Unit 4 Study Guide: Macroeconomics & International Economics
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1 Name: Unit 4 Study Guide: Macroeconomics & International Economics Standards: SSEMA2 Explain the role and functions of the Federal Reserve System. b. Describe the organization of the Federal Reserve System (12 Districts, Federal Open Market Committee (FOMC), and Board of Governors). c. Define monetary policy. d. Define the tools of monetary policy including reserve requirement, discount rate, open market operations, and interest on reserves. e. Describe how the Federal Reserve uses the tools of monetary policy to promote its dual mandate of price stability and full employment, and how those affect economic growth. SSEMA3 Explain how the government uses fiscal policy to promote price stability, full employment, and economic growth. a. Define fiscal policy. b. Explain the effect on the economy of the government s taxing and spending decisions in promoting price stability, full employment, and economic growth. c. Explain how government budget deficits or surpluses impact national debt. SSEIN1 Explain why individuals, businesses, and governments trade goods and services. a. Define and distinguish between absolute advantage and comparative advantage. b. Explain that most trade takes place because of comparative advantage in the production of a good or service. c. Define balance of trade, trade surplus, and trade deficit. SSEIN2 Explain why countries sometimes erect trade barriers and sometimes advocate free trade. a. Define trade barriers such as tariffs, quotas, embargoes, standards, and subsidies. b. Identify costs and benefits of trade barriers to consumers and producers over time. c. Describe the purpose of trading blocs such as the EU, NAFTA, and ASEAN. d. Evaluate arguments for and against free trade. SSEIN3 Explain how changes in exchange rates can have an impact on the purchasing power of groups in the United States and in other countries. a. Define exchange rate as the price of one nation s currency in terms of another nation s currency. b. Interpret changes in exchange rates, in regards to appreciation and depreciation of currency. c. Explain why some groups benefit and others lose when exchange rates change. Part I: Vocabulary Word Definition Provide an Example (Sentence) Fiscal Policy (p. 387) Expansionary Policies (p. 389)
2 Contractionary Policies (p. 389) Federal Budget (p. 387) Balanced Budget (p. 403) Budget Surplus (p. 403) Budget Deficit (p. 403) National Debt (p. 405) Board of Governors (p. 416) Monetary Policy (p. 417) Federal Reserve Districts (p. 417) Discount Rate (p. 422) Required Reserve Ration RRR (p. 425) Open Market Operations (p. 428) Easy Money Policy (p. 431) Tight Money Policy (p. 431) Absolute Advantage (p. 443)
3 Comparative Advantage (p. 444) Export (p. 446) Import (p. 446) Trade Barrier (p. 449) Import Quota (p. 449) Tariff (p. 450) Standard Subsidy Protectionism (p. 452) European Union (p. 454) NAFTA (p. 454) Exchange Rate (p. 458) Trade Surplus (p. 462) Trade Deficit (p. 462)
4 Balance of Trade (p. 462) Part II: Study Questions 1. What government organization controls monetary policy? 2. How many districts does the Federal Reserve have? 3. Who is in charge of the Federal Reserve? 4. How many members are on the Board of Governors? 5. What three ways can the Federal Reserve control monetary policy? 6. Explain the difference between an easy money policy and a tight money policy? 7. The economy is experiencing massive inflation. How will the Federal Reserve respond? Explain all four ways they can respond? 8. The economy is experiencing a bad recession. How will the Federal Reserve respond? Explain the four ways they can respond? 9. What group controls fiscal policy in the United States? 10. What are the two tools used in fiscal policy? 11. Explain the difference between expansionary fiscal policy and contractionary fiscal policy?
5 12. The economy is suffering from a bad recession. How will Congress respond? Explain the two ways they can respond. 13. The economy is suffering from high inflation. How will Congress respond? Explain the two ways they can respond? 14. In the above chart, which country has the absolute advantage in oil production? 15. In the above chart, which country has the absolute advantage in whisky production? 16. Use the chart above to answer the question. You travel to Japan with $500(US Dollars) and want to convert it to Japanese yen. How many yen will get with $500(US Dollars)? 17. Use the chart above to answer the question. You travel to Great Britain with $1,000 (US Dollars) and want to convert it to British pounds. How many pounds will you get with $1,000?
6 18. Use the chart above to answer the question. You travel to Canada with $200 (Australian Dollars) and want to convert it to Canadian dollars. How many Canadian dollars will you get with $200? 19. Who did NAFTA hurt? Who dad NAFTA help? 20. What are the arguments against free trade? 21. List and explain the different types of trade barriers. 22. What is the difference between a trade surplus and a trade deficit? 23. Why is depreciation of the U.S. Dollar bad for American consumers? 24. Why is depreciation of the U.S. Dollar good for American businesses? 25. What does a balance of payments refer to? 26. Who would agree with protectionism? Who would disagree?
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