Economic Concepts and Markets Flashcards

Which of the following best describes the federal funds rate?

Answer: The interest rate banks charge each other for overnight lending of reserves

The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight.

When the yield curve is described as 'inverted,' it means:

Answer: Short-term interest rates are higher than long-term rates

An inverted yield curve occurs when short-term rates exceed long-term rates, which is often viewed as a recession predictor.

GDP is best defined as:

Answer: The total market value of all final goods and services produced within a country's borders in a given period

GDP (Gross Domestic Product) measures the monetary value of all final goods and services produced within a country's geographic borders during a specific time period.

Which monetary policy action would the Federal Reserve most likely take to combat inflation?

Answer: Increase the federal funds rate target

Raising the federal funds rate target increases borrowing costs, slowing spending and investment, which helps reduce inflationary pressure.

The 'law of diminishing marginal utility' states that:

Answer: Each additional unit of a good consumed provides less additional satisfaction than the previous unit

The law of diminishing marginal utility holds that the additional satisfaction gained from consuming each successive unit of a good decreases as more is consumed.

A country running a current account deficit is:

Answer: Spending more on foreign goods, services, and transfers than it earns from abroad

A current account deficit means a country's imports of goods, services, and transfers exceed its exports, indicating it is a net borrower from the rest of the world.

Which of the following is an example of an automatic economic stabilizer?

Answer: Unemployment insurance benefits that increase during economic downturns

Automatic stabilizers like unemployment insurance automatically increase government spending during downturns without requiring new legislation, helping to cushion economic contractions.