Study Guide: Terms and Definition
70 Cards in this Set
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hyperinflation
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a period of very high inflation
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25%
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if price level increases from 120 to 150, the inflation rate is
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falls, & ppl. desire to hold less of it
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As price level rises, the value of money
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causes the price level to rise by 4%
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According to the quantity theory of money, a 4% increase in money supply...
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nominal GDP would rise by 7 percent; real GDP would be unchanged
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According to the assumption of the quantity theory of money, if the money supply increases by 7% then
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increases in money-supply growth
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The source of hyperinflations is primarily
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the waste of resources used to maintain lower money holdings
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The shoeleather cost of inflation refers to
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Menu Costs
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The costs of changing price listings are known as
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after-tax real interest rates
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When deciding how much to save, people care mostly about
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a US import and a French export
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When Claudia, an US citizen, purchases a handbag made in France, the purchase is
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a trade surplus and positive net exports
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A country sells more to foreign countries than it buys from them. It has
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exports rise, imports fall
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Which of the following both raise net exports?
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exports of $ 2.5 billion and a trade deficit of $ 3.5 billion
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A country purchases $6 billion of foreign-produced goods and services and sells $ 2.5 billion of domestically produced goods and services to foreign countries. It has
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nominal exchange rate
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rate at which a country can trade the currency of one country for another
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exchange rates in the long run
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Purchasing power parity describes the forces that determine
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real exchange rate is equal to 1
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If purchasing-power parity holds, then the value of the
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domestic investment plus net capital outflow
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In an open economy, national savings equals
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$70bill
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A country has national saving of $70 billion , government expenditures of $ 20 billion, domestic investment of $30 billion and net capital outflow of $ 40 billion. What is its supply of loanable funds?
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domestic investment and net capital outflow both fall
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Other things the same, as the interest rate rises
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national saving
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in an open economy, the equilibrium quantity of loanable funds equals
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NCO
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In an open economy, the supply in the foreign exchange market comes from
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price of domestic currency relative to foreign currency
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The exchange rate measures the
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less expensive relative to foreign goods, which makes exports rise and imports fall.
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When the real exchange rate for the dollar depreciates, US goods become
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real exchange rate
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In the open economy, the price that balances supply and demand in the foreign exchange market is the
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real interest rate
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In the open economy, the key determinant of net capital outflow is the
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that directly influences the quantity of goods that a country imports and exports
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A trade policy is a government policy
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Short run fluctuations in the eco.
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The aggregate demand and aggregate supply model to analyze
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used to monitor short-run changes in economic activity
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used to monitor short-run changes in economic activity
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recession
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A relatively mild period of falling incomes and rising unemployment is called a
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the CPI or the GDP deflator
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The average price level is measured by
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Consumption, Investment, NX
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3 things that are included in the aggregate demand for goods and services
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fall, right
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When money supply increases, interest rates (fall/rise) and so aggregate demand shifts (left/right)
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the supply of labor, available natural resources , available technology
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3 determinants of the long-run level of real GDP?
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technology improves
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The long run aggregate supply curve shifts right if
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both the price level and the real GDP rise
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short term effects of consumer optimism on the price level and real GDP
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the price level rises and the real GDP stays the same
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long term effects of consumer optimism on the price level and real GDP
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Financial System
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-involves bank accounts, mortgages, stock prices, and many other items. -involves decisions and actions undertaken by people at a point in time that affect their lives in the future. -coordinates the economy’s saving and investment.
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$1,000/(1.06)
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Which of the following is the correct expression for finding the present value of a $1,000 payment one year from today if the interest rate is 6 percent?
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$100(1 + .04)^10
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the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years
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$2591.85
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If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?
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$441.87
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Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is
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6%
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At which interest rate is the present value of $79.50 one year from today equal to $75 today?
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$9090.91
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You have a bond that entitles you to a one-time payment of $10,000 one year from now. The interest rate is 10 percent per year. How much is the bond worth today?
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the present value of the returns from the factory will fall, so U.S. Phones will be less likely to build the factory.
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U.S. Phones is considering buying new equipment to build a factory. If the interest rate rises,
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70/r years.
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If the interest rate is r percent, then the rule of 70 says that your savings will double about every
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bond
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certificate of indebtedness.
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dividends
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Profits paid out to stockholders
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public saving
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In a closed economy, what does (T - G) represent?
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private saving
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In a closed economy, what does (Y - T - C) represent?
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1500 and -500
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Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 2,500, Consumption equals 7,000, and Government purchases equal 3,000. What are private saving and public saving?
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nominal interest rate
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interest rate as usually reported by banks.
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budget surplus
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reduces the interest rate and raises investment
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their labor earnings.
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To maintain their standard of living, most people rely on
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cyclical unemployment
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The deviation of unemployment from its natural rate is called
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does not go away on its own even in the long run.
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The designation "natural" implies that the natural rate of unemployment
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number of people employed plus the number of people unemployed.
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The labor force equals the
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the labor force that is unemployed.
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The Bureau of Labor Statistics defines the unemployment rate as the percentage of
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total adult population that is in the labor force.
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The labor-force participation rate measures the percentage of the
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You list prices for goods in dollars.
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best illustrates the unit of account function of money
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he amount of reserves banks must hold against deposits
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Reserve requirements are regulations concerning
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You pay for your double latte using currency.
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best illustrates the medium of exchange function of money
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Commodity money
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what kind of money is backed by gold
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fiat money
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money with no intrinsic value
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conducting open market operations.
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The Fed’s primary tool to change the money supply is
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10%
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Assets Liabilities Reserves 15,000 Deposits 150,000 Loans 135,000 6. Refer to the table. If the bank has lent out all the money it can given its deposits, then what is its reserve ratio?
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10
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Assets Liabilities Reserves 15,000 Deposits 150,000 Loans 135,000 Refer to the table. What is the money multiplier?
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$4500
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Assets Liabilities Reserves 15,000 Deposits 150,000 Loans 135,000 Refer to the table. If the Fed requires a reserve ratio of 7%, how much in excess reserves does the bank now hold?
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$ 1,300,000
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Assets Liabilities Reserves 15,000 Deposits 150,000 Loans 135,000 Refer to the table. By how much would the money supply increase?
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buy government bonds.
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To increase the money supply, the Fed could:
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a. open market operations b. reserve requirements c. changing the discount rate
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3 tools of monetary policy
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ECON 2133: CHAPTER 10