Macro Final: Short Answers and HWK 4

Reserve Ratio

(Reserve amount / bank deposits) *100

Which of the following is a source of market risk

Real GDP varies over time and sales and profits move with real GDP.

Efficiency wages

. increase productivity but increase unemployment.

Multipler equation

1/(1-MPC)

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

Which of the following is an example of an efficiency wage?

An above-equilibrium wage paid by a firm to reduce turnover costs

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

Real interest rate

nominal interest rate - inflation rate

How does a central bank's accommodation of an adverse supply shock change the long-run results of the shock?

If a central bank accommodates an adverse supply shock by increasing the growth rate of the money supply, then inflation is higher in the long run. The increased growth rate of the money supply increases inflation and eventually increases expected inflation. The increase in expected inflation shifts the short-run Phillips curve to the right. If the central bank does nothing, then the short-run Phillips curve shifts back to its original position when the shock ends.

What is the difference between monetary policy and fiscal policy?

The Federal Reserve Bank conducts U.S. monetary policy. It consists of policies to affect the financial side of the economy-most notably the supply of money in the economy. Fiscal policy is conducted by the executive and legislative branches of government, and entails decisions about taxes and government spending.

Which of the following is not correct?

The unemployment rate occasionally falls to zero.

Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price.

This stock is undervalued; you should consider adding it to your portfolio.

Sacrifice Ratio

Total output percentage points / senario A central bank disinflates. Output is 4% less for one year, 3% less the next year, and 2% less the third year. If inflation fell by 2 percentage points, what was the sacrifice ratio? - 9/2 = 4.5

When a minimum-wage law forces the wage to remain above the equilibrium level, the result is

a surplus of labor and a shortage of jobs

After tax nominal interest rate

amount you desposit it at % x (1 - tax rate)

After tax real interest rate

amount you desposit it at % x (1 - tax rate) - inflation rate

The natural rate of unemployment includes

both frictional and structural unemployment.

If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, then by definition there is

cyclical unemployment amounting to 0.8 percent of the labor force.

To be counted as "employed" in the U.S. labor force statistics, a person

does not have to be working for pay if they are working for a family business and does not have to be working full time.

Teenagers have more frequent unemployment spells and spend more time searching for jobs. Other thing the same, this means that teenagers have a

higher unemployment rate. If a larger portion of the adult population were teenagers, the natural rate of unemployment would be higher.

Marginally attached workers are people who are

not working and are not looking for work, but would work if asked.

Most spells of unemployment are

short, but most unemployment observed at any given time is long term.

Minimum wages create unemployment in markets where they create a

surplus of labor. Unemployment of this type is called structural.

The natural rate of​ unemployment:

the amount of unemployment that the economy usually experiences

In the long run, the unemployment rate equals

the natural rate of unemployment.

Cyclical unemployment refers to

year-to-year fluctuations in unemployment around its natural rate.

Suppose that a decrease in the demand for goods and services pushes the economy into recession. What happens to the price level? If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output?

A decrease in aggregate demand causes the price level to fall. If the government takes no action to counter this, then the actual price level will be below the price level that people expected. Individuals will eventually correct their expectations about the price level. As they do so, prices and wages will adjust accordingly, shifting the aggregate supply curve to the right. For example if wages are sticky, in light of the lower price level, firms and workers will eventually make bargains for lower nominal wages. The reduction in wages lowers costs of production, so firms are willing to produce more at any given price level. Consequently, the short-run aggregate supply curve shifts right. The rightward shift in aggregate supply eventually causes output to rise back to the natural rate.

Which of the following is not consistent with the efficient market hypothesis?

News has no effect on stock prices.

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.

Ahmet decided to increase the number of stocks in his portfolio. In doing so, Ahmet reduced

he firm-specific risk, but not the market risk of his portfolio.

Nominal interest rate

real interest rate + inflation