ECON-1007EL Chapter Notes - Chapter 19: Nominal Interest Rate, Potential Output
56 views2 pages
22 May 2018
School
Department
Course
Professor
Chapter 19: What Macroeconomics Is All About
Definitions
Macroeconomics
The study of the determination of economic aggregates, such as total
output, total employment, the price level, and the rate of economic growth.
Nominal National Income
Total national income measured in current dollars. (Current-Dollar
National Income)
Real National Income (Y)
National Income measured in constant (base-period) dollars. It changes
only when quantities change.
Recession
A fall in the level of real GDP. Often defined precisely as two consecutive
quarters in which real GDP falls.
Business Cycle
Fluctuations of national income around its trend value that follow a more
or less wavelike pattern.
Potential Output (Y*)
(Potential GDP)
The real GDP that the economy would produce if its productive resources
were fully employed.
Output Gap
Actual output minus potential output, Y-Y*
Recessionary Gap
A situation in which actual output is less than potential output, Y<Y*
Inflationary Gap
A situation in which actual output exceeds potential output, Y>Y*
Employment
The number of persons 15 years of age or older who have jobs
Unemployment
The number of persons 15 years of age or older who are not employed and
are actively searching for a job
Unemployment Rate
Unemployment expressed as a percentage of the labour force
Labour Productivity
The level of real GDP divided by the level of employment (or total hours
work)
Price Level
The average level of all the prices in the economy, expressed as an index
number
Inflation
A rise in the average level of all the prices (the price level)
Consumer Price Index
(CPI)
An index of the average prices of goods and services commonly bought by
households
Purchasing Power of
Money
The amount of goods and services that can be purchased with a unit of
money
Interest Rate
The price paid per dollar borrowed per period of time, expressed either as a
proportion (e.g., 0.06) or as a percentage (e.g., 6%)
Nominal Interest Rate
The price paid per dollar borrowed per period of time
Real Interest Rate
The nominal rate of interest adjusted for the change in the purchasing
power of money. Equal to the nominal interest rate minus the rate of
inflation
Exchange Rate
The number of units of domestic currency required to purchase one unit of
foreign currency
Foreign Exchange
Foreign currencies that are traded on the foreign-exchange market
Foreign-Exchange Market
The market in which different national currencies are traded
Depreciation
A rise in the exchange rate – it takes more units of domestic currency to
purchase one unit of foreign currency
Appreciation
A fall in the exchange rate – it takes fewer units of domestic currency to
purchase one unit of foreign currency
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document
This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.
Already have an account? Log in
Document Summary
The study of the determination of economic aggregates, such as total output, total employment, the price level, and the rate of economic growth. Nominal national income total national income measured in current dollars. (current-dollar. Real national income (y) national income measured in constant (base-period) dollars. A fall in the level of real gdp. Often defined precisely as two consecutive quarters in which real gdp falls. Fluctuations of national income around its trend value that follow a more or less wavelike pattern. The real gdp that the economy would produce if its productive resources were fully employed. A situation in which actual output is less than potential output, yy* The number of persons 15 years of age or older who have jobs. The number of persons 15 years of age or older who are not employed and are actively searching for a job.
Get access
Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers
Related Documents
Related Questions
| Q1. The total resource cost of goods and services produced by the U. S. economy is known as a. real GDP b. personal income c. national wealth d. national income Q2. The difference between GDP and final sales equals a. depreciation b. exports c. imports d. net inventory change Q3. Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income. a. true b. false Q4. If a lawn service mows your grass, it is included in the GDP. a. true b. false Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered a(n) a. final good b. intermediate good c. consumer good d. capital consumption allowance Q6. Imports constitute a minus figure in national income accounting. a. true b. false Q7. The total value added in the production of a final good a. exceeds the price of the final good b. equals the price of the final good c. exceeds the total payments made to owners of productive resources used in the production d. both (b) and (c) Q8. The GDP is reported on a monthly basis by the Department of Commerce. a. true b. false Q9. Transfer payments are added to NI in the process of determining personal income. a. true b. false Q10. U.S. gross domestic product is converted to U.S. gross national product by a. adding the value of output produced by U.S.-owned resources in foreign countries b. subtracting the value of output produced by U.S.-owned resources in foreign countries c. subtracting the value of output produced in the United States by foreign-owned resources d. both (a) and (c) Q11. Final sales are always larger than the GDP. a. true b. false Q12. Because of the value of things produced inside households, (building your own desk, mowing your own lawn, etc.) a. the GDP value is automatically adjusted upward to reflect this b. the GDP value is automatically adjusted downward to reflect this c. Official GDP is surely smaller than true total output d. Official GDP is surely larger than true total output Q13. A government surplus may trigger a decline in the money supply. a. true b. false Q14. Real wages are determined by multiplying money wages by the CPI. a. true b. false Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred payment. a. true b. false Q16. An increase in the money supply always causes an increase in the price level. a. true b. false Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise? a. 30 percent b. 16.7 percent c. 8.33 percent d. 12 percent Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries have a. increased about 40 percent b. increased slightly c. remained about the same d. declined Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of a. $50,000 b. $500 c. $5,000 d. $4,500 Q20. The effect of a change in the money supply on economic activity may be offset by a change in velocity. a. true b. false Q21. The current base period for the CPI is a. 1967 b. 1977 c. 1982â1984 d. 1990 Q22. In the circular flow, an increase in the money supply tends to result when a. planned I equals planned S b. planned I is less than planned S c. planned I is greater than planned S d. there is a surplus government budget Q23. COLA is a form of indexation. a. true b. false Q24. The total checkable deposits a bank may have can be determined by dividing its reserves by the reserve requirement. a. true b. false Q25. The Financial Services Modernization Act a. reinforced the Glass Steagall Act b. prevented mergers of banks c. eliminated barriers between banks, brokerage houses, and insurance companies d. eliminated all banking regulations Q26. Each Federal Reserve Bank has its own board of directors. a. true b. false Q27. The most frequently used tool of U.S. monetary policy is a. the discount rate b. the reserve requirement c. open-market operations d. moral suasion Q28. When the Fed conducts open-market operations, it primarily uses a. Treasury bills b. long-term U.S. government bonds c. bonds of publicly traded corporations d. overnight loans of major banks Q29. The Board of Governors of the Federal Reserve System has a. 6 members b. 7 members c. 1 member from each Federal Reserve Bank d. 20 members Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement. a. true b. false Q31. The interest rate at which banks borrow excess reserves from each other is known as the a. prime rate b. federal funds rate c. discount rate d. T-bill rate Q32. If member banks need to borrow reserves, they must do so through the discount window. a. true b. false Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy Report. a. true b. false Q34. In terms of the total number of payments, which of the following comprises the largest share? a. cash b. personal checks c. debit cards d. credit cards Q35. By buying government securities, the Federal Open Market Committee adds to member banks' reserves. a. true b. false Q36. More than 50 percent of commercial banks in the United States belong to the Federal Reserve System. a. true b. false Q37. The Federal Reserve System is built around a. 4 regional banks b. 6 regional banks c. 12 district banks d. 1 bank with several branches Q38. The time lags lead monetarists to contend that monetary policy is counterproductive. a. true b. false Q39. The marginal propensity to consume is a. the fraction of an increase in income that would be spent on consumer goods b. the additional desire people have for consumer goods c. the fraction of a person's total income normally spent for consumer goods d. the change in consumption resulting from a $1 change in the price level Q40. The consumption function shows a. how fast the economy is consuming its capital b. that the amount of national income determines the rate at which the economy consumes its resources c. that households' incomes determine how much the households will spend for consumer goods d. the rate at which people actually use up their consumer goods Q41. In the simple Keynesian model, if output exceeds aggregate expenditures, a. there will be no response from businesses b. inventories will decrease and businesses will increase output c. inventories will increase and businesses will increase output d. inventories will increase and businesses will decrease output Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by a. $30 billion b. $20 billion c. $45 billion d. $90 billion Q43. "A given change in business investment will cause a larger change in equilibrium output." This statement describes an important Keynesian concept called the a. multiplier effect b. marginal propensity to consume c. marginal propensity to invest d. consumption function Q44. In the multiplier formula, 1/MPS equals the multiplier. a. true b. false Q45. The classical economists held that chronic unemployment was likely. a. true b. false Q46. As income increases, the absolute level of planned consumption will increase. a. true b. false Q47. The new classical school contends that government fiscal policy is better than monetary policy in controlling inflation. a. true b. false Q48. Higher price levels are associated with lower aggregate expenditure at every level of income. a. true b. false Q49. Any time that planned leakages exceed planned injections, the economy will expand. a. true b. false Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to a. reduce total employment in the United States b. increase total employment in the foreign country c. reduce total output in the United States d. increase total output in the United States |
