Macroeconomics key terms: labor force, inflation, reserves

Diapositiva 1

• liquidity - Banks want excess reserves to support _______
• inverse - the federal funds rate and the amount demanded for reserves represents what kind of relationship?
• low - What happens to demand when the interest rate is high making it more expensive to borrow?
• higher - When it is less expensive to borrow you will have a lower rate. What happens to demand?
• open market purchase - increases of supply of reserves
• open market sale - decreases the supply of reserves
• intermediate good - a finished good that is used in the process of another final good
• transfer payment - a payment made by the government to its citizens; represents a
• redistribution of income as the government collects tax revenues and redistributes a
• portion to citizens through various social benefit programs
• working-age population - those of working age (>16 years) who are not in the military or
• otherwise institutionalized
• labor force - those in the WAP who want to work whether they hold jobs or not
• labor force participation rate - the labor force expressed as a percentage of the working
• age population
• unemployment rate - the ratio of those in the labor force who do not have jobs to the total
• labor force
• labor productivity - output divided by the number of hours worked
• price index - an index that tries to measure the average level of overall prices in an
• economy
• base year - the year's prices to which all other years' prices are compared in a price index
• inflation - the percentage growth in the average price level of an economy over a given
• period of time
• producer price index (PPI) - a price index (actually a family of indexes) that measure
• prices of commodities, intermediate goods, and wholesale goods
• core inflation - inflation measured by the growth in a price index without the prices of
• energy or food
• potential gdp - the long-run trend in GDP over time; the value of final goods & services
• that can be produced with the available labor, capital, ad technology in an economy
• business cycle - short-run fluctuations in economic activity, usually measured as
• fluctuations in output/GDP
• aggregate demand - represents the desired spending on final domestic goods and services
• of individuals, businesses, government, and foreign entities; can be expressed as the sum
• of desired consumption, investment, government spending, and net exports
• recession - period of declining economic activity; typically considered a declined in
• GDP for at least 6 consecutive months (2 quarters)
• nominal gdp - GDP in a given year calculated in that year's prices
• real gdp - GDP in a given year adjusted for changing price levels over time
• gdp deflator - the price index of final goods and services used in the conversion from
• nominal GDP to real GDP
• less than - Short-term bond yields are normally _________ long-term yields
• steeper - Interest rates are expected to increase due to strong economic recovery. This would be expected to make the yield curve _______.
• 2% - A savings account offers a 4.0% annual interest rate. Inflation is currently around 2.0%. The real interest rate on this savings account is:
• interest rate is higher - For a given future amount of money, its present value with be lower if:
• pv of coupons + face value - A bond's price should equal:
• increase - Suppose interest rates fall in the economy. We would expect the bonds price to:
• 947.51 ((50/1.07)+(50/1.07^2)+(50/1.07^3)+(1000/1.07^3)) - A 3-year bond has a face value of $1000 and pays annual coupon payments of $50. If interest rates in the economy change to 7%, then the bond will be priced at:
• price sensitivity - The term premium is the extra yield on long-term bonds associated with their higher risk. That risk is attributed to:
• .2 5 - A 10-year US Treasury bond offers a 2% yield, a 10-year investment-grade corporate bond offers a 2.2% yield, and a 10-year junk-grade corporate bond offers a 7% yield. The risk premium is _____ on the investment-grade corporate bond and _______ on the junk bond.
• worse off (rate of return is lower than expected) - A bank makes a loan at a 7% nominal interest rate. It expected inflation to be 2% over the next year. Actual inflation was 4%. The bank is ______.
• inverse - There is an expected ______ relationship between changes in aggregate demand and interest rates.
• increase - According to the monetary policy transmission mechanism, an increase in the money supply by the Fed would be expected to ______ overall GDP.
• smaller - If aggregate demand were less sensitive to interest rates, then the change in GDP associated with the transmission mechanism would be ______,
• an increase of 125 billion - Suppose the MPC is 0.8 and there is a $25 billion increase in aggregate demand. According to the GDP multiplier effect, the ultimate change in GDP would be:
• short-term interest rates - Monetary policy transmits most immediately to ___________.
• price stability and full employment - The goals of monetary policy as defined by the Fed's dual mandate are:
• changing production levels - In the short-run, businesses tend to respond to changes in aggregate demand by:
• increase interest rates - Suppose an increase in aggregate demand resulted in medium-run pressure for higher inflation. The Fed would likely _______ in response to this activity.
• stable environment for investment - A goal of long-term price stability is motivated by a desire to:
• GDP - Economists measure the output of an economy by:
• consumption - The largest component of US spending is:
• 9.1 - A country has a total of 300 million people over the age of 16 who are not in active military or institutionalized. Of those, 200 million have jobs and 20 million are looking for jobs. The unemployment rate is:
• Federal Funds Market - the market where banks loan and borrow reserves with each other; those with excess reserves will be lenders and those with deficient reserves will be borrowers
• Federal Funds Rate - the interest rate charged on the short-term (overnight) loans in the federal funds market; also the interest rate directly targeted by the Federal Reserve
• open market purchase - increases supply of reserves by the Fed
• open market sale - decreases supply of reserves by the Fed
• short-term - In general, interest rate changes by the Fed transmit most rapidly to _________
• market rates and not long-term market rates
• reserves - banks need to keep required
• liquidity - banks may want excess reserves to support ______
• slopes downward, inverse - In the model of the federal funds market, the demand line _______ reflecting a/an __________.
• federal funds rate - inverse relationship between reserves demand and the
• vertical - In the model of the federal funds market, the supply line is ______
• supply - representing the control of the _______ of reserves by the central bank through open market operations
• right - If the Federal Reserve pursued open market purchases, we would expect the reserves supply line to shift
• open market purchase - In a ________ the reserves supply line shifts right and creates excess reserves supply and the federal funds rate would decrease
• left - If the Federal Reserve pursued open market sales, we would expect the reserves supply line to shift
• open market sale - creates excess reserves demand and the federal funds rate would increase and shift to the left
• short-term interest rate - The federal funds rate represents a
• GDP - the value of all final goods and services produced within
• a country's borders over a given period of time
• intermediate good - finished good that is used in the process of another final good
• transfer payments - a payment made by the government to its citizens; represents a
• redistribution of income as the government collects tax revenues and redistributes a
• portion to citizens through various social benefit programs
• working age population - those of working age (>16 years) who are not in the military or otherwise institutionalized
• labor force - those in the WAP who want to work whether they hold jobs or not
• labor force participation rate - the labor force expressed as a percentage of the working age population
• unemployment rate - ratio of those in the labor force who do not have jobs to the total
• labor force
• labor productivity - output divided by the number of hours worked
• price index - an index that tries to measure the average level of overall prices in an
• economy
• base year - the year's prices to which all other years' prices are compared in a price index
• inflation - the percentage growth in the average price level of an economy over a given
• period of time
• consumer price index - A price index that measures the weighted average of prices
• of a fixed basket of consumer goods and services
• Personal Consumption Expenditures Index (PCE) - A price index derived from the
• consumption component of GDP. The PCE is calculated by the US Bureau of Economic
• Analaysis (www.bea.gov). The PCE uses a chain index, which takes consumers'changing
• consumption due to prices into account, while the CPI uses a fixed basket of goods with
• weightings that do not change over time.
• PPI (producer price index) - a price index (actually a family of indexes) that measure
• prices of commodities, intermediate goods, and wholesale goods
• core inflation - inflation measured by the growth in a price index without the prices of
• energy or food
• aggregate income - aggregate spending should equal _________ (GDP=Y=C+I+G+X)
• Potential GDP - the long-run trend in GDP over time; the value of final goods & services
• that can be produced with the available labor, capital, ad technology in an economy
• business cycle - short-run fluctuations in economic activity, usually measured as
• fluctuations in output/GDP
• recession - a period of declining economic activity; typically considered a declined in
• GDP for at least 6 consecutive months (2 quarters)
• nominal GDP - GDP in a given year calculated in that year's prices
• real gdp - GDP in a given year adjusted for changing price levels over time
• gdp deflator - the price index of final goods and services used in the conversion from
• nominal GDP to real GDP
• increased - Labor force participation _________from the 1960s to 1990s
• female population - why did the labor for participation grow from the 1960s to the 1990s
• declined - Labor force participation has ________ since 2000 the "Baby Boom" generation reaching retirement
• age, a decline in young (under 25) labor force participation, a decline in female
• participation since the late 1990s, and a long-term decline in male participation
• inflation - During the recession __________ dropped and even fell into negative values (a pattern
• known as deflation)
• long-run - __________ growth is determined by an economy's factors of production: labor, capital, and
• technology.
• aggregate demand - Short-run fluctuations are influenced by changes to aggregate demand
• real gdp - is a preferred measure of growth because it adjusts for changes in the price
• level over time.
• output gap - Potential GDP is important because the difference between actual and potential GDP is
• used to measure the
• monetary policy - The output gap is used to guide __________
• long-term trends - are influencing the slow economic growth to a greater extent than previously thought.
• short-term - monetary policy that aims to influence the ______ economy may be less effective than expected.
• - a series of events that describes how monetary policy
• is predicted to affect GP and economic activity; it traces through open market operations,
• changes in the money supply, changes in interest rates, and how interest rates will influence
• economic activity