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Benchmark Review

Explore the reasons behind unemployment rate increases, the impact of tight money policy, minimum wage effects, the theory of wages, and the tools of fiscal policy. Discover the advantages of comparative advantage, causes of inflation and deflation, and the role of GDP in the economy. Understand the policies used to slow GDP, fight inflation, create jobs, and stimulate economic growth. Learn about the Federal Reserve, its committees, and how monetary and fiscal policies can influence the unemployment rate.

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Benchmark Review

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  1. Benchmark Review

  2. What’s the reason for the 3% increase in the unemployment rate in the Midwest during the rainy months? • Seasonal unemployment • What’s the cause of unemployment due to cyclical unemployment? • Recession • What is tight money policy used for? • Decrease inflation • What is a negative side effect of tight money policy? • Increased unemployment (slower GDP growth)

  3. What does increasing the minimum wage do to the unemployment rate? • Increases it • Why do big rig truck drivers get paid more than bus drivers? • Compensating differential • Who regulates the money supply? • The Fed/FOMC • What is the favored tool of the Fed in regulating the money supply? • Open Market Operations

  4. What theory of wages explains that the CEO of a Fortune 500 company gets paid tens of millions of dollars because there is strong demand for their skills and low supply of those who can run a multi-billion dollar corporation? • Traditional theory of age determination’ • What are the tools of fiscal policy? • Tax and spend • What kind of advantage does the US have if it can produce more of a product at a lower opportunity cost than another country? • Comparative advantage

  5. If excessive demand relative to supply cause inflation, what does excessive supply relative to demand cause? • Deflation • The dollar value of all final goods and services: • GDP • GDP adjusted for changes measured by the CPI: • Real GDP • One way to resolve a labor dispute is to bring in a neutral 3rd party whose decision is binding, called an: • Arbitrator

  6. What kind of policy is used to slow GDP? • Contractionary • What kind of policy is used to fight a growing inflation rate? • Contractionary • What kind of policy is used to create jobs? • Expansionary • What kind of policy puts pressure on banks to lower interest rates? • Expansionary policy • What kind of policy can cause unemployment rates to rise? • Contractionary

  7. What committee of the Fed sets most of the Fed’s monetary policy? • FOMC (Federal Open Market Committee) • How can the Fed use the discount rate to lower the unemployment rate? • Lower it • How can the Fed use open market operations to lower the unemployment rate? • But bonds from member banks • How can the US government use taxes to pull us out of a recession? • Cut taxes

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