econ.txt fr.2

Question 1

What is CPI calculated based on?

Answer 1

CPI is calculated based on a basket of common goods and services purchased by the average consumer.

Question 2

What do we always set the base year to when measuring CPI?

Answer 2

We always set the base year to 100.

Question 3

What is the difference between inflation and deflation?

Answer 3

Inflation is the increase in prices, while deflation is the decrease in prices.

Question 4

If the CPI in the base year is 100 and the CPI in Year 1 is 104, by what percent has the economy inflated?

Answer 4

The economy has inflated by 4%.

Question 5

If the CPI in the base year is 100 and the CPI in Year 1 is 94, what is this called?

Answer 5

This is called deflation.

Question 6

What two groups are most affected by inflation?

Answer 6

The two groups most affected by inflation are consumers and savers.

Question 7

What is the relationship between inflation and the value of the U.S. dollar?

Answer 7

As inflation rises, the value of the U.S. dollar typically decreases.

Question 8

If the CPI rises above the target rate/goal, what economic instability occurs?

Answer 8

Economic instability such as hyperinflation occurs.

Question 9

What does the Unemployment Rate measure?

Answer 9

The Unemployment Rate measures the percentage of the labor force that is unemployed.

Question 10

Which type of unemployment is most common?

Answer 10

Cyclical unemployment is the most common type of unemployment.

Question 11

What does ‘Full Employment’ actually mean?

Answer 11

‘Full Employment’ means that all individuals who are willing and able to work are employed, but it does not mean a 0% unemployment rate.

Question 12

Is every man, woman and child without a job considered unemployed?

Answer 12

No, not everyone without a job is considered unemployed; only those actively seeking work are counted.

Question 13

Why is the target rate/goal of UNEM to be between 0-6%?

Answer 13

This range allows for natural fluctuations in the economy while minimizing negative impacts.

Question 14

What four factors define whether a person is considered ‘unemployed’?

Answer 14

The four factors are: not having a job, actively seeking work, being available to work, and being part of the labor force.

Question 15

What is meant by ‘Full Employment’? Why is it not actually 0%?

Answer 15

‘Full Employment’ refers to the lowest level of unemployment that an economy can sustain over the long term, which is not 0% due to frictional and structural unemployment.

Question 16

What are the four types of unemployment?

Answer 16

The four types of unemployment are frictional, structural, cyclical, and seasonal.

Question 17

What does it mean to be underemployed?

Answer 17

Being underemployed means working in a job that does not utilize one’s skills or is part-time when full-time work is desired.

Question 18

If the UNEM rises above the target rate/goal, what economic instability occurs?

Answer 18

Economic instability such as increased poverty and social unrest occurs.

Question 19

What are Economic Indicators?

Answer 19

Economic Indicators are statistics that provide information about the economic performance and health of a country.

Question 20

What are the parts of the business cycle?

Answer 20

The parts of the business cycle are expansion, peak, contraction, and trough.

Question 21

Why does the business cycle go up and down, repeatedly?

Answer 21

The business cycle fluctuates due to changes in economic activity, consumer confidence, and external factors.

Question 22

Can we control the fluctuation of the business cycle? How?

Answer 22

Yes, we can control fluctuations through fiscal and monetary policies.

Question 23

What are the target rates/goals of GDP, CPI, and UNEM?

Answer 23

The target rates are typically around 2% for GDP growth, 2% for CPI inflation, and 4-6% for UNEM.

Question 24

If the government decides to fix the economy with spending and taxes, this is known as?

Answer 24

This is known as fiscal policy.

Question 25

If the government decides to fix the economy with OMOs, the RRR, and Interest Rates, this is known as?

Answer 25

This is known as monetary policy.

Question 26

What is the difference between mandatory and discretionary spending?

Answer 26

Mandatory spending is required by law, while discretionary spending is determined by annual appropriations.

Question 27

What is the difference between a budget surplus and deficit?

Answer 27

A budget surplus occurs when income exceeds spending, while a deficit occurs when spending exceeds income.

Question 28

How do we create government debt? How do we pay it off?

Answer 28

Government debt is created by borrowing to cover budget deficits, and it can be paid off through surpluses or refinancing.

Question 29

What are the two tools of fiscal policy?

Answer 29

The two tools of fiscal policy are government spending and taxation.

Question 30

What are the two types of fiscal policy?

Answer 30

The two types of fiscal policy are expansionary and contractionary.

Question 31

If we were in a recession, what type of fiscal policy should we use?

Answer 31

We should use expansionary fiscal policy, increasing spending and/or cutting taxes.

Question 32

If we were experiencing inflation, what type of fiscal policy should we use?

Answer 32

We should use contractionary fiscal policy, decreasing spending and/or raising taxes.

Question 33

What is the difference between Classical, Keynesian, and Supply-Side economists?

Answer 33

Classical economists believe in free markets, Keynesian economists advocate for government intervention, and Supply-Side economists focus on tax cuts to stimulate growth.

Question 34

What are the problems associated with using fiscal policy?

Answer 34

Problems include time lags, political constraints, and potential inflationary effects.

Question 35

Who is in control of Monetary Policy?

Answer 35

The Federal Reserve (FED) is in control of Monetary Policy.

Question 36

What can the FED actually do to influence Monetary Policy?

Answer 36

The FED can influence Monetary Policy through interest rates, reserve requirements, and open market operations.

Question 37

How do interest rates influence consumers and business investments?

Answer 37

Higher interest rates typically reduce consumer spending and business investments, while lower rates encourage them.

Question 38

What are the three tools of Monetary Policy?

Answer 38

The three tools are open market operations, the discount rate, and the required reserve ratio (RRR).

Question 39

What are the two types of Monetary Policy?

Answer 39

The two types are expansionary and contractionary monetary policy.

Question 40

If we were in an inflationary period, what type of monetary policy should we use?

Answer 40

We should use contractionary monetary policy, raising interest rates and selling bonds.

Question 41

If we were in a recessionary period, what type of monetary policy should we use?

Answer 41

We should use expansionary monetary policy, lowering interest rates and buying bonds.

Question 42

What happens to both consumer spending and business investment when interest rates increase?

Answer 42

Both consumer spending and business investment typically decrease when interest rates increase.

Question 43

What is the difference between the Discount Rate, the Federal Funds Rate, and the Prime Rate?

Answer 43

The Discount Rate is the interest rate charged by the FED to banks, the Federal Funds Rate is the rate at which banks lend to each other, and the Prime Rate is the rate banks charge their best customers.

Question 44

What does RRR stand for? How does the RRR affect Monetary Policy?

Answer 44

RRR stands for Required Reserve Ratio, and it affects Monetary Policy by determining how much money banks must hold in reserve.

Question 45

What are Open Market Operations (OMOs)?

Answer 45

OMOs are the buying and selling of government securities by the FED to influence the money supply.

Question 46

What happens when the FED sells government bonds/securities to banks?

Answer 46

When the FED sells bonds, it decreases the money supply.

Question 47

What happens when the FED buys government bonds/securities from banks?

Answer 47

When the FED buys bonds, it increases the money supply.

Question 48

What is the most often used and most powerful tool of Monetary Policy?

Answer 48

The most often used and powerful tool is the adjustment of interest rates.

Question 49

What is the difference between Monetarists and Keynesian Economists?

Answer 49

Monetarists focus on the control of money supply, while Keynesian Economists emphasize the role of government spending in the economy.