Download ECN 211 ASU Final Exam Marburger: Questions and Answers and more Exams Macroeconomics in PDF only on Docsity!
ECN 211 ASU FINAL EXAM MARBURGER QUESTIONS AND
CORRECT VERIFIED ANSWERS GRADED A+ LATEST UPDATE
ECN 211 ASU Final Exam Marburger Leverage Ratio All assets (reserves + securities + loans)/ capital (owners equity) Discount Rate Interest rates for banks to borrow from the Fed when they need to increase their reserves Federal Funds Rate Interest rate for banks to borrow from each other for short (overnight loans) Classical Dichotomy The distinction between nominal (today's dollars) and real variables (the actual worth of the money based on how much you can purchase with it) Monetary Neutrality Changes in money supply will only affect nominal values not real ones Inflation Is when nominal values increase over time
Deflation Is when nominal values decrease over time Inflation tax Cost of inflation cause by when the government prints money to pay off debts Velocity of Money The number of times units of currency is used to pay newly produced goods or services V=(PY)/M V = Velocity, P= Price level, Y= GDP, M= Money supply* Menu Costs Cost of having to constantly update prices Shoe Leather Costs Cost of having to run cash to the bank or use it before it becomes worthless Unit-of-account-costs Inflation causes people to trust money less so it becomes less useful to measure costs Recession A recession is 6 months or more of falling real GDP
Shifters in Aggregate Supply
**- Input prices
- Human capital
- Government regulations
- Anything that will cause a change in overall productivity
- If one curve shifts the other will need to shift to return the long run aggregate supply curve** Fiscal Policy Fiscal policy = government spending and taxation whereas Monetary Policy = fed changing money supply and interest rates Government Policy In a hypothetical closed economy if the government spends money it get a multiplier just like the fed increasing money supply. The spending multiplier = 1/(1-MPC) where MPC is the percentage at which people spend their money Government Policy (2) While government spending will increase public spending, it will also cause crowding out and raise the interest rate slightly lowering the increase in public spending The Circular Flow Diagram Green arrows represent the flow of money and red represents to flow of goods/services Production possibilities Frontier/ Curve PPF: PPC The curve shows what is possible within an economy D- impossible
A&B - feasible efficient C - feasible & inefficient PPF shifts out when... the economy can produce more of everything Opportunity Cost the cost of what you give up to get something else in terms of time, money, or other goods Absolute Advantage Who can make most of that good Comparative Advantage The lowest opportunity cost for that good What would allow Panama and Canada to trade? They want to trade within their opportunity cost Demand The amount consumers are willing and able to purchase Supply
Solve for Equilibrium Price and Quantity Make both sides equal to each other Ex. Q = 100 - 6P & Q = 28 + 3P 100 - 6P = 28 + 3P 72 - 9P P = 8 28 + 3(8) 28 + 24 52 = Q Economic Growth is measured... Growth is measured in many ways, usually GDP (the market value of all final goods and services produced in a nation's borders) Productivity (output/labor hours) What causes productivity?
- Human Capital
- Natural Resources
- Physical Capital
- Technological Knowledge Human Capital Knowledge and skills of workers (education, training) Natural Resources Anything that comes from nature (timber, oil, coal)
Physical Capital All the physical tools and machines used to do business Technological Knowledge The general knowledge of the world GDP Equation GDP = G + C + I + NX = ALL PRODUCTION = ALL CONSUMPTION Consumption (C) Things purchased for final use Investment (I) Things purchased to use to make more money later Government Spending (G) Any money the government uses Nominal GDP is this years' prices * this years quantities
Types of Unemployment
- Frictional
- Cyclical
- Structural frictional unemployment The time it takes for employees and employers to find each other cyclical unemployment The cycle of money structural unemployment The structure of the economy Labor force Anyone in the adult population who is able to work Discouraged Worker Someone who is out of work and no longer looking for a job Employed Person with a job
Unemployed Someone who did not work in the last week and is actively seeking employment People can "save" their money in numerous ways
- Corporate bonds
- Municipal bonds
- Stocks
- Deposit certificates Corporate Bonds Individual loans money to a company in return for interest the more risky the company the higher the interest Municipal bond Loan money to the government usually the lowest interest rate but also the least risk of getting paid back. Can loan to foreign governments Stocks Purchase ownership in company Deposit Certificates Depositing money in a bank
using money to compare values 1 dollar is like 1 inch Store of value Keeping money and saving it for later Liquidity How quickly can i use money to pay for something Commodity money Paying with things that have a real value trading goods not paper money Fiat Money Money that derives its money from a governmental decree. A dollar is only worth 100 cents because the government says so The Federal Reserve
- 12 banks across the country
- Control Monetary Policy
- Use Open Market Operations to set money supply- they buy and sell bonds to increase or decrease the money supply
- Set required reserve ratio for how much banks must hold in reserves Banks
Banks are required to hold a certain percentage of their deposits in cash called RESERVES. The fed sets the REQUIRED RESERVE RATIO. Banks can also choose to hold extra cash on hand called EXCESS RESERVES. Banks (2) Any money not held in reserves can be loaned or used to purchase securities out to other clients who spend the money where it then gets deposited into a new bank and loaned out again. This created extra money which we find by
