Sse 200 test 5
Who creates money?
Banks create money under the supervision of the Federal Reserve.
How do banks earn a profit?
Banks earn a profit by investing their excess reserves
What makes up our supply of money? That is, what counts as money in our society?
Currency and checkable funds
Federal Reserve System
The central bank of the US, created in 1913 by Congress
Gross Domestic Product
The total market value of all final goods and services produced within a country during a particular period of time
How do the sellers of used goods contribute to GDP?
The value of the services provided (i.e., selling) are counted as part of GDP.
In what way are the sellers of used goods productive? How do their actions affect GDP?
They are productive in offering their services to those who value them. Their actions increase the GDP not because of the used goods, but because of the market value of the service.
Why do some people want to return to a monetary gold standard?
They have higher faith in the reliability of nature than the reliability of banks
How are unsold goods accounted for in GDP calculations?
They're recorded as being purchased as the retailer as part of his inventory
GDP deflator
a measure of the level of prices of all new, domestically produced, final goods and services in an economy
The essential characteristic of money is . . .
acceptability
To be officially considered unemployed, a person must . . .
be looking for work.
What is the most troubling consequence of reductions in GDP for the general public?
Increased level of unemployment
What comprises the supply of credit (loanable funds)?
Interest comprises the supply of credit.
How does inflation affect the purchasing power of money?
It causes it to fall.
How does money reduce transaction costs?
Money more easily facilitates the process of exchange because it is a general medium of exchange
Recession
A decrease in real GDP over two consecutive quarters
Intermediate good
A good that is purchased with the intention of further manufacturing and/or resale
Civilian labor force
People 16 years or older in the noninstitutional population who are either employed or unemployed
What counts as money in today's American economy?
both currency (cash) and checkable deposits
The Federal Reserve engages in open market operations when it . . .
buys and sells U.S. government bonds.
The GDP deflator is used to measure . . .
changes in the price level
Which of the following are NOT in the M1 measure of money?
credit cards
Inflation causes the purchasing power of money to . . .
fall
The supply of credit in our economy is comprised of . . .
household savings channeled through banks
A good that is produced and included in the production of another good is called a . . .
intermediate good.
Unsold goods are considered to be part of a country's . . .
inventory investment.
Commercial banks earn profit by . . .
investing other people's money.
Banks create money primarily by . . .
lending out their excess reserves.
Stagflation
persistent high inflation combined with high unemployment and stagnant demand in a country's economy.
Money helps economic activity by . . .
reducing transactions costs
The Federal Reserve System is . . .
the independent central bank of the United States.
What is a positive rate of time preference?
Placing a higher value on present enjoyment rather than future enjoyment
Macroeconomics
the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
Macroeconomics deals primarily with . . .
the performance of the overall economy
Gold Standard
the system by which the value of a currency was defined in terms of gold, for which the currency could be exchanged. The gold standard was generally abandoned in the Depression of the 1930s.
Gross domestic product directly measures . . .
the value of goods and services produced in a country.
Discouraged worker
A person who because of poor job prospects have given up searching for work and thereby drops out of the labor force
Money
Anything that serves as a general or common medium of exchange
Why is inflation a problem?
Because it distorts the signals provided through prices
Why should we not count intermediate goods in the calculation of GDP?
Because that is accounted for in the expenditures on final goods
GDP and GNP are different because . . .
GDP focuses on where the production occurs while GNP does not.
A recession is a time period in which . . .
GDP is declining
What is the difference between GDP and GNP?
GDP measures the performance of the domestic economy, and GNP measures the performance of the nation's citizens.
What is the essential characteristic of money?
The essential characteristic of money is acceptability
M1
The money supply that is composed of physical currency and coin, demand deposits, traveler's checks, other checkable deposits, and negotiable order of withdrawal accounts
Unemployment rate
The number of people unemployed divided by the number of people in the civilian labor force
open market operations
The purchase and sale of US government bonds by the Federal Reserve in an attempt to manipulate the overall money supply
What is the difference between real and nominal interest rates?
The real rate of interest is the nominal rate of interest minus the rate of inflation