Inflation+Unemployment
What does CPI stand for?
Consumer Price Index
What is one way banks ensure they have money to lend?
By collecting deposits from customers
What is a potential benefit of paying efficiency wages for employers?
Increased worker productivity.
What is one way the government can increase long-run potential GDP?
By supporting education to increase human capital. Human capital increases the productivity of labor and productivity is a determinant of long-run GDP.
A bank run occurs when:
Depositors attempt to withdraw more funds than the bank has in reserves
How has modern technology reduced menu costs?
By allowing prices to be updated online at low cost.
How do high interest rates affect businesses considering large investments?
High interest rates discourage large investments
Frictional unemployment is caused because ...
it takes time to look for a new job.
Using the rule of 70, if an economy grows at 1.5% per year, real GDP will double in approximately:
70/1.5= --> 47 years
What is the main difference between commodity money and fiat money?
Commodity money has intrinsic value, while fiat money does not
Why are discouraged workers counted as unemployed?
To be unemployed you need to be actively looking for a job and not have a job.
Why might banks charge more interest to customers with more debt?
To compensate for the higher risk of default
What happens to the labor market when prevailing wages are higher than equilibrium wages?
There is an excess supply of labor, leading to unemployment.
Does gov. investment in infrastructure like roads and power grids increase potential GDP?
Yes, Infrastructure improves productivity and productivity is a determinant of long-run aggregate supply.
What happens to the demand for loans when interest rates decrease?
The demand for loans increases
If inflation is higher than expected over the term of a loan, who benefits and who loses?
Borrowers benefit and lenders lose
What is the likely effect on the loanable funds market if a country experiences a sudden technological boom like AI, leading to numerous new business ventures?
The demand for loans will increase, shifting the demand curve to the right
What is structural unemployment?
more workers want jobs than jobs are available at the current wage.
How does government support for research and science contribute to long-run economic growth?
It leads to greater knowledge and higher levels of technology.
Define unit of account
Money allows prices to be reported in standard units and facilitates comparison
What is the unemployment rate?
# of unemployed individuals/Labor Force
Why might a company issue bonds instead of stocks?
To raise funds without giving up ownership control
What type of unemployment?
Landscapers laid off in response to a drop in new housing construction during a recession.
Cyclical
What is diminshing returns?
The point where adding more of a variable input (like labor) to fixed inputs (like machinery) yields progressively smaller increases in output
What is an example of Fiat mopney?
US dollar bill