Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Principles of Macroeconomics > Unit 2 Test > Flashcards

Unit 2 Test Flashcards

1
Q

A measure of the overall cost of the goods and services bought by a typical consumer.

A

Consumer Price Index (CPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 5 steps to calculate the CPI?

A
  1. Fix the basket
  2. Find the prices
  3. Compute the basket’s price
  4. Choose a base year and compute the CPI
  5. Compute the inflation rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

[Price of basket of goods and services in current year/Price of basket in base year] * 100

A

Equation for Consumer Price Index (CPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The percentage change in the price index from the preceding period.

A

Inflation Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

A measure of the overall cost of consumer goods and services excluding food and energy.

A

Core CPI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

([CPI in Year 2 - CPI in Year 1] \ CPI in Year 1) * 100

A

Inflation Rate in Year 2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

A measure of the cost of a basket of goods and services bought by firms.

A

Producer Price Index (PPI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are 3 problems with how the CPI is calculated?

A
  1. Substitution bias
  2. Introduction of new goods
  3. Unmeasured quality change
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The CPI computation assumes a fixed basket of goods, but because not all prices change proportionately, consumers substitute towards goods that have become relatively less expensive. These changes in the basket of goods and services is not accounted for in the computation of CPI.

A

Substitution Bias

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

As new goods are introduced, consumers have more choices, and each dollar is worth more. But because the CPI is based on a fixed basket of goods and services, it does not reflect the increase in the value of the dollar that results from the introduction of new goods.

A

Introduction of New Goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When the quality of a good in the basket changes, the Bureau adjusts the price of the good to account for the quality change, but quality is hard to measure.

A

Unmeasured Quality Change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are 2 differences between the GDP Deflator and the Consumer Price Index?

A
  1. GDP Deflator: reflects the prices of all goods and services produced domestically; CPI: reflects the prices of all goods and services bought by consumers.
  2. GDP Deflator: compares the price of currently
    produced goods and services to the price of the same goods and services in the base year; CPI: compares price of a fixed basket of goods and services to the price of the basket in the base year
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Amount in year T dollars * [Price level today/Price level in year T]

A

The formula for turning dollar figures from year T into today’s dollars.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The automatic correction by law or contract of a dollar amount for the effects of inflation.

A

Indexation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Nominal interest rate - Inflation rate

A

Real Interest Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Interest rate corrected for the effects of inflation.

A

Real Interest Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

The group of institutions in the economy that help match one person’s saving with another person’s investment

A

Financial System

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the 2 categories into which financial institutions are grouped?

A

Financial Markets

Financial Intermediaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Financial institutions through which savers can directly provide funds to borrowers

A

Financial Markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the 2 most important financial markets in the economy?

A

Stock Market

Bond Market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

A certificate of indebtedness

A

Bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are 4 significant characteristics of bonds?

A

Term
Credit Risk
Tax Treatment
Inflation Protection

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

The length of time until a bond matures.

A

Bond Term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

The probability that the borrower will fail to pay some of the interest or principal.

A

Credit Risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
The way the tax laws treat the interest earned on a bond.
Tax Treatment
26
Whether a bond is written in nominal terms or if payments are indexed to inflation.
Inflation Protection
27
A claim to partial ownership in a firm.
Stock
28
Financial institutions through which savers can indirectly provide funds to borrowers.
Financial Intermediaries
29
What are 2 of the most important financial intermediaries?
Banks | Mutual Funds
30
An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.
Mutual Fund
31
S = Y - C - G
Identity for National Saving (national saving = investment in a closed economy)
32
S = (Y - T - C) + (T - G)
Identity for National Saving (including taxes)
33
Y - T - C
Identity for Private Saving
34
T - G
Identity for Public Saving
35
Income that households have left after paying for taxes and consumption.
Private Saving (Y - T - C)
36
Tax revenue that the government has left | after paying for its spending.
Public Saving (T - G)
37
T - G > 0
Budget Surplus
38
Excess of tax revenue over government | spending.
Budget Surplus
39
T - G < 0
Budget Deficit
40
Shortfall of tax revenue from government | spending.
Budget Deficit
41
The purchase of new capital.
Investment
42
The market in which those who want to save supply funds and those who want to borrow to invest demand funds.
Market for Loanable Funds
43
The source of the supply of loanable funds.
Saving
44
The source of the demand for loanable funds.
Investment
45
The Y axis on the supply-demand graph for loanable funds shows __________ .
Interest Rate
46
What are 3 ways government policies can affect the market for loanable funds?
Saving Incentives Investment Incentives Government Budget Surpluses/Deficits
47
What is an example of a policy that would provide a saving incentive?
A policy that would allow people to shelter some of their saving from taxation.
48
Does a saving incentive policy affect the supply or demand in the market for loanable funds? Does it increase or decrease?
Supply | Increase
49
How are the equilibrium interest rate and equilibrium quantity affected by saving incentive policies?
Lower Interest Rate | Higher Quantity of Loanable Funds
50
What is an example of a policy that would provide an investment incentive?
An investment tax credit.
51
Does an investment incentive policy affect the supply or demand in the market for loanable funds? Does it increase or decrease?
Demand | Increase
52
How are the equilibrium interest rate and equilibrium quantity affected by investment incentive policies?
Higher Interest Rate | Higher Quantity of Loanable Funds
53
Does a government deficit affect the supply or demand in the market for loanable funds? Does it increase or decrease?
Supply | Decrease
54
How are the equilibrium interest rate and equilibrium quantity affected by a government deficit?
Higher Interest Rate | Lower Quantity of Loanable Funds
55
Does a government surplus affect the supply or demand in the market for loanable funds? Does it increase or decrease?
Supply | Increase
56
How are the equilibrium interest rate and equilibrium quantity affected by a government surplus?
Lower Interest Rate | Higher Quantity of Loanable Funds
57
A decrease in private investment that results from government borrowing.
Crowding Out
58
The unlikely occurrence that two people each have a good or service that the other wants.
Double Coincidence of Wants
59
The set of assets in an economy that people regularly use to buy goods and services from other people.
Money
60
What are the 3 functions of money?
1. Medium of Exchange 2. Unit of Account 3. Store of Value
61
An item that buyers give to sellers when they want to purchase goods and services.
Medium of Exchange
62
The yardstick people use to post prices and record debts.
Unit of Account
63
An item that people can use to transfer purchasing power from the present to the future.
Store of Value
64
The ease with which an asset can be converted into the economy’s medium of exchange.
Liquidity
65
Money that takes the form of a commodity with intrinsic value.
Commodity Money
66
Money without intrinsic value that is used as money by government decree.
Fiat Money
67
The paper bills and coins in the hands of the public.
Currency
68
Balances in bank accounts that depositors can access on demand by writing a check.
Demand Deposits
69
An institution designed to oversee the banking system and regulate the quantity of money in the economy.
Central Bank (Federal Reserve)
70
The setting of the money supply by policymakers in the central bank.
Monetary Policy (made by the Federal Open Market Committee - FOMC)
71
What are the 2 jobs of the Federal Reserve?
1. Regulate banks and ensure the health of the banking system. 2. Control the quantity of money available in the economy (money supply).
72
Deposits that banks have received but have not loaned out.
Reserves
73
A banking system in which banks hold only a fraction of deposits as reserves.
Fractional-reserve Banking
74
The fraction of deposits that banks hold as reserves.
Reserve Ratio
75
The amount of money the banking system generates with each dollar of reserves.
Money Multiplier
76
1/R, the reciprocal of the reserve ratio.
Money Multiplier
77
Interest rate at which banks make overnight loans to one another.
Federal Funds Rate
78
The purchase and sale of U.S. government bonds by the Fed.
Open Market Operations
79
Increase in the overall level of prices.
Inflation
80
Decrease in the overall level of prices.
Deflation
81
Extraordinarily high rate of inflation.
Hyperinflation
82
A theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate.
Quantity Theory of Money
83
In the diagram for the supply and demand of money, what is shown on the left vertical axis?
Value of Money
84
In the diagram for the supply and demand of money, what is shown on the right vertical axis?
Price Level
85
How are the value of money and the price level related?
The value of money (1/P) is the reciprocal of the price level (P).
86
In the diagram for the supply and demand of money, the price level on the right vertical axis increases / decreases from bottom to top.
Decreases
87
In the diagram for the supply and demand of money, the value of money on the left vertical axis increases / decreases from bottom to top.
Increases
88
In the diagram for the supply and demand of money, the money supply curve is vertical because...
The quantity of money is fixed by the Fed.
89
Variables measured in monetary units.
Nominal Variables
90
Variables measured in physical units.
Real Variables
91
The theoretical separation of nominal variables and real variables.
Classical Dichotomy
92
The proposition that changes in the money supply do not affect real variables.
Monetary Neutrality
93
The rate at which money changes hands.
Velocity of Money
94
V = [P * Y]/M
Formula for the velocity of money
95
In the formula for the velocity of money, the P equals...
Price Level
96
In the formula for the velocity of money, the Y equals...
Real GDP
97
In the formula for the velocity of money, the M equals...
Money Supply
98
In the formula for the velocity of money, P * Y equals...
Nominal GDP
99
M * V = P * Y
Quantity Equation
100
The revenue the government raises by creating money.
Inflation Tax
101
The resources wasted when inflation encourages people to reduce their money holdings.
Shoeleather Costs
102
The costs of changing prices .
Menu Costs

Principles of Macroeconomics (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions