M2-Economic Measures and Indicators Flashcards
When the economy is operating at full employment, there is no cyclical unemployment. When the economy is operating at full employment, there is still some unemployment known as the natural rate of unemployment, which does not include cyclical unemployment. (true or false)
true
There is still some unemployment (frictional, structural, and seasonal) when the economy is operating at full employment.
Cost (push) inflation is inflation caused by a shift left in aggregate supply. An increase in input costs, such as sharp increase in the price of oil, will cause the short-run aggregate supply curve to shift left and thus increase the aggregate price level causing inflation. (true or false)
true
During a period of high inflation, those with a fixed amount of debt will repay their debt with inflated dollars and are thus likely to gain. (true or false)
true
Frictional unemployment is the unemployment that arises from workers routinely changing jobs or from workers being temporarily laid off. It results from the time needed to match qualified job seekers with available jobs. (true or false)
true
Under the expenditure approach, GDP is calculated as the sum of the following items summarized in the mnemonic GICE:
Government purchases
Investment expenditures
Consumption expenditures
net Exports
The discount rate refers to the rate established by the Federal Reserve for short-term (often overnight) loans it makes to member banks. (true or false)
true
Federal Reserve Bank purchases of government securities increase the money supply (putting money into circulation), and lowering the discount rate encourages borrowing by member banks and increases the money supply. Hence, these measures would help implement an expansionary monetary policy. (true or false)
true
The three ways the Fed can increase the money supply are:
- Buy (purchase) government securities in the open market
- Lower the discount rate
- Lower the required reserve ratio
To decrease the money supply, the Fed can: (1) sell government securities in the open market, (2) increase the discount rate, and (3) increase the required ratio. (true or false)
true
Decreasing aggregate demand and increasing aggregate supply will reduce the inflationary pressures. (true or false)
true
Structural unemployment occurs when the jobs available do not match the skills of the unemployed individuals or when the individuals do not live where jobs are available with their skills. (true or false)
true
Stagflation occurs when the economy suffers a recession that is characterized by falling output, rising unemployment, and a rising pricing level. (true or false)
true
The real interest rate is equal to the nominal interest rate minus inflation. (true or false)
true
Deflation is a general decline in the overall price level (i.e., when the inflation rate is negative). Increasing the money supply causes the overall price level to rise. As a result, it helps eliminate deflation. (true or false)
true
The consumer price index (CPI) measures the costs of a market basket of specific goods commonly purchased by consumers. It measures consumer buying power and is not distorted by items generally bought by industry. (true or false)
true
The CPI represents monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.
The CPI measures what has been paid for items, not what consumers WILL pay for items.
The CPI is a measure of the inflation rate (the percentage change of the consumer price index from one period to the next). It is only one measure of inflation; there are others, such as the producers price index, but the consumer price index is the most widely known and used.
Technological advances would likely result in structural unemployment. Structural unemployment is characterized by available jobs that do not match the skill sets of the workforce. Technological advances could create jobs that simultaneously make the skills of the workforce obsolete. (true or false)
true
