exam 3

Question 1

what is the measure of the standard of living?

Answer 1

real GDP per capita (ability of a country to produce goods and services)

Question 2

productivity

Answer 2

quantity of goods and services produced from each unit of labor, key determinant of growth of living standards

Question 3

main drivers of economic growth

Answer 3

increase in working population and improvement of worker productivity

Question 4

four factors that enhance productivity

Answer 4

1. physical capital
2. human capital
3. technology
4. natural recources

Question 5

examples of physical capital

Answer 5

equipment, tools, machines, materials

Question 6

examples of human capital

Answer 6

training, skills, education

Question 7

technology

Answer 7

process to convert inputs to outputs (research, development)

Question 8

decomposition of population (16+)

Answer 8

employed, unemployed, not in labor force

Question 9

employed

Answer 9

employee, self-employed, non-paid in family business, part and full time

Question 10

unemployed

Answer 10

doesn’t have a current job but has actively searched in the last four weeks

Question 11

not in labor force

Answer 11

not working and not searching for work; students, retired, disabled

Question 12

unemployment rate

Answer 12

percentage of labor force that is unemployed -
(unemployed/labor force) x 100

Question 13

labor force

Answer 13

total number of workers, including both employed and unemployed

Question 14

labor force participation rate

Answer 14

percentage of adult population in the labor force -
(labor force/population 16+) x 100

Question 15

cyclical unemployment

Answer 15

deviation of unemployment from its natural rate, associated with short-run fluctuations in economic activity

Question 16

frictional unemployment

Answer 16

results because it takes time for workers to search for the jobs that best suit their tastes and skills, short-term for most workers (transition b/w jobs)

Question 17

structural unemployment

Answer 17

results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one, usually long-term

Question 18

unemployment insurance

Answer 18

increases frictional unemployment

Question 19

money

Answer 19

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

Question 20

three functions of money

Answer 20

1. medium of exchange
2. a unit of account
3. a store of value

Question 21

medium of exchange

Answer 21

item that buyers give to sellers when they want to purchase goods and services (e.g., cash at a store)

Question 22

unit of account

Answer 22

yardstick people use to post prices and record debt (e.g., price tags in dollars)

Question 23

store of value

Answer 23

item that people can use to transfer purchasing power from the present to the future (e.g., saving money in a bank)

Question 24

liquidity

Answer 24

the ease with which an asset can be converted into the economy’s medium of exchange

Question 25

commodity money

Answer 25

money that takes the form of a commodity with intrinsic value (e.g., gold coins)

Question 26

fiat money

Answer 26

money without intrinsic value that is used as money by government decree (e.g., the U.S. dollar)

Question 27

M1 includes…

Answer 27

currency, demand deposits at banks, checking and saving accounts (most liquid assets)

Question 28

M2 includes…

Answer 28

everything in M1, time deposits, money market funds

Question 29

what determines money supply?

Answer 29

1. federal reserve
2. bank lending
3. private cash

Question 30

reserves

Answer 30

deposits that banks have received but not loaned out

Question 31

if the reserve ratio increases…

Answer 31

the money supply and money multiplier decreases

Question 32

federal reserve

Answer 32

board of governors & 12 regional banks

Question 33

FOMC

Answer 33

federal open market committee

Question 34

open market operations

Answer 34

purchase and sale of U.S. government bonds by the fed

Question 35

open market purchase

Answer 35

to increase money supply, the FED buys government bonds (securities)

Question 36

open market sell

Answer 36

to decrease money supply, FED sells gov. bonds to public

Question 37

federal reserve board of governors

Answer 37

7 members, 14-year term, appointed by president, confirmed by senate

Question 38

federal chair

Answer 38

4-year term, appointed by president, confirmed by senate

Question 39

functions of the 12 regional federal banks

Answer 39

1. regulate banks (financial conditions & transactions)
2. bank’s bank
3. lender of last resort
4. controls the money supply

Question 40

currency

Answer 40

paper bills and coins in the hands of the public

Question 41

demand deposits

Answer 41

balances in bank accounts; depositors can access on demand by writing a check

Question 42

100-percent-reserve banking

Answer 42

holds 100% of deposits as reserves, does not influence the supply of money

Question 43

money supply =

Answer 43

currency + deposits

Question 44

fractional-reserve banking

Answer 44

banking system in which banks hold only a fraction of deposits as reserves (have a reserve ratio)

Question 45

reserve ratio

Answer 45

fraction of deposits that banks hold as reserves

Question 46

money multiplier

Answer 46

the amount of money that results from each dollar of reserves

Question 47

discount rate

Answer 47

interest rate on loans that the fed makes out to banks

Question 48

the higher the discount rate…

Answer 48

the smaller the money supply