Inflation & Deflation
If the CPI rises from 200 to 210, this is the rate of inflation. Show your work.
What is 5%?
With 3 million people unemployed, 57 million employed, 20 million are full-time students, 12 million are volunteers, this is the unemployment rate.
What is 5%?
When the central bank raises the minimum reserve requirement, banks' ability to lend does this and the money supply does this.
What is decreases?
The delay between recognizing a problem and the policy taking effect is a weakness of fiscal policy known by this term.
What is lag time?
Successful supply-side policies shift this curve to the right, increasing potential output.
What is LRAS?
A fall in the rate of inflation, while prices are still rising, is called this.
What is disinflation?
A recent graduate spends three months searching for the right first job: this type of unemployment.
What is frictional?
A central bank buys government bonds from commercial banks through open market operations. This happens to the money supply and to interest rates.
What is increases and falls?
Rising unemployment benefits and falling tax revenue during a recession happen without new legislation: these are called this.
What are automatic stabilizers?
Privatization, deregulation and trade liberalization are examples of this type of supply-side policy.
What are market-based policies?
An increase in consumer confidence and government spending shifts AD to the right and causes this type of inflation.
What is demand-pull?
Workers who have given up looking for a job are not counted, so official figures understate this "hidden" problem.
What is discouraged workers?
In the market for money, the equilibrium interest rate is found where money demand meets this, which the central bank influences.
What is the money supply?
Government borrowing to fund a deficit raises interest rates and reduces private investment: this effect.
What is crowding out?
Cutting unemployment benefits and reducing union power aim to make this market more flexible and lower costs for firms.
What is the labor market?
Identify at least 2 costs of inflation. Hint: Higher prices is not an answer.
Answers will vary.
Draw an accurate diagram showing structural unemployment.
Diagram
Creating money electronically to buy bonds and other financial assets, usually when interest rates are near zero, is called this.
What is quantitative easing?
With MPS = 0.1, MPT = 0.2 and MPM = 0.2, a $4 billion rise in government spending raises national income by this much. Show your work.
What is $8 billion (multiplier = 1 รท 0.5 = 2)?
Compared with interventionist policies, market-based policies have what advantages for the government's finances.
What is little direct burden on the government budget?
If the nominal interest rate is 8% and inflation is currently 17%, what is the real interest rate? Show your work.
What is -9%?
Real = Nominal - Inf.
Retraining programs target this type of unemployment, while expansionary fiscal or monetary policy targets this type, caused by a fall in AD.
What is structural & cyclical?
An economy's unemployment rate jumps after consumer confidence collapses. Name the type of unemployment, the curve that shifted to cause it, and one monetary policy that could help.
Cyclical, leftward AD, & Expansionary Monetary Policy
Draw a Keynesian Model showing the impact of expansionary fiscal policy in both the Keynesian range and the Classical range.
No impact on PL & only inflationary.
Draw a classical AD/AS model showing the impact of an increase of government spending on new highways in the short-run and in the long-run.
AD & LRAS right.