Macroeconomics

the economic model where individuals make all the economic decisions is called a

the economic model where individuals make all the economic decisions is called a

market economy

an economic system where the government controls all factors of production is a

command economy

the “free items” found in nature are called

natural resources

brain and muscle power of humans working in an industry is

human resources

goods and services that are necessary for survival are called

needs

goods and services people desire but are not necessary for survival

wants

the people who create goods and services to others are known economically as

producers

the people who buy goods and utilize services are known economically

consumers

traditional economies are characterized by:

habits and customs that still dictate large portions of every day life, families that often participate in economic/essential activities together (farming, tending cattle, etc), an overall resistance to change within their society

which of the following would be an advantage of a command economy

because the government controls all economic activity, they can react quickly and address emergencies as they arise

which of the following would be a disadvantage of a command economy

command economies tend to be highly inefficient, people living in command economies have little incentive to work hard and advance themselves, command economies generally lack creativity when it comes to diversifying in any way

In a free market economy, economic questions and changes are most often influenced by whom

individual buyers and sellers

what is opportunity cost

the next best use of a resource (something you’re giving up to produce something else)

comparative advantage is characterized by

the group that has the lower opportunity cost when producing a good/service

writing a check to purchase a new computer is an example of using money primarily as a

medium of exchange

the bank declares that my house is appraised, or valued, at $195,000. this is an example of money functioning as

standard of value

whenever the jones family receives change from a cash purchase, they put the loose change into a jar to be used in the summer on their annual vacation. the primary function served by the money in the jar is as a

store of value

M1 money is classified as

currency and coin; demand deposits

M2 money is classified as

M1, deposits and mutual fund investments, overseas currencies

what is price

the amount of money paid for an economic good/service

which of the following is the most basic definition for demand

a consumers willingness and ability to purchase an item at a given price

which of the following is the best definition for supply

a producers willingness and ability to sell a good/service on the open market

supply and demand are both understood as a ______, not a numerical value

behavior

which of the following situations best illustrates the law of demand

in the past several months, as the price of DVD players has decreased, the quantity of DVD players sold has increased

the law of demand states that

the price of an item directly influences/changes the quantity supplied

the labor force is defined as

the number of people in a country that are classified as either employed or unemployed

frictional unemployment is defined as

people who are voluntarily “between jobs”

seasonal unemployment is defined as

being out of a job because of the time of year

cyclical unemployment is defined as

being out of work because of a downturn in the economy as a whole

which of the following statements correctly explains the concept of structural unemployment

workers are fired because their skills are no longer in demand

Why is unemployment bad? In what ways does it negatively affect the overall economy?

The burden of unemployment is not equally shared which is a burden to many people. Unemployment also causes social unrest and is hard on individuals and families. Okun's law demonstrates why unemployment is bad; it says that every 1% increase in the unemployment rate causes a 2% decline in real GDP.

the unemployment rate measure the percentage of

people in the labor force who do not have jobs

unemployment is defined as

people in the labor force who are actively looking for a job for at least two weeks with no success

what is inflation

the overall rising of price levels in the economy

what is the inflation rate

the percentage change in price levels from one time period to another

What is the "market basket" that is used to help compute CPI?

It has bread, eggs, diapers, and milk which are good and service that typical consumers buy. The Bureau of Labor Statistics identifies the market basket and conducts monthly surveys to set the weights for the prices of those goods and services.

why is the market basket an inaccurate measure of economic changes

it can ‘t ever take into account all of the changes that occur in an economy; it can’t ever account for consumer preferences and changes; it can’t ever account for immediate changes to supply or demand

what is nominal interest

the given interest rate which is used to find the real interest rate

changes in demand for and supply of loanable funds will always initiate a change in the

real interest rate

money supply is only ever determined or influenced by

the federal reserve

why does the federal reserve hold a monopoly over the overall money supply

because changes in the total money supply could negatively affect price levels; because changes in the total money supply could negatively affect interest rates; because changes in the total money supply could devalue the money that exists in circulation

What function does the Foreign Exchange market serve?

It is the location where foreign nations can trade their currencies as investments; It is the buying and selling of foreign currency and the American dollar; It is the market where the overall health of global economies is tracked.

How does relative price level influence the foreign exchange rate?

People will buy goods from another nation where they are cheaper, leading to an appreciation of the cheaper nation.

How does speculation affect the foreign exchange rate?

When people think investment interest rates will rise in a nation, they flood that market with funds. This leads to a depreciation of that nation's currency.

What is the exchange rate?

The price of a currency in American dollars; The price of an American dollar in whatever foreign currency.

Exchange rates are determined by the

supply and demand of currency

When the exchange rate of a currency increases, that means the currency _______________ in value.

appreciates

When the exchange rate of a currency decreases, that means the currency __________ in value

depreciates

Consumer tastes can influence exchange rates in what way?

Consumers who have a preference for goods from a particular nation will increase the demand for that currency.

How does relative income affect the exchange rate?

Nations that have stronger economies will buy goods from nations with a weaker economy, making the currency of the weaker economic nation more valuable.

What is the balance of payments?

The measure of money inflow and outflow between the U.S. and the rest of the world.

The balance of payments is divided into which three accounts?

Current, capital, and official reserve accounts

Current Accounts tend to be made up of

balance of trades and/or net exports; net foreign income; net transfers

The Queen of England decided to buy stock in Ford Motor Company. Would this come from her current, capital, or official reserves?

current

The Malaysian Air Force buys 5 new fighter planes from the French government. Does this affect Malaysia's current account, capital account, or official reserves?

current or official reserves

The four stages of the economic cycle are:

peak, recession, trough, recovery.

what is a peak in the business cycle

temporary maximum in real gdp, the unemployment rate is probably below the natural rate of unemployment and the inflation rate is increasing

what is the recession in the business cycle

a contradictory phase of the business cycle, period of decline in Real GDP accompanied by and increase in unemployment rate and at least 6 months long

what is the trough in the business cycle

the bottom of the business cycle, the unemployment rate is high and inflation rate is low

what is the recovery stage in the business cycle

economy is returning to full employment

what are characteristics of the gross domestic product (GDP)

not constant from year to year, grows most years then shrinks in some years, the ups and downs make the business cycle