EC 111 Comprehensive Final

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct? Answer Options: 1. "U.S. government bonds generally pay a higher rate of interest than corporate bonds." 2. "The interest received on corporate bonds is taxable." 3. "U.S. government bonds have the lowest default risk." 4. "If you purchase a municipal bond, you can sell it before it matures."

"U.S. government bonds generally pay a higher rate of interest than corporate bonds."

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be $____ higher and M2 would be $____ higher.

$1,000, $1,500

If the exchange rate is 9 Pound sterlings per U.S. dollar and a meal in London costs 225 Pound sterlings, then how many U.S. dollars does it take to buy a meal in London? Does the UK's net exports rise of fall?

$25, rise

Nate collected Social Security payments of $220 a month in Year 1. If the price index rose from 90 to 108 between Year 1 and Year 2, then his Social Security payments for Year 2 should have been

$264

A company sells steel to a scooter company for $150. The scooter company uses the steel to produce a scooter, which it sells for $290. Taken together, these two transactions contribute what to GDP?

$290

The below information presents information about a closed economy whose market for loanable funds is in equilibrium. The quantity of loanable funds demanded is GDP: $8.9 Consumer Spending: $5.2 Taxes - Transfers: $1.6 Government Purchases: $0.5 *In Trillions of Dollars*

$3.2

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

$4,937.5 billion

Suppose that a country imports $120 million worth of goods and services and exports $160 million worth of goods and services. What is the value of net exports?

$40 million

A country has domestic investment of $235 billion. Its citizens purchase $610 billion of foreign assets and foreign citizens purchase $300 billion of its assets. What is national saving?

$545 billion

A country has national saving of $60 billion, government expenditures of $40 billion, domestic investment of $10 billion, and net capital outflow of $45 billion. What is its supply of loanable funds?

$60 billion

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

$60.75

Suppose that in a closed economy GDP is equal to $33,000, consumption equal to $18,000, government purchases equal $6,500, and taxes equal $6,750. What are private saving, public saving, and national saving?

$8,250, $250, and $8,500

Refer to the below information. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Smileville now hold? Assets: Reserves $5,400 Loans $84,600 Liabilities: Deposits $90,000

$900

The unemployment rate is computed as

(number of unemployed / number in labor force) * 100.

MS and MD intersect at (.61, 5000). What is the equilibrium value of money and price level? Answer Options: 1. 0.61 and 1.6. 2. 1.6 and 0.61. 3. 0.61 and the equilibrium price level cannot be determined 4. 1.6 and the equilibrium price level cannot be determined

.61 and 1.6

Refer to the below information. In a small economy, the marginal propensity to consume for this economy is Income | Consumer Spending $10,000 | $6,500 $11,000 | $7,250 Answer Options: 1. 0.65. 2. 0.75 3. 0.65 or 0.75, depending on whether income is $10,000 or $11,000. 4. 0.80

0.75

If M = 5,000, P = 5.5, and Y = 9,000, what is velocity?

10

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $50, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold?

100 flourin

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced ____% _____ (inflation or deflation) between Year 1 and Year 2, and ____% _____ (inflation or deflation) between Year 2 and Year 3.

11.1% inflation and 5% deflation

The below information lists the per gallon prices of gas and milk for the months of September, October, and November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month, and that September is the base period. What is the consumer price index for November? Month | Price of Gas per gal | Price of Milk per gal Sept | 4.00 | 3.50 Oct | 4.40 | 3.52 Nov | 4.60 | 2.58

114.27

If the price level increased from 130 to 150, then what was the inflation rate?

15.4 percent

Refer to the information below. The opportunity cost of this economy moving from point B to point C is B (60 knives, 50 forks) C (40 knives, 70 forks)

20 knives

Refer to the information below. Which of the following combinations of bread and lemonade could France produce in 30 hours? Hours to Make 1 Unit || Units Made in 30 Hours Bread | Lemonade || Bread | Lemonade England: 1 | 4 || 30 | 7.5 France: 5 | 2 || 6 | 15 Answer Options: 1. 7.5 units of bread and 30 units of lemonade 2. 3 units of bread and 30 units of lemonade 3. 30 units of bread and 7.5 units of lemonade 4. 3 units of bread and 7.5 units of lemonade

3 units of bread and 7.5 units of lemonade

Refer to the information below. If Jane produces only pizzas, she can produce Jane's PPF: Downward sloping line connected by (450 Lemonade, 0 Pizzas) and (300 Pizzas, 0 Lemonade) going through the point (180 Lemonade, 180 Pizza)

300 pizzas per day.

Refer to the information below. If the production possibilities frontier shown is for 32 hours of production, then how long does it take Peru to make one pound of peanuts? Peru's PPF: Downward sloping line connected by (240 lbs of Cashews, 0 lbs of Peanuts) and (0 lbs of Cashews, 8 lbs of Peanuts)

4 Hours

Refer to the below information. If the government imposes a minimum wage of $8, then how many workers will be unemployed? Wage (dollars) | Supply (workers) | Demand (workers) 10 | 90 | 10 8 | 70 | 30 6 | 50 | 50 4 | 30 | 70 2 | 10 | 90

5,000

The below data is about the labor market in the city of Productionville. If the local government imposed a minimum wage of $7 in Productionville, how many people would be unemployed? Wage ($ per hour) | Quantity Demanded | Quantity Supplied 8 | 6,000 | 16,000 7 | 9,000 | 14,000 6 | 12,000 | 12,000 5 | 15,000 | 10,000 4 | 18,000 | 8,000

5,000

Refer to the below information. This bank's leverage ratio is Assets: Reserves $1200 Loans $8000 Short-term Securities $800 Liabilities: Deposits $9000 Debt $800 Capital $200

50

Refer to the information below. What is the opportunity cost to Techopia of increasing the production of toys from 400 to 600? Techopia's Production Possibilities Toys | Cups 800 | 0 600 | 600 400 | 1100 200 | 1500 0 | 1800

500 Cups

Refer to the information below. Assume that England and Portugal can switch between producing cheese and producing bread at a constant rate. Which of the following combinations of cheese and bread could England produce in 48 hours? Labor Hours to Make 1 Unit Cheese | Bread England: 4 | 3 Portugal: 3 | 12 Answer Options: 1. 6 units of cheese and 8 units of bread 2. 8 units of cheese and 6 units of bread 3. 7 units of cheese and 6 units of bread 4. 8 units of cheese and 3 units of bread

6 units of cheese and 8 units of bread

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was ____ and the inflation rate was ____.

6%, 2%

Suppose that the Bureau of Labor Statistics reported that there were 59 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 42.6 million were employed and 10.2 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

89.5% and 19.3%

The below information reports nominal and real GDP for the U.S. from 1929 to 1932. What are the GDP deflator and the inflation rate for 1931? Year | Nominal GDP | Real GDP 1929 | 103.6 | 977 1930 | 91.2 | 892.8 1931 | 76.5 | 834.9 1932 | 59.7 | 725.8

9.16, −10.3

Which of the following is an example of barter? Answer Options: 1. A parent gives a teenager a $10 bill in exchange for her babysitting services. 2. A homeowner gives an exterminator a check for $50 in exchange for extermination services. 3. A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. 4. A doctor performs surgery on a patient whose insurance pays 100% of the bill.

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

Which of the following shifts aggregate demand to the left? Answer Options: 1. An increase in the price level 2. An increase in the money supply 3. A decrease in the price level 4. A decrease in the money supply

A decrease in the money supply

If the stock market crashes, then ____ (AD or AS) decreases, which the Fed could offset by _____ (buying or selling) bonds.

AD, buying

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Answer Options: 1. Aggregate demand shifts right. 2. Aggregate demand shifts left. 3. Aggregate supply shifts right. 4. Aggregate supply shifts left.

Aggregate demand shifts left.

Which of the following would cause stagflation? Answer Options: 1. Aggregate demand shifts right. 2. Aggregate demand shifts left. 3. Aggregate supply shifts right. 4. Aggregate supply shifts left.

Aggregate supply shifts left.

Which of the following is an example of an efficiency wage? Answer Options: 1. A high wage paid to compensate for dangerous work such as coal mining 2. An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants 3. A wage below the minimum wage but supplemented by customer tips 4. A high wage paid to a college graduate for a high-skill job such as electrical engineering

An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants

Which of the following is an example of crowding out? Answer Options: 1. An increase in government spending increases interest rates, causing investment to fall. 2. A decrease in private savings increases interest rates, causing investment to fall. 3. A decrease in the money supply increases interest rates, causing investment to fall. 4. An increase in taxes increases interest rates, causing investment to fall.

An increase in government spending increases interest rates, causing investment to fall.

Which one of the following policies will directly contribute to the increase in physical capital in a country? Answer Options: 1. Attracting foreign direct investment. 2. Building a good health-care system. 3. Encouraging people to consume more. 4. Providing educational subsidies.

Attracting foreign direct investment.

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct? Answer Options: 1. Because they have the same term to maturity, the interest rates should be the same. 2. Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 3. Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 4. It is not possible to say if one bond has a higher interest rate than the other.

Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.

Other things the same, which of the following would cause the real exchange rate to rise? Answer Options: 1. Both an increase in the real interest rate and an increase in foreign demand for U.S. goods and services. 2. An increase in the real interest rate, but not an increase in foreign demand for U.S. goods and services. 3. An increase in foreign demand for U.S. goods and service, but not an increase in the U.S. real interest rate. 4. Neither an increase in the U.S. real interest rate nor an increase in the demand for U.S. goods and services.

Both an increase in the real interest rate and an increase in foreign demand for U.S. goods and services.

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this? Answer Options: 1. Both sticky price theory and sticky wage theory 2. Sticky price theory but not sticky wage theory 3. Sticky wage theory but not sticky price theory 4. Neither sticky wage theory nor sticky price theory

Both sticky price theory and sticky wage theory

Refer to the below information. There is an excess demand for money at an interest rate of Point ____. Point A - left of MS curve Point B - on MS curve Point C - right of MS curve

C

Which of the following does the Federal Reserve not do? Answer Options: 1. Conduct monetary policy 2. Act as a lender of last resort 3. Conduct fiscal policy 4. Serve as a bank regulator

Conduct fiscal policy

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Correctly order the following bonds from the one that pays the highest interest rate to the one that pays the lowest interest rate? 1. Municipal bond 2. Corporate bond 3. U.S. bond

Corporate bond, U.S. government bond, municipal bond

Which list ranks the below assets from most to least liquid? 1. Currency 2. Houses 3. Stocks

Currency, stocks, houses

Refer to the information below. Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate. Which of the following represents Aruba's production possibilities frontier when 100 labor hours are available? Labor Hours to Make 1 Unit Cooler | Radio Aruba: 2 | 5 Iceland: 1 | 4 Answer Options: 1. Downward sloping line connected by the points (0 Coolers, 5 Radios) and (2 Coolers, 0 Radios) 2. Downward sloping line connected by the points (0 Coolers, 2 Radios) and (5 Coolers, 0 Radios) 3. Downward sloping line connected by the points (0 Coolers, 20 Radios) and (50 Coolers, 0 Radios) 4. Downward sloping line connected by the points (0 Coolers, 500 Radios) and (200 Coolers, 0 Radios)

Downward sloping line connected by the points (0 Coolers, 500 Radios) and (200 Coolers, 0 Radios)

Which of the following events would shift the demand curve right? Answer Options: 1. The government goes from running a budget deficit to running a budget surplus. 2. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 3. A change in the tax laws encourages people to consume less and save more. 4. A change in the tax laws encourages people to consume more and save less.

Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.

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Which of the following correctly orders U.S. income measures from largest to smallest? Answer Options: 1. Disposable personal income, gross national product, national income, net national product, personal income 2. Personal income, net national product, national income, gross national product, disposable personal income 3. Gross national product, net national product, national income, personal income, disposable personal income 4. Disposable personal income, personal income, national income, net national product, gross national product

Gross national product, net national product, national income, personal income, disposable personal income

Which one of the following is an example of physical capital (K)? Answer Options: 1. Knowledge 2. Heavy industrial machinery 3. Oil 4. Natural Gas

Heavy industrial machinery

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year. Answer Options: 1. Her real and nominal salary have risen. 2. Her real and nominal salary have fallen. 3. Her real salary has risen and her nominal salary has fallen. 4. Her real salary has fallen and her nominal salary has risen.

Her real and nominal salary have risen.

In 2008, the United States was in recession. Which of the following things would you not expect to have happened? Answer Options: 1. Increased layoffs and firings 2. A higher rate of bankruptcy 3. Increased claims for unemployment insurance 4. Increased real GDP

Increased real GDP

Which of the following statements about a country with a trade deficit is not true? Answer Options: 1. Exports<Imports 2. Net Capital Outflow<0 3. Investment<Savings 4. Y < C+I+G

Investment<Savings

Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would happen to the dollar? Answer Options: 1. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. 2. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. 3. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. 4. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.

It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

Michael, a U.S. citizen, travels to Jamaica and buys a newly manufactured motorcycle made there. His purchase is included in which countries GDP?

Jamaica's GDP, but it is not included in U.S. GDP.

The natural level of output occurs at

LRAS

Suppose that garbage collectors and landscaping workers have no unions. Now suppose that garbage collectors form unions. What does this do to the labor supply and wages of landscaping workers?

Labor supply increases, and wages decrease.

You receive money as payment for mowing your neighbor's lawn. Which function of money does this best illustrate? Answer Options: 1. Medium of exchange 2. Unit of account 3. Store of value 4. Liquidity

Medium of exchange

Meredith is looking for work as a computer programmer. Her prospects are good but so far she has not taken a job. Jenna is looking for work in a steel mill. Every time Jenna shows up for an interview, there are more people looking for work than there are openings. She realizes that it has been that way for a long time. Answer Options: 1. Meredith and Jenna are both frictionally unemployed. 2. Meredith and Jenna are both structurally unemployed. 3. Meredith is frictionally unemployed, and Jenna is structurally unemployed. 4. Meredith is structurally unemployed, and Jenna is frictionally unemployed.

Meredith is frictionally unemployed, and Jenna is structurally unemployed.

If Mike can produce more donuts in one day than Sue can produce in one day, then

Mike has an absolute advantage in the production of donuts.

A U.S. citizen uses euros it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow? Answer Options: 1. Germany and the U.S. 2. Germany but not the U.S. 3. The U.S. but not Germany 4. Neither Germany nor the U.S.

Neither Germany nor the U.S.

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit? Answer Options: 1. Output will rise by more than it did when the previous unit was added. 2. Output will fall by more than it did when the previous unit was added. 3. Output will rise but by less than it did when the previous unit was added. 4. Output will fall but by less then it did when the previous unit was added.

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

Where can an economy not produce?

Outside its production possibilities frontier

Which of the following correctly describes the catch-up effect in economic growth? Answer Options: 1. Poor countries stay poor forever 2. Rich countries stay rich forever 3. Poor countries tend to grow faster compared to rich countries for a given amount of investment.

Poor countries tend to grow faster compared to rich countries for a given amount of investment.

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?

Public saving

Refer to the below information. If the economy starts at O, a decrease in the money supply moves the economy to (O, P, Q, or R) in the long run). Point O - intersection of SRAS 1 and AD 1, on LRAS Point P - intersection of SRAS 2 and AD 1, right of LRAS, slightly below and to the right of point O Point Q - intersection of SRAS 2 and AD 2, on LRAS, directly below point O Point R - intersection of SRAS 1 and AD 2, left of LRAS, slightly below and to the left of point O

Q

Refer to the below information. If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from ____ to ____. Point O - intersection of SRAS 1 and AD 1, on LRAS Point P - intersection of SRAS 2 and AD 1, right of LRAS, slightly below and to the right of point O Point Q - intersection of SRAS 2 and AD 2, on LRAS, directly below point O Point R - intersection of SRAS 1 and AD 2, left of LRAS, slightly below and to the left of point O

Q to R

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the CPI _____ (rises much more, rises slightly, decreases much more, or rise by the same amount) than the GPD deflator.

Rises much more

In the open-economy macroeconomic model, the market for loanable funds identity can be written as

S = I + NCO

Which of the following is not included in M1? Answer Options: 1. Currency 2. Demand deposits 3. Savings deposits 4. Traveler's checks

Savings deposits

Which of the following is correct? Answer Options: 1. The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. 2. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. 3. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. 4. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

Which of the following best represents fiat money? Answer Options: 1. The euro 2. A gold bar 3. Monopoly money 4. Baseball cards

The euro

Which of the following statements is correct? Answer Options: 1. The expected future profitability of a corporation influences the demand for its stock. 2. When a corporation sells stock as a means of raising funds it is engaging in debt finance. 3. The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 4. A corporation is paid every time its shares of stock are traded organized stock exchanges.

The expected future profitability of a corporation influences the demand for its stock.

What basket of goods and services is used to construct the CPI? Answer Options: 1. A random sample of all goods and services produced in the economy 2. The goods and services that are typically bought by consumers as determined by government surveys 3. Only food, clothing, transportation, entertainment, and education 4. The least expensive and the most expensive goods and services in each major category of consumer expenditures

The goods and services that are typically bought by consumers as determined by government surveys

Suppose private saving in a closed economy is $21b and investment is $8b. Answer Options: 1. National saving must equal $21b. 2. Public saving must equal $13b. 3. The government budget surplus must equal $13b. 4. The government budget deficit must equal $13b.

The government budget deficit must equal $13b.

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

The interest-rate effect

According to the classical dichotomy, which of the following increases when the money supply increases? Answer Options: 1. The real interest rate 2. The real GDP 3. The real wage 4. The nominal wage

The nominal wage

Which of the following is not a determinant of the long-run level of real GDP? Answer Options: 1. The price level 2. The amount of capital used by firms 3. Available stock of human capital 4. Available technology

The price level

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption? Answer Options: 1. Spending on education 2. The purchase of stocks and bonds 3. The purchase of a new house 4. The purchase of durable goods such as stoves and washing machines

The purchase of a new house

Which of the following is included in the calculation of GDP? Answer Options: 1. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country. 2. The purchase of a new edition of a foreign textbook that was produced in a different nation. 3. The purchase of ink and paper supplies by a textbook company for the production of new textbooks. 4. The purchase of a used textbook from a friend who took the same class last year.

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? Answer Options: 1. The real interest rate is the nominal interest rate times the rate of inflation. 2. The real interest rate is the nominal interest rate minus the rate of inflation. 3. The real interest rate is the nominal interest rate plus the rate of inflation. 4. The real interest rate is the nominal interest rate divided by the rate of inflation.

The real interest rate is the nominal interest rate minus the rate of inflation.

Which of the following is an example of human capital? Answer Options: 1. The comfortable chair in your dorm room where you read economics texts 2. The amount you get paid each week to work at the library 3. The things you have learned this semester 4. Any capital goods that require a human to be present to operate

The things you have learned this semester

What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income? Answer Options: 1. There would be an increase in the equilibrium quantity of loanable funds. 2. There would be a reduction in the equilibrium quantity of loanable funds. 3. There would be no change in the equilibrium quantity of loanable funds. 4. The change in loanable funds is uncertain.

There would be an increase in the equilibrium quantity of loanable funds.

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If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.

The "law of one price" states that Answer Options: 1. a good must sell at the same price at all locations. Answers: 2. a good must sell at the price fixed by law. 3. a good must sell at the same price at all locations. 4. a good cannot sell for a price greater than the legal price ceiling. nominal exchange rates will not vary.

a good must sell at the same price at all locations.

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced Answer Options: 1. both a nominal gain and a real gain, and you paid taxes on the nominal gain. 2. both a nominal gain and a real gain, and you paid taxes only on the real gain. 3. a nominal gain, but no real gain, and you paid taxes on the nominal gain. 4. a nominal gain, but no real gain, and you paid no taxes on the transaction.

a nominal gain, but no real gain, and you paid taxes on the nominal gain.

Trade between countries Answer Options: 1. allows each country to consume at a point outside its production possibilities frontier. 2. limits a country's ability to produce goods and services on its own. 3. must benefit both countries equally; otherwise, trade is not mutually beneficial. 4. can best be understood by examining the countries' absolute advantages.

allows each country to consume at a point outside its production possibilities frontier.

Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes Answer Options: 1. the number of people unemployed rise but does not change the labor force. 2. the number of people unemployed rise but makes the labor force fall. 3. both the number of people unemployed and in the labor force fall. 4. the number of people unemployed fall but does not change the labor force.

both the number of people unemployed and in the labor force fall.

The most obvious benefit of specialization and trade is that they allow us to Answer Options: 1. work more hours per week than we otherwise would be able to work. 2. consume more goods than we otherwise would be able to consume. 3. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. 4. consume more goods by forcing people in other countries to consume fewer goods.

consume more goods than we otherwise would be able to consume.

A rightward shift of the short-run aggregate-supply curve Answer Options: 1. could be caused by an outbreak of war in the Middle East. 2. could be caused by a decrease in the expected price level. 3. causes the economy to experience an increase in the unemployment rate. 4. causes the economy to experience stagflation.

could be caused by a decrease in the expected price level.

If the Federal Open Market Committee decides to increase the money supply, it Answer Options: 1. creates dollars and uses them to purchase government bonds from the public. 2. sells government bonds from its portfolio to the public. 3. creates dollars and uses them to purchase various types of stocks and bonds from the public. 4. sells various types of stocks and bonds from its portfolio to the public.

creates dollars and uses them to purchase government bonds from the public.

If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, then by definition there is ______ (cyclical, frictional, structural, or search) unemployment amounting to .8% of the labor force.

cyclical

If the Fed increases the money supply, the interest rate _____ (increases or decreases), which tends to _____ (increase or reduce) investment and therefore the aggregate demand.

decrease, increase

Refer to the information below. The cost of the basket ______ (increased or decreased) from Year 1 to Year 2 and ______ (increased or decreased) from Year 2 to Year 3 Year | Price per lb of Prunes | Price per lb of Dolls 1 | 12 | 7 2 | 10 | 6 3 | 8 | 5

decreased, decreased

Other things the same, if reserve requirements are decreased, the reserve ratio _____ (increases or decreases), the money multiplier _____ (increases or decreases), and the money supply _____ (increases or decreases).

decreases, increases, increases

From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate _____ (supply or demand) _____ (left or right).

demand, right

Net exports of a country are the value of

exports - imports

A country's trade balance is greater than 0 if

exports > imports

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI Answer Options: 1. fails to account for consumer spending on housing. 2. accounts only for consumer spending on food, clothing, and energy. 3. fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods. 4. fails to account for the introduction of new goods.

fails to account for the introduction of new goods.

A country's trade balance will fall if savings _____ (rise or fall) and/or investments (rise or fall)

fall, rise

Suppose a country's net capital outflow does not change, but its investment declines by $420 billion. Its saving must have _____ (risen or fallen) by $420, so its net exports have ____ (risen, fallen, or remained unchanged).

fallen, remained unchanged

In recent years, the Federal Reserve has conducted policy by setting a target for the Answer Options: 1. size of the money supply. 2. growth rate of the money supply. 3. federal funds rate. 4. discount rate.

federal funds rate.

Providing training for unemployed individuals is primarily intended to reduce _____ (frictional, seasonal, structural, or cyclical) unemployment.

frictional

Sandy has graduated from college and is devoting her time to searching for a job. She has seen plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is ____ (structurally or frictionally) unemployed and it ______ (can or can not) exist in the long run.

frictionally, can

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is _____ (greater or less) than the quantity demanded and the dollar will ______ (appreciate or depreciate).

greater, depreciate

Circular flow diagram is a model that

helps to explain how the economy is organized.

A popular celebrity that is paid highly for her time should probably notmow her own lawn because Answer Options: 1. her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her. 2. she has a comparative advantage in mowing her lawn relative to a landscaping service. 3. she has an absolute advantage in mowing her lawn relative to a landscaping service. 4. she might sprain her ankle.

her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is _____ (higher or lower) than he had expected, and the real value of the loan is _____ (higher or lower) than he had expected.

higher, higher

Other things the same, if technology increases, then in the long run output is ____ (higher or lower) and prices are ____ (higher or lower).

higher, lower

The economic boom of the early 1940s resulted mostly from Answer Options: 1. increased government expenditures. 2. falling prices of oil and other natural resources. 3. an increase in the growth rate of the money supply. 4. rapid developments in transportation, electronics, and communication.

increased government expenditures

When Mexico suffered from capital flight in 1994, Mexico's net capital outflow _____ (increased or decreased) and net exports _____ (increased or decreased).

increased, increased

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP _____ (increases or decreases) by $______

increases by $220.

When the interest rate increase, the opportunity cost of holding money _____ (increases or decreases), so the quantity of money demanded_____ (increases or decreases).

increases, decreases

When the Fed buys bonds the supply of money _____ (increases or decreases) so AD shifts _____ (left or right).

increases, right

A brain drain in a country can be caused by Answer Options: 1. foreign portfolio investment. 2. a free trade. 3. educational subsidies. 4. internal conflicts and instability in a country.

internal conflicts and instability in a country.

If a country has a positive net capital outflow, then on net _______ (other countries are purchasing assets from it or it is purchasing assets from abroad). This _____ (adds or subtracts) to demand for domestically generated loanable funds

it is purchasing assets from abroad, adds

Gross domestic product includes all Answer Options: 1. legal final goods and services, but it excludes illegal final goods and services. 2. legal and illegal final goods, but it excludes all legal and illegal final services. 3. legal and illegal final goods and all legal and illegal final services. 4. legal and illegal final goods and legal final services, but it excludes illegal final services.

legal final goods and services, but it excludes illegal final goods and services.

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have ____ (higher or lower) than desired prices, which leads to an _____ (increase or decrease) in the aggregate quantity of goods and services supplied.

lower, increase

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that in order to consume beyond its PPF, the United States should produce _____ (more or less) pork and _____ (import or export) some of it to/from Mexico

more, export

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners ______ (more or less) willing to purchase U.S. bonds, so U.S. net capital outflow would ____ (rise or fall).

more, fall

If real interest rates rose more in Canada than in the United States, then other things the same U.S. citizens would buy ____ (more or fewer) Canadian bonds and Canadians would buy _____ (more or fewer) U.S. bonds.

more, fewer

Long-term bonds are ____ (more or less) risky than short-term bonds, and so interest rates are usually ______ (higher or lower) on long-term bonds.

more, higher

Other things the same, when the interest rate rises, people would want to lend ______ (more or less), making the ______ (supply or quantity) of loanable funds _____ (increase or decrease).

more, quantity, increase

If the Federal Reserve increases the interest rate on bank reserves at the Fed, banks will want to hold ____ (more or less) reserves so the reserve ratio will ____ (rise or fall).

more, rise

A goal of monetary policy and fiscal policy is to Answer Options: 1. offset the shifts in aggregate demand and thereby eliminate unemployment. 2. offset shifts in aggregate demand and thereby stabilize the economy. 3. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 4. enhance the shifts in aggregate demand and thereby increase economic growth.

offset shifts in aggregate demand and thereby stabilize the economy.

Domestic saving must equal domestic investment in _____ (only closed, only open, both closed and open, or neither closed nor open) economies.

only closed

The purchase of U.S. government bonds by Japanese is an example of foreign _____ (portfolio or direct) investment by Japanese.

portfolio

The residents of Ireland earn $250 million of income from abroad. Residents of other countries earn $120 million in Ireland. Therefore, Ireland's net factor payments from abroad are ______ (positive or negative) and its GDP is ______ (higher or lower) than its GNP

positive, lower

Productivity is the amount of goods and services Answer Options: 1. an economy produces. It is not linked to a nation's economic policies. 2. an economy produces. It is linked to a nation's economic policies. 3. produced for each hour of a worker's time. It is not linked to a nation's economic policies. 4. produced for each hour of a worker's time. It is linked to a nation's economic policies.

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

In which of the following cases would the quantity of money demanded be smallest? Answer Options: 1. r = 0.06, P = 1.2 2. r = 0.05, P = 1.0 3. r = 0.04, P = 1.2 4. r = 0.06, P = 1.0

r = 0.06, P = 1.0

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $14 billion. An increase in government purchases of $90 billion will shift aggregate demand to the ____ (right or left) by ____ ($380 or $436) billion.

right, $436

According to the assumptions of the quantity theory of money, if the money supply increases by 7 percent, then nominal GDP would ______ (rise by .7%, rise by 7%, not change) and real GDP would ______ (rise by .7%, rise by 7%, not change).

rise by 7%, not change

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium interest rate ____ (rise or fall) and the equilibrium quantity of loanable funds ____ (rise or fall).

rise, fall

Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would ____ (rise or fall) which by itself would _____ (increase or decrease) aggregate demand.

rise, increase

Economic expansions (boom) in Canada would cause the U.S. price level to ____ (rise or fall) and real GDP to ____ (rise or fall).

rise, rise

The dollar is said to appreciate against the euro if the exchange rate ____ (rises or falls). Other things the same, it will cost _____ (more or fewer) euros to buy U.S. goods.

rises, more

Given that Sarah's income exceeds her expenditures, Sarah is best described as a ____ (saver or buyer) as a _____ (supplier or demander) of funds.

saver, supplier

If the Federal Reserve decided to raise interest rates, it could ____ (buy or sell) bonds to ____ (raise or lower) the money supply.

sell, lower

An increase in government purchases will Answer Options: 1. shift AD right 2. shift AD left 3. cause rightward movement on AD 4. have no effect on AD

shift AD right

If the United States raised its tariff on tires, then at the original exchange rate there would be a _____ (shortage or surplus) in the market for foreign-currency exchange, so the real exchange rate would _____ (appreciate or depreciate).

shortage, appreciate

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a _____ (shortage or surplus) and the interest rate is _____ (above or below) equilibrium.

shortage, below

Refer to the below information. If the money supply is MS2 and the value of money is 5, then there is an excess _____ (supply of or demand for) money that is represented by the distance between points _____ and _____. Value of Money | MS 1 | MS 2 5 | D | A 2 | B | C * Both MS curves are vertical lines with MS 1 to the left of MS 2 * Money Demand curve slopes downward and intersects points D and C

supply, D, A

The explanation for the slope of the _____ (supply or demand) of loanable funds curve is based on the logic that a higher real interest rate leads to _____ (lower or higher) saving.

supply, higher

The initial effect of an increase in the budget deficit in the loanable funds market causes the _____ (supply or demand) curve to shift _____ (left or right).

supply, left

In the market for foreign-currency exchange, capital flight shifts the _____ (supply or demand) curve _____ (left or right).

supply, right

In the market for foreign-currency exchange, the effects of an increase in the budget surplus causes the _____ (supply or demand) curve to shift _____ (left or right).

supply, right

If saving is greater than domestic investment, then there is a trade ____ (shortage or surplus) and Y ____ (< or >) C + I + G

surplus, >

A problem that the Fed faces when it attempts to control the money supply is that Answer Options: 1. the 100-percent-reserve banking system in the United States makes it difficult for the Fed to carry out its monetary policy. 2. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. 3. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. 4. the Fed does not control the amount of money that households choose to hold as deposits in banks.

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

Using the liquidity-preference model, when the Federal Reserve decreases the money supply, Answer Options: 1. the equilibrium interest rate increases. 2. the aggregate-demand curve shifts to the right. 3. the quantity of goods and services demanded is unchanged for a given price level. 4. the short-run aggregate-supply curve shifts to the left.

the equilibrium interest rate increases.

The inflation tax refers to Answer Options: 1. the revenue a government creates by printing money. 2. higher inflation which requires more frequent price changes. 3. the idea that, other things the same, an increase in the tax rate raises the inflation rate. 4. taxes being indexed for inflation.

the revenue a government creates by printing money.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for Answer Options: 1. the slope of short-run aggregate supply. 2. the slope of long-run aggregate supply. 3. the slope of the aggregate-demand curve. 4. shifts in the aggregate-demand curve.

the slope of the aggregate-demand curve.

In the long run, money demand and money supply determine Answer Options: 1. the value of money and the real interest rate. 2. the value of money but not the real interest rate. 3. the real interest rate but not the value of money. 4. neither the value of money nor the real interest rate.

the value of money but not the real interest rate.

An example of an automatic stabilizer is Answer Options: 1. unemployment benefits. 2. a lowering of interest rates by the Fed. 3. a decrease in money demand. 4. a decrease in tax rates in response to a recession.

unemployment benefits.

According to liquidity preference theory, the money-supply curve is ____ (sloping upward, sloping downward, vertical, horizontal).

vertical

The Federal Open Market Committee is

​the group at the Federal Reserve that sets monetary policy.