# Economics Final Study Guide

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### A nation has a population of 300 million. Of these 80 million are retired, in the military, in institutions, or under 16 years old. There are 210 million employed and 10 million unemployed. The unemployment rate is:

10/220 = .047r 4.76% employment rate= unemployed/labor force X 100)

### The rate of unemployment when the economy is at its potential output is called the:

natural rate of unemployment

Structural

### If the annual inflation rate is 5% per yer, about how many years will it take for the price level to double?

(rule of 70 Growth rate / 70) .05/70= 7

### The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are:

Producers-Captial goods

expansion

Ages 16-19

### A college graduate using the summer following graduation to search for a job would represent what type of unemployment?

Frictional unemployment

### What is structural unemployment

demand for the skill decreases

In between jobs

### Cyclical unemployment means

unemployment that is caused by a decline in totoal spending

### What are the phases of the business cycle:

Peak, recession, trough, expansion

### If actual GDP is \$340 billion and there is a positive GDP gap of \$20 billion, potential GDP is:

(actual GDP-potential GDP= GDP gap) \$360 billion potential

### In which of the following cases would real income rise?

nominal income increases or prices go down

### The size of the MPC is assumed to be:

(marginal propensity to consume or change in consumption to a change in income) MPC= change in consumption/change in income

### Suppose that a new machine, having a useful life of one year, costs \$80,000 and that it is projected to earn net additional revenue of \$96,000. The expected rate of return (ROI) is:

(VF-VI)/VI= ROI) \$96000-\$80000= \$16000. \$16,000/\$80000= .20 or 20%

### MPS is and how to calculate

marginal propensity to save MPS= change in saving/change in income.

### If business taxes are reduced and the real interest rate increases what will be affected by investment spending?

decrease in investment spending

### The multiplier effect means that:

Change in spending changes output and income by more than the initial change in investment spending. (multiplier= change in real GDP/initial change in spending)

decreases

Goes up

### which would shift the consumption schedule upward?

wealth, borrowing, expectaions of prices rising

### An inverse relationship between the rate of interest and the level of:

Investment demand curve (See graph) f

### Which would decrease investment demand?

real interest going up

### The greater the MPS, the

lower MPC (decrease impact change in consumption)

### A private closed economy includes:

consumption and investment

C + Ig= GDP

### Equilibrium GDP is

level at which the total quanity of goods produced equals the total quanity of good purchased

### The equilibrium level of GDP is associated with

what happens to inventory

?

?

### an increase in the investment demand curve will:

shift to the right

### Saving and investment are, respectively

savings is an injection and investment is a leakage

### If GDP exceeds aggregate expenditures:

Inventories rise (actual investments greater than planned)

### Over time, an increase in the real output and incomes of the trading partners of the US will:

increase exports and increase imports

Inflationary Gap

### A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will:

aggregate demand increases

decrease prices

### The foreign purchases effect suggests that an increase in the US price level relative to other countries will:

will decrease US export and increase imports

### Which of the following would decrease aggregate demand?

decrease in income, increase in taxes, increase in real interest rate

### The slope of the immediate short run aggregate supply curve assumes:

period during which output prices are flexible, but input prices are fixed or nearly fixed. AS slopes upward because with input prices fixed, changes in the price level will raise or lower real firm profit.

### A decrease in the price of capital goods will shift the:

aggregate suppply

?

### Efficiency wages contribute to:

maximum work effort and thus minimize labor costs per unit of output

?

### If aggregate supply is greater than aggregate demand:

Inventory is stored, prices have to be reduced and production is slowed

### Changes in taxes and government spending without explicit action by the federal government is known as:

fiscal policy or built in budget stabilizer

### As the economy declines, personal income tax revenue dramatically falls. This describes how the progressive income tax system:

helped keep household spending and real GDP from falling more

### If the cyclically adjusted budget shows a deficit of about \$100 billion and the actual buget shows a deficit of about \$150 billion it can be concluded that there is:

the economy is not at full employment

?

?

### if congress cuts taxes to counter the effects of a severe recession, this would be using:

expansionary fiscal policy

deficit

57%

### Fiscal policy refers to the:

deliberate change in government spending and tax collections designed to achieve full employmnet, control inflation and encourage economic growth

measure of value

### Securitization refers to:

bundling groups of loans

### If you write a check to purchase a used Honda, you are using money primarily as:

checkable deposits (checkbook money)

### If a coin is "token money":

the face value of any piece of currency is unrelated to its intrinsic value

### the purchasing power of money and the price level vary:

consumer price index (or cost of living) goes up value of dollar goes down

### Stablizing a nation's price level and the purchasing power of its money can be achieved:

through fiscal policy, making available (printing) a specified amount of money

### The basic policy making body in the US banking system is the:

Board of Governors of the Federal Reserve System

### The Federal open Market Committee (FOMC) is made up of:

12 individuals:
Seven member of Board of Governors
president of New York Federal Reserve Bank
Four of the remaining presidents of Federal REserve Banks on a 1 yr rotating basis

money supply

### Moral hazard created during the financial crisis occured because:

financial investors and financial services firms took greater risks becasue they assume they are at least partially insured against losses.

### Bank panics:

(1930-1933) upon closer of several banks people responded by cashing out their deposits in fear their bank would close

### If the required reserve ratio is lowered:

banks can make more loans

Asset

### What is one characteristic of fractional reserve banking?

Banks maintain only a fraction of their assets in reserves to meet the requirements of depositors.

\$210,000.

reserves

### Mr. Smith deposits \$350 in his bank account. Then, Mr. Joines gets a loan for \$2,000. from the same bank. In what direction and by what amounts has the money supply changed?

Increased checkable deposits by \$350, but decreased reserves by \$2000. Net affect decrease in reserves by \$1720 assuming reserve ratio is 20%

### maximum checkable deposit expansion is equal to:

the amount of actual reserves multiplied by the monetary multiplier

5?

\$250K/\$1 million

Example: