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59 Cards in this Set
- Front
- Back
Which government organization is in charge of calculating and reporting the consumer price index?
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Bureau of Labor Statistics
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What are the two main measures of inflation used in the U.S.?
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The Consumer Price Index and the GDP deflator
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formula for the CPI
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(Cost of CPI market basket this year × Cost of CPI market basket at base period prices)
÷ 100. |
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Inflation rate formula
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i = (CPI current or newest yr - CPI base yr)/ cpi base yr
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Which government agency is in charge of calculating and reporting the nation’s unemployment figures?
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Bureau of Labor Statistics
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what is the labor force
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employed + unemployed
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uneployment rate
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unemployed/labor force
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What are the three categories used by the BLS to classify the civilian, adult population?
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employed (all – full and part time),not in the labor force, unemployed
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3 types of unemployment
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frictionally unemployed, structurally unemployed, cyclically unemployed
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The natural rate of unemployment is equal to
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frictional plus structural unemployment
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what is structually unemployed
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unemployment that comes from there being an absence of demand for the workers that are available
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Frictional Unemployment
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Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations
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Cyclical Unemployment
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Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high
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The actual rate of unemployment is equal to
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cyclical plus frictional plus structural unemployment
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Commodity of money, definition and an example of what is NOT a commodity money
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1. Commodity money refers to money whose value comes from a commodity out of which it is made. Examples of commodities that have been used as money include gold, silver, copper, salt, large stones, decorated belts, shells, and cigarettes.
2. paper money |
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fiat money
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Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Most of the world's paper money is fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation.
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Demand deposits are also known as
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checking accounts
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Time deposits are also known as
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certificates of deposits (CD’s)
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M1 includes
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currency held by the public, plus travelers' checks, demand deposits, other checkable deposits
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M2 includes
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m1, savings deposits, money-market funds/other time deposits
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largest component of M1
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Currency (held outside of banks)
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What is the largest component of M2?
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savings accounts
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How is currency classified as money?
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both M1 and m2
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How is gold classified as money
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not counted as money
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On a bank's balance sheet, how are deposits, loans and reserves categorized
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loans and reserves are assets; deposits are liabilities
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The money multiplier is equal to: (rr = required reserve ratio)
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1/rr
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How many central banks does the U.S. have?
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12
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How many members are on the Federal Reserve’s Board of Governors
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7
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Who makes up the Federal Open Market Committee (FOMC)?
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The 7 member Board plus 5 rotating regional bank presidents
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What is NOT a function performed by the Federal Reserve
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convert gold into paper currency
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When the Fed conducts “open market operations”, it means that they
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buy and sell U.S. govt. bonds in the open market
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To increase the money supply, the Fed could
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purchase government securities, lower the discount rate
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In the Money Market, the Demand for Money is determined by
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the public
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In the Money Market, the Supply of Money is determined by
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the Federal reserve
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What does the Money Market show
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how nominal interest rates are determined
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In the Money Market, what happens when there is an increase in money demand
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increase in nominal interest rates, no change in the quantity of money
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velocity of money
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how many times money changes hands (is spent) during the year
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quanity equation
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M x V = P x Y
P is the price level, and Y is real GDP. M is the quantity of money, V is the velocity of money |
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purpose of the quantity equation
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to show the relationship between a nation’s money supply and its inflation rate
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classical dichotomy
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theoretical seperation of nominal and real variables
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According to the classical dichotomy, what should NOT be affected by changes in the money supply (in the long-run)?
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real GDP
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“the economy is expanding”, this means that during the last period
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real GDP increased at the potential rate or faster
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“the economy contracted”, this means that during the last period
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real GDP increased slower than the potential rate or decreased
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stages of the business cycle
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1.Contraction - When the economy starts slowing down.
2.Trough - When the economy hits bottom, usually in a recession. 3.Expansion - When the economy starts growing again. 4.Peak - When the economy is in a state of "irrational exuberance." |
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During an expansion phase, which is generally true
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incomes and profits tend to rise, while unemployment falls
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components of aggregate demand
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1. income or output
2. comsumption 3. investment 4. governement spending 5. net exports |
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The long-run aggregate supply curve (LRAS)
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1. is vertical.
2. does not depend on the general price level. |
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The short-run aggregate supply curve (SRAS)
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upward sloping
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economy is “overheating”, what does that generally mean and What is the main concern when the economy is “overheating”?
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1. Real GDP is rising faster than the potential rate.
2. inflation |
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Fiscal policy refers to
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changes in the amount of government expenditures/spending and taxes to achieve particular economic objectives
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The government spending multiplier (aggregate demand multiplier) is defined as
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1/(1 - MPC)
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crowding-out effect.
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When the government increases expenditures, this raises interest rates which then decreases investment.
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Who conducts “monetary policy” for the U.S.?
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The Federal reserve
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the Federal Reserve changed “interest rates”. What interest rate are they usually referring to?
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the federal funds rate
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Banks often make short-term loans to one another. What interest rate do they charge?
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the federal funds rate
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AD
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Aggregate Demand (also C + I + G + NX)
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MD
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Money demand (determined by public)
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MS
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Money supply (set by Fed)
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rr
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required reserve ratio
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