Chapter 1

Question 1

Increasing the minimum wage may cause what?

Answer 1

The supply of unskilled workers to exceed demand.

Question 2

To address the problem of a recession, the Fed most likely would take which actions?

Answer 2

Lower the discount rate it charges to banks for loans.

Question 3

What are repatriation restrictions?

Answer 3

Repatriation restrictions represent restrictions on bringing money into the U.S.

Question 4

What is price discrimination?

Answer 4

Price discrimination is charging different customers different prices.

Question 5

What is GDP?

Answer 5

The total monetary value of all final goods and services produced within a nation in one year.

Question 6

What is CPI?

Answer 6

Measures the price of a fixed basket of goods and services that a typical urban consumer might purchase in relation to the price of the same goods and service in an earlier base period.

Question 7

What is true about monopolistic competition?

Answer 7

Firms in these markets sell products that are close substitutes to one another, but that are not identical.

Question 8

What is strategic planning?

Answer 8

It establishes the general direction of the organization.

Question 9

How does the gov’t measure inflation?

Answer 9

CPI

Question 10

What are the 3 common measures of price inflation?

Answer 10

CPI, PPI, and GDP deflator.

Question 11

What is the game theory model?

Answer 11

Focuses on payoffs of multiple courses of actions among a small group of competitors

Question 12

What happens as time elapses?

Answer 12

Consumers become more sensitive to changes in prices, and their demand becomes more elastic.

Question 13

What is the effect when a foreign competitor’s currency becomes weaker compared to the U.S. dollar?

Answer 13

Goods and services denominated in that currency become cheaper in terms of US dollars and the foreign company will have an advantage in the US market.

Question 14

Freely fluctuating exchange rates perform what function?

Answer 14

They automatically correct a lack of equilibrium in the balance of payments.

Question 15

What is deflation?

Answer 15

A general decline in prices for goods and services and in the level of interest rates

Question 16

What will happen if the dollar price of the euro rises?

Answer 16

The US dollar depreciates against the euro.

Question 17

What is structural unemployment?

Answer 17

Job loss due to changes in the demand of g/s; tech advances.

Question 18

What is the difference between American and European options?

Answer 18

American options may be exercised at any point until their expiration date.

Question 19

If the Fed raises the discount rate, what will likely to occur?

Answer 19

Short-term interest rates will likely increase.

Question 20

What does the short-term Phillips Curve imply?

Answer 20

In the short-term, policies that result in higher inflation may also reduce unemployment.

Question 21

What is Gross National Product?

Answer 21

Measures the total market value of products and services produced by the entire economy.

Question 22

What is Net National Product?

Answer 22

Gross National Product minus depreciation.

Question 23

What is the difference between Monetarists and New Keynesians?

Answer 23

New Keynesians favor a more active role for the government in macroeconomic policy.

Question 24

What are obstacles to international trade?

Answer 24

Natural barriers and tariffs.

Question 25

What are the main concerns of macroeconomics?

Answer 25

Unemployment, economic growth, and inflation.

Question 26

What does full employment imply?

Answer 26

Frictional + structural = full unemployment. It also implies cyclical unemployment equals zero.

Question 27

What preceded most recessions during the second half of the twentieth century?

Answer 27

The Federal Reserve attempting to fight inflation through higher interest rates.

Question 28

Business cycle, in order of occurrence.

Answer 28

Peak, recession, trough, recovery.

Question 29

What is economic rent?

Answer 29

Excess of payments.

Question 30

What is the purpose of the CPI?

Answer 30

Compare relative price changes over time.

Question 31

What happens when the money supply is increased?

Answer 31

The Fed purchases securities and lowers the discount rate.

Question 32

What happens when the discount rate is increased?

Answer 32

Makes it more expensive for banks to loan out money, reducing the money supply.

Question 33

What happens when the discount rate is decreased?

Answer 33

Makes it cheaper for banks to loan out money, increasing the money supply.

Question 34

What is a strategy under expansionary policy?

Answer 34

Purchase federal securities and lower the discount rate.

Question 35

What is the acknowledged preventive measure for a period of deflation?

Answer 35

Increasing the money supply.

Question 36

What is the effect on prices of U.S. imports and exports when the dollar depreciates?

Answer 36

Import prices will increase and export prices will decrease.

Question 37

Selling foreign reserves does what?

Answer 37

Causes one's currency to appreciate.

Question 38

Gov't borrowing to finance large deficits has what effect?

Answer 38

It puts upward pressure on interest rates and inflation and decrease the supply of lendable funds.

Question 39

What would the Fed do to address inflation?

Answer 39

Increase target for the federal funds rate, sell more T bill, notes, and bonds.

Question 40

The demand curve for a product reflects what?

Answer 40

The impact that price has on the amount of a product purchased.

Question 41

Which entities deal with international economic issues?

Answer 41

The EU, G-20, and WTO.

Question 42

What type of assets appreciate in periods of high inflation?

Answer 42

Precious metals such as gold/silver.

Question 43

What events will lead currencies to appreciate?

Answer 43

Lower inflation, higher real interest rates, and trade surpluses.

Question 44

What is credit risk?

Answer 44

Risk of default by a borrower or issuer of a debt security.

Question 45

Credit risk is also known as what?

Answer 45

Default risk

Question 46

What is price risk?

Answer 46

The risk that a security or portfolio of securities will decline in value.

Question 47

How can price risk be mitigated?

Answer 47

Through hedging and diversification.

Question 48

What is private placement?

Answer 48

The sale of securities with only a limited amount of registration and disclosure info.

Question 49

A significant decline in the US dollar tend to do what?

Answer 49

Hurt US importers, benefit US exporters, and make foreign goods more expensive for US consumers.

Question 50

An increase in the US dollar will do what?

Answer 50

Benefit US importers, hurt US exporters, and make foreign good cheaper for US consumers.