Final Exam Review Units 3, 4 and 5

Toward what does the dollar amount of all final goods produced by an American company’s manufacturing plant in Singapore count? US GDP Where are shares of stock bought and sold? Stock exchanges/NYSE What is the DOW? A stock index

What theory of wage differences accounts for engineers getting paid higher than teachers, on average? Traditional Theory of Wage Determination What sets wages according to the traditional theory? The market (supply and demand) What is used to determine the inflation rate? Consumer Price Index (CPI) What category of labor is a plummer? Skilled

When trust has broken down between labor and management, who can be brought in to help move negotiations forward? Fact-finder What category of labor would an accountant be considered? Professional What kind of union covers only cooks and chefs in a restaurant? Trade union

A neutral 3rd party brought in to suggest a resolution to a labor dispute: Mediator/Mediation George gets paid 20% more than Fred because although the skill-set is the same for their respective jobs, George is required to be out of state, away from his family for ½ the year. What theory of wages accounts for the difference in pay? Compensating differential

How can the Fed get banks to raise their interest rates with the discount rate? Increase it How would the Fed use its open market operations to get GDP growing at a faster annual growth rate? Buy bonds, pumping money into the banking system

What is the cause of Suzan losing her bank teller job to an ATM machine? Technological unemployment What is the cause of Joe losing his job in the toilet paper industry when bidets become popular? IE: -----------------------------> Structural unemployment Why do professionals get paid more than semiskilled labor on average? The difference in human capital investment/specialization/productivity/less competition for jobs

One way the government can increase unemployment rates among those with the fewest marketable skills, pricing them out of the job market, is to… Raise the minimum wage Why is a gender pay gap reported to exist? Because… politicians lie to get people angry enough to “vote for change” activists care more about their “cause” than the truth the media accepts the rhetoric of the Left without much scrutiny more women than men choose jobs that pay less women choose safer jobs than men and compensating differential requires pay compensation women on average choose jobs that allow more flexibility than higher pay economic freedom allows women to make different decisions than men

When the government spends more than it collects in tax revenue: Deficit spending The part of the federal budget that requires annual congressional approval: Discretionary spending What kind of spending is Social Security considered, where it is automatically included in next year’s budget? Mandatory spending (entitlements/nondiscretionary spending)

Who proposes the federal budget each year? The President What is larger, the national debt or GDP? Debt ($19.8 trillion, larger than $19.3 trillion nominal GDP) What is the Consumer Price Index used to calculate? Inflation rate Is Joe, who lost his job to a machine last month, and is now searching the want ads for new job possibilities, considered part of the 4.3% unemployment rate? Yes Why? He doesn’t have a job but is actively looking for one

What is the cause of our growing national debt? Deficit spending What rate of inflation is a healthy 1-3% inflation rate? Creeping What cause of inflation is the result of demand for goods and services increasing faster than supply can keep up? Demand-pull

Provide an example of cost-pull: Oil price increase Labor costs increase (like with a minimum wage, for instance)

Who is hurt most by inflation in the long run? People living on fixed incomes The dollar value of all final goods produced by a Ford manufacturing plant in Mexico: US GNP Why is the cost of plastic used to make toys excluded from the $19.3 trillion GDP calculation? Intermediate good What allows us to compare the average productivity of US workers with the average productivity of Yugoslavian workers? Per capita GDP

When the Fed loosens the money supply too much, causing inflation: Excessive monetary growth The dollar value of all final goods and services produced by American companies operating in other parts of the world: US GNP These products are excluded from GDP because they are illegal Underground sales/black market goods

Scenario: The US economy slips into a Depression What is happening to GDP Falling Inflation? Decreasing Unemployment? Increasing Poverty Money supply? Contracting

Who claims that we need to keep US dollars in the US? Protectionists Who claims that not all consumers work in protected industries, but all workers are consumers, so it’s better to lower trade barriers? Free traders Who urges Americans to buy American-made products to put American workers back to work? Who hates the economy most? Just kidding!

What do the following have in common? Corrupt government officials Drought and famine Civil war Failure to adhere to the rule of law or to protect private property rights Causes of global poverty

What do economists say the unemployment rate of an economy where only 95% of it’s workforce is employed? It has reached Full employment

What happens to most of the poor over time in the US? They move up into higher income distributions What rate of inflation hit Germany in the great Depression? Hyperinflation What draws people into riskier investments? Inflation What divides the dollar value of all final goods by the population of a country? Per capita GDP

Who produces a contractually binding resolution to a labor dispute? Arbitrator What is the nature of the budget when government takes in more tax revenue than it uses? A budget surplus What kind of spending is welfare considered? Discretionary What is Social Security spending considered? Mandatory/Nondiscretionary/An entitlement program

What do the following have in common? Higher taxes Passes on to future generations Inflation Acts as a drag on the economy Effects of the national debt

What do the following have in common? Poor use of educational opportunities Crime Language barriers Teen pregnancy Causes of US poverty, or … Reasons for poverty disparity among ethnic groups

What government program is, in part, meant to end the cycle of poverty from one generation to another? Public education Earnings from stock as the percent of profits the company pays share holders: Dividends Earnings from stock market investments generally: Capital gains

What group makes most of the decisions for the Fed about monetary policy? The Federal Open Market Committee (FOMC) How many Fed districts are the United States divided into? 12 Who determines who will sit on the board of governors? President (appoints) and Congress/Senate (confirms)

What trade agreement lowered trade barriers between North American countries? North American Free Trade Agreement (NAFTA) How many members sit on the Fed’s Board of Governors? 7

What do the following have in common? The 12 district bank presidents The Board of Governors A handful of advisors from other committees the Fed is concerned with Members of the FOMC

What is the Dow and S&P 500? Stock indexes What do you call a market defined by falling stock prices over time? Bear market Who sets fiscal policy? Government/Pres. & Congress What is the key for poorer countries of the world to become welcomed and valuable trade partners with larger economies? Specialize

What should poorer countries specialize in to become successful trade partners? That for which they have a comparative advantage What is the most widely used stock exchange in the world? New York Stock Exchange (NYSE) What is the balancing act the government has to play whenever it exercises fiscal policy? Balancing inflation with unemployment (how much of one vs how much of the other)

What is the interest rate member banks of the Federal Reserve system have to pay the Fed for overnight loans to cover the reserve requirement called? Discount rate What is a tax on imports called? A tax on imports! J/K: Tariff Who is in favor or tariffs and quotas? Protectoinists

What kind of policy would most likely produce the following graph? GDP Expansionary

What kind of market exists when stock prices are rising over time? Bull market What is the % of total bank deposits that cannot be lent to borrows called? Reserve requirement (ie: required to remain in bank’s reserves—rather than moved to excess reserves as loanable money) Why would the Fed ever want to slow the economy down? Lower inflation

Who heads the Federal Reserve? Fed Chairperson, Janet Yellen What international organization’s purpose is to encourage developing nations to engage in free trade? World Trade Organization (WTO) What kind of monetary policy should Congress conduct during a recession? Ha! Got you! Congress doesn’t conduct monetary policy!

What do the following have in common? Start early Be consistent Purchase dividend paying stock Diversify your portfolio Stock investment advice How to get rich in the stock market Long-term investment strategies

Why are the 20 million used cars sold each year in the US excluded from the $19.3 trillion nominal GDP? Second-hand sale Not a final good of the year in consideration No doubling up

How should Congress (if it was fiscally responsible and understood basic economics!) use taxes to exercise fiscal policy during a recession? Cut taxes What should Congress do to the corporate tax rate if it wants to stimulate job growth? How should Congress use taxes to grow the economy, reduce unemployment rates, reduce the poverty rate and improve the lives of Americans generally? Yep, cut taxes!

What kind of union covers waiters, greeters, cashiers, cooks, busboys, and all other employees in a restaurant? Industrial union Under what economic circumstances would cyclical unemployment be the cause of job losses? Recession What kind of workers are organized in a trade union? Trade or craft union

To contract the money supply, what would the Fed do with the discount rate? Raise it To slow the rate of inflation, how should the Fed use it’s favorite monetary policy tool? Sell bonds and securities to member banks, to suck money out of the banking system, contracting the money supply The US can produce twice as many tons of wheat as Ireland. What kind of advantage does the US have over Ireland in wheat production? Absolute

Who would argue that American jobs need to be protected from unfair trade practices abroad? Protectionist Who would argue that the economy in general benefits from open trade, that protectionism may save specific jobs, but produces more hardships in general? The answer? Me! And really smart people And free traders too, I guess.

How could the FOMC decide to manipulate the reserve requirement to stimulate economic growth? Lower it How can the federal government choose to use the power to spend to slow the inflation rate? Spend less How can the Fed encourage more commercial loans using open market operations? Buy bonds and securities

Who has a greater comparative advantage producing more wood? Canada United State Canada Oil 1,000 barrels/day 500 barrels/day Wood 200/day 1,000 trees/day According to the chart, who has a greater absolute advantage producing oil? The US Who has a greater comparative advantage producing more wood? Canada

Scenario: The World slips into it’s 2nd world-wide depression with another collapse of the stock market. What should Congress do with public spending? Spend more What economist promoted this idea? John Maynard Keynes What should Congress do to the tax rate? Drop it What is government’s least efficient fiscal tool? Spending How should the Fed use the discount rate Lower it Open market operations? Buy

If the economy is in a sluggish period of growth, how can Congress wake the economy up? CUT TAXES! So why won’t it? Because they’re dumb! They think they have to tax more to keep things fair and provide for the poor But they’re dumb! More tax revenue has always been collected following major tax cuts in US history! Sorry. Had to vent.

What category of labor requires some training and can work with basic machinery, like cash registers, cars, and lawn mowers? Semiskilled workers What rate of inflation is a double-digit inflation rate of 14%? Galloping When the dollar has more purchasing power than before: Deflation

Who is most hurt by an increase in the minimum wage? Those with the fewest skills The most economic vulnerable Inner-city minorities Teens and young adults School (high school or college) drop outs

What kind of tax is the tobacco excise tax? Sin tax What kind of tax is our income tax? Progressive/graduated/bracketed Name an example of a regressive tax: Sales tax What percent of all taxes paid to the federal government are paid by the richest 20% of all income earners? 96% What should you do now? Wipe the boards clean, put them away and put my markers back and trash in the trashcans.