Transcript Unit 4 Filled In

total value
Gross Domestic Product (GDP) - ________________of
all
goods and services
__________________________
produced in a country in __________
1 year
6 months
decline
Recession - __________in
real GDP lasting for at least _____________
recovery
Expansion - period of _______________from
a _________________
recession
measure price changes
Consumer Price Index (CPI) - used to _______________________
for market basket of goods
general
prices
Inflation - rise
___________in the __________________level
of ______________
average price
decrease
Deflation – _________________in
the ______________________of
goods and
services
Stagflation - ____________________of
stagnant economic _______________
growth
combination
inflation
and _____________________
ratio
unemployed
Unemployment rate - ______________of
_________________individuals
divided by total # of ________________in
____________________
people
the workforce
I. Measuring Economic Activity
GDP
A. Gross Domestic Product – ______
1. __________
Total value of all ________
FINAL goods
and services.
Example: There is no need to count
the output of the steel industry, which
is an "intermediate" input, because
the value of the steel will be counted
in cars, refrigerators, buildings and
all the other final uses of steel.
healthier
2. More goods & services = ___________economy
(usually)
GDP/Population
3. Per capita GDP: ______________________
http://www.slatev.com/video/what-exactly-gdp/
Inflation is an increase in the average price level in
the economy. A positive rate of inflation does not
mean that every single price increases, nor that all
prices increase by the same amount, nor that the
price of some goods didn't fall. It represents an
average price increase for the goods and services in
the economy.
CPI
B. Consumer Price Index – _____
1. CPI measures changes in prices.
2. It uses a “market basket” of goods and
services to compare prices from one
time period to another.
3. Changes in the CPI are used to
measure inflation.
2010: Feast for 10 =
$43.47
4. Small amounts of inflation are good as
it produces higher profits which
increase employment.
5. When deflation occurs, then less profits
are made and employment decreases.
6. Stagflation – prices and unemployment
decrease.
2011: Feast for 10 =
$49.20
http://www.npr.org/templates/story/story.php?storyId=5568606
Alternating
growth and
Business cycle – __________________
periods of __________
________________in
an economy
recession
recovery
Expansion - period of _________________from
a recession
highest
Peak - point where GDP stops going up; GDP is at its _________
Trough - point in time when real GDP stops declining and
lowest
begins to expand; DGP is at its ____________
6 months
Recession - Decline
_____________in real GDP lasting for at least _________
recession
a long time
Depression – ____________that
lasts ___________________and
causes
drop
a severe _________in
GDP
II. Trade and Employment
A. Net Exports
Imports
Exports ______ total # of ___________
1. total # of ___________
trade deficit
2. U.S. - negative net export (_______________)
3. more ____________=
more $ flowing __________
exports
INTO the economy
4. more exports = the economy increase
5. more __________=
imports more $ goes ________
OUT
6. ___________net
exports = signs of a ___________
growing economy
Positive
III. The Business Cycle (ups / downs)
A. Four Main Parts
1. Peak – high production; prices increase; high profit; inflation occurs; low
unemployment
2. Recession (contraction) – production lowers; prices begin to drop;
declining profits; unemployment rising
3. Trough – production, prices, and profits at their lowest; unemployment at
its highest
4. Expansion (recovery) – production, prices, and profit increases;
unemployment decreases; tax breaks
*____________recession
decline in GDP for 6 months or more
depression extended period of time
*____________-
To say that net exports is negative is the
same as saying that
a. there is a capital investment deficit
b. there is a trade deficit
c. the exchange rate has depreciated
d. there is a trade surplus
Which of the following might be a sign of economic
trough?
a. low unemployment
b. recession
c. high GDP
d. stable CPI
The Consumer Price Index (CPI) is an
indicator of ....
a. the size of an economy
b. the velocity of money
c. the level of inflation or deflation
d. the presence of a budget deficit or surplus
The total value of all final goods and services
produced in an economy is called the
a. consumer price index
b. business cycle
c. net exports
d. gross domestic product
Consumers reduce spending because of a lack in
confidence in the economy and the possibility of
future unemployment. All else being equal, what
effect will this have on the price level and GDP?
a. both price and GDP will decline
b. prices will increase; GDP will be the same
c. both prices and GDP will increase
d. prices will decrease, GDP will be unaffected
Gross domestic product is a method of
calculating how much a country produces by
adding which four spending categories?
a. wages, rent, interest, dividends
b. consumption, investment, government,
net exports
c. consumption, investment, government,
business expenditures
d. consumption, interest rates, government,
net exports
W - Peak
X - Recession
Y - Trough
Z - Recovery
Trough
Recession
Recovery
Peak
IV. Unemployment
A. Unemployment rate
labor force
1. % of total _____________________not
working
16
like to work
2. labor force = over _____who
would ______________________
3. not counted:
mentally incapable
a) _____________________
physically incapable
b) _____________________
c) choose not to work (___________________________)
stay at home parent
B. Types of Unemployment
Cyclical
business cycle
1. ________________based on the economy (__________________)
higher
i.e. - recessions = _______________
unemployment
lower
expansion = ____________
unemployment
ex- home builders; mortgage lenders
Structural
Complete shifts
2. _____________________________________________in
the economy
i.e. - jobs not coming back or limited
ex - grocery store clerks; typewriter repair;
telephone operator
Frictional
3. ________________________period between jobs
i.e. - many factors why this happens
ex - college graduate; being fired; voluntarily leaving
Seasonal
4. ______________________changes throughout the year
ex - lifeguard; ski instructor; construction worker; retail
stores
In your notes, write the type of unemployment represented in
each picture.
Stephanie who is a veterinarian does not like her
boss. She decides to leave her job and starts looking
for another clinic. What type of unemployment is she
experiencing?
a. seasonal
b. frictional
c. structural
d. cyclical
Unemployment that occurs as a result of a
recession or an economic downturn is
a. seasonal
b. frictional
c. cyclical
d. structural
An ice delivery person during the 1930s is no
longer needed. Technology in freezers have
made this job obsolete. What type of
unemployment is this?
a. seasonal
b. cyclical
c. frictional
d. structural
A concrete worker in Duluth, Minnesota does
not work during the winter months, because
the moisture from the snow will not allow the
concrete to cure. What type of unemployment is
this?
a. seasonal
b. cyclical
c. frictional
d. Structural
_______________________________Aggregate Demand
total quantity of goods/services
demanded at different price levels
Aggregate
Supply
______________________________total value of all goods/services
that all firms would produce
The Federal Reserve (Fed)
_______________________________________central bank of the United
States
Monetary Policy
___________________________________actions by the Federal
Reserve to expand or contract the money supply
Federal
Open Market Committee (FOMC) – part of the Fed
____________________________________________
that regulates money supply by buying or selling government
securities
Reserve
requirement
__________________________________formula used to compute the
amount of a bank’s required reserves
“Tight money” policy
_______________________________policy resulting in higher
interest rates & restricted access to credit
“Easy money” policy
______________________________policy resulting in lower interest
rates & greater access to credit
Open Market Operations
________________________________–
the Fed buys and sells gov’t
bonds in order to regulate money supply
Discount Rate
________________________________- interest rate that the Fed
charges on loans to banks
• Monetary policy involves regulating the money supply,
banks and the overall financial system. Monetary policy is
conducted by a central bank which in the United States is
called the Federal Reserve.
• When the economy is in a recession central bank officials
will use expansionary monetary policy which seeks to
reduce interest rates by expanding the supply of money in
the economy.
• In turn, the lower interest rates will encourage additional
aggregate demand for consumption and investment, and
thus help shorten or end the recession.
• When an economy is experiencing inflation central bank
officials will use contractionary monetary policy, which
seeks to raise interest rates by contracting (or reducing the
rate of growth in) the money supply.
V. The Federal Reserve System
A. The 'Fed'
1. fiscal vs. monetary policy
Central bank
2. _________________for
the US
3. owned by _______________
government
B. Monetary Policy
money supply
1. control of the _______________
inflation
2. control ____________(price
stability)
consumer spending
3. encourage ___________________
4. motivation to ______________
save
C. Organization of the Fed
1. independent of 3 branches
-annual report to _______________
Congress
Board of Governors
2. headed by _____________________
Ben Bernanke
-chairman: ______________________
the President
-appointed by ________________
FOMC
3. Federal Open Market Committee (________)
-oversee open market operations
12 Regional
4. ______________banks
Member
5. __________
banks
D. Monetary Policy (3 tools)
Reserve Requirement
money
1. ______________________________
required for
keep
banks to ______on
hand rather than _____________
loan to customers
reserve
loan out
- % set by Fed (10% __________,
90% ___________)
- least used tool
higher
less
- __________reserve
requirement = ______in
circulation
- i.e. ‘__________money'
policy
tight
more
- ________reserve
requirement = ______in
circulation
lower
- i.e. ‘_______money'
policy
easy
Discount Rate
Interest rate that banks
2. _______________(window)
- __________
pay the Fed to borrow $
Bank for banks
- Fed is a “_____________”
People/businesses borrow from banks (interest rate)
- ________________
- _________
discount rate = __________interest
rates
higher
higher
higher
- ________interest
rate = ______saving;
_____borrowing
more
less
higher
decrease
- _________interest
rate = ___________in
$ supply
- ________________________
“tight money” supply
3. _______________________sale or purchase of US
Open Market Operations
treasury __________________
Bonds (aka T Bills)
- ___________=
'I.O.U' investment
Bond
lowers
sells
- Fed _____securities
(bonds) = ________money
supply
i.e. - ______$
is invested and _______is
spent in the
more
less
rises
market discount rate ________along
with
__________rates
interest
- Fed _______securities
= ‘______money'
policy
tight
selling
buys
-Fed _______securities
= puts $ into economy
i.e. ‘_______money'
policy
easy
'tight money' policy: G H J
'easy money' policy: F
I K
Tools of the Federal Reserve System (Monetary Policy)
Boost the Economy = ____________
buy
bonds
lower
____________
interest rates (bank to consumer)
lower
____________
reserve requirement (last resort)
____________
discount rate (the Fed to banks)
lower
sell
Cool off the Economy = ___________
bonds
higher interest rates (bank to consumer)
___________
higher reserve requirement (last resort)
___________
higher discount rate (the Fed to banks)
___________
Board of
Governors
Federal Open
Market Committee
12 Regional
Federal Reserve Banks
Numerous Member Banks
Review of Monetary Policy
lessen
-Increase in interest rates = ______________
money supply
decrease money supply
-Federal Reserve selling gov't securities (bonds) = ____________
increase
-Decrease in the reserve requirement = ______________
the money supply
-Money supply increases if interest rates ______________.
decrease
decrease
-Increase in the discount rate = money supply to _________________.
buys securities on the open market
-Money supply increases if the Fed __________
increase
-Increase in the money supply will lead the discount rate to _______________.
increase
-Decrease in the money supply if the reserve requirement _______________.
When the Fed lowers the discount rate
a. interest rates rise
b. interest rates fall as well
c. banks loan less money
d. people save more
The Fed wants to pump more money into the
economy in an effort to stimulate economic growth.
Which of the following actions could the Federal
Reserve take to increase the money supply?
a. raise the discount rate
b. raise the reserve requirement
c. sell securities (bonds)
d. buy securities (bonds)
Which of the following is a monetary policy
that might be used to reduce inflation?
a. decreasing taxation
b. decreasing the discount rate
c. open market selling of bonds
d. increasing government spending
To stimulate the economy, the Fed decides to
increase the amount of money in circulation. Which of
the following actions will they be MOST LIKELY to
take?
a. raise the reserve requirement
b. raise the discount rate
c. sell bonds
d. lower the reserve requirement
Which of these correctly completes the chart of the Federal
Reserve System?
A. Federal Reserve Chairman
B. Federal Open Market Committee
C. President of the United States
D. Federal Deposit Insurance Corporation
VI. Aggregate Supply and Demand
all products
supply
- AS - ________
of _______________
all products
demand
- AD - ________of
________________
Overall price level determined by AS
and AD
Macroeconomic equilibrium
1. AS = AD is ___________________
Surplus
2. AS exceeds AD = _________
Prices drop
i.e. overproduction = __________
Shortage
3. AD exceeds AS = ___________
inflation
i.e. prices rise = ___________
healthy
4. If AS = AD, considered a ________
economy
When aggregate supply exceeds aggregate demand,
what most likely happens to prices in the market?
a. increase
b. market equilibrium
c. decrease
d. inflation
When aggregate supply increases, what most likely happens
to prices and output in the market?
a. increase, increase
b. increase, decrease
c. decrease, decrease
d. decrease, increase
When aggregate demand increases, what most likely
happens to prices and output in the market?
a. increase, increase
b. increase, decrease
c. decrease, decrease
d. decrease, increase