Exam 3 Flashcards

1
Q

Tom buys a bond issued by Budweiser, which uses the funds to buy new machinery for one of it’s breweries.

A

Tom is saving, while Budweiser is investing

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2
Q

Other things the same, when interest rate rises

A

people would want to lend more, making the quantity of loanable funds supplied increase.

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3
Q

Unemployment rate affected by unmotivated unemployment?

A

decreases employment rate and labor-force participation rate decreases

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4
Q

medium of exchange function in money

A

purchase or exchange of goods between parties

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5
Q

Reserve Ratio formula

A

(loans/ deposits) x 100

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6
Q

Suppose congress were to institute an investment tax credit, what would happen to the market of loanable funds?

A

Demand for loanable funds would shift right

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7
Q

Reserve Requirement

A

(reserves/ deposits) x 100
- remember that if there is a holding in excess reserves, you must subtract excess from total reserves

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8
Q

Saving formula

A

Y-T-C —> (GDP - Consumption - GOV purchase)

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9
Q

Unemployment formula

A

(unemployed/ total force) x 100

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10
Q

Natural rate of unemployment?

A

is the amount of unemployment in the economy that we normally experience
- structural + frictional

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11
Q

Liquidity

A

The ease at which an asset can be turned into the economy’s medium of exchange

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12
Q

Labor force participation rate

A

(employed & unemployed/ total adult population) x 100

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13
Q

Present value formula

A

FV x 1/(1+g)^n

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14
Q

Future Value formula

A

PV x (1 + g)^n

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15
Q

Federal funds rate

A

the interest rate that banks charge each other to borrow or lend excess reserves overnight; the process of how money is made out of thin air

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16
Q

When the reserve requirement goes down, what happens to the money multiplier?

A

when the requirement goes down, the multiplier goes up (inverse relationship)

17
Q

Frictional unemployment

A

unemployment is when one person is temporarily unemployed in the process of moving one job to another

18
Q

Structural Unemployment

A

involuntary unemployment due to a mismatch of skills

19
Q

cyclical unemployment

A

not enough jobs for those who want them due to recession

20
Q

How to find public saving

A

T - G; total tax collected - total gov expenditures

21
Q

How to find private saving

22
Q

Policy 1

A

FED buys bonds (rise in investment) which moves the money supply increase (equilibrium shifts right

23
Q

Policy 3 (a budget deficit):

A

interest rate rises and investment falls (inverse relationship)

24
Q

Duties of the FED

A

regulate banking system & act as a “banker’s bank” (ie making loans to banks)

25
Efficiency wage
an employer paying higher than minimum wage in order to retain more skilled workers, increase productivity, and increase loyalty.
26
Discouraged workers
unemployed persons who are not currently searching for a job
27
List 3 tools the FED uses to change money
- change in the reserve requirement - change in the discount rate - open market operations (buying & selling US gov bonds) [MOST FREQUENT]
28
Commodity money
Money in which it's value is obtained from the resource it is made with
29
Fiat Money
a government-issued currency which is not a commodity
30
Demand Deposit
balanced in a bank account that people/ depositors can access on demand by writing a check/ debit card
31
T Chart Equations
Reserves = deposits x required reserve ratio Loans = reserves - deposits Deposits = reserves - loans
32
Money multiplier
amount of money the banking system generates with every dollar of reserves - AS RESERVE REQUIREMENT INCREASES, MONEY MULTIPLIER DECREASES
33
Change in checkable deposit
initial deposit x money multiplier
34
Change in money supply
change in checkable deposit - initial deposit
35
Required reserves
Deposits x Reserve requirement
36
Excess reserves
reserves - required reserves