Role of the Federal Government

Question 1

3 gov’t tools to affect economy

Answer 1

monetary policy, fiscal policy, trade policy

Question 2

monetary policy

Answer 2

FED controlling money supply; adjusting interest rates and reserve ratio

Question 3

fiscal policy

Answer 3

Congress & President use gov’t spending and taxing to influence the economy

Question 4

trade policy

Answer 4

tariffs, subsidies, quotas, agreements with foreign nations

Question 5

microeconomics

Answer 5

study of one industry

Question 6

macroeconomics

Answer 6

study of the big picture, the whole economy

Question 7

GDP

Answer 7

all g/s made in one nation per year; consumer spending + business investment + gov’t spending + exports - imports

Question 8

nominal GDP

Answer 8

using current price and quantity, NO adjustments for inflation

Question 9

potential GDP

Answer 9

maximum output a country could a achieve w/ max efficiency w/ its resources

Question 10

real GDP

Answer 10

factors out inflation (using a base year for prices)

Question 11

real GDP per capita

Answer 11

factors out both inflation and population changes: best measure of standard of living

Question 12

unemployment

Answer 12

of people unable to find work divided by total workforce (employed + unemployed)

Question 13

discouraged workers

Answer 13

not looking for jobs, not part of the workforce

Question 14

frictional unemployment

Answer 14

natural in an economy (eg just finished school or moved or just quit one job)

Question 15

structural unemployment

Answer 15

workers in changing industries lost jobs because of change in products or training needed (normal in an economy)

Question 16

cyclical unemployment

Answer 16

recession causes layoffs: harms the economy

Question 17

seasonal unemployment

Answer 17

some jobs are only worked parts of a year

Question 18

the fear in a recession

Answer 18

unemployment

Question 19

the fear in an expansion

Answer 19

inflation

Question 20

recession

Answer 20

2 quarters where the GDP declines

Question 21

fiscal policy during recession

Answer 21

put money into people’s hands: lower taxes, raise gov’t spending, or both

Question 22

fiscal policy during expansion

Answer 22

take money out of people’s hands: raise taxes, lower gov’t spending, or both

Question 23

gov’t deficits

Answer 23

overspending

Question 24

debt

Answer 24

all the deficits plus interest (now $36 trillion)

Question 25

breakdown of debt

Answer 25

1/3 owed to foreign nations, 44% owed to gov't, the rest owed to investors

Question 26

impact of deficits & debt

Answer 26

increases the interest the gov't must pay, high interest rates hurt economic growth, causes inflation

Question 27

benefits of mutual funds

Answer 27

convenient bc a bunch of stocks in a basket, diversification, and professional management

Question 28

active vs passive investment management

Answer 28

mutual funds have active professional management, while ETFs have passive management done by computers

Question 29

index funds

Answer 29

lower fees bc of passive management; fixed formula by an index; a type of mutual fund

Question 30

2 important macroeconomic goals

Answer 30

stable prices and max employment

Question 31

gov't's problem-solving method

Answer 31

look at model of ideal, identify the problem, gather data, analyze the data, choose tools to fix the problem

Question 32

3 main economic indicators

Answer 32

total production in economy, unemployment, price inflation

Question 33

unemployment rate

Answer 33

of people actively looking for work but not able to find it divided by # of ppl in labor force (times 100)

Question 34

criteria to be part of the labor force

Answer 34

not in institutions/prison/military, 16 or older, currently employed or unemployed and looking for work

Question 35

natural rate of unemployment

Answer 35

frictional + structural unemployment added together (4.5 to 5.5%)