Macro Quiz 3

Question 1

Stopler Samuelson Theorem

Answer 1

Free trade results in higher return of abundant resources for goods and lower return on its scarce resources for goods

Question 2

How do banks create money?

Answer 2

By loaning out money

Question 3

What is an example of a Trade Adjustment program?

Answer 3

Training unemployed unskilled workers for jobs that require greater skill like coding

Question 4

Speculative Demand

Answer 4

Holding money instead of buying bonds that can lose value

Question 5

What is an example of an automatic stabilizer?

Answer 5

When the economy is in recession, unemployment increases.

This results in an increase in government spending because they pay for unemployment benefits

Question 6

Structural Deficit

Answer 6

Deficit exists even if economy is at potential output

Question 7

Government Budget Deficit

Answer 7

Spent more than we budgeted for

Question 8

Fiscal Austerity

Answer 8

Taxes ⬆️ Government spending ⬇️. Therefore, the deficit ⬇️

Question 9

Discount rate

Answer 9

Interest rate that the Fed charges loans to other banks

Question 10

Transactional Demand

Answer 10

Having money to pay for normal expenses

Question 11

Store of Value

Answer 11

Can save money and use it at a different time

Question 12

Heckscher-Ohlin Theorem

Answer 12

We export goods we have many resources for and import goods when we have scarce resources

Question 13

What are the 2 methods of Fiscal Policy?

Answer 13

Taxes

Government Spending

Question 14

Federal Reserve

Answer 14

Central bank of U.S. controls monetary policies such as interest rates and reserve requirements

Question 15

What are the 3 functions of money?

Answer 15

Medium of Exchange
Unit of Account
Store of Value

Question 16

What are the 3 components of demand for money?

Answer 16

Transactional Demand
Precautionary Demand
Speculative Demand

Question 17

What are 3 things the U.S. Exports?

Answer 17

Oil
High Skilled Labor
Technology

Question 18

What is the relationship between government budget deficit and national debt?

Answer 18

Government Budget Deficit- debt of a current year

National debt- Accumulation of budget deficits

Question 19

Why do tariffs hurt trade?

Answer 19

Act as a barrier from trade occurring which decreases efficiency

Question 20

Medium of exchange

Answer 20

Used to pay for goods and services

Question 21

Precautionary Demand

Answer 21

Saving money to have for emergencies

Question 22

Why is trade beneficial for countries?

Answer 22

It increases efficiency by allowing both countries to benefit

Question 23

Automatic Stabilzers

Answer 23

Any government program or policy that will counteract the business cycle without any new government action

Question 24

Federal Funds Rate

Answer 24

Interest rates charged by banks for another bank to borrow money

Question 25

Unit of Account

Answer 25

Used to value goods and services

Question 26

Crowding Out

Answer 26

Reduction in consumption due to interest rates, when the government increases spending

Question 27

Trade Adjustment Program

Answer 27

Helping out workers who are unemployed due to trade

Question 28

What happens to the value of bonds if interest rates increase?

Answer 28

i ⬆️

Bond value ⬇️

Question 29

What are the 3 tools for Monetary Policy?

Answer 29

Reserve Requirements
Discount Rate
Open Market Operations

Question 30

Why is the Federal Reserve politically independent?

Answer 30

The goal is to help the economy in the best way which is not making decisions based on politics.
- it is what decision is best for the economy

Question 31

In order to decrease the government budget deficit using fiscal policy what 2 things can we do?

Answer 31

Raise taxes to increase revenue

Cut spending to control deficit

Question 32

What are 2 things the U.S. import?

Answer 32

Machinery

Vehicles