Macroeconomics 102, Rick, Madison
If the exchange rate is 9 Pound sterlings per U.S. dollar and a meal in London costs 225 Pound sterlings, then how many U.S. dollars does it take to buy a meal in Rio?
$25 and your purchase will increase the United Kingdom's net exports.
A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?
$400 billion
Type of Money Amount(Billions of dollars) Large time deposits-120 Small time deposits-80 Demand deposits-300 Other checkable deposits-50 Savings deposits-65 Traveler's checks-5 Money market mutual funds-200 Currency-150 Credit card balances-300 Miscellaneous categories of M2-30 What is the M2 money supply in Florencial?
$880 billion
S= I + NX (S=I+NCO)
(Y-C-G=I+NX)
Labor-force participation rate =
(labor force/adult pop.) × 100
real exchange rate formula
(nominal exchange rate x domestic price)/foreign price
Unemployment rate =
(number of unemployed/labor force) × 100
factors that influence a country's net capital outflow
- real interest rate paid on foreign assets - real interest rate paid on domestic assets - perceived political and economic risks of holding assets abroad - government policies that affect foreign ownership of domestic assets
factors that influence a country's trade balance
-tastes of consumers for domestic and foreign goods - prices of goods home and abroad - exchange rates at which people can use domestic currency to buy foreign currency - incomes of consumers at home and abroad - cost of transporting goods from county to country - government policies toward international trade
Fed two main jobs
1. regulate banks and health of banking system 2. control the quantity of money in the economy
shifter of money supply
1. reserve ratio 2. discount rate 3. open market operations 4. reserve requirements, looser more money supply
Assume real exchange rates rose 5.7% and nominal exchange rates rose 3.4% during the last year. Calculate how much more inflation the U.S. experienced versus the rest of the world during the last year
2.3%
The Monetary Policy of Jaune is controlled by the country's central bank known as the Bank of Jaune. The local unit of currency is the Jaunian dollar. Aggregate banking statistics show that collectively the banks of Jaune hold $220 million of required reserves, $55 million of excess reserves, have issued $5,500 million of deposits, and hold $440 million of Jaunian Treasury bonds. Jaunians prefer to use only demand deposits and so all money is on deposit at the bank. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Jaunian Banks?
4 percent, 5 percent
Inflation
A general and progressive increase in prices
Tarrif
A tax on imported goods
Hyperinflation
A very rapid rise in the price level; an extremely high rate of inflation.
Violett quit her job because she was unhappy at work. Alexandra was laid off from her landscaping job because her company was downsizing. Who is eligible for unemployment insurance benefits?
Alexandra but not Violett
M2
All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits.
Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed"?
Anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off
Fed lending to banks
Fed influences its lending through the discount window by altering the discount rate. increase discount rate discourages banks from borrowing reserves and decreases money supply. decrease discount rate encourages borrowing reserves and increases money supply.
Which of the following best describes the Latin phase "magnum opus"?
Great Work
An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year.
Her real and nominal salary have risen.
The U.S. dollar appreciated 21% during the last 5 years. Which of the following is not an implication to the U.S. economy.
Higher interest rates
Which of the following is not a category of "underemployment"?
Highly skilled workers doing menial jobs
Inflation-induced tax distortions
Inflation exaggerates the size of capital gains and increases the tax burden on this type of income
When analyzing the "rate of change" of employment data, peaks and valleys in the data represent which of the following?
Inflexion Points
bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement.
It has $800 in reserves and $9,200 in loans.
Non qui parum habet set qui plus cubit pauper est
It is not he who has little, it is he who wants more, who is the pauper
Retail Sales rose 0.7% in September due to all the following factors except
Lower inflation induced spending
Which of the following increases when the Fed makes open-market sales?
Neither currency nor reserves
Unemployed
Not employed but were available for work and looked for work in the last four weeks, or on temporary layoff.
Manus magnum lavat
One hand washes the other ( one situation helps another)
13. Nominal imports rose 1.4% in September due to all the following factors except:
Past depreciation of the dollar lowered import prices
Multiplying the average workweek by the number of employed is a proxy for which of the following?
Real GDP
Nominal Spending rose 0.8% in September due to all the following factors except:
Surge in spending on automobiles
foreign currency exchange
The conversion of one currency into another currency.
velocity of money equation
V = (P x Y) / M
government budget deficits
When government spending exceeds government revenue Negative public saving Reduces national saving Reduces supply of loanable funds Increase in interest rate Reduces net capital outflow Crowd-out domestic investment Decrease in supply of foreign-currency exchange Currency appreciates Net exports fall Push the trade balance toward deficit
Employed
Worked as paid employees, worked in their own business or worked without pay in a family business (full- or part-time), or had a job but didn't work due to temporary absence.
Deflation
a decrease in the general level of prices
trade policy
a government policy that directly influences the quantity of goods and services that a country imports or exports
import quota
a limit on the number of products in certain categories that a nation can import
rise in the price level implies what?
a lower value of money since each dollar in your wallet buys a smaller quantity of goods and services
quantity theory of money
a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
Purchasing Power Parity
a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries. limitations: trade costs, goods produced in different countries not perfect substitutes
efficiency wages
above-equilibrium wages paid by firms to increase worker productivity
Mutatis mutandis
after changing what needed to be changed
Open economy
an economy that interacts freely with other economies around the world
Suppose that the U.K. imposes an import quota on aluminum. The quota makes the real exchange rate of the British pound
appreciate but does not change the real interest rate in the U.K..
Unions benefit insiders (members)
at expense of those outside the union
suppose that interest rates are equal in all countries when the fed res cuts interest rates in the US. we could expect?
capital flows out of the US and US dollar to depreciate
sectoral shifts
changes in the composition of demand across industries or regions of the country, cause frictional
Domestic saving must equal domestic investment in
closed, but not open economy
M1
currency, demand deposits, traveler's checks, and other checkable deposits
increase money supply
decrease interest rates
If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade
deficit and negative net exports.
If the price levels in the United States and in the United Kingdom are unchanged, but the nominal exchange rate (Pound sterling per U.S. dollar) falls, then the U.S. dollar
depreciates and so U.S. net exports rises.
right-to-work laws
discourage union membership
Nanos gigantic humerus insidentes
dwarfs standing on the shoulders of giants
nominal exchange rate formula
e = P*(foreign)/P(domestic)
Magnum vectigal est palamismonia
economy is a great revenue
Net Exports
exports minus imports (trade balance)
Who is hurt by inflation?
fixed-income receivers, savers, creditors
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called
frictional unemployment.
Ex officio
from the office
According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money
gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
Magnum opus
great work
The existence of money leads to
greater specialization and to a higher standard of living.
Mens rea
guilty mind
Minimum-wage laws are least likely to affect the wages paid to
highly-educated workers.
discouraged workers
individuals who would like to work but have given up looking for a job
If the bank faces a reserve requirement of 6 percent, then the bank The First Bank of Roswell Assets Liabilities Reserves $30,000 Deposits $200,000 Loans 170,000
is in a position to make new loans equal to a maximum of $18,000.
Reductio ad infinitum
leading back to the infinite (argument that has infinite number of causes)
Discere faciendo
learn by doing
Functions of Money
medium of exchange, unit of account, store of value
Modus vivendi
method of living
Modus operandi
method of operating
Modus ponens
method of placing
Modus tollens
method of removing
fiat money
money that has value because the government has ordered that it is an acceptable means to pay debts
The Fisher effect is crucial for understanding changes over time in the
nominal interest rate.
classical dichotomy
nominal variables are only affected by monetary changes while real variables are not
Nil volentibus arduum
nothing is arduous(impossible) for the willing
Nihil novi
nothing of the new
Labor force =
number of employed + number of unemployed
Alma mater
nurturing mother
commodity money
objects that have value in themselves and that are also used as money
If a country has Y > C + I + G, then it has
positive net capital outflow and positive net exports.
In the open-economy macroeconomic model, the source of the supply of loanable funds is
public saving + personal saving.
The classical principle of monetary neutrality states that changes in the money supply do not influence ________ variables and is thought most applicable in the ________ run.
real: long
Memento vivere
remember to live
Multa paucis
say much in few words
money demand curve
shows the relationship between the quantity of money demanded and the interest rate. determined by fed, vertical, independent of price level
trade deficit
situation in which a country imports more than it exports
political instability and capital flight
sudden reduction in the demand for domestic assets coupled with a sudden increase in the demand for foreign assets. It may occur due to domestic political instability
To increase the money supply
the Fed creates dollars and uses them to purchase government bonds. After the transaction, additional dollars are in the hands of the public, so the money supply is larger.
To decrease the money supply
the Fed sells government bonds to the public. After the transaction, fewer dollars are in the hands of the public, so the money supply is smaller.
menu costs
the costs of changing prices
Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases
the inflation rate and the nominal interest rate by the same number of percentage points.
federal funds rate
the interest rate at which banks make overnight loans to one another
market for loanable funds
the market in which those who want to save supply funds and those who want to borrow to invest demand funds
natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates
Fisher effect
the one-for-one adjustment of the nominal interest rate to the inflation rate
open market operations
the purchase and sale of U.S. government bonds by the Fed. purchase increase money supply. sells decrease money supply
net capital outflow
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners net capital outflow= net exports
real exchange rate
the rate at which a person can trade the goods and services of one country for the goods and services of another
velocity of money
the rate at which money changes hands
In order to maintain stable prices, a central bank must
tightly control the money supply.
Mulgere hircum
to milk a male goat (attempting the impossible)
Non progedi est regredi
to not go forward is to go backward
Vincit omnia veritas
truth conquers all
frictional unemployment
unemployment that occurs when people take time to find a job
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves
nominal variables
variables measured in monetary units, long run changes only affect price and nominal variables
real variables
variables measured in physical units,
Emeritus
veteran
An increase in the required reserve ratio ___ causing the value of money to ____
will decrease the money supply increase
Sine qua non
without which not
Verba docent exempla trahunt
words instruct; illustrations lead
Cyclical unemployment refers to
year-to-year fluctuations in unemployment around its natural rate.
Based on the quantity equation, if Y = $8,000, P = 3, and V = 7, then M =
$1,714.
How many in the sample are in the labor force? Allen Unpaid stay-at-home dad. Has not looked for a job in several years Ben College president Allison Part-time welder. Actively looking for full-time work Brittany Self-employed full-time wedding singer Cathy Full-time physician's assistant Calvin Retired finance professor. Last applied for work 10 weeks ago Diane Laid-off fork-lift operator expecting to be recalled David Works for a bicycle store. Age 70 Evelyn Manager of health food store Eli Museum guard. Was not at work last week due to illness Flora Has never been employed. Looked for a job last week Frank Fired from job as an investment banker. Last looked for work three weeks ago
10
In the proper order, which age group has the highest unemployment rate and which has the highest labor-force participation rate? Labor Force Status Age Less than 55 55 and Older Number employed 400,000 100,000 Number unemployed 25,000 7,000 Number in population 600,000 200,000
55 and older, under 55
who is hurt by deflation
Borrowers, as the money they repay is worth more than that which they borrowed
An economist claims that changes in information technology and unemployment insurance have reduced unemployment. Which of these changes affect frictional unemployment?
Both the changes in information technology and unemployment insurance
Which of the following is not a factor impacting the shape of today's yield curve?
Federal Reserve increasing their balance sheet with QE
If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
It increases by $150,000.
31. Which of the following best represents fiat money?
The euro
In an open economy, the source for the demand for loanable funds is
domestic investment + net capital outflow.
De novo
from the new
paying interest on reserves
if fed wants lower money supply, then they will raise interest rate, influencing banks to keep more reserves, lend less, money supply lowers
Pecunia, si uti spis, anilla est; si nescis domina
if you know how to use money, money is your slave; if not money is your master
Natura abhorreta vacuo
nature abhors vacuums
Natura nihil frustra facit
nature does nothing in vain
real interest rate formula
nominal interest rate - inflation rate
shoe leather costs
the increased costs of transactions caused by inflation
reserve requirement
the percentage of deposits that banking institutions must hold in reserve
nominal exchange rate
the rate at which a person can trade the currency of one country for the currency of another
In the long run, money demand and money supply determine
the value of money but not the real interest rate
Ergo
therefore
Vera cause
true cause
Quod gratis asserter, gratis negatur
what is asserted without reason may be denied without reason
Quod erat demonstrandum
what was to be demonstrated
Quod supplantandum, pris been sciendum
whatever you hope to supplant you will first know thoroughly
trade surplus
when a country exports more than it imports
depreciates
when a currency becomes less valuable in terms of other currencies. buys less
appreciates
when a currency becomes more valuable in terms of other currencies. buy more of other currencies
