Upgrade to remove ads
Only $35.99/year

EXAM 3 ECON 200 UOFA

Terms in this set (95)

GDP
Market value, final goods and services, produced within a specific period of time is incorporated into..
Structural
caused by changed in the industrial make-up of the economy; linked with technology.
Frictional
caused by the delay in matching available jobs & workers.
Cyclical
caused by an economic downturn; no jobs available
Labor force equation
employed + unemployed
Unemployment rate:
(unemployed/labor force) x 100
full employment
If there is no cyclical unemployment, than ____ is taking place
Recession
If cyclical unemployment is > 0
Economic boom
actual unemployment rate is less than the natural rate. This happens temporarily when the economy is expanding beyond its long-run capabilities
Labor force participation rate
(labor force/working age population) x 100
Inflation
General rise in the average price level
Consumer Price Index
measurement of the price level based on the consumption patterns of a typical consumer.
cost of inflation
Uncertainity
cost of inflation
Signal extraction problem: is an increase in price a result of an increase in demand or
inflation?
cost of inflation
Menu costs: costs of changing prices
cost of inflation
Money illusion: Austin Powers clip
Cost push
supply side
Demand pull
demand side
Long-run economic growth
is the key to raising the average standard of living.
Long-run world per capita GDP
looks like a hockey stick; flat to the late 18th century, then sharp rise.
Rule of 70
(70/average growth rate) 10% growth per year: 7 years for GDP to double
Key of economic growth
capital
Key of economic growth
technology
Key of economic growth
Institutions
are critical ( Nogales borders with America)
Budget surplus
revenue > expenditure
Budget deficit
expenditure > revenue
Social security
...
Medicare/Medicaid:
...
Intertemporal decision making
across time. Requires valuing the present and future consistently
The status quo bias:
Exists when decision makers want to maintain their current choices ( 1 dollar bill or coin)
The hot hand fallacy
Belief that random sequences exhibit a positive correlation ( basketball games)
The gambler's fallacy:
Belief that outcomes that have not occurred recently are likely to occur soon. (poker)
Bounded rationality
Concept of limited reasoning, Incomplete information, limitations of the brain, not enough time,
Ultimatum game
A sequential game in which two players decide how to divide the sum of money. Illustrates that people reject a proposal to help themselves in the name of fairness.
Priming
: Occurs when there order of questions influences answers or choices. ( What does it mean when the same answer comes up may times in a row
A preference reversal:
Occurs when people's risk tolerance is not consistent
Risk averse
: Prefers a certain payoff to a gamble with a higher stake
Risk neutral:
chooses the highest expected value regardless of the risk
Risk loving
Prefers gambling with lower expected values but potentially higher winnings over certainty.
framing
peoples preferences often change depending on the way a question is worded
Priming
Status quo bias (opt in vs opt out)
Alias Paradox
Preference reversal. People can be risk averse ad risk neutral when choosing between different outcomes.
Component of GDP
Consumption
Component of GDP
investment
Component of GDP
government spending
Component of GDP
net exports
Natural Rate of Unemployment
associated with an economy growing normally.
Who is in charge of conducting monetary policy
Federal Reserve
Supervise & regulate banking institutions
Federal Reserve
Maintain the stability of the financial system
Federal Reserve
Provide financial services to depository institutions & the U.S. government
Federal Reserve
Quantitative Easing
Fed Reserve bought bonds, huge cash injection into the system, trying to
restore liquidity, get bands to lend out reserves.
1/ Required Reserve ratio
Money Multiplier: ( Monetary)
Expansionary monetary policy
increase MS, lowers IR, increases AD/GDP
Contractionary monetary policy
decrease MS, raises IR, decreases AD/GDP
(b) behave too conservatively and not take enough risks.
Loss-aversion tends to cause people to:
a) ignore wins completely and only focus on the negative effects of losses.
(b) behave too conservatively and not take enough risks.
(c) gamble only when they can afford to play. (d) live boring lives.
fairness of payoffs.
The ultimatum game shows that people care about:

(a) fairness of payoffs.
(b) uncertainty of payoffs. (c) long run payoffs.
(d) certainty of payoffs.
A
Which of the following is included in determining Gross Domestic Product?
(a) The purchase of a new car.
(b) The purchase of a used car.
(c) A housewife preparing breakfast.
(d) A gardener canning vegetables for consumption during the winter.
(b) economic activity that is hidden from the government to avoid taxes or because the activity is illegal.
The underground economy can be described as:
(a) economic production that includes mining.
(b) economic activity that is hidden from the government to avoid taxes or because the activity is illegal.
(c) production of infrastructure that spurs growth in the rest of the economy.
(d) production of intermediate goods and services.
D
How is GDP measured?
(a) GDP is measured by adding the quantities of goods and services produced in a given year.
(b) GDP is measured by adding up all the intermediate sales throughout the year.
(c) GDP is measured using stock market values, or stock prices.
(d) GDP is measured by adding the market value of final goods and services produced throughout the economy in a given time period.
D. Consumption
The largest component of American GDP is: _________.
(a) income
(b) profits
(c) investment (d) consumption
Inflation, an increase in production
___________ causes nominal GDP to rise; but ___________ causes real GDP to rise.
(a) inflation, a decrease in production
(b) inflation, an increase in production
(c) deflation, a decrease in production (d) deflation, an increase in production
(b) frictionally unemployed.
Bob is a highly qualified worker who is unemployed but looking for work. His expertise is in a small field and new jobs only open up sporadically. While he is waiting for one of those openings he is considered:
(a) structurally unemployed.
(b) frictionally unemployed.
(c) underemployed.
(d) a discouraged worker.
20%
The unemployment rate reported by the media is known as U-3. Broader measures of unemployment include people who are marginally connected to the workforce. Those broader measures indicate that the true level of unemployment and underemployment is close to
structurally unemployed.
Alex is unemployed but looking for work. For many years he worked as a video store manager for Blockbuster, but since 2013 he has been unable to find a similar position because his position is now redundant. He is considered
(a) structurally unemployed.
(b) frictionally unemployed. (c) underemployed.
(d) a discouraged worker.
(a) structurally unemployed.
Bob's assembly line job has been replaced by robots, and Bob lacks abilities and skills required to attain other jobs. He is considered:
(a) structurally unemployed.
(b) frictionally unemployed. (c) underemployed.
(d) a discouraged worker.
(d) a discouraged worker.
After many months a job seeker gives up and stops looking for work. He is now considered:
(a) structurally unemployed. (b) frictionally unemployed. (c) cyclically unemployed (d) a discouraged worker.
(a) discouraged workers.
The unemployment rate reported by the media is known as U-3. This measure of unemployment does not take into account:
(a) discouraged workers.
(b) workers who are underpaid
(c) workers who are looking for work but can't find a job
(c) prices will rise and output will fall.
If an economy is experiencing cost-push inflation what will happen to prices and economic output?
(a) prices and output will both increase. (b) prices and output will both fall.
(c) prices will rise and output will fall.
(c) The CPI data is "old" news, alternative daily measures of inflation exist that are reliable.
The government computes the CPI each month. Which answer best reflects the importance of this number?
(a) The CPI is a core economic statistic that helps economists understand the amount of inflation.
(b) The CPI is one of many measures of inflation.
(c) The CPI data is "old" news, alternative daily measures of inflation exist that are reliable.
(d) The CPI is not an accurate measure of inflation.
(a) Prices and output will both increase.
If an economy is experiencing demand-pull inflation what will happen to prices and economic output?
(d) Increases in technology have greatly lowered the production costs for these goods.
If inflation is a general rise in the price level, why have consumer electronics prices fallen over time?
(a) The demand for electronics has decreased.
(b) Electronics are not counted in the CPI.
(c) Electronics are getting smaller in size so the price is falling as well.
(d) Increases in technology have greatly lowered the production costs for these goods.
(b) A more equal distribution of income.
Which of the following would NOT encourage more rapid growth?
(a) A better education system.
(b) A more equal distribution of income.
(c) A low and stable inflation rate. (d) Competitive markets.
(A) use more tech
In developed countries if you want to shift the labor productivity curve up you need to:
(a) use more technology.
(b) use more capital. (c) hire more workers.
0%
(62) What was the global growth rate per capita prior to 1800?
(d)
(64) If a country has only a few natural resources we would expect its growth rate to be:
(a) zero.
(b) lower than average. (c) higher than average. (d) we can't tell.
diminishing returns
Capital experiences what kind of returns
(d) private expenditures; government purchases
Crowding out refers to a decline in ________ as a result of an increase in ________.
(a) tax revenues; unemployment
(b) government purchases; tax rates
(c) government purchases; private expenditures
(d) private expenditures; government purchases
(b) government purchases
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in:
(a) the money supply and a decrease in interest rates.
(b) government purchases.
(c) oil prices. (d) taxes.
(b) Stimulus package
Which of the following is an example of expansionary fiscal policy?
(a) Increase in taxes
(b) Stimulus package
(c) Increasing the money supply (d) Lowering interest rates
(c) Progressive income taxes.
Which of the following is an example of an automatic stabilizer?
(a) Federal Reserve interest rates. (b) Discretionary outlays.
(c) Progressive income taxes. (d) Education subsidies.
(b) Balance the budget over the course of the business cycle.
Which of these solutions is the BEST way to avoid the buildup of debt?
(a) Match the growth of the money supply to the long-run growth of the economy.
(b) Balance the budget over the course of the business cycle.
(c) The Federal Reserve creates hyperinflation to make the debt worthless. (d) Give the President a line item veto on everything Congress passes.
(c) $20 trillion dollars
The US National Debt is approximately:
(a) $2,000 million dollars (b) $2 billion dollars
(c) $20 trillion dollars
(d) $200 quadrillion dollars
(c) Increase taxes
If the economy is beyond its potential real GDP, which of the following would be an appropriate policy to slow the economy and help it return to long-run aggregate supply?
(a) Increase the money supply
(b) Increase government purchases. (c) Increase taxes
(d) Increase the deficit
(b) crowding out.
When the government tries to expand the economy in a recession, one reason why this might be more difficult to achieve than our simple AD/AS depicts is because of:
(a) automatic stabilizers.
(b) crowding out.
(c) low interest rates. (d) inflation.
(d) all of the above
One way to keep Social Security from becoming insolvent is to
(a) raise the Social Security tax rate (b) raise the eligibility age
(c) lower benefits to retirees
(d) all of the above
(c) Decreasing the money supply
Which of the following is an example of a contractionary monetary policy?
(a) Increase in taxes
(b) Decrease in government spending (c) Decreasing the money supply (d) Lowering interest rates
(b) a unit of account.
The statement, "An ice cream sandwich costs $1.00" represents money's function as:
(a) a medium of exchange.
(b) a unit of account.
(c) a store of value.
(d) a standard of deferred payment.
(b) velocity
How fast money changes hands is known as: ________.
(a) liquidity
(b) velocity
(c) durability (d) flexibility
(b) an asset; a liability
A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.
(a) a liability; an asset
(b) an asset; a liability
(c) a liability; a liability (d) an asset; an asset
price stability, high employment, economic growth, and stability of financial markets and institutions.
The Federal Reserve System's four monetary policy goals are:
(a) low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar.
(b) low rate of bank failures, high reserve ratios, price stability, and economic growth. (c) price stability, high employment, economic growth, and stability of financial markets and institutions.
(d) price stability, low government budget deficits, low current account deficits, and low rate of bank failures.
(d) quantitative easing.
In response to already low interest rates doing little to stimulate the economy, during the Great Recession, the Federal Reserve began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as:
(a) inflation targeting.
(b) contractionary monetary policy. (c) securities-bubble deflating.
(d) quantitative easing.
(c) cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.
Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve:
(a) does not try to eliminate recessions, but instead focuses on preventing inflation.
(b) can fine tune the economy and realistically hope to keep the economy from experiencing recessions.
(c) cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.
(d) cannot realistically fine tune the economy and has little to no effect on the magnitude and length of recessions.
(c) Constant GDP.
Which of the following is NOT one of the Federal Reserve System's four monetary policy goals?
(a) Price stability.
(b) High employment.
(c) Constant GDP.
(d) Stability of financial markets and institutions.
(c) there would be an increased likelihood that other firms would engage in risky behavior in the future with the expectation that they would also not be allowed to fail.
While many analysts defended the actions taken by the Federal Reserve and the Treasury to respond to the financial crisis in 2008, others were critical of these actions. The critics were concerned that by not allowing large firms to fail:
(a) smaller firms would resent not receiving similar assistance.
(b) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy.
(c) there would be an increased likelihood that other firms would engage in risky behavior in the future with the expectation that they would also not be allowed to fail.
(d) there would be less competition in the U.S. economy, which could lead to higher prices for consumers.
Students also viewed