Exam 1 Content
The current unemployment rate is 4.2% this is an example of what type of statement.
Positive statement
Give an example of a transfer payment.
Social security payments, unemployment insurance, etc.
What is included in the monetary base?
Currency in circulation and reserves
What is forward guidance? What must happen for it to be effective?
When the FOMC makes statments about how it will conduct monetary policy in the future to signal to consumers and firms about what to expect so they can adjust their spending habits. It is only effective if consumers and firms trust/believe the FOMC.
How does expansionary fiscal policy impact the aggregate market and the Phillips curve?
Real GDP and price level will rise unemployment will decrease
What is the difference between a centrally planned economy and a market economy?
In a centrally planned economy the government decides how resources will be allocated, in a market economy the by households and firms determine the allocation of economic resources.
Give an example of one of the shortcomings of GDP for measuring well-being.
Doesn't include leisure, not adjusted for changes in crime, pollution, education. Doesn't show how income or wealth is distributed etc.
What are the four functions of money?
Unit of account, store of value, medium of exchange, and standard of deferred payment
When would commerical banks be likely to use the discount rate for a discount loan from the Fed?
If many other commerical banks are unable to issue a loan, the Fed serves as the lender of last resort.
What is crowding out and how does it impact the loanable funds market?
Macroeconomic phenomenon where increased government spending or borrowing leads to a decrease in private sector spending.
Causes a rightward shift of the demand for loanable funds increasing interest rates.
What is the difference between allocative efficiency and productive efficiency?
Productive efficiency occurs when a good is produced at the lowest possible cost, allocative efficiency is when production is in accordance with consumer preferences.
What is an efficiency wage?
An above-market wage that a firm pays to motivate workers to be more productive.
If the money supply is $100,000 and the monetary base is $60,000 what is the money multiplier? And how do we interpret this number?
1.67
For every $1 increase in the monetary base the money supply will increase by $1.67
What tool does the Federal Reserve use that is most effective in influencing the federal funds rate following the 2008 recession?
Interest on Reserve Balances
What are the three shifters of the long-run Phillips Curve?
Demographic changes, labor market institutions, past high rates of unemployment.
What are the three factors that could cause economic growth.
Labor force, capital stock, and technology
If the GDP deflator is 106 in 2019 what does this mean about the state of the economy?
Prices are 6% higher in 2019 relative to the base year.
What is the quantity theory of money equation and why is it a theory?
Irving Fisher assumed velocity is constant, it is not.
List all of the tools we discussed that the Federal Reserve can use to influence the federal funds rate (there's four).
Discount rate, open market operations, reserve requirement ratio, interest on reserve balances
Inflation was previously 3% and it has increased to 5% what will happen to the Phillips curve as consumers adjust their expectations. Draw the graph.
N/A
The US can produce 10 airplanes and 15 trains in the same amount of time that India can produce 8 airplanes and 10 trains. Who has the comparativ advantage in producing trains?
The US
What are three of the biases that can't be accounted for when calculating CPI?
Substitution bias, outlet bias, new product bias, increase in quality bias
What does the Federal Open Market Committee (FOMC) consist of?
12 voting members
7 members of the Federal Reserve's Board of Governors
Presidents of the Federal Reserve Banks
Explain how quantitative easing is different from open market operations.
Quantitative easing involves purchasing longer term riskier assets and is only utilized when faced with the zero lower bound.
Consider the foreign exchange market between Brazil and the US. Assume that income levels in Brazil have decreased realtive to the US. Also assume that Brazil has higher interest rates relative to the US. How will these changes impact the foreign exchange market between these two countries, what will happen to the value of the US dollar. (Draw the graph)
US dollar will depreciate.