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Economy > Test 3 > Flashcards

Test 3 Flashcards

(56 cards)

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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?

Study These Flashcards
A

Federal Reserve Act of 1913

23
Q

Federal Reserve System

Study These Flashcards
A

Nations central banking system

24
What is the Federal Reserve System responsible for?
1. Supervising the banking system | 2. Implementing Monetary Policy
25
What is the Function of the Federal Reserve System?
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
US Securities
US Saving bonds
27
Structure of the Federal Reserve System
1. Board of Governors 2. Open Market Committee 3. Advisory Council 4. Federal Reserve Banks 5. Member (Commercial) Banks
28
How many are in the Board of Governors?
7
30
Who are the Board of Governors appointed by?
Appointed by the President and confirmed by the Senate
31
How long do the Board of Governors serve?
14 years
32
What is the function of the Board of Governors?
1. Oversee the Federal Reserve Banks 2. Set reserve requirements 3. Approve the discount rates
33
How many are in the Open Market Committee?
12
34
How many are in the Advisory Council?
12
35
How many Federal Reserve districts are there in the US?
12, each with a Federal Reserve Bank and a member of the Advisory Council
36
What is the function of the Advisory Council
1. Advise the Board of Governors on the economic conditions in their district
37
How many Federal Reserve Banks are there?
12, 1 per district
38
What is the function of the Federal Reserve Banks
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
How do they become part of this system Member (Commercial) Banks
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
What does the FDIC do?
Insures your bank deposits up to $250,000
41
Four Tools of Monetary Policy
1. Alteration of the Discount Rate 2. Alteration of Reserve Requirements 3. Open Market Operations 4. Moral Suasion
42
Alteration of the Discount Rate
The interest rate that commercial banks must pay when they borrow from the Federal Reserve System
43
Alteration of Reserve Requirements
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
Open Market Operations
Buying and selling of government securities
45
Moral Suasion
A set of suggestions from the Federal Reserve System to member banks suggesting a course of action
46
Three Components of Money
1. Coins 2. Currency 3. Demand Deposits (Checking Account Deposits)
47
Barter
Trading
48
Problems with Bartering
1. Spoiling 2. Transportation 3. Double Coincidence of Wants
49
Coincidence of Wants
Finding someone who wants what you have and has what you want
50
Three Functions of Money
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
Unit of Account
Standard which makes one able to assign value to a good or service
52
What is the function of the Open Market Committee?
1. Chief Policy making body for the Federal Reserve | 2. Direct the buying and selling of government securities and foreign currencies
53
What gives the US money supply its value?
Nothing! | The peoples confidence in the government
54
3 Stages in Defining the Value of Currency in US?
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
Reasons to Abandon the Gold Standard
1. There is a limited quantity available 2. There are other uses for gold and silver 3.
56
Freely Fluctuating Exchange Rate
In comparison to other countries all currency is free to go up and down

Economy (8 decks)

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