Business Econ Final 2022

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called a) price-change neglect. b) unmeasured quality change. c) substitution bias. d) relative bias.

substitution bias

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

(1/.05)*500= 10,000

Refer to Table 1. Assume the Fed's reserve requirement is 6% and all banks besides the Bank of Cheerton are exactly in compliance with the 6% requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Cheerton decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

(1/0.06)*1800= 30,000

Which of the following is an attribute of population growth?

-Greater technological progress -Lower productivity per worker -Lower GDP per worker -More consumers and more workers to produce goods and services

Cyclical unemployment:

-Has a different explanation than does the natural rate of unemployment -Refers to the year-to-year fluctuation in unemployment around an economy's natural rate of unemployment -Is closely associated with short-run ups and downs of economic activity

Which of the following is an example of monetary policy?

-The Federal Open Market Committee decides to sell bonds. -The Federal Open Market Committee decides to buy bonds. -The Federal Reserve reduces the reserve requirement.

Unemployment includes

-Those who are available for work and have tried to find employment during the previous 4 weeks -Those who are waiting to be recalled to a job (laid off)

Last year, real GDP in Econland was 435 billion and the population was 2.6 million. The year before, real GDP was 380 billion and the population was 2.3 million. What was the growth rate of real GDP per person during the year?

0.01

The population of Econland is 100 people: 40 work full-time, 20 work half-time, but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged that they have given up looking, 10 are not interested in working because they are full-time students and 10 are retired. What is the number of unemployed?

10

Using the numbers in the previous question, what is the size of Econland's labor force?

70

Suppose a country increases trade restrictions. This country would be pursuing

An inward-oriented policy, which most economists believe has adverse effects on the economy

Which of the following can be measured by the level of real GDP per person? A) Productivity and the standard of living B) Productivity but not the standard of living C) The standard of living but not productivity D) Neither the standard of living nor productivity

C) The standard of living but not productivity

Which of the following policies can the Fed follow to increase the money supply?

Decrease reserve requirements for banks.

The designation "natural" implies that the natural rate of unemployment

Does not go away on its own even in the long run

In order to promote growth in living standards, policy makers must

Encourage investment in the health and education of the population

According to the theory of efficiency wages

Firms may find it profitable to pay above-equilibrium wages

In which of the following case is the worker counted as unemployed

Grace, an investment banker who has been laid off and is currently searching for another position

The main policy goal of unemployment insurance is to reduce the

Income uncertainty that workers face

Mateo and Maribel decide to go on a vacation. As a result, they withdraw $5,000 from their savings account to purchase $5,000 worth of traveler's checks. As a result of these changes:

M1 increases by $5,000 and M2 stays the same

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Output will rise but by less than it did when the previous unit was added

Suppose that a new government is elected in Econland. The new gov takes steps toward improving the court system and reducing gov corruption. The citizens of econland find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably raise

Real GDP per person and productivity in Econland

Which of the following countries benefited significantly from the catch-up effects in the last half of the twentieth century?

South Korea

Which of the following is the best measure of economic prosperity?

The level of real GDP

Which of the following organizations tries to encourage the flow of investment from advanced countries to poor countries?

World Bank

Other things the same, which of the following would increase productivity? a) An increase in either human or physical capital b) An increase in human capital but not an increase in physical capital c) An increase in physical capital but not an increase in human capital d) Neither an increase in human capital nor an increase in physical capital

a) an increase in either human or physical capital

If the public decides to hold more currency and fewer deposits in banks, bank reserves a) decrease and the money supply eventually decreases. b) decrease but the money supply does not change. c) increase and the money supply eventually increases. d) increase but the money supply does not change.

a) decrease and the money supply eventually decreases

Which of the following statements is correct? a) Human capital per worker is a determinant of productivity. b) A nation cannot be highly productive in producing goods and services without abundant quantities of natural resources. c) Human capital and technological knowledge are the same thing. d) All technological knowledge is proprietary.

a) human capital per worker is a determinant of productivity

When the quality of a good improves while its price remains the same, the purchasing power of the dollar a) increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. b) increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. c) decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. d) decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

a) increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate? a) Medium of exchange b) Unit of account c) Store of value d) Liquidity

a) medium of exchange

The discount rate is a) the interest rate the Fed charges banks. b) one divided by the difference between one and the reserve ratio. c) the interest rate banks receive on reserve deposits with the Fed. d) the interest rate that banks charge on overnight loans to other banks.

a) the interest rate the Fed charges the banks

In the special case of the 100-percent-reserve banking, the money multiplier is a) 1 and banks create money. b) 1 and banks do not create money. c) 2 and banks create money d) 2 and banks do not create money.

b) 1 and banks do not create money

Which of the following functions as both a store of value and a medium of exchange? a) Cash and stocks b) Cash but not stocks c) Stocks but not cash d) Neither cash nor stocks

b) Cash but not stocks

Octavia does not currently have a job, but she has applied for several jobs in the previous week. Eve is an unpaid stay-at-home mom who has not searched for work in recent years. Who does the Bureau of Labor Statistics count as "not in the labor force"? a) Octavia but not Eve b) Eve but not Octavia c) Both Octavia and Eve d) Neither Octavia nor Eve

b) Eve but not Octavia

In a system of 100-percent-reserve banking a) banks do not accept deposits. b) banks do not influence the supply of money. c) loans are the only asset item for banks. d) banks can increase the money supply.

b) banks do not influence the supply of money

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely a) increased. b) decreased. c) stayed the same. d) may have increased, decreased, or stayed the same.

b) decreased

Because every transaction has a buyer and a seller a) GDP is more closely associated with an economy's income than it is with an economy's expenditure. b) every transaction contributes equally to an economy's income and to its expenditure. c) the number of firms must be equal to the number of households in a simple circular-flow diagram. d) firms' profits are necessarily zero in a simple circular-flow diagram.

b) every transaction contributes equally to an economy's income and to its expenditure.

The theory of efficiency wages explains why a) setting wages at the equilibrium level may increase unemployment. b) it may be in the best interest of firms to offer wages that are above the equilibrium level. c) the most efficient way to pay workers is to pay them according to their skills. d) it is efficient for firms to set wages at the equilibrium level.

b) it may be in the best interest of firms to offer wages that are above the equilibrium level

If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity a) and real GDP per person rise. b) rises but real GDP per person falls. c) falls and real GDP per person rises. d) and real GDP per person fall.

b) rises but real GDP per person falls

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000? a) The Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank. b) The Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000. c) The Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank. d) The Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000.

b) the Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000

Bank capital is a) the machinery, structures, and equipment of the bank. b) the resources that owners have put into the bank. c) the reserves of the bank. d) the bank's total assets.

b) the resources that the owners have put into the bank

When the Fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public. The money supply increases.

The producer price index measures the cost of a basket of goods and services a) typically produced in the economy. b) produced for a typical consumer. c) sold by producers. d) bought by firms.

bought by firms

Which of the following is included in GDP? a) The market value of rental housing services, but not the market value of owner-occupied housing services b) The market value of owner-occupied housing services, but not the market value of rental housing services c) Both the market value of rental housing services and the market value of owner-occupied housing services d) Neither the market value of owner-occupied housing services nor the market value of rental housing services

c) Both the market value of rental housing services and the market value of owner-occupied housing services

Which of the following demonstrates human capital and physical capital in that order? a) For a brick layer: her bricks and her tools b) For a gas station: the pumps and the cash register c) For a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen d) For a medical office: the building and the doctors' knowledge of medicine

c) For a restaurant: the chef's knowledge about preparing food and the equipment in the kitchen

Esmerelda worked part-time for her mother's business without pay. Tabitha was absent from work because she had strep throat. Who is counted as "employed" by the Bureau of Labor Statistics? a) Esmerelda but not Tabitha b) Tabitha but not Esmerelda c) Both Esmerelda and Tabitha d) Neither Esmerelda nor Tabitha

c) both Esmeralda and Tabitha

In determining living standards, productivity plays a key role for a) individuals, but not for nations. b) nations, but not for individuals. c) both nations and individuals. d) neither nations nor individuals.

c) both nations and individuals

For the purpose of calculating GDP, investment is spending on a) stocks, bonds, and other financial assets. b) real estate and financial assets such as stocks and bonds. c) capital equipment, inventories, and structures, including household purchases of new housing. d) capital equipment, inventories, and structures, excluding household purchases of new housing.

c) capital equipment, inventories, and structures, including household purchases of new housing.

Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has a) gradually increased. c) gradually decreased. d) been eliminated.

c) gradually decreased

The existence of money leads to a) greater specialization in production, but not to a higher standard of living. b) a higher standard of living, but not to greater specialization c) greater specialization and to a higher standard of living. d) neither greater specialization nor to a higher standard of living.

c) greater specialization and to a higher standard of living

The CPI differs from the GDP deflator in that: a) the CPI is a price index, while the GDP deflator is an inflation index. b) substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. c) increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. d) increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.

c) increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.

Unemployment compensation is: a) part of GDP because it represents income. b) part of GDP because the recipients must have worked in the past to qualify. c) not part of GDP because it is a transfer payment. d) not part of GDP because the payments reduce business profits.

c) not part of GDP because it is a transfer payment

Dollar bills, rare paintings, and emerald necklaces are all a) media of exchange. b) units of account. c) stores of value. d) extremely liquid assets.

c) stores of value

Two common measures of the overall level of prices are a) the inflation rate and the consumer price index. b) the inflation rate and the GDP deflator. c) the GDP deflator and the consumer price index. d) the cost of living index and nominal GDP.

c) the GDP deflator and the consumer price index

Who of the following is not included in the Bureau of Labor Statistics' "employed" category? a) those who worked in their own business b) Those who worked as unpaid workers in a c) Those waiting to be recalled to a job from which they had been laid off d) Those who were temporarily absent from work because of vacation

c) those waiting to be recalled to a job from which they had been laid off

GDP is defined as the: a) value of all goods and services produced within a country in a given period of time. b) value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. c) value of all final goods and services produced within a country in a given period of time. d) value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

c) value of all final goods and services produced within a country in a given period of time.

Janet is a farmer. Which of the following are included in her human capital? a) Her tractor and what she's learned from experience b) Her tractor but not what she's learned from experience c) What she's learned from experience but not her tractor d) Neither her tractor nor what she's learned from experience

c) what she's learned from experience but not her tractor

Which of the following is NOT an example of monetary policy? a) The Federal Open Market Committee decides to sell bonds. b) The Federal Open Market Committee decides to buy bonds. c) The Federal Reserve reduces the reserve requirement. d) The Federal Reserve facilitates bank transactions by clearing checks.

d) The Federal Reserve facilitates bank transactions by clearing checks

The natural rate of unemployment is the a) unemployment rate that would prevail with zero inflation. b) rate associated with the highest possible level of GDP. c) difference between the long-run and short-run unemployment rates. d) amount of unemployment that the economy normally experiences.

d) amount of unemployment that the economy normally experiences

Most goods and services produced at home... a) and most goods and services produced illegally are included in GDP. b) are included in GDP while most goods and services produced illegally are excluded from GDP. c) are excluded from GDP while most goods and services produced illegally are included in GDP d) and most goods and services produced illegally are excluded from GDP.

d) and most goods and services produced illegally are excluded from GDP.

To be counted as "employed" in the U.S. labor force statistics, a person a) must be working for pay and be working full time. b) must be working for pay but does not have to be working full time. c) does not have to be working for pay if they are working for a family business but must be employed full time. d) does not have to be working for pay if they are working for a family business and does not have to be working full time.

d) does not have to be working for pay if they are working for a family business and does not have to be working full time

In the actual economy, goods and services are purchased by a) households, but not firms or the government. b) households and firms, but not the government. c) households and the government, but not firms. d) households, firms, and the government.

d) households, firms, and the government

The federal funds rate is the a) percentage of face value that the Federal Reserve is willing to pay for Treasury Securities. b) percentage of deposits that banks must hold as reserves. c) interest rate at which the Federal Reserve makes short-term loans to banks. d) interest rate at which banks lend reserves to each other overnight.

d) interest rate at which banks lend reserves to each other overnight

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called: a) inventory goods. b) transitory goods. d) intermediate goods.

d) intermediate goods

Productivity is the amount of goods and services a) an economy produces. It is not linked to a nation's economic policies. b) an economy produces. It is linked to a nation's economic policies. c) produced for each hour of a worker's time. It is not linked to a nation's economic policies. d) produced for each hour of a worker's time. It is linked to a nation's economic policies.

d) produced for each hour of a worker's time. It is linked to a nation's economic policies

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $30 million worth of government bonds, bank reserves

decrease by $30 million and the money supply eventually decreases by $600 million.

Money Multiplier =

deposits/reserves

If an american-based firm opens and operates a new factory in Honduras, then it is engaging in

foreign direct investment

For any given year, the CPI is the price of the basket of goods and services in the: a) given year divided by the price of the basket in the base year, then multiplied by 100. b) given year divided by the price of the basket in the previous year, then multiplied by 100. c) base year divided by the price of the basket in the given year, then multiplied by 100. d) previous year divided by the price of the basket in the given year, then multiplied by 100.

given year divided by the price of the basket in the base year, then multiplied by 100.

Because capital is subject to diminishing returns, higher savings and investment do not lead to higher

growth in the long run

What is the primary determinant of a nation's standard of living?

productivity

A problem that the Fed faces when it attempts to control the money supply is that

the Fed does not control the amount of money that households choose to hold as deposits in banks.

The discount rate is

the interest rate the Fed charges banks on loans.

The measure of the money stock M1 holds is

wealth held by people in currency