Mid Term #1

Question 1

Net Income

Answer 1

The maximum amount that you can consume and leave your wealth unchanged

Question 2

Who elects the chairperson of the federal reserve

Answer 2

The President and confirmed by the Senate

Question 3

What does the board of governors do for the 12 federal reserve banks

Answer 3

Coordinates policies for the 12 banks

Question 4

What is the largest component of M1

Answer 4

Checkable Deposits

Question 5

What part of M1 is legal tender

Answer 5

Currency

Question 6

What is the purpose of the ratio scale

Answer 6

To show how a variable is divided amongst its factors

Question 7

What is an economic system

Answer 7

A way of organizing the production and distribution of goods and services in an entire economy

Question 8

What are resources

Answer 8

Labor, land, real capital and entrepreneurs

Question 9

What is an economic model

Answer 9

A simplified representation that helps viewers understand what is going on by focusing on the most important things

Question 10

Causation

Answer 10

When one variable brings about another

Question 11

What is GDP?

Answer 11

A measure of the TOTAL value of all goods and services produced in an economy during a certain period of time

Question 12

Ceteris Paribus

Answer 12

“All other things being equal” - refers to holding everything else constant when testing a certain variable

Question 13

Positive Economics

Answer 13

What is going on

Question 14

Normative Economics

Answer 14

What SHOULD be going on (used to develop and recommend what to do in the future

Question 15

Present discounted value

Answer 15

The value in the present of future payments

Question 16

Rule of 72

Answer 16

If you divide 72 by the growth rate percentage to find out how long it will take to double

Question 17

Fiscal policy

Answer 17

Policy of how to tax and use/collect money

Question 18

Monetary policy

Answer 18

The fed changing interest rates

Question 19

The scarcity principle

Answer 19

Boundless wants cannot be met by limited resources so choices must be made

Question 20

The cost benefit principle

Answer 20

People make choices based on if the benefit is greater than the cost

Question 21

Economic Rent

Answer 21

Benefit in relation of the cost

Question 22

Economic Surplus

Answer 22

The benefit of taking any action minus the cost (goal is to maximize this)

Question 23

Opportunity Cost

Answer 23

Net amount of the next best option

Question 24

Austerity

Answer 24

People cut spending/borrowing to save income and pay back debt

Question 25

What is considered a full time work week

Answer 25

40+ hours a week

Question 26

What is a market

Answer 26

A place where economic exchanges and trades take place

Question 27

Specialization

Answer 27

Concentration of production effort on a single specific task

Question 28

Division of Labor

Answer 28

Division of production into various parts to specialize work

Question 29

Comparative Advantage

Answer 29

When someone can do something at a lower opportunity cost than someone else

Question 30

Market Economy

Answer 30

Freely determined prices and free exchange at the marketplace

Question 31

Command Economy

Answer 31

Government controls prices and market place

Question 32

Absolute Advantage

Answer 32

The ability of someone to be able to produce more of a good/service than competitors using the same amount of resources (basically someone is better than you)

Question 33

What are the factors of production

Answer 33

Labor, capital, natural resources and entrepreneurs

Question 34

Real GDP

Answer 34

GDP adjusted with price changes

Question 35

Economic growth

Answer 35

Upward trend in GDP, reflecting an expanding economy

Question 36

GDP Per Capita

Answer 36

Measures average production of an individual

Question 37

Economic Growth Rate

Answer 37

Percentage increase in real GDP

Question 38

Unemployment Rate

Answer 38

Percentage of the labor force that is unemployed

Question 39

Potential GDP

Answer 39

A guess based on tendencies of economy

Question 40

Aggregate supply

Answer 40

Same as potential GDP... based on available capital, resources and labor

Question 41

Aggregate Demand

Answer 41

Total demand for goods and services

Question 42

Average product

Answer 42

Average output per unit of input

Question 43

Percentage change equation

Answer 43

New-old/old x 100

Question 44

3 functions of money

Answer 44

1) Medium of exchange 2) unit of account 3) A store of value - also used as debt payment

Question 45

Medium of exchange

Answer 45

Something that is generally accepted as a means of payment (dollar)

Question 46

Store or Value

Answer 46

Something that will allow purchasing power to be carried from one period to the next (piggy bank)

Question 47

Unit of Account

Answer 47

A standard unit in which prices can be quoted and values of goods can be compared (dollar)

Question 48

Gold standard

Answer 48

Price of gold in terms of paper money (fixed by the government)

Question 49

Money supply

Answer 49

The sum of currency and deposits at banks (total money)

Question 50

Liquidity

Answer 50

How quickly something can be sold without losing much of its value

Question 51

Who makes up the FOMC

Answer 51

The board of governors and the presidents of the 12 fed banks (only 5 presidents at 1 time)

Question 52

Open market operations

Answer 52

The buying/selling of bonds by the central bank

Question 53

Liquidity risk

Answer 53

When an asset cannot be exchanged for cash fast enough to prevent a financial loss

Question 54

Default Risk

Answer 54

The risk that credit given as loans will not be repaid

Question 55

Insolvent

Answer 55

When the value of an entities assets is less than the value of its liabilities

Question 56

What are the components of M1

Answer 56

- coin - currency - demand deposits - travelers check - checking deposit

Question 57

M2 components

Answer 57

- savings deposits - time deposits - CDs - Money Market Account’s - money market mutual funds - all of M1

Question 58

Labor Force

Answer 58

People who are employed or looking for employment

Question 59

Wealth

Answer 59

Stock of things owned/value of that stock

Question 60

U.S Treasury

Answer 60

- finances federal government - issues bonds - determines interest rates (buying and selling bonds)

Question 61

What does money symbolize

Answer 61

Debt

Question 62

Depreciation

Answer 62

Reduction in the value of a stock of wealth over time

Question 63

What are the risks for banks

Answer 63

Default risk and liquidity risk