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Economy > Test 3 > Flashcards

Test 3 Flashcards

0
Q

Inflation

A

The decline in the purchasing power of the dollar

or the increase in general prices

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1
Q

2 Most Reoccurring Economic Problems in America

A
  1. Inflation

2. Unemployment

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2
Q

3 Types of Inflation

A
  1. Demand Pull Inflation
  2. Cost Push Inflation
  3. Administrative Inflation
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3
Q

Demand Pull Inflation

A

Caused by consumers having too much money to spend given the availability of goods and services they can buy

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4
Q

Cost Push Inflation

A

Caused by an increase in the cost of some factor of production which is used in the production of various goods and services

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5
Q

Administrative Inflation

A

This occurs because prices were raised to provide for higher profits

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6
Q

Unemployment

A

When a person is both willing and able to work but has no job

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7
Q

3 Types of Unemployment

A
  1. Frictional Unemployment
  2. Cyclical Unemployment
  3. Structural Unemployment
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8
Q

Frictional Unemployment

A

A situation where a person or an employer decides that the person and the job no longer match and the person is fired or they quit

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9
Q

Cyclical Unemployment

A

A situation where there are literally fewer jobs than people desiring to have a job

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10
Q

Structural Unemployment

A

A situation or a persons job has been eliminated, usually because of technological advancements (computers take over)

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11
Q

Labor Force

A

Includes the total number of workers which includes both employed and unemployed

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12
Q

Who comes up with the unemployment rate?

A

Bureau of Labor Statistics

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13
Q

Unemployment Rate

A

The percent of the labor force that is unemployed

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14
Q

Monetary Policy

A

Refers to the availability of credit and the size of the money supply

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15
Q

Who controls Monetary Policy?

A

Federal Reserve System

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16
Q

What does Monetary Policy deal with?

A

Inflation

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17
Q

How does Monetary Policy deal with inflation?

A

Shrinking the money supply

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18
Q

Fiscal Policy

A

Refers to government spending and taxation

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19
Q

Who controls Fiscal Policy?

A

Congress and the President

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20
Q

What are the goals of Monetary Policy?

A
  1. Price Stability
  2. High Employment
  3. Economic Growth
  4. Stability of Financial Markets
  5. Interest Rate Stability
  6. Foreign Exchange Stability
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21
Q

Why is it difficult to determine the Unemployment Rate?

A
  1. There are people who aren’t really trying to get employed
  2. There are people who have tried to find a job and then gave up
  3. There are people who are working but are getting paid “under the table” (not paying taxes)
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22
Q

Federal Reserve System was created by what?

A

Federal Reserve Act of 1913

23
Q

Federal Reserve System

A

Nations central banking system

24
Q

What is the Federal Reserve System responsible for?

A
  1. Supervising the banking system

2. Implementing Monetary Policy

25
Q

What is the Function of the Federal Reserve System?

A
  1. Clear Checks
  2. Serve as a lender of last resort (they can loan money to commercial banks)
  3. Provide coins and currency to commercial banks
  4. Primary means of marketing US securities
26
Q

US Securities

A

US Saving bonds

27
Q

Structure of the Federal Reserve System

A
  1. Board of Governors
  2. Open Market Committee
  3. Advisory Council
  4. Federal Reserve Banks
  5. Member (Commercial) Banks
28
Q

How many are in the Board of Governors?

A

7

30
Q

Who are the Board of Governors appointed by?

A

Appointed by the President and confirmed by the Senate

31
Q

How long do the Board of Governors serve?

A

14 years

32
Q

What is the function of the Board of Governors?

A
  1. Oversee the Federal Reserve Banks
  2. Set reserve requirements
  3. Approve the discount rates
33
Q

How many are in the Open Market Committee?

A

12

34
Q

How many are in the Advisory Council?

A

12

35
Q

How many Federal Reserve districts are there in the US?

A

12, each with a Federal Reserve Bank and a member of the Advisory Council

36
Q

What is the function of the Advisory Council

A
  1. Advise the Board of Governors on the economic conditions in their district
37
Q

How many Federal Reserve Banks are there?

A

12, 1 per district

38
Q

What is the function of the Federal Reserve Banks

A
  1. Propose discount rates
  2. Hold reserves for banks
  3. Lend money to banks
  4. Clear checks
  5. Serve as the bank for the US government
39
Q

How do they become part of this system Member (Commercial) Banks

A

Must have:

  1. National Charter (Given by Office of the Comptroller of Currency)
  2. State Charter (Given by Commissioner of Financial Institutions)
  3. Member of FDIC (Federal Deposit Insurance Corporation)
40
Q

What does the FDIC do?

A

Insures your bank deposits up to $250,000

41
Q

Four Tools of Monetary Policy

A
  1. Alteration of the Discount Rate
  2. Alteration of Reserve Requirements
  3. Open Market Operations
  4. Moral Suasion
42
Q

Alteration of the Discount Rate

A

The interest rate that commercial banks must pay when they borrow from the Federal Reserve System

43
Q

Alteration of Reserve Requirements

A

The Federal Reserve System either raises or lowers them
When they are lowered banks will lend more money
When they are raised banks will lend less money

44
Q

Open Market Operations

A

Buying and selling of government securities

45
Q

Moral Suasion

A

A set of suggestions from the Federal Reserve System to member banks suggesting a course of action

46
Q

Three Components of Money

A
  1. Coins
  2. Currency
  3. Demand Deposits (Checking Account Deposits)
47
Q

Barter

A

Trading

48
Q

Problems with Bartering

A
  1. Spoiling
  2. Transportation
  3. Double Coincidence of Wants
49
Q

Coincidence of Wants

A

Finding someone who wants what you have and has what you want

50
Q

Three Functions of Money

A
  1. Serves as a Medium of Exchange (easily accepted for exchange)
  2. Unit of Account
  3. Store of Value (Can be saved and spent later)
51
Q

Unit of Account

A

Standard which makes one able to assign value to a good or service

52
Q

What is the function of the Open Market Committee?

A
  1. Chief Policy making body for the Federal Reserve

2. Direct the buying and selling of government securities and foreign currencies

53
Q

What gives the US money supply its value?

A

Nothing!

The peoples confidence in the government

54
Q

3 Stages in Defining the Value of Currency in US?

A

Currency was/is defined by:

  1. Gold/Silver can exchange paper for gold
  2. Gold/Silver but no longer can exchange paper for gold
  3. Nothing, which is unstable
55
Q

Reasons to Abandon the Gold Standard

A
  1. There is a limited quantity available
  2. There are other uses for gold and silver
    3.
56
Q

Freely Fluctuating Exchange Rate

A

In comparison to other countries all currency is free to go up and down

Economy (8 decks)

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