Macro Extra Test
How does the fed primarily conduct monetary policy?
through open market operations (the fed buys bonds to expand the money supply and sells bonds to contract the money supply)
Frictional unemployment
unemployed workers in the process of changing jobs, or finding a new job after losing their previous one, or finding their first job after entry into the labor market
when was the federal reserve created?
1913
The actions the federal reserve takes to manage the money supply and interest rates in order to purse economic objectives are called___?
Monetary policy
Are credit cards part of the monetary system?
No (when you purchase goods and services with a credit card, you are taking out a short-term loan)
If the Fed engages in an open market purchase of bonds ___ GDP will ___?
Nominal; Increase
What is one of the primary goals of the Federal reserve?
Price level stability
Who is the chairperson of the Federal Open Market Committee (FOMC)?
The chairperson of the board of governors
which body of the federal reserve system sets the majority of U.S monetary policy?
The federal open market committee
Contractionary Policy
Designed to slow the economy down when it appears to be growing too rapidly. Growth that is too high can lead to inflation
Fiat money____
Has no intrinsic value
quantity theory of money equation
M x V = P x Q (P x Q is equal to output)
The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of:
M1 -the most basic measure of money used in the US and it is the most liquid form of money
If the price level increases, ____
The money demand curve shifts to the right
Quantity theory of money
The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant
velocity is defined as
V= (P x Q) / M
Deflation
a sustained decrease in the average level of prices and wages in the economy
Factors that cause a shift in the labor demand curve
changing technology changing in output prices changing input prices
M2
consist of M1 plus other liquid assets such as deposits in savings and loans and money market mutual funds
M3
consist of everything in M2 plus large time deposits and institutional money market funds.
what is fiat money?
fiat money is something that is used as legal tender by government decree and it is not backed by a physical commodity, like gold or silver. (it can't be traded at a store)
Sometimes there can be benefits from inflation. One of them is that more labor might be demanded after a rise in the price level. For this to happen, the ________ wage would be fixed and ________ the competitive equilibrium level.
nominal; above
When does it mean when money serves as a unit of account
prices of goods and services are quoted in terms of money. Money also functions as a medium of exchange
Structural unemployment
results when the market wage is above the market-clearing level, causing the quantity of labor supplied to be greater than the quantity of labor demanded
The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered ________ by the __________ and confirmed by the senate
seven, 14-year terms, President
cynical unemployment
the deviation of the unemployment rate from its natural rate. (rises in recessions)
What is the primary tool of Monetary policy
the feds control of the federal funds rate
what happens if there is zero inflation?
the nominal interest rate is equal to the real interest rate
What happens when the interest rate decreases?
there is a movement down a stationary money demand curve
what is one major difference between modeling economic busts and booms?
there is no issue of rigid nominal wages when modeling booms
If money supply grows at a faster rate than GDP then___
there will be inflation Growth rate of money supply= growth rate of nominal GDP
