Monetary Policy
Name one of the ways that monetary policy is conducted.
Name the two ways that fiscal policy is conducted.
Changing government spending and changing taxes
What is the name for the point where the supply and demand curves intersect?
Equilibrium
True or false: GDP includes production outside of a country's borders
False
What are the four different factors of production in an economy?
Land, labor, capital, and entrepreneurship
Name one action that counts as expansionary monetary policy.
Accepted answers: decreasing the RRR, decreasing the discount rate, Fed purchasing bonds
Name one action that counts as contractionary fiscal policy.
Accepted answers: increasing taxes or decreasing government spending
Is a point outside of the Production Possibilities Frontier an efficient example, an inefficient example, or an impossible example?
Impossible example
Which of the following are NOT included in a country's GDP: groceries from the store, computer exports, or buying a car from a neighbor?
Buying a car from a neighbor (second hand sale)
The Lorenz curve
What does monetary policy do to increase/decrease demand in an economy?
Increases/decreases the money supply (other accepted answer: increases/decreases interest rates)
True or False: If there is a budget surplus, demand in an economy will increase.
True - budget surplus is expansionary fiscal policy
Why is the supply curve upward sloping?
Law of Supply: at higher prices, producers are willing to supply more goods
What is the difference between Real GDP and GDP?
GDP uses up to date prices from the actual year that quantities are taken, while RGDP uses a base year (not the actual year). Also accepted: GDP includes inflation while RGDP solely focuses on production
Country A can produce 500 cars or 200 bottles. Country B can produce 300 cars or 100 bottles. Who would benefit the most from trade between the two countries?
Both countries would benefit! Trick question - Country B has the comparative advantage in producing cars while Country A has the comparative advantage in producing bottles
Which of the following are not included in money measure M1: traveler's checks, currency in circulation, certificates of deposit, or checking accounts?
Certificates of Deposit
What form of fiscal policy would an incumbent candidate for an election want to engage in for his final year of office and why?
Expansionary fiscal policy: increases economic growth (RGDP) in the short run so it makes them look better as a candidate (makes it look like the economy was doing better under them)
Give an example of something that would make the demand curve move to the right.
If nominal GDP increases but real GDP decreases, what can you infer about economic growth?
Because Real GDP decreased, production in the economy decreased as well.
Which of the following items would be considered scarce: gold, education, or time?
All of them: gold, education, and time are all limited resources
Detail what occurs when the discount rate is lowered in an economy.
When the discount rate is lowered, expansionary monetary policy is conducted - banks lend more money out because taking out an overnight loan from another bank is cheaper. This in turn increases the money supply, which decreases interest rates because there is more money to give out. As interest rates decrease, people spend more because it is cheaper to borrow money, increasing aggregate demand.
What form of fiscal policy is best used against stagflation?
None! Trick question: fiscal policy can only counter either inflation or unemployment, not both
What is the effect on RGDP if demand increases and supply decreases?
Indeterminate: depends on the individual changes
What is the total GDP of the economy below?
Personal Expenditures: $10000
Gross Private Domestic Investment: $2500
Exports: $1500
Imports: $2000
State and Federal Government Spending: $7500
$19500: remember that GDP = C + I + G + (X-M)
The natural rate of unemployment includes both ____ and ____ unemployment.
Frictional and structural unemployment