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Economics 111 - 3rd Test Pettit
SIUe
68
Economics
Undergraduate 1
05/01/2011

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Cards

Term
What are the three macroeconomic goals?
Definition

1) Economic Growth

2) Price Stability

3) Full Employment

Term
What is the long run trend of GDP?
Definition
3%
Term
What are the high worker productivity determinants?
Definition

1) Educated, healthy, skilled workers

2) Quality capital and technology

3) Incentives provided by a market economy

Term
What is the US's literacy rate?
Definition
99%
Term
What % of people over the age of 25 have a high school degree in the US?
Definition
85%
Term
How is price stability measured?
Definition
With the inflation rate, CPI
Term
What is the inflation rate?
Definition
The % increase from one year to the next in the average price of goods and services in the typical market.
Term
What does CPI stand for?
Definition
Core Price Index
Term
Who is the current Fed chair?
Definition
Ben Bernanke
Term

True or False:

Deflation is bad for the economy.

Definition
True
Term
Inflation is the burden of the ( borrower or lender?)
Definition
Borrower
Term
Interest rates are really only _______.
Definition
Prices adjusted for inflation
Term
How is the unemployment rate calculated?
Definition
US Bureau of Labor Statistics surveys 60,000 households monthly and then they are categorized.
Term
What classifies a person as employed?
Definition
If they are recieving wages regardless of full or part-time.
Term
What classifies a person as unemployed?
Definition
If they have done no work for pay and have actively looked for a job in the last four weeks.
Term
How is a person considered to not be in the labor force?
Definition
If they did not actively look for a job.
Term
What is the natural rate of unemployment?
Definition
5 - 6%
Term
What are the three types of unemployment?
Definition

1) Frictional

2) Structural

3) Cyclical

Term
What is considered frictional unemployment?
Definition
Poeple who are changing jobs wor who are just entering the work force (like recent college graduates or stay-at-home parents now looking for work)
Term
What is considered structural unemployment?
Definition
People who do not have marketable skills or whose skills do not match the skills of the job openings.
Term
What is cyclical unemployment?
Definition
Those unemployed during a recession which is anything over 6% ish
Term
Natural Unemployment Rate = _____ + _____
Definition
Frictional + Structural
Term
Anything over 6% is considered _____ unemployment.
Definition
Cyclical
Term
Extending unemployment benefits makes the job search ______.
Definition
Longer
Term
Structurally unemployed require....
Definition
Education, Training, Motivation and Mobility
Term
What are the issues with the unemployment measure?
Definition

1) Part-Time work is considered employed

2) Discouraged workers are not considered to be in the labor force

3) Rate is a national, all over figure

Term
What is the median salary in the US?
Definition
$50,000
Term
What are the functions of money?
Definition

1) Medium of exchange

2) Standard of Value

3) Store of Value

Term
What is Store of Value?
Definition
a way to hold wealth
Term
What is commodity money?
Definition
Money that has value other than as a medium of exchange like cattle?
Term
What are some characteristics that all money has in common?
Definition
Acceptable, Relatively scarce, divisible, portable and durable
Term
What is the most narrow definition of money supply?
Definition
M1
Term
M1 is ____ + _____
Definition
M1 = Currency + Checkable Deposits
Term
What is currency?
Definition

Coins and Paper money

Coins make up 2- 3%

Term
What % of money is paper money (federal reserve notes)?
Definition
53%
Term
What % of money is checkable deposits?
Definition
44%
Term
What are checkable deposits?
Definition
All deposits in any savings institution on which checks can be drawn.
Term
What is M2?
Definition
M2 = M1 + Savings Deposits and Small Time Deposits (CD)
Term
What gives money value?
Definition

1) Acceptability

2) Relative Scarcity

3) Legal Tender

Term
What is legal tender?
Definition
being able to accept money in payment for a debt
Term
What are the 3 types of banks?
Definition

1) Central Banks

2) Quasi - Public Banks

3) Banks' Banks

Term
How many federal reserve banks are there?
Definition
12
Term
What is a Quasi bank?
Definition
A privately owned bank that is operated in the public interest. Owned by the commercial banks in the district.
Term
How many members are there in the Board of Governors?
Definition
7 ( 2 open now )
Term
How long is a Board of Governors member's term?
Definition
14 years
Term
What does FOMC stand for?
Definition
Federal Open Market Committee
Term
How many members are there on the FOMC?
Definition
7 Board of Governors members + 5 district federal bank presidents
Term
What federal bank president is always on the FOMC?
Definition
New York
Term
What are the functions of the federal reserve system?
Definition

1) Hold deposits of commercial banks - reserves

2) Assist in check clearing process

3) Act as fiscal agents for the government

4) Supervise commercial banks

5) Regulate the money supply

Term
What is the check clearing process?
Definition
When your bank moves your money to another bank.
Term
What is monetary policy?
Definition
The manipulation of the money supply to achieve the macroeconomic goals.
Term
What is fractional reserve banking?
Definition
Banks only being required to hold a fraction of their assets as reserves.
Term
______ Loans = _____ Money
Definition

More / More

- OR -

Less / Less

Term
What is the key to a bank's ability to make loans?
Definition
Excess reserves.
Term
What is expansion of monetary policy used for?
Definition
To stimulate a sluggish or recessionary economy
Term
Why does expansion of monetary policy work?
Definition
Increases reserves which increases loans and spending which increases our GDP!
Term
What is Restriction / Tight Monetary Policy used for?
Definition
Used to discourage spending
Term
What is it called when the economy attempts to spend beyond its capacity to produce?
Definition
Demand - Pull Inflation
Term
Inflation is always caused by....
Definition
Too much money
Term
What is the main tool of monetary policy?
Definition
Open Market Operations
Term
What does the fed do if they want to provide reserves?
Definition
Buy securities from banks
Term
What is the interest rate that banks pay eachother to borrow reserves?
Definition
The federal funds rate
Term
What is the neutral federal funds rate?
Definition
5%
Term
What is the difference between monetary and fiscal policy?
Definition
Monetary is the manipulation of money supply while fiscal is the manipulation of government spending.
Term
Who makes fiscal policy?
Definition
President, Executive Branch, and Congress
Term
If the economy is in a recession or has slow growth, how should fiscal policy be used?
Definition

Increase government spending

Decrease taxes

Deficit Spending

Term
How should fiscal policy be used to fix inflation or rapid GDP growth?
Definition

Decrease government spending

Increase taxes

Budget Surplus

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