Econ 2105
The use of money
-allows for greater specialization -eliminates double coincidence of wants -reduces transaction costs of exchange
How many Federal Reserve Districts is the US divided into?
12
Household
All individuals in a home
The economic definition of money is:
Any asset that people are generally willing to accept in exchange for goods and services.
Which of the following is not a policy tool the Federal Reserve uses to manage the money supply?
Changing income tax rates
Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit.
False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
When tax revenue equals government spending there is
a balanced budget
When tax revenue is less than government spending there is
a budget deficit
When tax revenue exceeds government spending (government purchases and transfer payments) there is
a budget surplus
the term "market" in economics refers to
a group of buyers and sellers of a product and the arrangement by which they come together to trade.
the aggregate demand curve is downward sloping because
an increase in the price level reduces real money holdings, which reduces the amount of expenditures.
Excess reserves
are reserves banks keep above the legal requirement.
Reserve requirements are changed infrequently because
banks set long-term policy decisions, loan decisions, and deposit decisions based on the reserve requirement.
An initial decrease in a bank's reserves will decrease checkable deposits
by an amount greater than the decrease in reserves
long-run growth GDP is determined by
capital, labor productivity, and technology
During the recession phase of the business cycle, production, employment, and income
decrease
Which of the following would cause a decrease in aggregate demand?
decrease in government spending
Mixed economy
economy is an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
The U.S. dollar can best be described as
fiat money
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced
Aggregate demand (AD) is comprised of expenditure components that include:
government spending, consumption, investment, and net exports.
"Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else." The statement is...
incorrect. The supply of loanable funds is determined by household saving.
During the expansion phase of the business cycle, production, employment, and income
increase
Which of the following does not lead to long-run economic growth
increase in average wages
Even though individuals earn interest on financial investments such as bonds, mutual funds, and certificates of deposits, they may still hold wealth in checking accounts because
individuals need money that is available to be spent on goods and services.
technological progress is affected by
investment in capital, new software developments, private property rights, and entrepreneurship
entrepreneur
is someone who operates a business, bringing together the factors of production—labor, capital, and natural resources—to produce goods and services.
Economics
is the study of the choices people make to attain their goals, given their scarce resources
Which of the following is a factor of production?
janitor at local elementary school
The ease with which a financial security can be exchanged for money is referred to as
liquidity
Which of the following would be the least desirable candidate to be a good medium of exchange?
milk
Suppose an analyst evaluates whether it is a good idea to pass family leave laws? This is an example of...
normative analysis
Capital
physical capital, such as machinery, that is used to produce other goods or goods used to produce other goods
Suppose an analyst estimates the gains to workers from family leave laws? This is an example of...
positive analysis
The aggregate demand curve shows the relationship between
price level and output demanded
What is the primary difference between product markets and factor markets?
product markets are markets for goods, while factor markets are markets for factors of production—labor, capital, natural resources, and entrepreneurial ability.
Which of the following policy tools is the Federal Reserve least likely to use in order to actively change the money supply?
reserve requirements
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls
scarcity
circular-flow diagram
simple economic model that we use to see how participants in markets are linked.
Firms
suppliers of goods and services
An asset would be usable as a medium of exchange for all of the following reasons except:
the asset should be a commodity that has intrinsic value.
Human capital
the knowledge and skills workers acquire from education and training or from their life experiences
The position of the long-run aggregate supply (LRAS) curve is determined by
the number of workers, the amount of capital, and the available technology.
wages and salaries
the resource income earned by those who supply labor services
Any model is based on making assumptions because
we cannot analyze an economic issue unless we reduce its complexity AND models have to be simplified to be useful
Best example of human capital
worker gets a college degree
