Essential Macroeconomic Concepts & Federal Reserve Insights
Real GDP Decrease (2007-2008): Production Levels
When real GDP decreases from 2007 to 2008, we can conclude that production levels are lower in 2008.
Who Changes Money Supply?
The Federal Reserve can change the quantity of money in the economy.
Annual Budget Decision-Makers
The annual budget is decided upon by the President of the United States and the United States Congress.
Federal Reserve Board Structure (FOMC)
The Board of Governors of the Federal Reserve (FOMC) is a seven-member board, with each member serving a 14-year term.
Capital Stock Calculation
The capital stock at the end of 2008 is equal to the capital stock at the beginning of 2008 plus net investment.
Consumption and Saving Functions
If the consumption function is C = 200 + 0.9Y, then the saving function is S = -200 + 0.1Y.
Government Budget Definition
The difference between what the government spends and what it collects in taxes in a year is the government budget deficit or surplus.
Addressing Widespread Unemployment
If the economy is experiencing widespread unemployment, a macroeconomic student at Monroe College might suggest the government to decrease taxes.
Expenditure Approach Equation (Open Economy)
The expenditure approach equation for an open economy is C + I + G + (EX – IM).
Federal Budget Surplus Condition
The federal government has a budget surplus when tax receipts exceed government spending.
Federal Reserve System Organization
The Federal Reserve System is organized into 12 districts, dividing up the United States.
Functions of Money
The functions of money are medium of exchange, unit of account, and store of value.
Key Functions of Money
The functions of money are medium of exchange, unit of account, and store of value.
Interest Rate for Bank Borrowing from Fed
The interest rate that banks pay to borrow money from the Fed is the discount rate.
Labor Force Participation Rate Meaning
The labor force participation rate indicates the willingness of working-age people to take jobs.
Natural Unemployment Rate Definition
The natural unemployment rate is the unemployment rate that exists when there is no cyclical unemployment.
Preferred Monetary Policy Instrument
The preferred instrument of monetary policy is open market operations.
Money Supply Decrease Condition
The quantity of money decreases if the currency drain increases.
Interest Rates and Inflation Impact
If the real interest rate is 4% and inflation is expected to run at 10% during 2008, the market interest rate is 14%. If, during 2008, the actual inflation rate is 4% (lower than expected), borrowers lose.
Federal Reserve’s Main Policy Tools
The three main policy tools the Federal Reserve System uses to influence the interest rate are setting the discount rate, open market operations, and setting the required reserve ratio.
Unemployment from Real GDP Decrease
The type of unemployment that arises from a decrease in real GDP is called cyclical unemployment.
Working-Age Population Definition
The working-age population includes employed and unemployed people over the age of 16.
BLS Unemployment Rate Calculation
When calculating the unemployment rate, the BLS counts those over 16 and in jail as institutionalized and therefore not in the working-age population.
“Tight” Monetary Policy Meaning
When economists refer to “tight” monetary policy, they mean that the Federal Reserve is taking actions that will contract the money supply.
Lump-Sum Taxes and Revenue
When taxes are lump sum, tax revenues will not change as income increases.
Balanced Budget Definition
When tax revenues are equal to government spending, the situation is referred to as a balanced budget.
FOMC Decisions: Which Fed Bank?
The New York Federal Reserve Bank carries out the decisions of the FOMC.
Fed’s Non-Monetary Policy Instrument
The tax rate on interest earnings is not an instrument used by the Fed to change the money supply.
Not a Federal Reserve Responsibility
Issuing new bonds to finance the federal deficit is not a responsibility of the Fed.
Economic Classification of Capital
An economist would classify a computer used by an accountant as capital.
Market Interest Rate & Opportunity Cost
When the market interest rate is higher than normal, the statement that is false is: the opportunity cost of holding money is lower than normal.