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Unit 4 Exam GDP/Inflation/Unemployment Monetary & Fiscal Policy Who creates fiscal policy? Government Congress & President What monetary policy tool is the Fed using when it sells government bonds? Open Market Operations What rate of inflation is a single-digit inflation rate? Creeping Due to this, the dollar buys less: Inflation What term best describes the period between March and October, 2009? Deflation In how long does a person need to have inquired after a job to be counted a part of the unemployment rate? 1 month Current GDP is: $16 trillion Inflation rate of 14% is considered: Galloping inflation To exercise contractionary fiscal policy, what would the government do about the tax rate? Raise it What effect would an easy money policy have on unemployment? Lower it To contract the money supply and lower inflation, how would the FOMC conduct open market operations? Sell government bonds Unemployment during a recession is most likely due to: Cyclical unemployment An unemployment rate considered to have reached full employment: ~ 5% What effect does raising the reserve requirement have on the inflation rate? Lowers it What rate of inflation exists in Syria? Galloping What rate of inflation exists in the US? Creeping What rate of inflation exists in Zimbabwe? Hyper inflation How can the Fed use the discount rate to stimulate GDP growth? Lower it When was the Federal Reserve system created? 1913 How many federal reserve districts does America have? 12 How many people sit on the Fed’s Board of Governors? 7 What Fed entity sets monetary policy? Federal Open Market Committee FOMC Who is the current Fed Chairman? Ben Bernanke What is our current unemployment rate? 5% Which of the following is counted in the unemployment rate? Fred who works part time but needs fulltime work Paul who does not work, but lives off his dad’s wealth Bob who lost his Job yesterday and has already begun interviewing with Target Bob Unemployment due to teens looking for their first job: Frictional unemployment Unemployment due to a lawyer deciding to become a truck driver: Frictional unemployment Employment in what type of industries are most affected by recessions? Those selling big ticket items ie: boats, cars etc. What is the point in the business cycle just before recovery? Trough What’s another word for the recovery phase of the business cycle? Expansionary phase What often happens to workers laid off during the recessionary phase when the economy begins to recover? Rehired What type of unemployment accounts for layoffs in the banking industry when ATM machines increasingly became the norm? Technological unemployment A hurricane wipes out 2,000 acres of orange grove land in Florida. Fruit harvesters hit the unemployment lines. Unemployment increases due to: Seasonal unemployment The dollar value of the final goods and services produced within a country’s borders within a given year: GDP What economic indicator is the measure of a nation’s output? GDP What indicator reflects a nation’s production capacity? GDP Which IS included in calculating GDP? Sugar purchased by Betty Crocker 2. Tires purchased by Ford Motors Corp. 3. DVDs purchased by a vacationer from a Chinese street vender in Hong Kong 4. Cucumbers purchased at the Farmer’s Market 1. #4 Which is included in GDP? Concert tickets purchased on e-bay 2. Music downloaded illegally 3. Flowers purchased online 4. A home-made dress 1. #3 What modification of nominal GDP is used to allow economists to compare one nation’s worker’s productivity to another nation’s? Per capita GDP What economic indicator is a measurement of the nation’s income? GNP What economic indicator applies to the following scenario? The dollar value of production from a foreign plant making power tools in New Jersey GDP What economic indicator applies to the following scenario? Martha Stewart’s clothing line manufactured in sweat shops in Indonesia and shipped back to the US GNP Inflation rates in Germany during the Great Depression: Hyperinflation Theory of inflation where demand exceeds supply: Demand-pull theory Who is most hurt by inflation? Those on fixed incomes Cause of inflation wherein the government is at fault for the excessive demand: Deficit spending What type of fiscal policy does the graph below suggest? Expansionary What happens to the general price level when expansionary monetary policy injects too much money into the economy? Increases What product price increase would most broadly influence the general price level? Oil What type of policy is being exercised by President Obama to pull the U.S. out of the recession? Expansionary fiscal policy How do Republicans generally prefer to exercise expansionary fiscal policy? Tax cuts How do Democrats generally prefer to exercise expansionary fiscal policy? Spending increases How would a Democrat most likely prefer to exercise contractionary fiscal policy? Tax hikes (especially on the wealthy) How would a Republican likley prefer to exercise contractionary fiscal policy? Spending cuts What economist is most associated with advocating fiscal policy tools as a way to end the Great Depression? John Maynard Keynes When the FOMC decides to counter a recession with loose or easy money policy, how would it use its open market operations? Buy govt bonds from member banks Why does lowering the discount rate lead to lower bank interest rates? More willing to lend up to reserve requirement What cause of inflation can be the result of the Fed buying govt. bonds from member banks? Excessive monetary growth Poverty/Stock Market/Labor What is the ultimate power of a union? The ability to go on strike 1. 2. 3. 4. Which is NOT a limit on free trade? Embargo Quotas WTO Tariff What percent of American poor remain poor over time? 5% How much of the poor move into the richest 1/5 of the income distribution? 1/3 or 33% What’s it called when stock prices are on the rise? A bull market 1. 2. One way to get a sense of how the stock market is doing generally, is to look at the: NYSE DOW A contractually binding solution to a labor dispute provided by an impartial third party is the result of: arbitration When a country refuses to trade with another country for political purposes, it has placed an ____________ on that country. embargo If one country can produce a product at a lower opportunity cost than the other country, it is said to have a(n): Comparative advantage There are two ways to make money off the stock market. One is to buy low and sell high. The other is to hold on to your investments and collect: dividends What is happening to stock prices in a bear market? falling What is a tax on dividends called? Capital gains tax What international organization both replaced GATT and encourages trade in Third world nations? WTO World Trade Organization Which free trade agreement benefited Mexico, Canada, and the U.S.? NAFTA North American Free Trade Agreement Who wants most to protect American jobs? Protectionists Who fears US dependence on foreign markets most? Protectionists Who most appreciates lower prices from foreign markets? Free traders Those who promote lowering trade barriers are: Free traders