Midterm Study Guuide

Question 1

Who is the Supply in the Loanable Funds Market

Answer 1

Banks and Investors

Question 2

Who is the Demand in the Loanable Funds Market

Answer 2

Businesses

Question 3

X-axis in the Loanable Funds Market

Answer 3

Investors

Question 4

What will the Federal Reserve do if our economy is experiencing high unemployment

Answer 4

lower interest rates

Question 5

Y-axis in the Loanable Funds Market

Answer 5

interest rates

Question 6

What will be the effect on the demand side of our economy when the Federal Reserve lowers interest rates when the economy is experiencing high unemployment

Answer 6

⬆️ Consumption, ⬆️ Business Investment, ⬆️ Exports, ⬇️ Imports

Question 7

What is GDP Demand Side formula and what each element represents

Answer 7

consumption (interest rates, personal taxes) + business investments(interest rates, business taxes)+ government spending+ (exports - imports)

Question 8

What will be the effect on the demand side of our economy when the Federal Reserve raises interest rates when the economy is experiencing high inflation

Answer 8

⬇️ Consumption, ⬇️Business Investment, ⬇️ Exports, ⬆️ Import

Question 9

What will the Federal Reserve do if our economy is experiencing high inflation

Answer 9

raise interest rates

Question 10

What will allow an economy to grow

Answer 10

more land, more labor, more capital, and more productivity for each

Question 11

What factor accounts for 2/3 of our economic growth

Answer 11

productivity

Question 12

What side of the GDP formula is greater than the other when experiencing high inflation. What does this mean?

Answer 12

CIGXn> LLK(P) This means that there is more demand than there is supply of a good

Question 13

What side of the GDP formula is greater than the other when experiencing high unemployed. What does this mean?

Answer 13

CIGXn<LLK(P) This means that there is more supply that there is demand for a good

Question 14

What does the y-axis mean in a Production Possibilities Frontier graph

Answer 14

Capital Goods

Question 15

What does the x-axis mean in a Production Possibilities Frontier graph

Answer 15

Consumer Goods

Question 16

Given a PPF graph where would the point go if our economy is operating in a recession

Answer 16

inside the curve

Question 17

Given a PPF graph where would the point go if our economy is producing more consumer goods than capital goods

Answer 17

closer to consumer goods on the curve relative to capital goods

Question 18

Given a PPF graph where would the point go if our economy is producing more capital goods than consumer goods

Answer 18

closer to capital goods on the curve relative to consumer goods

Question 19

Given a PPF graph where would the point given a good is currently unattainable

Answer 19

outside the curve

Question 20

What is the opportunity costs nations have regarding the point outside the curve in a PPF graph

Answer 20

Nations are able to consume more than they can produce. This can be achieved through trade and specialization

Question 21

What is Consumer Goods

Answer 21

things people buy to satisfy their needs and wants

Question 22

How will lowering interest rates during high unemployment affect the supply side of our economy and help it move in the right direction?

Answer 22

Lower interest rates entices businesses to take out loans to invest in themselves, this can create job opportunities. Higher interest rates deters businesses from expanding too much, thus slowing down the economy.

Question 23

What is Capital goods

Answer 23

things that are used to make other things

Question 24

What is the opportunity cost of choosing to produce more consumer goods relative to capital goods

Answer 24

that means there will be fewer resources for investing in capital goods thus affecting future economic growth

Question 25

What will allow our economy to grow in terms of the PPF

Answer 25

more productive use of of LLK

Question 26

What is the relationship between a country’s opportunity cost in producing an item, their comparative advantage, trade, and the possibilities of higher standards of living

Answer 26

The opportunity cost is what is potentially lost when a country invests their resources in producing one item over another. A country has a comparative advantage when it can focus on producing one item at a lower cost, then trading with a country who can focus on produce that other item at a lower cost. This potentially raises a country’s standard of living because it allows countries to have access to a variety of goods at a lower price.

Question 27

When we are in a trough what will the Federal Reserve do?

Answer 27

lower interest rates to stimulate the economy

Question 28

When we are in a peak what will the Federal reserve do?

Answer 28

raise interest rates to slow down the economy

Question 29

What happens to CIGXn when our economy is in a peak and why

Answer 29

higher interest rates leads to less Consumption and less Business Investment. The US$ appreciating will make net exports go down.

Question 30

What happens to CIGXn when our economy is in a trough

Answer 30

lower interest rates leads to more Consumption and more Business Investment. The US$ depreciating will make net exports go up.

Question 31

How will lower interest rates affect the foreign exchange market

Answer 31

lower interest rates will mean that there will be less demand for US$ because low interest rates make the US$ less appealing to foreign investors. This will depreciate the US$

Question 32

How will higher interest rates affect the foreign exchange market

Answer 32

higher interest rates will meant what there will be more demand for US$ because high interest rates make the US$ more appealing to foreign investors. This will appreciate the US$