time period.
Government spending
the monetary value of any spending on final goods and services by a local, state, or national government in a given time period.
describes an economy that is in a trough of the business cycle
unemployment is high, real GDP is low, and inflation is low
How does inflation affect purchasing power? Give an example
As prices rise, the purchasing power of money declines. Ex: suppose $1.00 would buy $1.00 worth of goods last year. if inflation rate is 10% this year, however, $1.00 will buy the equivalent of only $.90 worth of goods today
What is the purpose of the consumer price index (CPI)?
By looking at the CPI, consumers, businesses, and the government can compare the cost of a group of goods this month with what the same or a similar group cost months or even years ago
A government decision to increase taxes is MOST related to which combination of events
Consumption Aggregate Demand GDP decrease decrease decrease
Gross Domestic Product is a method for calculating how much a country produces by adding which four spending categories
Consumption, Investment, Government, Net Exports
primarily responsible for the control of the money supply
Federal Reserve System
Peggy, a recent college graduate, decides to look for a job instead of going to graduate school. If she is unable to find a job that suits her interests right away, what type of unemployment is she MOST likely experiencing?
Frictional unemployment
borrowers in the economy.
Households, firms, governments, and financial institutions
An economist is presented with information about the prices of a selection of goods over several years. This information would be MOST useful for which purpose
To compile a price index to measure inflation
Inflation
a sustained increase in the price level in an economy over time. One way to measure whether there is inflation in the economy is to calculate the inflation rate.
Finding the amount of Real Gross Domestic Product produced at all possible price levels will determine
aggregate supply
Why isn't full employment the same as zero unemployment?
because even when an economy is working it will still experience frictional, seasonal, and structural
The interest rate effect
causes the downward slope of the aggregate demand curve because as price level rises, interest rates (the price of borrowing money) rises resulting in consumers and businesses spending less on interest sensitive purchases like cars, new homes, and physical capital.
when there is inflation in an economy which is always true?
consumer price index has increased
If the economy was in a recession and Congress and the Federal Reserve Bank BOTH wanted to correct it quickly, which policy combination would be best
cut taxes, buy treasury bonds
If the federal government is attempting to encourage spending by consumers and businesses, a fiscal policy BEST serving •this purpose would be
decreasing taxes
If the federal government is attempting to encourage spending by consumers and businesses, a fiscal policy BEST serving this purpose would be
decreasing taxes-
If the unemployment rate is rising and GDP is falling, the fiscal policy action that the federal government should MOST likely follow is
decreasing taxes/
wants to reduce the nations money supply by doing all except
decreasing the discount rate
an economy characterized by increasing real gross domestic product (GDP), low unemployment, and increasing inflationary pressures
expansion phase of a business cycle
which of the following results when federal gov. expenditures are less than the federal gov. total reci epts
federal budget deficit
which of the following results when federal results when the federal government expenditures are less than federal gov.'s total receipts?
federal budget surplus
How do frictional and structural unemployment differ? Give examples of each.
frictional unemployment is unemployment that occurs when people take time to find a job. ex: Hannah stopped working at a large hospital to find a position at a small health clinic. structional unemployment is unemployment that occurs when workers' skills do not match the jobs that are available. ex: Martin barely graduated high school so he got fired because he lacked the skills needed for the job.
You hear another student say: "Fiscal policy is easy to understand, all you have to know is what is happening with current tax rates!" This student needs to include
government spending decisions as well
Unanticipated inflation
hurts lenders who lend at fixed rates.
Over a two-year period, the nation of Parthia experiences a steep decline in unemployment rate, a rise in real GDP, and a stabilized price level. Parthia appears to be
in the middle of a boom period
Investment
includes the monetary value of final capital goods businesses purchase in a given time period, the value of inventories produced by businesses, but not yet sold, by the end of the measurement time period, and the value of new home construction produced in the given time period.
what is most likely to lead to inflation?
increase in the costs of production
When aggregate demand exceeds aggregate supply in an economy, the MOST immediate result is
inflation
Monetary policies the Federal Reserve can adopt include
raising the discount rate buying government bonds lowering the reserve requirement
the role of the gov. in a mixed market economic system?
it monitors the safety of goods and services through regulatory
which is a person frictionally unemployed?
jake, who has recently entered the labor force
expansion
lasts until real GDP reaches the level of the previous peak.
the actions of the FED that control and regulate the amount of money in the economy are referred to as
monetary policy
which is not a goal promoted by the government through fiscal policy
money supply
national debt is different than gov. deficits in that
national debt is the sum of all past deficits plus interest
when the money supply is increased , which is most likely to happen?
price level will decrease
a goal promoted by the government through fiscal policy
price stability economic growth full employment
when the FED is conducting open market operations, they are buying or selling
raise the reserve requirement
The town of Smithville recently closed the blacksmith factory and now all of the blacksmiths are out of work. This type of unemployment is known as
structural
policymakers are trying to address this type of unemployment if they increase funding for training programs covering skills such as computer repair, programming, and networking
structural unemployment
Fiat money
the official money issued by the government of a country.
Gross Domestic Product (GDP)
the sum of consumer spending, investment spending, government spending, and net exports.
Aggregate Supply
the total quantity of final goods and services producers in an economy are willing and able to supply at each price level. has both a short-run and a long-run curve. has both a short-run and a long-run curve.
Real GDP
the value of current gross domestic product adjusted for inflation
an economist is presented with info about the prices of a selection of goods over several years
to compile a price index to measure iflation
If an economy is currently experiencing a contraction or recession, which stage of the business cycle will they experience next
trough