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A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

exchange rate depreciation

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

exchange rates

A stronger British pound is beneficial for:

exchange students with a British scholarship studying in Canada.

A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:

expansion, peak, recession, trough

Goods and services produced in one country that are then sold in other countries are called ____________.

exports

Which of the following is not a consequence of an increase in the government's budget deficit?

exports increase while imports and all other variables are held constant

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

exports; imports

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

her M1 funds.

Inflation implies that all the level of all prices ______

increase

functions of money

medium of exchange (whatever is widely accepted as a method of payment). Unit of account (the common way in which market values are measured in an economy) store of value (something that serves as a way of preserving economic value that can be spent of consumed in the future)

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

menu costs

A prolonged period of budget deficits may lead to ___________________.

lower economic growth

A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a cause for concern.

moderate increase in a trade deficit and a moderate appreciation of the exchange rate

Which of the following is omitted in a barter transaction?

money

Which of the following would most likely be included in the negative side of the current account balance?

money earned by Canadian firms in the U.S

Which of the following would most likely be included in the positive side of the U.S. current account balance?

money earned by U.S. firms in Europe

In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects?

monitoring asset prices and leverage

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

medium of exchange

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

recessionary gap

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

slopes upward; slopes downward

Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases.

smart card

When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.

soft peg

A __________________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.

soft peg exchange rate

Which of the government policies below is most unlikely to encourage per capita economic growth?

special subsidies for capital-intensive forms of production

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

the Canadian dollar appreciated against the U.S. dollar.

The Canadian dollar will most likely strengthen against the U.S. dollar if:

the Canadian inflation rate becomes extremely low

Why do banks use a T-account?

the T-account separates assets on the left from liabilities on the right

If a nation merges its currency with another nation to create a single currency, what must it give up?

the ability to determine its own nationally-oriented monetary policy

Investment (I) includes:

the amt spent on new factories and machinery

Which of the following is a valid criticism of the rational expectations theory?

the assumption seems too strong

If a nation's labor force receives a significant influx of young workers:

the natural rate of unemployment is likely to increase.

The most significant real economic cost of high unemployment is:

the potential goods and services that might have been produced but weren't.

Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed.

total quantity; price level for output

A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports .

tight; stimulates; reduces

Insofar as government public policy is concerned, the best way to battle unemployment would be __________________.

to minimize recessions

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

total money; quantity of money

The gap between exports and imports in a nation's economy is called the ___________.

trade balance

Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy.

value of supply; value of demand

If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals:

25%

If nominal GDP is 2700 and the money supply is 900, what is velocity?

A country will roughly double its GDP in twenty years if its annual growth rate is:

3.5 percent

Assuming a country's economy maintains an 8% rate of growth, young adults starting at age 20 would see the average standard of living in their country more than double by the time they had reached age __________.

In certain African countries like Niger, Tanzania, Nigeria, and Sudan, for example, GDP per capita at the start of the 2000s was still less than $___________.

300

Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle?

If GDP is 2400 and the money supply is 600, then what is the velocity?

If nominal GDP is 1800 and the money supply is 450, then what is velocity?

The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of ____________.

4%-6%

Durable goods and non-durable goods comprise approximately ________ of the supply side of the GDP

45%

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

45-degree line

stocks

A claim on partial ownership of a firm . divided into individual shares

Which of the following are most likely classified by economists as consumer durable goods?

Automobiles, furniture

GDP price deflator

Based on a basket of goods representing everything in GDP

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

Bonds

Referring to the diagram below, which of the following is a true statement?

Higher cost levels of increased output will force an increase in price for the product.

In November 2010 the labor force in Siouxtown, was 14,800. There were 14,483 persons employed. The local unemployment rate was?

2.1%

In November 2010 the labor force in Siouxtown, was 14,800. There were 14,483 persons employed. The local unemployment rate:

2.1%

If the price index moves from 107 to 110, the rate of inflation is:

2.8%

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?

In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?

2009: .71 dollars, 2013: 1.11 dollars

Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?

Which category of the money supply would you be contributing to if you invest in money market funds?

determination of unemployment rate

Public Policy, Productivity shifts

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

_________ are now the largest single component of the supply side of GDP, representing over half of GDP

Services

_________ are now the largest single component of the supply side of GDP, representing over half of GDP.

Services

n 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?

2009: .71 dollars, 2013: 1.11 dollars

In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?

2010: .12 U.S. dollars; 2012: .15 U.S. dollars

In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?

2010: 1.79 dollars, 2012: 1.59 dollars

Utility

The level of satisfaction or pleasure that people receive from their choices

capital markets

Venture capital: Financial investments in new companies that are still relatively small in size, but that have potential to grow substantially.

productivity

What is produced per worker, or per hour worked. An economy's rate of productivity growth is closely linked to the growth rate of its per capita GDP. Primary determinant of its rate of long-term economic growth

Opportunity Cost

Whatever must be given up to obtain something that is desired. What economists use when they want to determine cost

privatization

When a government-owned firm becomes privately owned. Can increase the level of market competition and efficiency through the selling of previously nationalized assets to private owners. incentives for firm to be operated more efficiently must be offered.

externalities

When a market exchange affects a third party who is outside or "external" to the exchange

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?

an estate

If the central bank increases the amount of reserves banks are required to hold to 20%, then

both the money multiplier and supply of money in the economy will decrease.

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease.

If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:

both the money multiplier and the supply of money in the economy will increase.

In order to shift the vertical supply curve to the left, which of the following would have to occur?

breakdown of key market institutions

deficit

budget deficit: when a government spends more than it collects in taxes

Cyclical unemployment arises when:

business activity in the macroeconomy declines

Cyclical unemployment arises when:

business activity in the macroeconomy declines.

The rise in unemployment that occurs because of a recession is known as cyclical unemployment, because it is closely tied to the ______________.

business cycle

A central bank that wants to increase the quantity of money in the economy will:

buy bonds in open market operations.

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

by increasing its reserves

How are the specific interest rates for the lending and borrowing markets determined?

by the forces of supply and demand

Investment in human capital:

can be acquired through on-the-job training // is an important source of economic growth

Which of the following is not included in GDP?

cash income paid to a day laborer that is not reported to the tax authorities

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

cause the exchange rate for U.S. currency to depreciate.

When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?

central bank prints more money

Ricardian equivalence means that:

changes in private savings offset any changes in the government deficit.

In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012?

2010: 1.79 francs, 2012: 1.96 francs

In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?

2010: 113.6 yen, 2013: 107.5 yen

Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be?

2449 billbion

During the Great Depression of the 1930s, the unemployment rate reached more than _________ of the labor force.

25%

If the number of employed persons in a country equals 24 million, the number of million, and the number of persons over age 16 unemployed persons equals 40 million, the unemployment rate equals:

25%

The situation where the buying power of money in terms of goods and services increases is called:

deflation

With regard to the economy, the term negative inflation is synonymous with which of the following?

deflation

Which of the following would be classified in the M1 category of the money supply?

demand deposits

With respect to measuring the money supply, which of the following terms describes a checking account?

demand deposits

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

depend on borrowed money

If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

double coincidence of wants

Changes in the price level of the different components of aggregate demand are reflected in the AD/AS macroeconomic model by a ________________________.

downward sloping AD curve

If markets throughout the global economy all have flexible and continually adjusting prices, then:

each economy will always head for its natural rate of unemployment.

In what way are the factors used to calculate the current account balance similar to each other?

each involves a flow of financial payments between countries

Women composed __________ of the paid workforce in 1900 and 50% of the paid workforce in 2010

18%

Women composed __________ of the paid workforce in 1900 and 50% of the paid workforce in 2010.

18%

If a country's economic data shows that private savings equal $350 million, government spending equals $375 million, taxes equal $300, and the trade surplus equals $125 million, then what does investment equal?

$150 million

The diagram below refers to a private closed economy. In this instance, the equilibrium GDP is:

$180 billion.

A local bakery buys $3,000 worth of oatmeal from a local miller and uses it to make cookies that it sells to the public. Individual residents of the town buy $2,000 worth of oatmeal from the miller and use it to make cookies that they give to family and friends. Looking ONLY at the $5,000 worth of oatmeal sold by the miller, how much of it is counted in GDP?

$2,000. The $2,000 worth sold to individual residents is a final good. The $3,000 worth sold to bakery is an intermediate good, and so is not counted in GDP. The value of the $3,000 worth of oatmeal will be counted in the value of the cookies produced and sold by the bakery.

Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank's liabilities?

$200 million

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the merchandise trade deficit in Vesey in 2010?

$213 billion

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$270 million

$271.8 billion

India had a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars.

$418

India has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars

$418

ndia has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars

$418

If a country's economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal?

$500 million

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

$510 million

Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities?

$600 million

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$620 million

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?

$970 million

During the past year a country's government ran a budget surplus. How will this be represented as a component of in the country's national savings and investment identity?

(T - G); saving side

If a country's economy records a surplus, how will the X and M components be represented in its national savings and investment identity?

(X - M); left side

The unemployment rate may overestimate the true extent of unemployment if:

- many people who claim to be unemployed actually work in the underground economy. - people falsely claim that they are actively seeking work in order to receive unemployment benefits

The graph below refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?

- unemployment is likely to rise. - the economy will experience lower economic growth

The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income.

-374 - Y=400

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

147.48

During the last two centuries, the average rate of growth of GDP per capita in the leading industrialized countries has averaged about _________ per year.

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic savings rises, while the level of domestic investment and private saving remains unchanged. In this instance

-less foreign financial capital is required to meet investment needs. -government policy will involve increasing private savings -the country's trade deficit will decline

money creation process of banks

...

If an economy has a budget surplus of 400, private savings of 1,200, and investment of 1,600, what will the balance of trade in this economy equal?

The change in inventories, a component of aggregate supply, comprises roughly __________ of GDP

0.5%

When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders' gym membership?

16.66%

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?

Once every __________, the Census Bureau does a comprehensive survey of housing and residential finance.

10 years

During the deep recessions of the early 1980s and of 2007-2009, unemployment reached roughly __________.

10%

During the deep recessions of the early 1980s and of 2007-2009, unemployment reaches roughly _____.

10%

Through good economic years and bad, many European economies had unemployment rates hovering near _________ since the 1970s.

10%

If GDP is 3600 and the money supply is 300, what is the velocity?

In 1980 Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) s and a population of 5.3 million. By what percentage did Denmark's GDP per capita rise between 1980 and 2000?

120%

In 1980 Denmark had a GDP of $70 billion (measured in US dollars) and a populations of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) and a population of 5.3 million. By what percentage did Denmark's GDP per capita ride between 1980 and 2000?

120%

The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals

14.4%

The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals:

14.4%

In 1990, the GDP of Canada was $680 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 85 U.S. cents. In 2000, the GDP of Canada was $1000 billion as measured in Canadian dollars, and the exchange rate was that $1 Canadian was worth 69 U.S. cents. By what percentage did the GDP of Canada increase from 1990 to 2000 in Canadian dollars?

47%

Freelife, New Hampshire has a labor force of 78,567 persons and employment of 74,382. The unemployment rate for the city is:

5.3%

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

500

If GDP is 1800 and the money supply is 300, then what is the velocity?

Middle-income countries, which include much of Latin America, Eastern Europe, and some countries in East Asia, have per capita GDP in the range of ___________

6,000 to 12,000

Each month the Census Bureau carries out the Current Population Survey (CPS) (which has been carried out every month since 1940). A total of __________ households are contacted every month

60,000

Each month the Census Bureau carries out the Current Population Survey (CPS) (which has been carried out every month since 1940). A total of __________ households are contacted every month.

60,000

Consumption in the United States is about _______ of GDP, and it moves relatively little over time.

68%

Consumption in the United States is about ____________ of GDP, and it moves relatively little over time.

68%

On the supply side of the GDP, Structures account for around __________ of U.S. GDP.

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

750

If the unemployment rate is 8 percent, then this means:

8 percent of the labor force is unemployed.

Craigburg has a working age population of 20 million. Of those, 11 million are employed and 1 million are unemployed. The unemployment rate is ________ and the participation rate is __________.

8.3%; 60%

Freelife, New Hampshire has a labor of 78,567 persons and employment of 74,382. The unemployment rate is ______ and the participation rate is _____.

8.3%; 60%

The basket of goods in the Consumer Price Index consists of about _________ products; that is, several hundred specific products in over __________ broad-item categories.

80,000; 200

A government deficit has increased from 30 to 50. The country's trade deficit is 100 and private savings equal 65 and investment equal 90. If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal:

If the unemployment rate is 6 percent and the number of persons unemployed is 6 million, then the number of people employed is equal to:

94 million

interest

???

Malthus

????

Utility Maximization

????

return risk tradeoff

????

catch up principle

?????

default

?????

discouraged worker

?????

fiat money

?????

minimum wage

?????

austerity

??????

Which of the following is an example of a pegged currency?

Chinese yuan

production possibilities frontier

A diagram that shows the combinations of output that are possible for an economy to produce. A budget constraint for the economy as a whole. Look at diagram

Circular flow diagram

A diagram that views the economy as consisting of households and firms interacting in a goods and services market a labor market and a financial capital market

dividends

A direct payment from a firm to its shareholders. (a form of a rate of return)

bonds

A financial contract through which a borrower like a corporation, a city or state, or fed. gov. agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future.

mutual funds

A fund that buys a range of stocks or bonds from different companies, thus allowing companies, thus allowing an investor an easy way to diversify. Way to simplify the process of buying a diversifies group of stocks

inflation

A general and ongoing rise in the level of prices in an economy

public good

A good that is nonexcludable (costly or impossible to exclude someone from using the good) and nonrivalrous (when one person using good another can also use it), and thus difficult for market producers to feel to individual consumers.

insurance

A group of people who face a risk of certain bad experience all make regular payments, and those members of the group who actually suffer a bad experience receive payments. All insurance involves imperfect information.

Which of the following is included in the calculated Gross Domestic Product?

A local ice cream stores sell $17,000 worth of cones and sundaes on July 1

GDP inflation deflator (chapter 24)

A measure of inflation based on all components of GDP

double counting

A potential mistake to be avoided in measuring GDP in which output in counted two or more times as it travels through the stages of production

double coincidence of wants

A situation in which both of two people each wants some good or service that the other person can provide. Would occur in an economy without money

negative externality

A situation where a third party, outside the transaction suffers from a market transaction by others

imperfect information

A situation where either the buyer or the seller, or both are uncertain about the qualities of what is being bought and sold. State, in which, most/many economic transactions are made.

If imports exceed exports, as in recent years, then _____ exists.

A trade deficit

If aggregate supply is vertical, then which of the following statements must be true?

Aggregate demand does not affect the quantity of output.

Command economy

An economy in which the government either makes or strongly influences how most economic decisions are made

black markets

An illegal market that breaks government rules on prices or sales.

Market

An institution that brings together buyers and sellers of goods or services. Allows you to learn a specialized set of skills and then use the pay you receive to buy good and services. Buyers determine demand. Sellers determine supply.

In the country of Ophir, the GDP deflator is 175. What does this tell us about prices now compared to prices in the base year? If nominal GDP in Ophir is $87,500, what is real GDP?

By definition, the GDP Deflator in the base year is 100. Consequently, prices are now 75% higher than in the base year. I.e., (175 - 100)/100 = 0.75 = 75% To convert nominal GDP into real GDP, divide nominal GDP by the GDP deflator divided by 100. In this case, Real GDP = $87,500 divided by 175/100, or $87,500/1.75 = $50,000

Nancy's union has negotiated a three-year wage contract that provides for a 2.4% increase indexed to inflation. The rates of inflation are forecast to be 1.62%, 1.93% and 2.21% respectively. How will Nancy's wage increase be expressed in the new contract?

COLA plus 2.4%

Which of the following represents a financial inflow into the U.S. economy?

Canadian investors buying real estate in Arizona

In the United States, which of the following government institutions would most likely provide economists with the basic data for merchandise trade?

Census Bureau

Which of the following institutions determines the quantity of money in the economy as its most important task?

Central Bank

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the

Central Bank; safety and stability of the banking system.

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

Central Bank; safety and stability of the banking system.

_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________

Certificates of deposit; time deposits

____________________ will not cause a shift of the AS curve in a Keynesian framework.

Changes in output prices

CPI

Commonly cited measure of inflation. Based on a basket of goods representing what the typical consumer buys

___________ is about two-thirds of the demand side of GDP, but it moves relatively little over time

Consumption

What are the main components of measuring GDP with what is demanded?

Consumption, Investment, Government Purchases, and Net Exports.

The GDP deflator is a price index that includes the following components of GDP:

Consumption, Investment, Government plus Exports minus Imports

The GDP deflator is a price index that includes the following components of GDP

Consumption, Investment, Government plus exports minus imports

The demand measure of GPD accounting adds together:

Consumption, investment, government purchases, and trade balance

GDP components

Consumption, investment, government, exports, and imports.

In the U.S., all companies involved in international flows of capital must file reports, which are ultimately compiled by the:

Department of the Treasury

What are the main components of measuring GDP with what is produced?

Durable Goods, Nondurable Goods, Services, Structures, and Changes in Inventories.

Perfect competition

Each firm faces many competitors that feel identical products. Perfectly competitive firms are sometimes known as price takers because the pressure of other competing firms forces them to accept the prevailing price in the market as given.

______, which can approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.

Economic growth

_______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country

Economic growth

When we want to measure wage inflation in the labor market, we use the:

Employment Cost Index

Which of the following statements is incorrect?

Employment insurance compensation increases the opportunity cost of being unemployed

Which of the following statements is incorrect

Employment insurance compensation increases the opportunity cost of being unemployed.

A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:

Expansion, peak, recession, trough

Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:

Exports exceed imports by $50 billion

In order to avoid double counting, statisticians just count the _______.

Final goods and services

The Czech Republic has a GDP of 1,800 billion koruny. The exchange rate is 20 koruny/U.S. dollar. The Czech population is 20 million. What is the GDP per capita of the Czech Republic expressed in U.S. dollars?

First, convert Czech GDP into U.S. dollars: K1,800 billion/(K20/$1) = $90 billion. Then divide GDP per capita by population: $90 billion/20 million = $4,500

Given the limitations to GDP as a measure of the standard of living, why do economists still think that it is a "rough but useful" statistic?

For one thing, GDP per capita does reflect how much income people have. But in addition, countries with higher GDP per capita typically have higher standards of living as measured by other things such as health and life expectancy, education, environmental protection, and leisure time. So while GDP per capita per se does not capture everything that matters to people, it is highly correlated with many things that people care about.

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?

French franc

_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

Full employment GDP

Last year in the very small country of Shem, consumption spending was $10,000, investment spending was $2,000, government spending was $5,000 (including $3,000 in transfer payments), exports were $1,000 and imports were $2,000. In addition, residents of Shem working in other countries earned $750 and physical capital located in other countries owned by residents of Shem earned $500. Residents of other countries working in Shem earned $250 and physical capital in Shem owned by foreigners earned $250. What was GDP in Shem last year? What was GNP in Shem last year?

GDP = Consumption + Investment + Government Purchases + Net exports. Consumption was $10,000 and Investment was $2,000. Government Purchases are Government Spending minus Transfer Payments, so they are $5,000 - $3,000 = $2,000. Net Exports are Exports minus Imports, or $1,000 - $2,000 = - $1,000. So: GDP = $10,000 + $2,000 + $2,000 + (-$1,000) = $13,000. GNP = GDP + Income earned by residents of Shem from their labor and capital in other countries - Income earned by foreign residents from their labor and capital in Shem. So: GNP = $13,000 + $750 + $500 - $250 - $250 = $13,750.

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?

GDP Deflator

per capita

GDP divided by the population. Necessary when comparing GDP figures between countries

List some of the limitations to GDP as a measure of the standard of living.

GDP ignores many things that matter to people. The GDP statistic does not reflect increases in leisure time, the quality of the environment, life expectancy and health, congestion, crime, quality of education, culture, and the number of options available for travel and entertainment. Things that people do at home (such as cooking) are not counted in GDP; to the extent that people purchase more of these things (such as eating out), GDP increases without there really being an increase in production.

Which of the following statements is true?

GDP includes spending on recreation and travel, but it does not cover leisure time

Which of the following statements is true?

GDP includes spending on recreation and travel, but it does not cover leisure time.

Why doesn't the investment component of GDP include purchases of financial assets such as stocks and bonds?

GDP measures output of real goods and services. Stocks and bonds represent ownership and claims to income. Stocks and bonds may facilitate investment, but they are not goods and services.

An economy's rate of productivity growth is closely linked to the growth rate of its ______________, although the two aren't identical

GDP per capita

An economy's rate of productivity growth is closely linked to the growth rate of its ______________, although the two aren't identical.

GDP per capita

When discussing economic growth, it is often useful to focus on ____________, to avoid studying changes in the size of GDP that represent only having more people in the economy, and focus on those increases in GDP which represent an actual rise in the standard of living on a per person basis

GDP per capita

Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate the per capita GDP for each country and identify which one is higher.

GDP per capita in Ethiopia is $8 billion/55 million = $145.45. GDP per capita in Costa Rica is $9 billion/4 million = $2,250.00. Costa Rica has a much higher GDP per capita.

What are the two main difficulties that arise when comparing standards of living in different countries using GDP?

GDP statistics from different countries are expressed in different currencies. So the first thing that must be done is to convert the GDP statistic into a common currency. A second problem is that countries have different populations. If GDP is used to compare standards of living, it must be converted into GDP per person.

Some recent economic research has suggested that African countries' economic growth may have been limited by __________________

Geography and climate

Some prominent members of the slow-economic growth country club include a high-income country like _________.

Germany

Elasticity

How much a percentage change in price leads to a percentage change in quantity demanded or quantity supplied. % change in quantity demanded/ % change in price % change in quantity supplied/ % change in price.

Scarcity

Idea that people can't have all the time, money, possessions, and experiences they wish. Since people must choose, they inevitable face trade-offs. (unlimited wants and desires that cannot be fulfilled.)

Budget Constraint

Illustrates the range of choices available. The slope of the budget constraint is determined by the relative price of the choices. Choices beyond the budget constraint are impossible. Choices inside the budget constraint are wasteful. Changes in income and prices affect budget constraint

In 1980, Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) and a population of 5.3 million. By what percentage did Denmark's GDP per capita rise between 1980 and 2000?

In 1980, Denmark's GDP per capita was $70 billion/5.1 million = $13,725.49. In 2000, Denmark's GDP per capita was $160 billion/5.3 million = $30,188.68. (30,188.68 - 13,725.49)/13,725.49 = 1.19946. So Denmark's GDP per capita was 119.95% higher in 2000 than in 1980.

In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?

Which of the following is correct?

Increased education adds to the stock of human capital, not unlike factories ads to the stock of physical capital.

Which of the following best describes the relationship between economic growth and literacy?

Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.

____________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s.

Industrial Revolution

What name is given to the index based on the prices of exported or imported merchandise?

International Price Index

The ____________________ is based on the prices of merchandise that are exported or imported

International Product Index

The ____________________ is based on the prices of merchandise that are exported or imported.

International Product Index

___________ is a small category that refers to the goods produced by one business that have yet to be sold to consumers, and are either still sitting in warehouses and on store shelves

Inventories

Investment spending is only 15 to 18 percent of GDP, but it is extremely important to the overall health of the economy. Why?

Investment is the source of new physical capital. As we will see in Chapter 5, that is essential for economic growth. New factories and businesses as well as improvements to existing factories and businesses result from investment. That allows us to expand employment and production.

Suppose that everyone who has looked for a job for more than six months gave up in despair and stopped looking. What would happen to the unemployment rate?

It would fall

In an AD/AS model, the point where the economy has excess capacity is called the:

Keynesian zone of the AS curve

____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?

Long and variable time lags

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

Money

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds

Money market funds

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.

Money market funds

_________ is calculated by taking _________ and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year.

NNP: GNP

_____ is calculated by taking _____ and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of the year.

NNP; GNP

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________.

Neoclassical economists; long run

________________ economists place an emphasis on __________ run economic performance.

Neoclassical; long

What is the difference between a series of economic data over time measured in nominal terms versus the same data series over time measured in real terms?

Nominal values are measured with whatever prices existed at the time. Real values have been adjusted for inflation. For example, if the price of an item doubles over a period of time, the nominal value would double. But if the overall price level had also doubled, the good's price would not have changed relative to the prices of other goods. So the real value of the good would be unchanged.

Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?

Northern's loan assets increase by $30 million

premium

Payments made to an insurance company

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

Phillips curve

The shape of the ______________ involves a tradeoff between unemployment and inflation

Phillips curve

The shape of the ______________ involves a tradeoff between unemployment and inflation.

Phillips curve

monetary policy

Policy that involves altering the quantity of money and thus affecting the level of interest rates and the extent of borrowing

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?

Producer Price Index

The difference between nominal GDP and real GDP is:

Real GDP adjusts for inflation

Which statistic gives us a more accurate picture of how production changes over time, nominal GDP or real GDP? Why?

Real GDP. That is because real GDP changes only if production changes. Nominal GDP changes is either prices or production changes.

real versus nominal GDP

Real GDP: An economic statistic after it has been adjusted for inflation Nominal GDP: The economic statistic actually announced at that time, not adjusted for inflation

The nominal value of any economic statistic refers to the number that is actually announced at that time, while the ______ refers to the statistic after it has been adjusted for inflation.

Real value

deregulation

Removing government controls over setting prices and quantities in certain industries.

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds

Reserves

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds.

Reserves

When a government records a budget surplus, the national savings and investment identity is written as:

S + (M - X) + (T - G) = I

If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as:

S + (M - X) = I + (G - T)

Which of the following represents the national savings and investment identity - Supply of financial capital = Demand for financial capital - expressed in algebraic terms?

S + (M - X) = I + (G - T)

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah's M1 funds

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah's M1 funds.

______ are now the largest single component of the supply side of GDP, representing over half of GDP.

Services

Cross country comparisons of GDP per capita typically use purchasing power parity equivalent exchange rates, which are a measure of the long run equilibrium value of an exchange rate. In fact, we used PPP equivalent exchange rates in this module. Why could using market exchange rates, which sometimes change dramatically in a short period of time, be misleading?

Since market exchange rates can change dramatically in a short period of time, a comparison of GDP per capita between countries would give quite different results depending on the day one happened to choose. For example, suppose the GDP of Mexico is 10 trillion pesos. If the exchange rate on a particular day is 10 pesos per dollar, then Mexican GDP would be measured as $1 trillion. If on another day the exchange rate is 14 pesos per dollar, then Mexican GDP would be measured as $714 billion, which is almost 30% smaller. Hence it is best to use a long-run measure of the exchange rate

_________________ results when an economy experiences high unemployment and high inflation at the same time.

Stagflation

Which of the following institutions oversees the safety and stability of the U.S. banking system?

The Federal Reserve

_____________________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s

The Industrial Revolution

U.S. macroeconomic data are thought to be among the best in the world. Given what you learned in the Clear It Up (How do statisticians measure GDP?, p. 101) "How do statisticians measure GDP?" does this surprise you? Or does this simply reflect the complexity of a modern economy?

The U.S. economy is vast and complicated. It is an enormous task to collect all the data required to calculate GDP. The U.S. Bureau of Economic Analysis works very hard to get the best data it can, but as the discussion in the book makes clear, the system is far from perfect. One should think of all such statistics as educated guesses, not absolute fact

Diminishing Marginal Utility

The common pattern that each marginal unit of good consumed provides less of an addition to utility than the previous unit

From a neoclassical view, which of the following is a true statement?

The economy cannot sustain production above its potential GDP in the long run.

purchasing power parity

The exchange rate that equalizes the prices of internationally traded goods across countries. Useful for making comparisons between countries. Value in knowing which direction the exchange rate is more likely to shift over the long run.

Which of the following is true?

The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.

Referring to the diagram below, which of the following is a true statement?

The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

What are the typical patterns of GDP for a high-income economy like the United States in the long run and the short run?

The long-run trend is for GDP to rise over time. In the short run, however, GDP can fluctuate up and down.

Labor market

The market in which households sell their labor as workers to business firms or other employers.

financial capital market

The market in which those who save money provide financial capital and receive a rate of return from those who wish to raise money and pay a rate of return

reserve requirement

The proportion of deposits that a bank is legally required to deposit with the central bank. Method of conducting monetary policy

Which of the following is not counted as part of GDP?

The purchase of 100 shared of AT&T stock by your grandfather.

exchange rate

The rate at which one currency exchanges for another. Necessary when comparing the GDP of two different countries with different currencies.

Suppose that the countries of Aquilonia and Nemedia have the same GDP as measured in dollars. Further suppose that the population of Nemedia is twice the population of Aquilonia. Roughly speaking, what can you say about the standard of living of the average person in Aquilonia compared to Nemedia?

The two countries have the same GDP but Nemedia has twice as many people. Hence, GDP per capita is twice as large in Aquilonia as in Nemedia. GDP per capita is a rough measure of standard of living, so the standard of living in Aquilonia is roughly twice that of Nemedia.

GDP is:

The value of all final goods and services produces domestically

GDP does not directly include:

The value of intermediate goods sold during a period

GDP

The value of the output of all goods and services produced within a country. Measures the size of a nation's overall economy. Can be measured by either the total of what is demanded in the economy, or by the total of what is produced in the economy. Rough indicator of a society's standard of living

Referring to the diagram below, which of the following is a true statement?

There is insufficient aggregate demand to reach full employment.

Increased investment alone will guarantee economic growth

This a false statement, because economics growth hinges on the quality and type of investment as well as the human capital and improvements in technology

Referring to the diagram below, which of the following statements is true?

This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.

Increased investment alone will guarantee economic growth.

This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology

Why do you suppose that U.S. GDP is so much higher today than 50 or 100 years ago?

This is a question we will answer more fully in Chapter 5. The short answer is that the U.S. now has better technology, more labor, and more capital.

Why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down?

This is a question we will answer more fully in Chapter 8. For now, realize that the business cycle is the result of a variety of short-run shocks, including financial panics, changes in government policies, and the moods of consumers.

free rider

Those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided. Problem can be overcome through measures to assure that users of the public good pay for it. Such measures include government actions, social pressures, and specific situations where markets have discovered a way to collect payments.

money multiplier

Total money in the economy divided by the original quantity of money in the economy divided by a change in the original quantity of the money

The gap between exports and imports in a nation's economy is called the ______.

Trade balance

_________________________ are included in the aggregate amount of MI money currently in circulation.

Traveler's checks

If the U.S. dollar weakens, which of the following parties will benefit?

U.S firms selling in Europe

The most commonly traded currency in foreign exchange markets is the:

U.S. dollar.

Which of the following represents a financial outflow from the U.S. economy?

U.S. investors buying foreign assets in Germany

Comparative advantage

When a nation can produce at a lower cost when measured in terms of opportunity cost. The goods in which a nation has its greatest productivity advantage or its smallest productivity disadvantage; also, the goods that a nation can produce at a lower cost when measured in terms of opportunity cost.

bank run

When depositors race to the bank to withdraw their deposits for fear that they would otherwise be lost. Risk of a bank run creates instability in a banking system. Can make a recession worse

convergence

When economies with low per capita incomes are growing faster than economies with high per capita incomes. Will countries with lower levels of per capita GDP catch up to countries with higher levels of per capita GDP?

Absolute advantage

When one nation can produce a product at lower cost relative to another nation

Moral hazard

When people have insurance against a certain event, they are less likely to guard agains that event occurring. Deductibles, copayments, coinsurance, investigations into insurance fraud are ways insurance companies try to reduce effect of moral hazard

Specialization

When workers or firms focus on particular tasks in the overall production process for which they are well-suited. Allows workers to focus on the types of production where they have an advantage. Increases production

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:

a contractionary monetary policy.

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:

a contractionary monetary policy.

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

a double coincidence of wants

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

a floating exchange rate.

Which of the following events would cause interest rates to increase?

a higher discount rate

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In this instance, the rise in domestic: investment will mean

a higher trade deficit.

The graph below refers to a significant increase in oil prices. Which of the following is likely to result?

a rise in inflation from 2.0% to 3.0%

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur?

a rise in unemployment

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

a self-fulfilling prophecy

In an AD/AS diagram, __________________________ could explain a rise in cyclical unemployment?

a shift to the left in either AS or AD

positive externality

a situation where a third party, outside the transaction benefits from a market transaction by other

If imports exceed exports, as in recent years, then __________ exists.

a trade deficit

Only one of the following statements about trade surplus and capital flow is correct. Which one is it?

a trade surplus means that there is a net outflow of capital

A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies:

a vertical Phillips curve.

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

a vertical line drawn at the level of potential GDP

Banks typically come under financial stress because of:

a widespread decline in the value of their assets

Frictional unemployment occurs when:

a worker decides to quit one job to seek a different job

What distinguishes the real value of a statistic from the nominal value of a statistic?

adjusting for inflation

The _______ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with employment alternatives, are most likely to stay.

adverse selection of wage cuts

The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay.

adverse selection of wage cuts

In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment.

aggregate demand

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

aggregate demand

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

aggregate demand

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

aggregate demand (AD)

At a macroeconomic level, the theory of rational expectations points out that if the ______________________ is vertical over time, then people should rationally expect this pattern.

aggregate supply curve

The labor force consists of:

all adults who are working actively seeking work

Consumption, investment, government spending, exports, and imports are:

all components of aggregate demand.

Which of the following is considered to be a relatively weak tool of monetary policy?

altering the discount rate

One of the following groups is not participating in the foreign exchange markets. Which one?

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

In macroeconomics, the connection from inputs to outputs for the entire economy is called _______________.

an aggregate production function

Which of the following denotes a common misunderstanding about exchange rates?

an appreciating currency must be better than a depreciating currency

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

an asset-liability time mismatch

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in:

an increase in price level.

Which of the following factors contribute to economic growth?

an increase in the proportion of the population that is college educated

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

an increase; domestic investment

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying powe

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying power

If exports and imports:

are equal, then trade is balanced.

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:

at least a slight increase in unemployment.

Which of the following are most likely classified by economists as consumer durable goods?

automobiles, furniture

What is the name given to the macroeconomic equation MV = PQ?

basic quantity equation of money

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

bigger leakages

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

borrow for the short term from the central bank.

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions

coordination

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

coordination

In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation.

cost of living adjustments

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?

countercyclical

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:

create an inflationary increase in price level.

Which of the following represents a Keynesian point of view of macroeconomics?

creating increases in aggregate demand to reduce unemployment

The process of banks making loans in financial capital markets is intimately tied to the

creation of money.

The process of banks making loans in financial capital markets is intimately tied to the:

creation of money.

One of the following must be used as a starting point in order to perform an analysis that will determine what the connections between imbalances of trade in goods and services and the flows of international financial capital are. Which one is it?

define the balance of trade

Another term used to describe negative inflation is

deflation

Another term used to describe negative inflation is:

deflation

An increase in government borrowing can:

crowd out private investment in physical capital.

Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________.

current account balance; goods, services, international income flows, and foreign aid.

When the economy of a country is operating close to its full capacity:

cyclical unemployment is close to zero.

From a neoclassical viewpoint, government should focus less on:

cyclical unemployment.

types of unemployment

cyclical unemployment: bounces up and down according to the short-run movements of GDP. Tied to to business cycle (like high unemployment during recession). Natural rate of unemployment: baseline level of unemployment that occurs year in and year out is determined by how well the structures of market and government institutions in the economy lead to a matching of workers and employers in the labor market. would exist in a growing healthy economy Frictional unemployment: Occurs as workers move between jobs. (tied to natural rate of unemployment)

A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:

cyclically unemployed

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________.

decrease

An increase in the government's budget surplus will cause the interest rate to:

decrease.

From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result?

deep economic recession

A country finds itself in the following situation: a government budget deficit of $800; total domestic savings of $1800, and total domestic physical capital investment of $1300. According to the national saving and investment identity, what is the current account balance?

deficit of $300

The situation where the buying power of money in terms of goods and services increases is called

deflation

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely?

difficulty managing public investment so it's done in a cost effective way

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance:

domestic investment is higher than domestic savings

A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance

domestic investment is higher than domestic savings.

Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker's GDP will be approximately ___________ that of Country Able

double

Market-oriented economy

economic decisions are made by buyers and sellers, who may be individuals or firms

Refer to the graph shown below. At point B:

economic growth is low or even negative.

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

economic growth; the size of the economy

If the government initiates an expansionary monetary policy at the same time that its budget deficit increases, then the interest rate will __________________.

either increase or decrease

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

encouraging long-term growth

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.

equilibrium

The definition of market equilibrium states that at the _____, the quantity of labor demanded by employers will equal the quantity supplied.

equilibrium wage

The definition of market equilibrium states that at the _______________, the quantity of labor demanded by employers will equal the quantity supplied.

equilibrium wage

A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?

especially large and sustained government borrowing

The _____________ is an example of a large-scale common currency

euro

The _____________ is an example of a large-scale common currency.

euro

If imports ______________, then the economy is said to have a trade deficit.

exceed exports

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

federal funds rate

If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?

fighting inflation

From a neoclassical view, which of the following is less important?

fighting unemployment

With respect to the national saving and investment identity for any country, the quantity of _______________ at any given time by savings must ________________ for purposes of making investments.

financial capital supplied; equal the quantity of capital financial demanded

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

fixed cost of inputs combined with rising prices for outputs

The __________________ in an AD/AS diagram is most relevant to Keynes's Law.

flat portion of the AS curve

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow tight monetary policy.

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

following a loose monetary policy.

The _____________________________ is the largest market in the world economy.

foreign exchange market

The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports.

foreign price effect; discouraging; encouraging

The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce"

frictional unemployment

The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce:

frictional unemployment

The extent of _______________________ will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy.

frictional unemployment

A reduction in government borrowing can:

give private investment an opportunity to expand.

Final goods or services used to compute GDP refer to:

goods and services purchased by the ultimate users

A country's current account balance refers to a broad measure of the balance of trade that includes:

goods and services, international flows of income, and foreign aid.

The effects of inflation are seen in:

goods, services, wages and income levels

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

government borrowing

debt

government debt refers to the total accumulated amount that the government has borrowed and not yet paid back over time.

For most high-income countries of the world, GDP _________________ over time

has risen gradually

For most high-income countries of the world, GDP _________________ over time.

has risen gradually

In an AD/AS diagram, an increase in structural unemployment will:

have no effect on AS or AD.

In the long run, the most important source of increase in a nation's standard of living is a

high rate of economic growth

In the long run, the most important source of increase in a nation's standard of living is a:

high rate of economic growth

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

higher interest rate

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

higher profits will induce expanded production.

On the demand side of GDP, consumption by _____________ is the largest component of GDP, accounting for about two-thirds of the GDP in any year.

households

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

hyper-intense production will be unsustainable in the long run.

In the early 1990's extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ___________________.

hyperinflation

A government will likely ____________________________ to encourage investment in technology R&D by private firms?

implement fiscal policy establishing tax incentives

The term __________ is used to describe what those in one country buy from those in other countries.

imports

As the aggregate price level in an economy decreases,

imports decrease.

Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:

imports exceed exports by $50 billion

In 2009, because U.S. imports were $2,535 billion while exports were $2,116 billion:

imports exceeded exports by a sizeable $419 billion.

A decrease in the government's budget surplus will cause the interest rate to:

increase

Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?

increase of $1 million in Pacific's loan assets

If the economy is at equilibrium as shown in the diagram below, then a contractionary monetary policy will

increase unemployment, but have little effect on inflation.

Which of the following is most likely to contribute to economic growth as measured by GDP per capita?

increased capital formation

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

increased spending by the government on health care

Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits?

increasing exchange rates

A payment is said to be ________________ if it is automatically adjusted for inflation

indexed

A payment is said to be ________________ if it is automatically adjusted for inflation.

indexed

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be _____

indexed

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________.

indexed

In an economy with _______________, money loses some buying power each year, but it remains money.

inflation

Which of the following is most strongly supported by the Keynesian perspective of macroeconomics?

inflation is a price that might have to be paid to achieve lower unemployment

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of

inflation or recession

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

inflation or recession

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the _____________.

inflation rate

__________ implies that pressure for price increases reaches across _______________markets, not just one.

inflation; most

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

inflationary increase in price level

To a macroeconomist, a trade deficit is synonymous with which of the following?

inflow of financial capital

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

interest rate effect

As the aggregate price level in an economy rises, ____________________.

interest rates increase

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

interest rates; right

In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.

investment in physical capital; fiscal policy

When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:

investment will decrease if savings also remains constant.

When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant:

investment will increase if savings remain constant.

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

investments in human capital

Investment in human capital:

is characterized by both b) and c)

Karen chooses to go to university fulltime rather than to work. Karen:

is not part of the labor force.

The extent to which a national economy is involved in global trade:

is not very strongly related to either a or b above.

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

is producing at a point where output is less than potential GDP.

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

is vertical; is vertical

A nation can achieve higher economic growth if:

it devotes more resources to research and development

If the Canadian dollar is strengthening, then:

it has appreciated in terms of other currencies

If the Canadian dollar is strengthening, then:

it has appreciated in terms of other currencies.

The statement that GDP = C + I + G + X - M is an identity, because ________________________________.

it is true according to the definition of GDP

When banks hold excess reserves because they don't see good lending opportunities:

it negatively affects expansionary monetary policy.

Why is productivity growth considered to be the most important factor in the AD/AS model?

it shifts the AS curve in the long-term

Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?

it would depreciate the country's exchange rate and break its hard peg

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result?

its imports will increase

The equilibrium quantity of labor and the equilibrium wage level decrease when:

labor demand shifts to the left, if wages are flexible.

The equilibrium quantity of labor and the equilibrium wage increase when:

labor demand shifts to the right, if wages are flexible.

The equilibrium quantity of labor decreases and the equilibrium wage increases when:

labor supply shifts to the left, if wages are flexible.

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

labor supply shifts to the right, if wages are flexible,

The national saving and investment identity teaches that the rest of the economy can absorb an inflow of foreign financial capital by:

leaving domestic saving and investment unchanged using any of the above.

In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________.

less than half of total production; more than half of total production

barter

literally trading one good for another without using money. a completely inadequate mechanism for trying to coordinate the trades in a modern advanced economy.

Macroeconomics

looks at the economy as a whole focusing on overall issues like growth in the standard of living, unemployment, inflation, and levels of foreign trade. Has four main goals: growth in standard of living, low unemployment, low inflation, and a sustainable balance of trade. It has two types of policies for pursuing these goals: Monetary policy and fiscal policy.

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

lower unemployment.

Which of the following did not result in economic growth?

many citizens emigrating from Zimbabwe when a politically repressive regime took office.

The unemployment rate may underestimate the true extent of unemployment if:

many part-time employees would like to work fulltime, but are unable to get additional work. // many people become discouraged and cease looking for work.

The unemployment rate may underestimate the true extent of unemployment if:

many people become discouraged and cease looking for work.

In the U.S. economy, the offsetting effects of private saving compared to government borrowing are typically noted as being represented by which of the following ratios?

much less than one-to-one

The sum of all the income received for contributing resources to GDP is called ___________________.

national income (Y)

Country Alpha and Country Beta initially have the same real GDP per capita. Country Alpha experiences no economic growth, while Country Beta grows at a sustained rate of 5 percent. In 14 years, Country Alpha's GDP will be approximately _________ that of Country Beta.

one-half

While one occasionally sees references to inflation over short time periods, the term typically implies a(n)_____________ in prices.

ongoing raise

Which of the following is a traditional tool used by the Fed during recessions?

open market operations

labor force participation

out of the labor force,

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer's true cost of living, because it doesn't take into account that the person can substitute between goods according to changes in their relative prices.

overstate

Microeconomics

perspective that focuses on parts of the economy: Individuals, firms, and industries. Focuses on the actions of particular actors within the economy. Circular flow diagram representative of microeconomics. Choice=fundamental issue in Microeconomics "can you make 'better' choices?"

The term "full employment GDP" is synonymous with which of the following?

potential GDP

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?

potential GDP

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

potential GDP and aggregate supply

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.

potential GDP; natural rate of unemployment

The Keynesian economic framework is based on an assumption that:

prices and wages are sticky and do not adjust rapidly.

The market where loans are made to borrowers is called the:

primary loan market.

A country's current national savings and investment identity is expressed in algebraic terms as X - M = S + (G - T) - I. In this instance:

private and public domestic savings are higher than domestic investment.

If a government experiences an increase in its budget surplus, which of the following possible outcomes will likely result?

private savings decrease while everything else holds constant

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.

private savings from U.S. households and firms; inflows of foreign financial investment.

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then:

private savings will decrease by 100.

The Producer Price Index is based on prices paid for supplies and inputs by:

producers of goods and services

The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain.

production

Over the long run, ____________ per hour is the most important determinant of the average wage level in any economy

productivity

Over the long run, ____________ per hour is the most important determinant of the average wage level in any economy.

productivity

The value of what is produced per worker, or per hour worked, is called ____________.

productivity

_________ is output per hour in the business sector.

productivity

economic growth

productivity

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?

productivity and economic growth

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands

productivity increases

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands.

productivity increases

To achieve a high standard of living, a nation should:

promote economic growth

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?

quantitative easing

A central bank that desires to reduce the quantity of money in the economy can:

raise the reserve requirement.

The difference between nominal GDP and real GDP is:

real GDP adjusts for inflation

In an AD/AS model:

real GDP is shown on the horizontal axis.

Economists typically measure economic growth by tracking:

real GDP per capita

The __________________ is the nominal interest rate minus the rate of inflation.

real interest rate

Which of the following is an example of one of the major categories in the overall CPI?

recreation

If the economy is at equilibrium as shown in the diagram below, then an expansionary monetary policy will:

reduce unemployment, but have little effect on inflation.

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.

relatively flat; relatively steep

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirements

Which of the following represents a financial inflow to the U.S. economy?

returns paid on U.S. financial investments in Switzerland

Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs:

risk causing even greater fluctuations in foreign exchange markets.

The market in which loans are bought and sold is called the:

secondary loan market.

In the neoclassical view, the economy has a ___________________________ to move back to potential GDP.

self-correcting tendency

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

shift substantially

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be

short-term

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:

short-term

Which of the following will strongly influence a nation's level of trade?

size of its economy, its geographic location, and its history of trade

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

standard of living is ultimately determined by long-term growth

When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?

steeper consumption function due to high marginal propensity to consume

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

store of value

The onset of a trade deficit is most likely supported by a country's:

strong economic growth.

When the aggregate demand curves slope downwards because the price of a good increases, people will

substitute and buy other goods instead.

Which of the following will have the greatest influence on the slope of the demand curve in a single market model?

substitute goods

Two factors that complicate the calculation of the inflation rate are

substitution and quality/new product bias

Two factors that complicate the calculation of the inflation rate are:

substitution and quality/new product bias

One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, is:

substitution bias

If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will the balance of trade in this economy equal?

surplus of 500

If an economy has a budget deficit of 600, private savings of 2,000, and investment of 800. What is the balance of trade in this economy?

surplus of 600

A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.

sustained pattern of large budget deficits

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

tangible and/or intangible capital.

The surge in international trade related to services to be performed in one country and sold in another that began in the 1990s has been powered by which of the following?

technological advances

Since the late 1950s, economists have performed "growth accounting" studies in the United States. These have determined that ________________ is typically the most important contributor to U.S. economic growth.

technology

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time

the basket of goods

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.

the basket of goods

Inflation implies that the level of all prices _____________________.

the basket of goods

open market operations

the central bank buying or selling bonds to influence the quantity of of money and the level of interest rates. traditional tool to affect quantity of money in economy.

:If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then:

the central bank might react with an expansionary monetary policy.

When a business firm makes an investment in physical capital, what is that investment subject to?

the discipline of the market

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:

the dollar strengthened against the peso.

In most developed countries, the government plays a large role in society's investment in human capital through _________________________.

the education system

Which of the following is included in GDP?

the fees charged for a stock broker's services

Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances?

the growth rate of long-term productivity

Which of the following is unlikely to affect the rate of economic growth?

the level of government spending

When the central bank decides it will sell bonds using open market operations:

the money supply decreases.

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?

the money supply in the economy decreases

When the central bank lowers the reserve requirement on deposits:

the money supply increases and interest rates decrease.

adverse selection

the problem that arises when one party knows more about the quality of the good than the other, and as a result the party with less knowledge must worry about ending up at a disadvantage. buyers of insurance have more information about whether they are high-risk or low-risk than the insurance company does.

Which of the following is not counted as a part of GDP?

the purchase of 00 shares of AT&T stock by your grandfather

According to the basic quantity equation of money, if price and output fall while velocity increases, then:

the quantity of money will fall.

If aggregate supply is vertical, then aggregate demand does not affect:

the quantity of output.

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.

the short run

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________.

the tools of demand and supply

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:

the trade deficit.

Potential GDP in the U.S. will be unaffected by ____________________.

the unemployment rate

Which of the following is included in GDP calculations?

the university tuition paid to enroll in a course

GDP does not directly include:

the value intermediate goods sold during a period

GDP is:

the value of all final goods and services produced domestically.

_______________________________ can set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well.

trade balance

A period of strong economic growth tends to make a __________________.

trade deficit larger

From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following?

trade in the financial capital market

The term _____________ describes circumstances where a country's exports exceed its imports

trade surplus

The term _____________ describes circumstances where a country's exports exceed its imports.

trade surplus

If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected?

trade-offs and connections may differ in the short run and the long run

indexing

transforming the cost of buying the basket of goods and services into a series of numbers in the same proportion to each other, but with an arbitrary base year of 100.

A series of macroeconomic events has led an economy into a deep recession. Which of the following factors is most likely to have initiated this series of events?

unbalanced trade

Gomer loses his job as a road construction worker and cannot find another position with equivalent pay and benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a weekly basis. He is considered to be:

underemployed

Frictional unemployment is:

unemployment that is due to normal turnover in the labor market

The unemployment rate measures:

unemployment workers as a percentage of the labor force.

The final category of the current account balance is ____________________, which can be thought of as payments made by individuals in which money is sent abroad _________________________.

unilateral transfers; without any direct good or service being received

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

unit of account

In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right.

vertical AS curve

A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene

volatility

Which of the following is a building block of neoclassical economics?

wages and prices will adjust in a flexible manner

The Keynesian view of economics assumes that:

wages are sticky.

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

weakening; less

The _________________ means that a higher price level leads to lower real wealth.

wealth effect

quantitative easing

works by expanding or contracting the money supply in a way that influences the interest rate. Tool of monetary policy. Thought of as temporary emergency measure. innovative set of monetary policies that us federal reserve turned to during recession.

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

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