ECON BC 3033x Chapter Notes - Chapter 1-13: Fractional-Reserve Banking, Real Interest Rate, Nominal Interest Rate

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26 Aug 2016

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Real gdp: the total income of everyone in the economy adjusted for price levels. Real gdp increases over time and allows for a higher standard of living. Recession: period where there is a mild dip in real gdp. Depression: period where there is a severe dip in gdp. Unemployment rate: the fraction of the labor force that is out of work. Unemployment rates are generally highest during recessions and depressions. Models get rid of irrelevant details and focus on the most important conditions. Endogenous variables: variables that the model tries to explain (dependent) Exogenous variables: variables that the model takes as a given (independent) Models make assumptions and therefore are not perfect representations of the real world. Market clearing model: a model that assumes prices will adjust freely to equilibrate supply and demand. Sticky prices: wages and prices that do not adjust quickly causing the market to not equilibrate.

Related Questions

1. A financial crisis coupled with a recession seems to affect the severity and duration of the recession. How?

a. Financial crises tend to make recessions milder and shorter
b. Financial crises tend to make recessions milder, but last longer
c. Financial crises tend to make recessions longer and more severe
d. Financial crises tend to make recessions more severe, but shorter

2. The end of the Great Depression troubled a lot of people. Why?

a. It lasted so long that people actually missed it
b. It disappeared without any warning
c. It ended so slowly that the public thought that was no improvement
d. It never really ended; it was merely interrupted by World War II
e. President Roosevelt said that he had ended the depression, but he was lying
f. The end of the depression coincided with massive inflation

Suppose that you have been asked to compare the problem of bank failures during the Obama recession with the past. How does the number of bank failures in the Obama recession compare to the 1930s or the Reagan recession?

a. the Obama recession had far more bank failures than the Great Depression or the Reagan recession
b. the bank failures of the 1930s were the worst, but the Obama recession was second only to the Great Depression in bank failures
c. bank failures were more numerous in the 1930s and in the Reagan recession
d. many banks failed in the 1930s and the current situation is not quite as bad, but there were no bank failures in the Reagan recession

When we reach full employment in the U.S. economy today, what will the unemployment rate be?

a. 0%

b. 3%

c. 4% - 4.5%

d. 5.0% - 6.0%

e. 10%

5. Which type of unemployment includes a person who has given up looking for a job because he thinks it is just a waste of time?

a. frictional unemployment
b. structural unemployment
c. cyclical unemployment
d. seasonal unemployment
e. voluntary unemployment
f. discouraged workers

Choose the answer that fills-in both blanks: How good was the original fit of the data for the Phillips Curve for the U.S. economy in the 1960s? __________ How good was the fit of the data for the Phillips Curve for the U.S. economy after the 1960s? ______________
a. adequate/okay
b. adequate/very good
c. okay/not as good, but still okay
d. adequate/not good
e. very good/even better
f. very good/okay
g. very good/not good
h. very good/very good

In the 20th century, only two countries stood out in terms of robust job creation. The two countries were:

a. China and Japan
b. Germany and France
c. The U.S. and the U.S.S.R.
d. The U.S. and Japan
e. The U.S. and Germany

8. It is very common to see the unemployment rate actually increase as the economy begins to recover (i.e., after the trough). What causes the unemployment rate to rise at this time?

a. structural unemployment increases
b. cyclical unemployment increases
c. seasonal unemployment increases
d. voluntary unemployment increases
e. discouraged workers return to the workforce

Danish labor market reforms are referenced in the Commentary. These reforms attempt to make it easier for firms to hire and fire workers. Which of these two are easier to hire or easier to fire is the primary or critical dimension of the reforms?
a. hire workers
b. fire workers
c. neither hire nor fire workers; the reforms have nothing to do with either

10.

The original Phillips Curve depicted by Almarin Phillips sought to show a relationship between unemployment and _______________. Subsequent versions of the Phillips Curve usually depict a relationship between unemployment and ___________________.
a. real GDP / nominal GDP
b. nominal GDP / real GDP
c. changes in wages/changes in prices (inflation)
d. changes in prices/changes in wages
e. changes in employment/changes in new jobs created
f. changes in new jobs created / changes in employment
g. changes in hat sizes/changes in dress sizes

chocolatemuskrat416

1. Fiscal policy attempts to affect the level of overall spendingin the economy by changes in:
A) the interest rate.
B) the money supply.
C) banking regulations.
D) taxes and spending.

2. Economists have identified several consecutive months of fallingemployment and forecasts for the next few months are for more ofthe same. At what point in the business cycle is the economyapparently located?
A) recession
B) expansion
C) business cycle peak
D) business cycle trough

3. The onset of the Great Depression:
A) was not a shock to anyone since most economists predicted theâroaring 20sâ were bound to end in disaster.
B) created a disagreement between the Hoover administration andconventional economists because Hoover wanted the government tointervene much more quickly than most others.
C) came as a considerable shock to the conventional wisdom ofeconomics at that time and opened the door for critiques ofmainstream thought by economists like JM Keynes.
D) was in 1918 at the end of World War I.

4. When economists measure economic growth, they often use:
A) the inflation rate.
B) the unemployment rate.
C) nominal GDP.
D) real GDP.

5. In a typical business cycle, the business cycle peak isimmediately followed by the:
A) recession.
B) business cycle trough.
C) expansion.
D) depression.

6. Suppose an economy experiences rising total output accompaniedby increasing employment, this is generally known as:
A) stagflation.
B) recession.
C) inflation.
D) expansion.

7. Controlling interest rates is an example of:
A) fiscal policy.
B) tax policy.
C) monetary policy.
D) exchange rate policy.

8. The alternation between recessions and expansions is known asthe:
A) unemployment rate.
B) long-run economic growth.
C) business cycle.
D) macroeconomy.

9. A recession in America is typically associated with:
A) a falling unemployment rate.
B) a decrease in the number of people living in poverty.
C) a decrease in the percentage of Americans with healthinsurance.
D) an increase in corporate profits.

10. The purpose of macroeconomic policy is to:
A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate and to reduce theseverity of recessions.

11. The trade balance is the difference between the value ofthe:
A) trade deficit and the budget deficit.
B) goods and services that one country sells to other countries andthe value of the goods and services it buys in return.
C) exchange rates of two countries that are engaged ininternational trade.
D) national debt and the foreign debt.

12. Increasing the total amount of available productive resourcesis the focus of __________.
A) macroeconomics
B) fiscal policy
C) monetary policy
D) microeconomics

13. The point on a business cycle when real GDP stops rising andbegins falling is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.

14. During a recession, one will often observe:
A) aggregate output rising.
B) unemployment rates will be increasing while aggregate output isfalling.
C) employment rates will be rising.
D) zero unemployment rates.

15. Monetary policy involves:
A) changes in government spending.
B) changes in government tax receipts.
C) changes in the quantity of money.
D) changes in tax rates.

16. The trough of the business cycle:
A) comes right after the expansion phase.
B) comes before the recession phase.
C) is a temporary maximum level of real GDP.
D) is a temporary minimum level of real GDP.

17. Which one of the following statements about the U.S. economy isnot accurate?
A) Since the Second World War, aggregate output grew at a ratelower than the average annual growth rate of population.
B) Since the Second World War, aggregate output grew at a ratehigher than the average annual growth rate of population.
C) Since the Second World War, macroeconomic policy has helped makethe economy more stable.
D) Long-run growth per capita is the key to higher wages and arising standard of living.

18. An economic recovery is all of the following except:
A) economic growth of a sustained nature.
B) a short-run increase in aggregate production in aneconomy.
C) a time of increasing employment.
D) the end of the business cycle.

19. Which of the following would NOT be classified as amacroeconomic question?
A) How many people are employed in the economy as a whole?
B) What determines the overall level of prices in the economy as awhole?
C) What determines the overall trade in goods, services, andfinancial assets between the United States and the rest of theworld?
D) What determines the cost to a university or college of offeringa new course?

20. Which of the following statements regarding price level orinflation is correct?
A) Supply and demand can not explain why a particular good orservice becomes more expensive relative to other goods andservices.
B) Inflation affects only the more advanced countries whereas lessadvanced countries face deflation.
C) Prices of most goods and services remained stable during thegreat depression.
D) In general, when the economy is in recession and jobs are hardto find, inflation tends to fall.

21. If wages grew at a 5% rate last year and average prices grew ata 3% rate, then the average worker is:
A) better off.
B) worse off.
C) no better or worse off.
D) unaffected.

22. In an open economy:
A) the exchange rate is determined by the government.
B) specialization in activities with a comparative advantage is notpossible.
C) trade is only beneficial to the relatively larger economy.
D) there is trade in goods, services, or assets with othercountries.

23. Changes in government spending and taxes in an effort to changeoverall spending in an economy is:
A) fiscal policy.
B) monetary policy.
C) investment.
D) the stock market.

24. If an economy is open, this means that:
A) anyone can immigrate to the country.
B) trading with other countries makes up a portion of itseconomy.
C) it does not trade with other countries.
D) it will experience a drop in its real GDP.

25. Inflation is a situation where:
A) the average price level falls.
B) the average price level increases.
C) the average price level becomes negative.
D) the real price level falls.

26. The topics studied in macroeconomics include:
A) the price of a motorcycle.
B) the wages of engineers.
C) the average price level in the economy.
D) how much ice cream consumers buy.

27. A period of rising real GDP is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.

28. The modern tools of macroeconomic policy are:
A) tax policy and antitrust policy.
B) fiscal policy and monetary policy.
C) monetary policy and exchange rate policy.
D) capital policy and labor policy.

29. A ârubber neckingâ traffic jam is an example of:
A) microeconomics in action.
B) individual behavior that has a large aggregate impact.
C) the paradox of thrift.
D) an outcome smaller than the sum of its parts.

30. The most painful consequence of a recession is:
A) rising unemployment.
B) increasing inflation.
C) increasing aggregate output.
D) higher interest rates.

31. Per capita economic growth is:
A) economic growth per unit of capital.
B) economic growth per person.
C) economic expansion over the business cycle.
D) sustained increase in aggregate output.

32. Keynesian economics stressed:
A) total spending.
B) the self-regulating power of free markets.
C) the long run.
D) that the Depression should run its course to bring down the highcost of living.

33. When an economy's overall production grows faster than itspopulation, this is referred to as:
A) long-run growth per capita.
B) an increase in nominal GDP.
C) deflation.
D) the paradox of thrift.

34. Fiscal policy attempts to affect the overall level of spendingin the economy through:
A) changes in the inflation rate.
B) changes in the quantity of money or the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.

35. With regard to the aggregate price level, economists generallybelieve:
A) price stability is a desirable goal.
B) inflation is worse than deflation.
C) deflation is worse than inflation.
D) inflation actually benefits most retired people.

36. Recessions are periods when:
A) output rises.
B) the aggregate price level rises.
C) the unemployment rate is falling.
D) output and employment are falling.

37. Monetary policy attempts to affect the overall level ofspending in the economy by changes in:
A) taxes.
B) taxes and spending.
C) taxes and interest rates.
D) interest rates and the quantity of money.

38. The basic difference between an economic recession and economicdepression is that:
A) the latter is a shorter economic downturn than the former.
B) during recessions output falls faster than duringdepressions.
C) during depressions employment falls faster than duringrecessions.
D) the former is a longer economic downturn than the latter.

39. The central mission of modern macroeconomics is to prevent_____ from happening again.
A) recessions
B) inflation
C) deflation
D) anything like the Great Depression

40. Fiscal policy refers to:
A) the control of interest rates.
B) the control of government spending and taxations.
C) the control of the quantity of money.
D) the control of interest rates and of government spending.

byzantiumant655

1. According to economists today, economic growth depends on:

1) resources.

2) technology.

3) institutions.

4) resources and technology.

5) resources, technology, and institutions.

2. Which of the following is FALSE?

1) Real-world observations shape economic theory.

2) Economic theory shapes policy decisions.

3) Policies affect real-world events.

4) Economic theory has no impact on real-world events.

5) None of these statements is false.

3. After the Great Depression, the main focus of macroeconomics was:

1) growth theory.

2) the study of business cycles.

3) the study of stock markets.

4) the study of why businesses fail.

4. The Solow Growth Model serves as a foundation of:

1) macroeconomic theory.

2) microeconomic theory.

3) growth theory.

4) all economic theory.

5. According to the Solow Growth Model, which of the following is/are the primary source(s) of economic growth?

A - Natural resources

B - Human capital

C - Physical capital

D - A and B

E - A and C

F- B and C

G- A, B, and C

6. According to the Solow Growth Model, the marginal product of capital is:

1) zero and increases as the quantity of capital increases

2) zero and decreases as the quantity of capital increases.

3) negative and increases as the quantity of capital increases.

4) negative and decreases as the quantity of capital increases.

5) positive and increases as the quantity of capital increases.

6) positive and decreases as the quantity of capital increases.

7. If building new capital is costless and the capital depreciation rate is zero, then an economy will reach a steady state in which the marginal product of capital is:

1) equal to zero.

2) greater than zero.

3) less than zero.

8. Which of the following is true for an economy before it reaches the steady-state?

1) Investment and net investment are both positive.

2) Investment is positive but net investment is zero.

3) Investment is zero but net investment is positive.

4) Investment and net investment are both zero.

9. The idea of convergence suggests that when underdeveloped nations begin to develop, they typically have _____________ growth rates as they catch up to the developed nations.

1) higher

2) lower

3) similar

4) very low

10. Which of the following is true after allowing for sustained technological advance in the Solow Growth Model?

I. The steady-state situation is avoidable.

II. The marginal product of each unit of capital will increase.

III. A diminishing marginal product is avoidable.

Only I only II

Only III

I and II

I and III

II and III

I, II, and III

11. What is the primary difference between the basic Solow model and the second Solow model?

1) The models are theoretically similar. The second Solow model is only more mathematically complex than the basic model.

2) The second Solow model allows for technological change, while the basic model doesn't.

3) The basic Solow model features diminishing returns, in contrast to the second model.

4) The marginal product eventually becomes zero in the basic model, while such a situation is avoidable in the second Solow model.

12. All of the following can result in economic growth except:

1) improved schools and colleges.

2) a boost in population growth.

3) a favorable climate.

4) an improved health care system.

13. Which of the following will result in a movement along with the aggregate production function?

I. a technological advancement

II. training of the workforce

III. an increase in the country's capital stock

I and II

I and III

II and III

I, II, and III

14. Which of the following is NOT true about technological change in the Solow model?

1) Technological change is random.

2) Technological change occurs exogenously.

3) Technological change is driven by the incentives of the innovators.

4) Technological change is not due to any inherent characteristics of the economy.

15. What is the key difference between the new growth theory and the growth theory as envisioned by Solow?

1) There is no difference; technological change is endogenous in both these theories.

2) There is no difference; technological change is exogenous in both these theories.

3) Technological change is endogenous in the new growth theory and exogenous in the Solow theory.

4) Technological change is exogenous in the new growth theory and endogenous in the Solow theory.

16. Which of the following was proposed by the new growth theory?

I. Capital resources cannot grow indefinitely.

II. Technological change is caused by factors inside the economy.

III. Technological changes are entirely unpredictable events.

IV. Institutions matter.

I and II

I and IV

II and IV

III and IV

I, II, III, and IV

17. All of the following except _____________ are barriers to natural growth.

1) corruption

2) political instability

3) high tax rates

4) free markets

5) All of these are barriers to natural growth.

18. Which of the following is supported by the modern growth theory?

A - Population growth is an obstacle to economic growth.

B - Competition encourages the discovery of new goods and services, which leads to economic growth.

C - A country can grow faster if it disengages itself from international trade with foreign nations.

D - Taxes should be abolished, as they hurt incentives necessary for economic growth.

All of these. A and B

A, B, and D

19. According to the new growth theory, the low living standards in many developing countries can be explained by a lack of:

A - natural resources.

B - free markets.

C - sound institutions.

D - strong military resources.

all of these.

B and C.

A and D.

erinbuffalo510

ECON BC 3033x Chapter Notes - Chapter 1-13: Fractional-Reserve Banking, Real Interest Rate, Nominal Interest Rate

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