Basics
Supply & Demand
Unempl, GDP, Inflation
Aggregate Model
Fiscal Policy
Monetary Policy
FOREX
Grab Bag
100
The basic problem of economics is _________ .
What is scarcity?
100
This law states that as price decreases, the quantity demanded increases.
What is the law of demand?
100
The types of unemployment are seasonal, structural, frictional, and ________ .
What is cyclical?
100
The shifters of Aggregate Supply.
Changes in Resource Prices, Changes in Government Action (not government spending), Changes in Productivity (Technology).
100
Fiscal policy is conducted by the President and ______ .
What is the Congress?
100
If the legal reserve requirement is 10 percent, the value of the simple deposit expansion multiplier is…
What is 10?
100
What would happen to the U.S dollar if Europeans prefer vacationing in the U.S? What would happen to the Euro?
U.S dollar appreciates and demand increases
The Euro depreciates and supply increases
100
Draw the money market model.
200
The value of the next-best alternative is called the _____________ .
What is the opportunity cost?
200
The ____________ price is that price at which the quantity demanded equals the quantity supplied.
What is equilibrium?
200
An increase in inventories is counted as this part of GDP.
What is investment?
200
When actual output is greater than potential output, the economy has a(n) ___________ .
What is an inflationary gap (or a positive output gap)?
200
In conducting expansionary fiscal policy, the government either (increases/decreases) spending or (increases/decreases) taxes?
What is increases (spending), decreases (taxes)?
200
List 3 Tools of Monetary policy for a limit reserve banking system
Reserve Ratios, Discount Rates, Open Market Operations
200
When a foreign company buys business in a different country
What is Foreign Direct Investment?
200
Draw the AS-AD model in a recessionary gap.
300
If a country can produce a good or service at a lower opportunity cost, than it is said to have a ___________________ .
What is comparative advantage?
300
When the price is below its market-clearing level, there will be a ___________ .
What is shortage?
300
Nominal GDP divided by real GDP x 100 is the formula for this.
What is the GDP deflator?
300
The Aggregate Demand shifters.
What are changes in Consumer Spending (consumption), changes in Investment Spending, Changes in Government Spending, Changes in Net Exports (X-M)
300
Fiscal policy aims to shift the _________ curve.
Aggregate Demand
300
Assume the reserve requirement is .25. If the Central Bank sells $2 million dollars worth of bonds what will happen to the money supply (increase/decrease) and by how much?
The money supply will decrease by $8 billion.
(2 million X 1/.25 = 2 million X 4)
300
The financial flows recorded in the financial account are also part of this market
Loanable Funds Market
300
Draw the loanable funds model.
400
Government payment to producers designed to encourage them to produce more.
What is Subsidy?
400
The five main factors that shift the supply curve are a change in:
1. Technology, 2. the number of sellers, 3. government policies, 4. expectations, and _____________
What are input (resource) costs?
400
A measure of the cost of a market basket of goods and services purchased by a typical urban American family.
What is Consumer Price Index (CPI) ?
400
The formula for the spending multiplier.
What is 1/MPS or 1/1-MPC?
400
Rules governing taxes and transfers that reduce the size of fluctuations in the business cycle without specific action by Congress.
What are automatic stabilizers?
400
If the Central Bank increases the reserve requirement what happens to the money supply and interest rates?
Money supply decreases and interest rates increase.
400
A limit on the quantity of imports allowed into a country
Quota
400
Draw the reserve market model.
500
The agreed upon conditions that would benefit both countries ______________ .
What is terms of trade?
500
A price _____________ is set above the equilibrium price and creates a persistent surplus.
What is floor?
500
Draw a PPC showing efficiency as A, opportunity cost as B, Unattainable as C, and Unemployment as D
A should be anywhere on the line. Opportunity cost shows B on the line to one side of a, Unattainable C should be above the curve, and D should be under the curve which is unemployment or inefficient.
500
Draw an AS/AD model with an inflationary gap and then show what would happen in the long run if the economy was self correcting (in other words no government intervention).
The AS/AD equilibrium should be to the right of the LRAS. IN the long run the AS should shift to the left to go back to the LRAS.
500
Because expansionary fiscal policy can cause an increase in the interest rate, it can result in a phenomenon known as ______________ , when private investment declines because of the government action.
What is crowding out?
500
The took the Central Bank would use to fight a recession and close the recessionary gap would be? What effect would this have on AD and unemployment?
Decrease Administered Rates
AD would INCREASE or shift right.
Unemployment would DECREASE (because real output increases)
500
Foreign aid sent to other countries and funds that immigrants send to family abroad.
Net Transfers
500
“I become stronger when foreign investors demand me. Vacationers abroad may cheer when they can buy more with me. But exporters often groan because their goods cost more overseas.
What am I?”
What is an appreciated dollar?
600
Pairs of goods for which a rise in the price of one leads to a decrease in the demand for the other.
What are Complements?
600
TRIBE...A mnemonic for the five determinants of demand. They are
Tastes, Related goods, Income, Buyers, and Expectations.
600
The total amount of income households have available for consumption; calculated as income plus government transfers minus taxes.
What is disposable income?
600
A situation characterized by both high inflation and low economic growth and high unemployment, typically resulting from a negative supply shock.
What is stagflation?
600
The dollar amount of the wage paid.
What is nominal wage?
600
The interest rate U.S. banks charge each other for overnight loans of reserves.
What is the Federal Funds Rate?
600
“A country places this on imported goods. Domestic producers may benefit, consumers usually pay higher prices, and the government collects additional revenue from this policy.”
What is a tariff?
600
“I am bigger when people spend more of each extra dollar they earn. I help determine how much GDP changes after spending increases.
What am I?”
What is the spending multiplier?
700
A good for which a rise in income leads to an increase in demand.
What is a normal good?
700
A good for which a rise in income leads to a decrease in demand.
What is an Inferior Good?
700
The alternation between economic downturns (recessions) and economic upturns (expansions).
What is a Business Cycle?
700
The magnified impact on aggregate demand and real GDP resulting from an initial change in autonomous spending (e.g., investment, government purchases, net exports).
What is the multiplier effect?
700
The fraction of an additional dollar of disposable income that is spent on consumption.
What is the Marginal Propensity to Consume MPC?
700
The upper and lower bound names on the reserve model.
Upper is discount rate (dr)
Lower is interest on reserve balance (IOR)
700
“A nation experiences rapid economic growth and rising consumer incomes. As households purchase more foreign-made goods, imports increase faster than exports, causing this measure to become more negative.”
What is the balance of trade (trade deficit)?
700
“In the ample reserves system, the Fed can move me without changing the supply of reserves much at all.
Banks earn me when they keep funds at the Fed.
What am I?”
What is interest on reserves (IOR)?