Exam 2

Question 1

menu costs

Answer 1

cost of changing listed prices

Question 2

shoeleather costs

Answer 2

cost of going out and spending money (gas, time)

Question 3

unit of account cost

Answer 3

uncertainty costs, less investment and consumption due to uncertainty of price system

Question 4

reallocations of wealth

Answer 4

contracts create winners and losers, inflation benefits borrowers, cost comes from less investment

Question 5

hyperinflation

Answer 5

greater than 50% per month

Question 6

discouraged workers

Answer 6

stopped looking for work

Question 7

marginally attached workers

Answer 7

have looked for work in recent past

Question 8

underemployed

Answer 8

settling for part-time work

Question 9

frictional unemployment

Answer 9

due to time spent looking for work

Question 10

structural unemployment

Answer 10

more people seeking jobs than available at current market wage (unions, minimum wage)

Question 11

permanent income hypothesis

Answer 11

current consumption is a function of expected lifetime earnings

Question 12

wealth effect

Answer 12

when p rises, ability to buy falls

Question 13

interest rate effect

Answer 13

when p rises, interest rate rises and demand to save rises, investment falls

Question 14

m1

Answer 14

money supply, currently in circulation and checkable bank accounts

Question 15

m2

Answer 15

sum of m1, savings accounts and time deposits

Question 16

fiat money

Answer 16

not associated with a tangible good

Question 17

seignorage

Answer 17

printing money to raise revenue, can lead to hyperinflation

Question 18

fisher effect

Answer 18

if expected inflation is 2%, both demanders and sellers will accept 2% higher interest rate, quantity will remain the same

Question 19

monetary base

Answer 19

money in circulation and bank reserves