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econ midterm 2: chapters 5,6,7
Terms in this set (34)
In late February, the BEA published the preliminary revised estimate for GDP growth in the fourth quarter of 2013. How, if at all, did if differ from the advance estimate from January?
The preliminary estimate revised growth downwards.
Recessions have happened regularly about every 4-5 years in the US economy since 1960.
Which is the correct definition for the (headline) unemployment rate?
Number of unemployed (actively looking for a job) divided by civilian labor force.
What has happened to the labor force participation rate in the US since 1998?
Labor force participation overall has fallen, and has fallen both for women and men.
The unemployment rate is a lagging economic indicator. What does this mean?
The unemployment rate usually reaches its peak after the recession ends.
If more people (who used to be unemployed) can only find part-time work but would like to work full-time, how would this affect the (headline) unemployment rate, if at all?
The (headline) unemployment rate would go DOWN.
If the civilian non-institutional population is 250 million and the labor force is 150 million, about how many
people are counted as unemployed if the economy is at full employment?
About 8.25 million people (= 5.5% of 150 million)
During the last three recessions what happened to the Treasury bill (6-months) yield?
Treasury bill yields went DOWN
What happened to federal government spending (in dollars) and federal government receipts (taxes, in dollars) during the last recession?
Spending increased at about the same trend as before and receipts fell.
You read that 'performance of the capital goods sector is cyclical'. What does this mean?
Firms in the capital goods sector sell machinery and equipment to other firms (ex. forklifts) and see a drop in demand during recessions.
Somebody you know tells you that she owns $47,000 worth of short term government bonds. Are these bonds part of the money supply?
Currently the Federal Reserve is committed to raising interest rates (both the fed funds rate and interest on
reserves) at its next meeting to prevent rising inflation.
Banks are vulnerable to bank runs due to fractional reserve banking.
Currently (March 2014), has the Federal Reserve achieved its dual mandate?
No, unemployment is too high and inflation is slightly too low.
Fill in the blanks most appropriately: If the Federal Reserve sells government bonds this will _______ interest rates and _________ reserves.
A high money multiplier relies on which of the following?
Banks using reserves to make new loans.
Fill in the blanks most appropriately: The tool of forward guidance is currently (March 2014) used by the Federal
Reserve to indicate that the fed funds target rate will remain ________ well past the time that the
unemployment rate _______.
at 0%-falls below 6.5%
According to Williams (2012) what effect does a weak economy and heightened uncertainty have for banks?
Banks are holding reserves rather than lending them out.
Fill in the blanks most appropriately: According to Williams (2012) the Federal Reserve has _______ reserves since
2009 to __________.
increased - lower longer term interest rates by purchasing longer-term securities.
The Federal Reserve does not rely on Congressional appropriations for funding.
Currently (March 2014) inflation rates are falling to very low levels in the Euro Area and the member economies
continue to overall have GDP growth below potential. What type of monetary policy does this scenario suggest?
Lowering interest rates and/or buying of government bonds.
How could the Federal Reserve slow down credit creation in the financial system?
A) Raise the required reserves ratio only.
b) Increase the fed funds target rate by selling government bonds only.
c) Increase the interest rate paid for reserves only.
How did the Federal Reserve manage reserves during 'normal times' with conventional policies before 2008?
The Federal Reserve lowered or raised the opportunity cost (the fed funds rate) of reserves through open
market operations (buying or selling short term government bonds).
You read: "The Federal Reserve will likely continue its policy of tapering QE at its next meeting in March." What does this mean?
The Federal Reserve will likely reduce its long term asset purchases.
The path of future interest rate changes and the extent of future asset purchases are 'on a preset course',
meaning the decisions have already been made by the Fed when and how to change either or both in the future.
How, if at all, did the Federal Reserve change the fed funds target rate at its meeting on March 19th 2014?
The Federal Reserve left the fed funds target rate UNCHANGED.
What does 'demand for money' mean in the model discussed in class?
Given total wealth, how much of total wealth will be held as money as opposed to other (interest-bearing)
Somebody says: "Holding money in a no-fee checking account does not cost anything." What should you reply?
That's incorrect, you could have invested the money in a mutual fund and earned interest instead.
How does a rise in real GDP affect money demand?
It will INCREASE money demand.
Draw the diagram of the money market as discussed in class. What will happen to the demand and supply curves if more people need money to buy presents during the holiday shopping season (everything else equal)?
The demand curve shifts right, the supply curve is unchanged.
Continuing with the scenario in question 30 above, what is true about the money market and the bond market
WITHOUT ANY change in the interest rate? Fill in the blanks most appropriately: There is ________ in the money
market and ___________ in the bond market.
excess demand - excess supply.
Continuing with the scenario in question 30 above, how does the equilibrium in the market change, if at all?
Quantity demanded and supplied will be unchanged, interest rates rise.
Assume that the money supply is constant over a time of 50 years (say under a gold standard). What would have
to happen to inflation and real interest rates if real GDP more than doubles in the same time frame?
Inflation would be negative (prices fall) and real interest rates would be high.
The Federal Reserve currently expects the unemployment rate in the US to fall over the next year.
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