Econ 102 - Iowa State - Amani - Midterm 3

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP?

$12 trillion

Use the information in the table above to calculate the value of private saving.

$25 million

The tables above show the labor market and the production function schedule for the country of Pickett. Potential GDP is ________.

$25 trillion

The above table gives the initial balance sheet for Mini Bank. If the bank's desired reserve ratio is 10 percent, how much does this bank have in excess reserves?

$60

According to the table above, the value of M1 is ________ and the value of M2 is ________.

$910 billion; $3,660 billion

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled

-$100,000

Over the past 100 years, real GDP per person in the United States has grown at an average of ________ percent a year

2

The above table presents the balance sheet of the TBK commercial bank. What is this bank's actual reserve ratio?

20 percent

At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled

3 machines

When the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals

5

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

6 percent

In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012?

9.0 percent

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

A lower real interest rate makes more investment projects profitable.

Labor productivity, real GDP per labor hour, increases if

All of the above answers are correct.

When a bank has excess reserves

Both answers A and B are correct

In 2010, of the following which nations had the highest level of real GDP per person?

Canada

Convergence of the income gap has been most dramatic between

Hong Kong and the United States

________ is the knowledge and skill that people have obtained from education and on-the-job training.

Human capital

Which of the following statements are TRUE regarding the demand for labor?

I and II

Which of the following items are considered physical capital?

II and III

Which of the following is associated with classical growth theory?

III

The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?

Securities decrease by $100 million and reserves increase by $100 million.

In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of an increase in the use of credit cards?

The demand for money curve would shift leftward to MD0.

Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is CORRECT?

The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent.

In the above figure, the economy is at the equilibrium point on the supply of loanable funds curve SLF and demand for loanable funds curve DLF. What happens if disposable income decreases?

The supply of loanable funds curve would shift leftward.

As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?

There was a leftward shift in the supply of loanable funds curve.

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

United States must borrow an amount equal to imports minus exports.

Which of the following shifts the demand for loanable funds curve leftward?

a decrease in the expected profit

The sale of $1 billion of securities to a bank or some other business by the Fed is an example of

an open market operation

In the short run, when the Fed decreases the quantity of money

bond prices fall and the interest rate rises

Which of the following is TRUE regarding the real interest rate?

both I and II

Economis growth is measured by

changes in real GDP

Countries or regions in which real GDP per person has not grown as fast as in the United States since 1960 include

countires in Africa

Depository institutions do all the following EXCEPT

create recquired reserve ratios

A rise in the real interest rate

creates a movement upward along the demand for loanable funds curve.

The monetary base is the sum of

currency and reserves of depository institutions.

In the above figure, suppose the economy is at point a. If there is an increase in real GDP, there is a movement to

d

The gaps between the United States and the Asian countries of Honk Kong, Singapore, Korea and China have been

decreasing

In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess

demand for money and bond prices will fall.

An increase in labor productivity shifts the labor ________ curve ________.

demand; rightward

The relationship between education and economic growth can best be summarized by saying that

education has benefits beyond those who receive the education, which encourages economic growth.

Suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond

falls from $2,500 to $2,000

The funds used to buy and operate physical capital are

financial capital

We are interested in long-term growth primarily because it brings

higher standards of living

According to the Ricardo-Barro effect

households increase their personal saving when governments run budget deficits.

A worker's stock of knowledge is known as

human capital

When price levels rise, the quantity of nominal money demanded will ________ and the quantity of real money demanded will ________.

increase; stay the same

In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to 2012, Armenia's standard of living ________.

increased

Labor productivity increases with

increases in capital

In the absence of a Ricardo-Barro effect, a government budget deficit ________ the demand for loanable funds and ________ investment.

increases; decreases

If the saving rate increases, a country's growth rate of real GDP per hour of labor ________ and capital per hour of labor ________.

increases; increases

Aside from being a means of payment, the other functions of money are

medium of exchange, unit of account, and store of value

Controlling the quantity of money and interest rates to influence aggregate economic activity is called

monetary policy

The capital stock increases whenever

net investment is positive

Credit cards are

not part of money because they represent a loan of money to the user.

Which of the following is TRUE regarding the real wage rate? The real wage rate

only II

The table above gives the quantity of money and money demand schedules. Suppose that the interest rate is equal to 3 percent. The effect of this interest rate in the money market is that

people sell bonds and the interest rate rises

The term "crowding out" relates to the decrease in

private investment from a government budget deficit.

U.S. investment is financed from

private saving, government budget surpluses, and borrowing from the rest of the world.

If the price level rises by 3 percent and workers' money wages increase by 3 percent, then the

quantity of labor demanded does not change because there is no change in the real wage rate.

According to the quantity theory of money, in the long run, changes in the price level are the result of changes in the

quantity of money

An increase in physical capital or a technological advance

raises the real wage rate

In the loanable funds market, the supply comes from

saving, the government budget surplus and international borrowing.

In the figure above, a decrease in the monetary base would create a change such as a

shift from the supply of money curve MS1 to the supply of money curve MS0.

In the above figure, technological progress that increases the expected profit will

shift the demand for loanable funds curve rightward.

In the above figure, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. An economic expansion that raises disposable income and the expected profit would

shift the supply of loanable funds curve rightward to a curve such as SLF1, and shift the demand for loanable funds curve rightward to a curve such as DLF1.

Greater optimism about the expected profits from investment projects

shifts the demand for loanable funds curve rightward.

The larger the public's currency drain from the banking system, the

smaller is the money multiplier

If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is _

surplus; positive

Most _________ is embodied in physical capital

technological change

According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Based on this story, it is most likely that the slowdown reflects a

temporary business cycle slowdown

The opportunity cost of holding money refers to

the interest that could have been earned if the money balances had been changed into an interest-bearing asset.

Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a

unit of account

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create?

zero, because Bank A has no excess reserves