Unit 3 Test Flashcards by Christina Katz

Regarding employment, the Bureau of Labor Statistics divides the population into 3 groups. Name these 3 groups.

Employed
Unemployed
Not in the Labor Force

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The population group that is made up of paid employees, the self-employed, and unpaid workers in a family business.

Employed

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The population group that is made up of people not working who have looked for work during the previous 4 weeks.

Unemployed

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The population group that is made up of everyone who is not employed or unemployed.

Not in the Labor Force

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Employed + Unemployed = ?

Labor Force

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The total number of workers.

Labor Force

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The percentage of the labor force that is unemployed.

Unemployment Rate

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The percentage of the total adult population that is in the labor force / Fraction of the population that has chosen to participate in the labor market.

Labor-Force Participation Rate

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The normal rate of unemployment around which the unemployment rate fluctuates.

Natural Rate of Unemployment

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Deviation of the unemployment from its natural rate caused by swings in the business cycle.

Cyclical Unemployment

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Individuals who would like to work but have given up looking for a job.

Discouraged Workers

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The type of unemployment that occurs when workers spend time searching for the jobs that best suit their skills and tastes.

Frictional Unemployment

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The type of unemployment that occurs when the number of jobs available in the some labor markets is insufficient to provide a job for everyone who wants one.

Structural Unemployment

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(Number of unemployed / Labor force) * 100

Unemployment Rate

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(Labor force / Adult population) * 100

Labor-Force Participation Rate

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Name 4 groups of people that the unemployment rate excludes.

Discouraged Workers
Full-Time Students
Retirees
Stay-at-Home Parents

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The type of unemployment that results when wages are set above the equilibrium.

Structural Unemployment

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Name 3 things that raise unemployment.

Minimum-Wage Laws
Unions
Efficiency Wages

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Above-equilibrium wages paid by firms to increase worker productivity.

Efficiency Wages

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Name 4 worker qualities that efficiency wages affect.

Worker Health
Worker Quality
Worker Turnover
Worker Effort

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The value of a nation’s exports minus the value of its imports.

Net Exports / Trade Balance

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When exports are greater than imports, there is a trade surplus / deficit and net exports are negative / positive.

Trade Surplus

Positive Net Exports

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When imports are greater than exports, there is a trade surplus / deficit and net exports are negative / positive.

Trade Deficit

Negative Net Exports

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Value of country’s exports - Value of country’s imports = ?

Net Exports

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Name some factors that might influence a country's exports, imports, and net exports.

–Tastes of consumers for domestic & foreign goods –Prices of goods at home and abroad –Incomes of consumers at home and abroad –Cost of transporting goods from country to country –Government policies toward international trade –Exchange rates at which people can use domestic currency to buy foreign currencies

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.

Net Capital Outflow

Name 2 types of foreign investment.

Foreign Direct Investment | Foreign Portfolio Investment

The measure of the imbalance in a country's trade in assets.

Net Capital Outflow

When net capital outflow is positive, domestic purchases of foreign assets are greater than / less than foreign purchases of domestic assets, and there is a net capital inflow / outflow.

Greater Than | Capital Outflow

When net capital outflow is negative, domestic purchases of foreign assets are greater than / less than foreign purchases of domestic assets, and there is a net capital inflow / outflow.

Less Than | Capital Inflow

Name some variables than influence net capital outflow.

–Real interest rates paid on foreign assets –Real interest rates paid on domestic assets –Perceived economic and political risks of holding assets abroad –Government policies that affect foreign ownership of domestic assets

Net capital outflow must always equal _______ .

Net Exports

True or False When there is a trade surplus, capital is flowing into the country.

False

True or False When there is a trade deficit, net capital outflow is negative.

True

C + I + G = ?

Domestic Spending

Y = ?

Income

When Y < C + I + G, there is a trade surplus / deficit.

Trade Deficit

When Y > C + I + G, there is a trade surplus / deficit.

Trade Surplus

When net exports > 0, there is a trade surplus / deficit.

Trade Surplus

When net capital outflow < 0, there is a trade surplus / deficit.

Trade Deficit

Rate at which a person can trade currency of one country for currency of another.

Nominal Exchange Rate

Increase in the value of a currency as measured by the amount of foreign currency it can buy.

Appreciation (Strengthen)

Decrease in the value of a currency as measured by the amount of foreign currency it can buy.

Depreciation (Weaken)

Rate at which a person can trade goods and services of one country for goods and services of another.

Real Exchange Rate

(Nominal Exchange Rate * Domestic Price) / Foreign Price

Real Exchange Rate

(Nominal Exchange Rate * Price Index for U.S. Basket) / Price Index for Foreign Basket

Real Exchange Rate Using Price Indexes

What is the equation for labor-force participation rate?

(Labor force / Adult population) * 100

What is the equation for unemployment rate?

(Number of unemployed / Labor force) * 100

If real interest rates in the U.S. rise relative to real interest rates in other countries, foreigners would be more / less willing to purchase U.S. bonds and U.S. net capital outflow would rise / fall.

More Willing | Fall

Name the 3 effects that explain why the aggregate demand curve is downward sloping.

Wealth Effect Interest-Rate Effect Exchange-Rate Effect

Y = C + I + G + NX The wealth effect is associated with which factor?

C - Consumption

Name the 3 key facts about economic fluctuations.

They are irregular and unpredictable. They fluctuate together. As output falls, unemployment rises.

Y = C + I + G + NX The interest-rate effect is associated with which factor?

I - Investment

Y = C + I + G + NX The exchange-rate effect is associated with which factor?

NX - net exports

Which AD effect is described as such? When the price level decreases, the real value of money increases and consumers become wealthier. Therefore, there is an increase in consumer spending, and the quantity demanded of goods and services increases.

Wealth Effect

Which AD effect is described as such? When the price level decreases, interest rates also decrease. Therefore, there is an increase in spending on investment goods, and the quantity demanded of goods and services increases.

Interest-Rate Effect

Which AD effect is described as such? When the U.S. price level decreases, interest rates also decrease. Therefore, the U.S. dollar depreciates, which stimulates U.S. net exports, and the quantity demanded of goods and services increases.

Exchange-Rate Effect

If consumption, investment, government purchases, or net exports increases, aggregate demand will increase / decrease and the aggregate demand curve will shift to the right / left.

Increase | Right

On the AD/AS diagram, the vertical axis shows _______ and the horizontal axis shows _______ .

Price Level | Quantity of Output

The short-run aggregate supply curve is downward sloping / upward sloping / vertical.

Upward Sloping

The long-run aggregate supply curve is downward sloping / upward sloping / vertical.

Vertical

The long-run aggregate supply curve is / is not affected by the price level.

Is Not

The long-run aggregate supply is positioned at the ___________ .

Natural Level of Output

The production of goods and services that an economy achieves in the long run when unemployment is at its normal rate.

Natural Level of Output

Name 4 factors that will affect the long-run aggregate supply curve or the short-run aggregate supply curve.

Labor Capital Natural Resources Technological Knowledge

Long-run aggregate supply is continually shifting to the right because of _______ .

Technological Progress

Aggregate demand is continually shifting to the right because the Fed _______ the money supply over time.

Increases

As both long-run aggregate supply and aggregate demand shifts to the right, the price level increases / decreases accordingly.

Increases

Name the 3 theories that explain why the short-run aggregate supply curve is upward sloping.

Sticky-Wage Theory Sticky-Price Theory Misperceptions Theory

The point at the intersection of all three of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.

Long-Run Equilibrium

Name 4 factors that will affect aggregate demand.

Consumption Investment Government Purchases Net Exports

If the government increases taxes, why does the aggregate demand curve shift to the left?

Higher taxes means less consumption, which decreases aggregate demand.

After aggregate demand shifts, the _______ curve shifts to bring the economy to the new long-run equilibrium.

Short-run Aggregate Supply

When the output falls and the price level rises, the economy experiences ______ .

Stagflation

After short-run aggregate supply shifts, the _______ curve shifts to bring the economy back to the original long-run equilibrium.

Short-Run Aggregate Supply

What curve on the AD-AS curve will shift and which direction will it shift to bring the economy into a stagflation?

Short-run Aggregate Supply | Left

Which aggregate demand effect has the greatest impact on the economy?

Interest-Rate Effect

In the money market, if the increase rate is above equilibrium, the quantity of money people want to hold is less than / greater than the quantity of money supplied.

Less Than

In the money market, if the increase rate is below equilibrium, the quantity of money people want to hold is less than / greater than the quantity of money supplied.

Greater Than

Name the 2 types of policy used to shift aggregate demand.

Monetary Policy | Fiscal Policy

On the money market supply-demand diagram, the vertical axis is ______ and the horizontal axis is ______ .

Interest Rates | Quantity of Money

Does a change in the money supply shift the aggregate demand curve?

Yes

Interest rates and the price level move in opposite directions / in the same direction.

In The Same Direction

When the money supply is increased, the aggregate demand curve shifts to the right / left.

Right

When the money supply is decreased, the aggregate demand curve shifts to the right / left.

Left

Name 2 examples of automatic stabilizers.

Taxes fall automatically in a recession. | Government spending rises automatically in a recession.