ECON201 Final Exam Key Terms

Question 1

Changes in Demand for U.S Dollars

Answer 1

World Demand for U.S exports (+), U.S interest rate relative to the foreign interest rate (+), The expected future exchange rates (+)

Question 2

Changes in Supply for U.S dollars

Answer 2

World Demand for Imports (+), U.S interest rate relative to the foreign interest rate (-), The expected future exchange rates (-)

Question 3

Aggregate Demand Shifts when..

Answer 3

Expected Future Income, Inflation, Profit, Fiscal Policy (Government Expenditure, Taxes (-), Transfer Payments), Monetary Policy (Quantity of money, Interest Rates (-), Exchange Rate (-), Foreign Income.

Question 4

If unemployment rate is less than natural unemployment then

Answer 4

Fed will increase the FFR

Question 5

If unemployment rate is more than natural unemployment then

Answer 5

FED will decrease the FFR

Question 6

Output Gap is positive then

Answer 6

FED will raise FFR

Question 7

Output Gap is negative then

Answer 7

FED will lower FFR

Question 8

Output Gap

Answer 8

Real GDP - Potential GDP

Question 9

If inflation is above or expected to move above FED’s comfort zone then

Answer 9

FED will consider raising the FFR

Question 10

If inflation is below or expected to move below FED’s comfort zone then

Answer 10

FED will consider lowering the FFR

Question 11

Inflation impact on exchange rates

Answer 11

Relative high inflation causes currency to depreciate. Relative low inflation causes currency to Appreciate

Question 12

Interest rate impact on exchange rates

Answer 12

Interest rates relatives high causes currency to appreciate. Interest rates relatively low causes currency to depreciate

Question 13

Effects of exchange rates on the economy

Answer 13

U.S dollar depreciates –> Net Exports increase –> Real GDP increase. US dollar appreciates –> net exports decrease –> Real GDP decreases

Question 14

Loanable Funds

Answer 14

The relationship between real interest rate and quantity of loanable funds

Question 15

Demand for Loanable funds shifts when

Answer 15

Expected Profit (+)

Question 16

Supply for Loanable Funds shifts when

Answer 16

Real Interest Rate (+), Disposable Income (+), Expected Future Income (-), Wealth (-), Default Risk (-)

Question 17

Crowding Out Effect

Answer 17

The government budget deficits to raise real interest rates and decrease private spending (Consumption and Investment). Put more simply public spending crowds-out private spending

Question 18

Natural Unemployment

Answer 18

Frictional + Structural Unemployment

Question 19

Structural Unemployment

Answer 19

Unemployment created by changes in the market for labor that change the skills needed to perform jobs or the location of jobs

Question 20

Frictional Unemployment

Answer 20

Unemployment that arises from normal labor market turnover (ex: you decide to leave your job, when you have the skills to get other jobs, but it takes you time to find a new job that you want. Thus during that time you are considered unemployed

Question 21

Cyclical Unemployment

Answer 21

Unemployment because of the business cycle

Question 22

Full Employment

Answer 22

Real GDP = Potential GDP. Only unemployment is natural unemployment

Question 23

Factors that effect the multiplier

Answer 23

Taxes (-), Imports (-). Crowding out lowers the multiplier.

Question 24

Sell Bonds

Answer 24

Increase Interest Rates

Question 25

Buy Bonds

Answer 25

Decrease Interest Rates

Question 26

Classical

Answer 26

Correct itself, no government intervention. Economy is self-correcting and always adjust on its own quickly to full employment

Question 27

Keynesian

Answer 27

Economy will likely operate at less than full employment. Believe the government plays a role and need to use fiscal and monetary policy to bring back to full employment.

Question 28

Monetarist

Answer 28

Believes in self-correcting theory that it will normally operate at full employment, assuming there isn’t bad monetary policy.