Study Guide: Terms and Definition

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

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