Econ Exam 3

Front 1

Which government organization is in charge of calculating and reporting the consumer price index?

Back 1

Bureau of Labor Statistics

Front 2

What are the two main measures of inflation used in the U.S.?

Back 2

The Consumer Price Index and the GDP deflator

Front 3

formula for the CPI

Back 3

(Cost of CPI market basket this year × Cost of CPI market basket at base period prices)
÷ 100.

Front 4

Inflation rate formula

Back 4

i = (CPI current or newest yr - CPI base yr)/ cpi base yr

Front 5

Which government agency is in charge of calculating and reporting the nation’s unemployment figures?

Back 5

Bureau of Labor Statistics

Front 6

what is the labor force

Back 6

employed + unemployed

Front 7

uneployment rate

Back 7

unemployed/labor force

Front 8

What are the three categories used by the BLS to classify the civilian, adult population?

Back 8

employed (all – full and part time),not in the labor force, unemployed

Front 9

3 types of unemployment

Back 9

frictionally unemployed, structurally unemployed, cyclically unemployed

Front 10

The natural rate of unemployment is equal to

Back 10

frictional plus structural unemployment

Front 11

what is structually unemployed

Back 11

unemployment that comes from there being an absence of demand for the workers that are available

Front 12

Frictional Unemployment

Back 12

Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations

Front 13

Cyclical Unemployment

Back 13

Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high

Front 14

The actual rate of unemployment is equal to

Back 14

cyclical plus frictional plus structural unemployment

Front 15

Commodity of money, definition and an example of what is NOT a commodity money

Back 15

1. Commodity money refers to money whose value comes from a commodity out of which it is made. Examples of commodities that have been used as money include gold, silver, copper, salt, large stones, decorated belts, shells, and cigarettes.

2. paper money

Front 16

fiat money

Back 16

Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Most of the world's paper money is fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation.

Front 17

Demand deposits are also known as

Back 17

checking accounts

Front 18

Time deposits are also known as

Back 18

certificates of deposits (CD’s)

Front 19

M1 includes

Back 19

currency held by the public, plus travelers' checks, demand deposits, other checkable deposits

Front 20

M2 includes

Back 20

m1, savings deposits, money-market funds/other time deposits

Front 21

largest component of M1

Back 21

Currency (held outside of banks)

Front 22

What is the largest component of M2?

Back 22

savings accounts

Front 23

How is currency classified as money?

Back 23

both M1 and m2

Front 24

How is gold classified as money

Back 24

not counted as money

Front 25

On a bank's balance sheet, how are deposits, loans and reserves categorized

Back 25

loans and reserves are assets; deposits are liabilities

Front 26

The money multiplier is equal to: (rr = required reserve ratio)

Back 26

1/rr

Front 27

How many central banks does the U.S. have?

Back 27

12

Front 28

How many members are on the Federal Reserve’s Board of Governors

Back 28

7

Front 29

Who makes up the Federal Open Market Committee (FOMC)?

Back 29

The 7 member Board plus 5 rotating regional bank presidents

Front 30

What is NOT a function performed by the Federal Reserve

Back 30

convert gold into paper currency

Front 31

When the Fed conducts “open market operations”, it means that they

Back 31

buy and sell U.S. govt. bonds in the open market

Front 32

To increase the money supply, the Fed could

Back 32

purchase government securities, lower the discount rate

Front 33

In the Money Market, the Demand for Money is determined by

Back 33

the public

Front 34

In the Money Market, the Supply of Money is determined by

Back 34

the Federal reserve

Front 35

What does the Money Market show

Back 35

how nominal interest rates are determined

Front 36

In the Money Market, what happens when there is an increase in money demand

Back 36

increase in nominal interest rates, no change in the quantity of money

Front 37

velocity of money

Back 37

how many times money changes hands (is spent) during the year

Front 38

quanity equation

Back 38

M x V = P x Y

P is the price level, and Y is real GDP. M is the quantity of money, V is the velocity of money

Front 39

purpose of the quantity equation

Back 39

to show the relationship between a nation’s money supply and its inflation rate

Front 40

classical dichotomy

Back 40

theoretical seperation of nominal and real variables

Front 41

According to the classical dichotomy, what should NOT be affected by changes in the money supply (in the long-run)?

Back 41

real GDP

Front 42

“the economy is expanding”, this means that during the last period

Back 42

real GDP increased at the potential rate or faster

Front 43

“the economy contracted”, this means that during the last period

Back 43

real GDP increased slower than the potential rate or decreased

Front 44

stages of the business cycle

Back 44

1.Contraction - When the economy starts slowing down.
2.Trough - When the economy hits bottom, usually in a recession.
3.Expansion - When the economy starts growing again.
4.Peak - When the economy is in a state of "irrational exuberance."

Front 45

During an expansion phase, which is generally true

Back 45

incomes and profits tend to rise, while unemployment falls

Front 46

components of aggregate demand

Back 46

1. income or output
2. comsumption
3. investment
4. governement spending
5. net exports

Front 47

The long-run aggregate supply curve (LRAS)

Back 47

1. is vertical.
2. does not depend on the general price level.

Front 48

The short-run aggregate supply curve (SRAS)

Back 48

upward sloping

Front 49

economy is “overheating”, what does that generally mean and What is the main concern when the economy is “overheating”?

Back 49

1. Real GDP is rising faster than the potential rate.

2. inflation

Front 50

Fiscal policy refers to

Back 50

changes in the amount of government expenditures/spending and taxes to achieve particular economic objectives

Front 51

The government spending multiplier (aggregate demand multiplier) is defined as

Back 51

1/(1 - MPC)

Front 52

crowding-out effect.

Back 52

When the government increases expenditures, this raises interest rates which then decreases investment.

Front 53

Who conducts “monetary policy” for the U.S.?

Back 53

The Federal reserve

Front 54

the Federal Reserve changed “interest rates”. What interest rate are they usually referring to?

Back 54

the federal funds rate

Front 55

Banks often make short-term loans to one another. What interest rate do they charge?

Back 55

the federal funds rate

Front 56

AD

Back 56

Aggregate Demand (also C + I + G + NX)

Front 57

MD

Back 57

Money demand (determined by public)

Front 58

MS

Back 58

Money supply (set by Fed)

Front 59

rr

Back 59

required reserve ratio