Econ 102 Midterm 2

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  1. Calculate labour force
    LF=no. of unemployed + no. of employed
  2. Calculate unemployment
    U = no. of unemployed/LF x 100
  3. Labour force participation rate
    • percentage of the adult population that is the labour force 
    • LFPR=LF/adult population x 100
  4. Discouraged Searchers
    individuals who want to work but have given up looking for a job
  5. Cyclic unemployment
    the deviation of unemployment from its natural rate
  6. Frictional unemployment
    unemployment that results because it takes time for workers to search for jobs that best suit their tastes and skills
  7. Structural unemployment
    • unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one 
    • - often happens when wages are set above the level of equilibrium
  8. Job search
    process by which workers find appropriate jobs given their tastes and skills
  9. Ways gov't programs try to facilitate the job search?
    • gov't run employment agencies
    • public training programs
  10. Employment insurance (ER)
    • a gov't program that partially protects workers' incomes when they become unemployed
    • reduces hardship of unemployment but influences workers' behavior in a way that increases unemployment rate
  11. Union
    a worker association that bargains with employers over wages and working conditions
  12. collective bargaining
    the process by which unions and firms agree on the terms of employment
  13. strike
    the organized withdrawal of labour from a firm by a union
  14. efficiency wages
    above-equilibrium wages paid by firms in order to increase worker productivity
  15. money
    the set of assets in the economy that people regularly use to buy goods and services from other people
  16. medium of exchange
    an item that buyers give to sellers when they want to purchase goods or services
  17. unit of account
    the yardstick people use to post prices and record debts
  18. store of value
    an item that people can use to transfer purchasing power from the present to the future
  19. wealth
    is the total of all stores of value, incl. both monetary and non-monetary assets
  20. Liquidity
    • describes the ease with which an asset can be converted into a medium of exchange
    • ex. money is the most liquid of assets
  21. commodity money
    money that takes the form of a commodity with intrinsic value
  22. fiat money
    money without intrinsic value that is accepted as money because of government decree
  23. currency
    these are the paper bills and coins in the hands of the public
  24. demand deposits
    the balances in bank accounts that the depositors can access on demand by writing a cheque or using a debit card
  25. M1 measure of money stock
    chequable deposits and currency
  26. M2 measures of money stock
    nonpersonal demand and notice deposits, a few minor categories, and everything in M1
  27. BoC
    Bank of Canada, the central bank of Canada
  28. central bank
    institution designed to regulate the quantity of money in the economy
  29. 4 main functions of the BoC
    • 1. issue currency
    • 2. banker to the commercial banks
    • 3. banker to the Canadian govt
    • 4. control of the money supply
  30. money supply
    the quantity of money available in the economy
  31. monetary policy
    the setting of the money supply by policy makers in the central bank
  32. reserves
    deposits the banks have received but not loaned out
  33. fractional-reserve banking
    a banking system in which banks hold only a fraction of deposits as reserves
  34. reserve ratio
    the fraction of deposits that banks hold as reserves
  35. money multiplier
    • the amount of money the banking system generates with each dollar it receives 
    • its the reciprocal of the reserve ratio, so =1/R
  36. Bank capital
    the resources the bank owners put into an institution from issuing equity
  37. leverage
    the use of borrowed money to supplement existing funds for purposes of investment
  38. leverage ratio
    the ratio of assets to bank capital
  39. capital requirement
    a gov't regulation specifying a minimum amount of bank capital
  40. central banks' three main tools for monetary control
    • 1. open-market operations
    • 2. changes in reserve requirements
    • 3. changes in the overnight rate
  41. bank rate
    the interest rate charged by the BoC on loans to the commercial banks
  42. overnight rate
    the interest rate on very short-term loans between commercial banks
  43. open-market operations
    the purchase or sale of gov't of canada bonds by the BoC
  44. quantitative easing
    the purchase and sale by the central bank of non gov't securities or gov't securities with long maturity terms
  45. foreign exchange market operations
    the purchase or sale of foreign money by the bank of canada
  46. sterilization
    the process of offsetting foreign exchange market operations with open-market operations, so that the effect on the money supply is cancelled out
  47. reserve requirements
    regulations on the minimum amount of reserves that banks must hold against deposits
  48. inflation
    increase in the overall level of prices
  49. deflation
    fall in the overall level of prices
  50. liquidity preference
    what the demand for money is sometimes referred to as
  51. quantity theory of money
    a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
  52. Economic variables can be divided into two groups:
    • 1. nominal variables
    • 2. real variables
  53. nominal variables
    variables measured in monetary units
  54. real variables
    variables measured in physical units
  55. monetary neutrality
    the proposition that changes in the money supply don't affect real variables
  56. velocity of money
    the rate at which money changes hands
  57. velocity eqn
    v=(p x y)/M

    • v: velocity of money
    • y: real GDP
    • p: price level
    • M: quantity of money
  58. Quantity equation
    • the equation that relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services
    • M x V = P x Y
  59. inflation tax
    the revenue the gov't raises by creating money
  60. Fisher effect
    the one-for-one adjustment of the nominal interest rate to the inflation
  61. shoeleather costs
    the resources wasted when inflation encourages people to reduce their money holdings
  62. menu costs
    the cost of changing prices
Card Set:
Econ 102 Midterm 2
2015-03-08 21:09:49
chapters 9-11
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