Chapters 8-11 (Final Exam)

Question 1

Labor Supply Curve

Answer 1

represents relationship between quantity of labor supplied and wage
- upward sloping

Question 2

labor demand curve

Answer 2

relationship between quantity of labor demanded and wage
- downward sloping

Question 3

equilibrium

Answer 3

point of intersection between labor supply and labor demand curve
- all workers are able to work as many hours as they wish at this wage and all firms are able to hire as many hours of labor as they find profitable

Question 4

Efficiency wages

Answer 4

wages above the lowest pay that workers would accept; employers use them to increase motivation and productivity

Question 5

discouraged workers

Answer 5

someone who is unemployed and has given up looking for work in the last four weeks

no longer counted as unemployed

Question 6

Money

Answer 6

asset people use to make and receive payments when buying and selling

• medium of exchange
• store of value
• unit of account

Question 7

Demand deposits

Answer 7

funds that depositors can access on demand by withdrawing money from the bank, writing checks, or using their debit cards

funds “loaned” to the bank by depositors

Question 8

inflation

Answer 8

rising prices

Inflation rate = growth rate of money supply - growth rate of real GDP

Question 9

Credit demand curve

Answer 9

reports relationship between quantity of credit demanded and real interest rate

• as real interest rate rises, quantity of credit demanded falls

Question 10

Labor Force

Answer 10

sum of all employed and unemployed workers

Question 11

Foreign Aid

Answer 11

international transfer of capital, goods, or services from a country or international organization for the benefit of the recipient country or its population

Question 12

Unemployment

Answer 12

does not have a job and is actively looking for work in the prior 4 weeks, and is currently available for work

Question 13

Assets

Answer 13

anything owned by the bank

divided into 3 categories:
- reserves
- cash and cash equivalents
- long-term investments

Question 14

Liabilities

Answer 14

4 categories:
- demand deposits
- short term borrowing
- long term debt
- stockholders’ equity

Question 15

Wage ceiling

Answer 15

max limit on upper boundary set on wages

Question 16

wage floors

Answer 16

minimum legal or agreed upon salary or hourly wage that employers are required to pay employees for their labor

Question 17

Productivity Wages

Answer 17

workers are paid based on level of productivity

higher productivity = higher wages

Question 18

hyperinflation

Answer 18

extreme inflation where prices double in 3 years

Question 19

reserves

Answer 19

funds or assets held by financial institutions that are set aside to meet specific regulatory requirements or ensure financial stability

Question 20

commercial bank

Answer 20

financial institution where people can deposit money, borrow money, and get financial services like loans and checking accounts

Question 21

minimum wage

Answer 21

lowest amount of money employers are legally required to pay workers for their labor

Question 22

property rights

Answer 22

legal rights of individuals or businesses to own, use, and control property

Question 23

Worker’s marginal product

Answer 23

additional amount of goods or services produced by adding one more worker

Question 24

unemployment rate

Answer 24

100% * (unemployment/labor force)

Question 25

central banks

Answer 25

manages country’s money supply, interest rates, and overall economic stability

Question 26

financial intermediaries

Answer 26

channel funds from suppliers of financial capital to users of financial capital

Question 27

GDP

Answer 27

Gross domestic product

C + I + G + (X-M)

Question 28

discount window

Answer 28

used by federal reserve to lend money directly to commercial banks and other institutions in need of short term funds

Question 29

Federal funds market

Answer 29

banks lend reserves to each other to meet reserve requirements set by federal reserve

Question 30

extractive institutions

Answer 30

removes resources from economy

Question 31

causes of prosperity

Answer 31

Fundamental:
- geography
- culture
- institutions

Proximate:
- physical capital
- human capital
- technology

Question 32

credit demand

Answer 32

need for loans or credit

Question 33

credit supply

Answer 33

amount of money that lenders are willing to lend borrowers at various interest rates

Question 34

Interest

Answer 34

additional payment that borrower makes

Question 35

Loan

Answer 35

money that one party gives to another party with the agreement that it will be paid back, usually with interest

Question 36

M1

Answer 36

liquid forms of money
- currency (coins or paper money)
- demand deposits

Question 37

M2

Answer 37

includes M1
- money supply
- sum of currency in circulation

Question 38

federal funds rate

Answer 38

interest rate at which banks lend money to each other overnight to meet reserve requirements

Question 39

spot interest rate

Answer 39

current interest rate for a loan or investement that is settled immediately

Question 40

subsidized interest rate

Answer 40

lower interest rate on a loan that is partially paid for by someone else

Question 41

discount window interest rate

Answer 41

interest rate at which commercial banks can borrow money directly from federal reserve

Question 42

nominal interest rate

Answer 42

i
annual cost of a $1 loan

Question 43

real interest rate

Answer 43

r
annual real or inflation adjusted cost of a $1 loan

real interest rate = nominal interest rate - rate of inflation

Question 44

wage rigidity

Answer 44

condition in which the market wage is held above competitive equilibrium level that would clear the labor market

Question 45

wage stability

Answer 45

consistent and predictable level of wages over time

Question 46

wage discrimination

Answer 46

differences in wages exist across different groups of workers even when they do same job or work of equal value

Question 47

medium of exchange

Answer 47

can be traded for goods and services

Question 48

unit of account

Answer 48

expresses relative prices

Question 49

store of value

Answer 49

enables people to transfer purchasing power to the future