(CP) Economics and Personal Finance - Macro Test Review

Gross Domestic Product (GDP)

the total monetary value of all final goods and services produced within a country's borders over a specific period. It is a key indicator of economic health

Business Cycle

the fluctuations in economic activity, consisting of expansion (growth) and contraction (decline) phases

Inflation

a sustained increase in the general price level of goods and services in an economy over time

Unemployment

the percentage of the labor force that is jobless but actively seeking work

Federal Reserve

the central banking system of the U.S., responsible for monetary policy, regulating banks, and maintaining economic stability

Monetary Policy

actions by the Federal Reserve to influence the money supply and interest rates to achieve economic goals

Fiscal Policy

Government actions involving taxation, spending, and borrowing to influence the economy

Fractional Reserve Banking

A system where banks hold only a fraction of deposits as reserves, lending out the rest to generate profit

What would a trend of increasing Gross Domestic Product over an extended period indicate?

An expansion phase of the business cycle

To keep track of inflation, the government uses the:

Consumer Price Index (CPI)

What would a trend of increasing unemployment over an extended period indicate?

A contraction phase of the business cycle

How can the Federal Reserve Board discourage inflation?

By raising the interest rate member banks pay on borrowed money

The Federal Reserve works to promote a strong U.S. economy. The Congress has directed the Fed to conduct the nation's monetary policy to support three specific goals: maximum sustainable employment, stable prices, and moderate long-term interest rates. These goals are sometimes referred to as the Fed's "mandate." Which of the following would lead the Federal Reserve to take the most action?

High unemployment

Which statement explains how an income tax increase would help to serve an economic policy goal?

It would slow price inflation by reducing demand

The Federal Reserve System regulating the flow of currency into the economy is indicative of which of the following economic policies?

Monetary Policy

Unemployment rate is 10%, Real GDP has fallen by 0.05%.

Which action would the Federal Reserve MOST likely take to address the conditions on this list?

Purchase bonds

A governor presents a fiscal plan to stimulate production throughout the state.

Which measure will BEST achieve the goal of the governor?

Reducing Tax Rates

Government Spending, Taxation, Public Transfer Payments.

Which title BEST describes the information?

Tools of Federal Fiscal Policy

Bank XYZ has $1 million in deposits. The required reserve ratio set by the central bank is 15%. What is the maximum amount of loans that Bank XYZ can issue based on the fractional reserve system?

$850,000

What is the definition of Inflation?

Rate at which the general price level of goods in an economy rises over a period of time

What two goods are excluded from “core inflation”?

Food and Energy

What group is most hurt by Inflation?

People on Fixed Income

Who is Responsible for Preventing Inflation?

Federal Reserve

Which statement below is correct between Cost Push Inflation and Demand Pull Inflation?

Cost Push Inflation occurs when rising production costs cause businesses to increase prices, even when demand hasn’t changed, while Demand Pull inflation happens when demand for goods and services exceeds supply, causing prices to rise as consumers compete to purchase available products

What is not an example of Cognitive Bias?

Displaying signs of emotion

What is not a reason why Inflation can occur?

 The general prices of all goods and services rise

What has been the trend in the US economy recently?

 Moved toward a Service Based Economy

How much is the U.S Federal Debt?

Approx 37 Trillion

What is the definition of Gross Domestic Product (GDP)?

The total value of all goods and services produced within a country’s borders in a specific time period.

What is the Unemployment rate?

The percentage of people who are willing and able to work but cannot find jobs

What is a Budget deficit?

When government spending exceeds tax revenue in a given period.

What is the Federal Funds rate?

The interest rates banks charge each other for overnight loans.

How does Inflation Affect Business Decision making?

All of the above (?)