Econ exam 3

Question 1

CPI

Answer 1

Measure of overall cost of goods and services bought by a typical consumer.

Question 2

Substitution Bias

Answer 2

Problem with the CPI, the fixed basket of goods doesn’t change for price or consumer preference.

Question 3

Introduction of new good

Answer 3

Problem with the CPI, consumers buy the new goods that most fit their needs, and the CPI doesn’t change for the price increase.

Question 4

Unmeasured quality change

Answer 4

Quality of goods and services increases, quality is hard to measure so CPI overstates the cost of living.

Question 5

Nominal interest rate

Answer 5

Interest rate not corrected for inflation

Question 6

Real interest rate

Answer 6

corrected for inflation

Question 7

Are imported consumer goods included with the CPI or GDP deflator?

Answer 7

included with CPI but excluded from the GDP deflator

Question 8

Are capital goods included in the CPI or the GDP deflator?

Answer 8

Excluded from CPI but included in the GDP deflator.

Question 9

Employed

Answer 9

paid employees, self-employed, and unpaid workers in a family business, full-time and part-time

Question 10

Unemployed

Answer 10

people not working, are available for work, and have looked for work during the previous 4 weeks

Question 11

The natural rate of unemployment

Answer 11

The normal rate of unemployment around which the unemployment rate fluctuates

Question 12

Cyclical unemployment

Answer 12

The deviation of unemployment from its natural rate

Question 13

Frictional unemployment

Answer 13

Results because it takes time for workers to search for the jobs that best suit their tastes and skills. Short-term for most workers

Question 14

Structural unemployment

Answer 14

Results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one. Due to wages stuck above the equilibrium level. Usually, longer-term

Question 15

Sectoral shifts

Answer 15

changes in the composition of demand
among industries or regions. Part of frictional unemployment.

Question 16

Efficiency wages

Answer 16

Firms pay high wages to increase efficiency.

Question 17

Barter

Answer 17

Exchange of one good or service for another. Unlikely two people have a good or service the other wants, resulting in a waste of time and resources.

Question 18

Money

Answer 18

The set of assets in an economy that people regularly use to buy goods and services

Question 19

Medium of exchange

Answer 19

An item that buyers give to sellers when they want to purchase goods and services

Question 20

Unit of account

Answer 20

Yardstick people used to post prices and record debts.

Question 21

Store of Value

Answer 21

An item that people can use to transfer purchasing power from the present to the future

Question 22

Intrinsic value

Answer 22

The item would have value even if it were not used as money. like gold and silver.

Question 23

Fiat money

Answer 23

Money without intrinsic value, used as money because of government decree. Like the US dollar

Question 24

Money stock

Answer 24

Quantity of money circulating the economy.

Question 25

Demand deposits

Answer 25

Balances in bank accounts that depositors can access on
demand by writing a check

Question 26

M1 money stock

Answer 26

Currency, demand deposits at banks, and some other liquid deposits (balances in savings accounts)

Question 27

M2 money stock

Answer 27

Everything in M1 plus small time deposits and money market funds (except those held in restricted retirement accounts)

Question 28

Federal OMO, Buy US bonds

Answer 28

Increases money supply

Question 29

Federal OMO, Sells US bonds

Answer 29

Decrease money supply

Question 30

Reserves

Answer 30

Deposits that banks have received but have not loaned out

Question 31

The reserve ratio

Answer 31

fraction of deposits that banks hold as reserves total reserves as a percentage of total deposits

Question 32

Discount rate, What happens if it lowers?

Answer 32

Interest banks pay when borrowing from the FED. If the Fed lowers the discount rate, it encourages banks to borrow
more, increasing the quantity of reserves and the money supply

Question 33

Reserve requirements, what happens if they reduce?

Answer 33

Regulations on the minimum amount of reserves banks must hold
against deposits. Reducing reserve requirements would lower the reserve ratio and increase the money multiplier

Question 34

Federal funds rate

Answer 34

The interest rate at which banks make overnight loans to other banks.