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UIUC Econ 103 Online Final Exam Study Guide(Petry)
Terms in this set (66)
Classical View of Labor Market(during a recession
labor demand decreases, real wage falls and there will be no unemployment
Classical view of labor Market, if there is an excess of supply of labor
Some workers will work for a lower wage and others will exit the labor market
Economists who believe in the Classic view believe
Fiscal and monetary policy can have any effect on employment and read GDP
The Philips curve models the relationship between___________. These variables are__________.
Inflation and unemployment.
If the economy is operating above potential GDP then
Unemployment is below the natural rate and wages will rise
From a macroeconomic perspective, the "best" stock market index is
Standard and Poor's 500(S&P 500)
A bond is
a document that formally promises to pay back a loan under specified terms
The Dow Jones Industrial Average is
an index based on the stock prices of 30 actively traded large companies.
The NASDAQ composite is
an index based on the stock prices of over 5,000 companies traded on the NASDAQ Stock Market.
Stabilization policy has the following objectives
Smooth fluctuations in output, and maintain inflation at a rate consistent with sustainable growth and full employment.
What lag poses the biggest problem for policy makers?
What lag must policy makers consider most carefully?
According to those who argue against economic growth
the measurement of output overstates its value to society
Keynesian economics is primarily associated with
an activist federal government
According to Keynesian economics, the best course of action during an inflation is
reduce government spending or increase taxes
Velocity of Money
the average number of times a dollar changes hands during a year
According to Milton Friedman, the best course of action during an inflation is to
use a monetary rule that accommodates a real growth but not inflation
According to new classical economics, the best course of action during an inflation is to
do nothing, the economy will return to equilibrium
people know the true model of the economy and will use it to form their expectations of the future.
Classical Economic Theory
a "free market"-allows little to no government intervention
Keynesian Economics Theory
A theory of total spending in the economy
According to the real business cycle theory, business cycles exist because of
shocks to production technology
According to supply-side economics, when the economy is experiencing unemployment, the best course of action is to
cut taxes and increase incentives to save and invest
The existence of trade for a country where capital is relatively abundant specializing in capital intensive goods might best be explained by
The existence of trade for a country that produces and sells on a large scale to global market is best explained by
economies of scale
The existence of trade for a country that has an abundance of natural resources is best explained by
When governments set a limit on the quantity of imports, this is known as
When a firm or industry sells products on the world market at prices below the cost of production, this is known as
When a government makes a payment to domestic firms to encourage exports, this is known as
an export subsidy
An agreement that promotes liberalization of foreign trade
What field of economics deals with problems faced by low-income countries?
Short-run fluctuations of an economy are called
To fund its budget deficit, the government can borrow by
selling treasury bills to the public
Government policies dealing with taxes and spending
Government policies dealing with the control of the nations money supply
In macroeconomics we study three markets:
goods-and-services market, labor market, and money market
Theory that supports take-home income as an incentive to work harder
Goods that are not included in GDP calculations
Gross national income of a country is
GNP converted into dollars using and average of exchange rates.
GDP-consumption-government purchases - exports + imports - depreciation
Discouraged workers are
individuals who are not currently employed and have stopped seeking work
Consumer Price Index(CPI)
The average of the prices of a typical good or service purchased by a typical family of four.
The capacity of a long-run economic growth for an economy is determined by
the size of its labor force, its capital stock, and productivity of labor and capital
What is the relationship between aggregate expenditure and real GDP
If aggregate expenditure falls short of real GPD, inventories will accumulate and real GDP and aggregate income will fall
The total amount the economy plans to spend in a given period.
When interest rates decrease
the cost of borrowing decreases and the consumption function shifts up
What are the equations for the Investment Multiplier
1/MPS and 1/(1-MPC)
the difference between what a government spends and what it collects in taxes. (G-T)
What item acts as an automatic stabilizer?
Expansionary Fiscal Policy is used by the government to
create new jobs in the economy
When the average income tax rates increase as a result of economic expansion
remains the same at full employment
Anything the bank owns that are worth something. The building, its furniture, government securities, cash in its vaults, bonds, stocks.
The banks debts, what it owes. Promises to pay, IOU's
As a measure of the money supply, m1 differs from m2 in that
M2 includes M1 plus savings accounts, monkey market accounts, and other near monies
What institute has a formal responsibility for setting US monetary policy
the FOMC (federal open market committee)
What are the functions of the Federal Reserve
clearing inter bank payments, regulating the banking system, and managing the nations foreign exchange reserves
opportunity cost of holding money is
the foregone interest from holding bonds
When there is an excess supply of money,
there is an excess demand for bonds, so those looking to borrow by selling bonds can do so at a lower interest rate.
banks borrow not only from the Fed but also from each other, what is the interest rate in this market called?
Federal funds rate
Crowding out Effect
The tendency for increases in government spending to cause reductions in private investment spending.
If the Fed increases the money supply in an attempt to stimulate the economy, the most likely results are
a reduction in the interest rate, but no significant changes in the investment an GDP
according to the real wealth effect, an increase in price level
decreases consumer's expenditures due to a decrease in the purchasing power of household wealth
Aggregate Demand Curve (AD)
A curve that shows the relationship between aggregate output and the price level.
The long-run aggregate supply curve
is vertical because all prices change at the same rate in the long run
If the Economy is operating on the vertical part of the AS curve and the Fed pursues a policy of stabilizing interest rates in the face of expansionary fiscal policy, the result will most likely be
a sustained inflation
Recommended textbook explanations
Principles of Economics
N. Gregory Mankiw
Essential Foundations of Economics
Michael Parkin, Robin Bade
William A. McEachern
Gary E. Clayton
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