EC 111 Test Two

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, respectively

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%

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.

Meredith is frictionally unemployed, and Jenna is structurally unemployed.

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 unemployment amounting to 0.8 percent of the labor force.

Providing training for unemployed individuals is primarily intended to reduce

frictional unemployment.

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

frictionally unemployed. Frictional unemployment can exist even in the long run.

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 rates rise and the equilibrium quantity of loanable funds fall.

Other things the same, when the interest rate rises, people would want to lend

more, making the quantity of loanable funds supplied increase.

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

Public saving

The unemployment rate is computed as the number of unemployed

divided by the labor force, all times 100.

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?

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

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?

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

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. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

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

Which of the following events would shift the demand curve from D1 to D2?

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

Which of the following statements is correct

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

Suppose private saving in a closed economy is $21b and investment is $8b.

The government budget deficit must equal $13b

What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income?

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

Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes

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

Long-term bonds are

risker than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds

Given that Sarah's income exceeds her expenditures, Sarah is best described as a

server or as a supplier of funds

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a

shortage and the interest rate is below the equilibrium level.