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inflation
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a general increase in prices and fall in the purchasing value of money
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total employment
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total number of people employed, whether they work full time or part time
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unemployment
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those 16 and older who are actively seeking employment but are not currently employed
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total unemployment
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total number of workers seeking jobs but who aren't actually working
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labor force
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combination of the employed and unemployed people - excluding the military and those imprisoned
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unemployment rate
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percentage of the unemployed - one of the most important indicators both of the economy and well being in general of people
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underemployed
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workers who would like to work more hours or workers who would prefer a job that better matches their skill set
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discouraged workers
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workers who would like to and can work but have given up the job search
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frictional unemployment
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short term unemployment while workers search for a job better suited for their needs/skill set - good type of unemployment - allows for workers and employers to find the right matches
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seasonal unemployment
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occurs when workers lose their jobs occurring to seasonal changes - typically will get paid well to compensate for months of unemployment
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structural unemployment
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arises from a mismatch between job seekers and the types of jobs available - typically occur when there are periods of great technological changes or when consumer spending changes
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cyclical unemployment
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joblessness caused by economic contraction - as production slows, workers will lose jobs - also firms are less likely to hire new entrants into the labor force
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true
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unemployment rate will never be 0% true or false
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5-6%
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what is the ideal percentage for the unemployment rate
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purchasing power
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the value of a currency expressed in terms of the amount of goods or services you would be able to purchase
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decreases
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purchasing power is important because inflation ____ the amount of goods and services you would be able to purchase
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inflation rate
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annual percentage increase in the price level
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deflation
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decline in price level
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consumer price index
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measures the overall price level faced by a consumer
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1. gov determines market basket
2. CPI is calculated
2. CPI is calculated
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how is inflation measured
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market basket
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bundle of goods an average consumer might buy
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(cost of market basket in the given month / cost of market basket in base period) x 100
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what is the CPI formula
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no
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is the minimum wage okay by today's living standards
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people keep money in bank so they can make interest
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what do people do with their money when inflation is high
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hyperinflation
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rapid inflation
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shoe leather costs
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coined to reflect the cost of the time and effort involved in running to the bank to avoid holding cash
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CPI
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an indicator of inflation, the rise in price level and an indicator of deflation, the decline in price level
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price inside market basket changes
goods included in market basket may no longer exists
places consumer buy goods from are different
goods included in market basket may no longer exists
places consumer buy goods from are different
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what are 3 problems with CPI
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price stability inflation rate of 2-3% each year
increase of prices in one market if demand is too strong buy supply slacks
increased costs of raw material, oil, or salary
increase of prices in one market if demand is too strong buy supply slacks
increased costs of raw material, oil, or salary
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what causes inflation
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menu costs
hyperinflation
inflation costs
borrowers benefit
prices double
hyperinflation
inflation costs
borrowers benefit
prices double
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what are the costs of inflation
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durable
portable
uniform
divisible
limited supply
accepted for payment
portable
uniform
divisible
limited supply
accepted for payment
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6 characteristics of money
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medium of exchange
store of value
unit of account
store of value
unit of account
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3 functions of money
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money
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anything that is widely accepted in exchange of goods and services
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currency
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paper money and coins
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barter
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the exchange of goods or services for other goods or services without the use of money
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medium of exchange
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something people acquire for the purpose of payment for goods and services
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store of value
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something that can be saved and will hold its value relatively
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unit of account
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a standard measure used to set prices and make economic calculations
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people who lend money
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who loses from higher than expected inflation
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it becomes more difficult to make payments
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what happens as prices and incomes fall
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bankruptsy
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cannot make payments - state of financial ruin
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strong money
lending money
issuing credit cards
buys and sells stocks and bonds
lending money
issuing credit cards
buys and sells stocks and bonds
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4 functions of the banking institutions
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saving and loan associations
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similar to savings banks - mission is to support the construction, purchase, and improvement of homes - inspired by FDIC
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credit unions
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not-for-profit depository institutions owned by their members who are also their customers
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fractional reserve banking system
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banks must hold on to a fraction of their deposits and may lend out the rest
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0-10%
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what percentage of money does the bank have to keep
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reserve requirement
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specifies the percentage of deposits that banks must hold as reserves
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prevent boom and bust cycles
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what is the main goal of monetary policy
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federal reserve
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shapes the economy of this country and the rest of the world is very important - a government institution as important in the lives of the people as the three branches of government
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manipulated interest rates
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what has monetary policy done to change the borrowing habits of banks, businesses, and households
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direct buying and selling of government debts
changing of interest rate at which banks borrow from fed
changing of the proportion of deposit that all banks must hold in reserve in fed reserve bak
changing of interest rate at which banks borrow from fed
changing of the proportion of deposit that all banks must hold in reserve in fed reserve bak
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the three tools of monetary policy that the fed has at its disposal
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key interest rate - fed fund rate
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the target of monetary policy
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monetary aggregate
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measures the quantity of money in the economy
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central banks
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operate within the government and sets up accounts for commercial banks and government
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commercial banks
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sets up accounts for individuals and is outside of government
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board of governors
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sets monetary policy - approves changes in interest rate targets and serves as 7 of the 12 members on federal open market committee and oversees the workings of the federal reserve
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federal reserve banks
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both bankers banks and the fed governments banks - provides services to commercial banks and to federal government agencies in their districts - implements federal reserve policies - operating arm of federal resereve
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member banks
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all nationally chartered banks and many state-chartered banks - stockholders in their district bank and help elect the district's board of electors
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federal open market committee's
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controls the open market operation - creates monetary policy
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federal advisory committees
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receives reports and advice from three advisory committees known as councils - has expertise on economic and banking matters - made up of one member from each reserve district - consumer advisory council - thrift institutions advisory council
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consumer advisory council
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advises the board on issues relating to consumers and the financial services industry - made up of experts with a background in law, consumer affairs, and financial services
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thrift institutions advisory council
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informs the board about matters related to thrift institutions, including savings and loans associations, saving banks, and credit unions
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discount rate
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the interest rate that fed charges financial institution for short term loans - commercial banks use these loans to meet reserve requirements
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more expensive to borrow from fed
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what happens when the discount rate is increased
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expansionary monetary policy
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when economy is slowing, fed adopts easy money policy - lowers the interest rate and encourages new investments in physical capital and more - helps economy expand
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commercial banks
savings banks
saving and loan associations
savings banks
saving and loan associations
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the banking institutions
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raising revenue
discouraging undesirable activity
encouraging desirable activity
discouraging undesirable activity
encouraging desirable activity
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three ideas for taxes
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tax base
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the particular type of tax is the value of the activities or assets subject to tax
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tax rate
answer
a specific percentage of the tax base that is paid in taxes
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