ECON 102

Suppose all banks are subject to a uniform reserve requirement of 20 percent and the First National Bank has no excess reserves. If a new customer deposits $50,000, the First National Bank could immediately extend new loans up to a maximum of:

$40,000.

Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070. If the actual inflation rate was 7 percent, what was the real interest rate Tony received?

0 percent.

Recall the equation of exchange of the quantity theory of money. If the stock of money grows at an annual rate of 3 percent, the velocity of money is constant, and real GDP grows at an annual rate of 2 percent, the annual rate of inflation is _ percent. Enter the omitted value below.

1 (with margin: 0)

Use the table below to answer the following question: YearNominal GDP (billions)GDP deflator, 2000 year 600 nomial gdp 100.0 gpd deflator 2010 year 1,000 nomial gdp 80.0 gdp deflator Measured in terms of prices as of the year 2000, real GDP in 2010 was:

1,250.

Assume that an economy produces only lemonade and cookies. The output and prices in 2019 and 2020 are as follows: 2019 Output [lemonade 200, cookies 100] 2019 Prices [lemonade $1, cookies $2 2020 Output [lemonade 300, cookies 100] 2020 Prices [lemonade $2, cookies $3 Suppose that 2019 is the base year. What is the GDP deflator in 2020? Enter its value below:

1.8 (with margin: 0) 180 (with margin: 0)

The table presents hypothetical employment statistics. Use these data for the following computations. Including discouraged workers, what is the U-4 labor underutilization rate? Employed 7,000 Not employed and looking for work 1,000 Not working due to disability 300 Not working due to retirement 900 Not employed and not looking for work due to discouragement over job prospects 500 Under the age of 16 2,500 Total Population 12,200

17.6

In the United States, investment spending accounts for approximately _____ of GDP.

20%

Consider the following PPF of an economy that produces cars and bread: Suppose the economy is currently at the production possibility A. What would be the opportunity cost of producing 100 units of bread in terms of sacrificed cars? Enter this number of cars below.

25 (with margin: 0)

The country of Taxonia has a progressive personal income tax, with the tax brackets specified as follows: Cam, who is a taxpayer in Taxonia, has a taxable personal income of $55,000. What is his marginal tax rate? Enter its value (in percentage points) below.

35 (with margin: 0) 0.35 (with margin: 0)

Consider a simplified banking system where deposits are the only form of money and banks hold no excess reserves. If the reserve requirement is 25%, what is the value of the deposit multiplier? Enter this value below:

4 (with margin: 0)

Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is:

4%.

Suppose the Federal Reserve buys $40 million in Treasury bills from commercial banks. If the required reserve ratio is 10%, the monetary supply might eventually increase by ___ million dollars. Enter the omitted number in the box below. (Assume for this question that you may use the simple money multiplier.)

400 (with margin: 0)

If the consumer price index (CPI) was 180 at year-end 2008 and 189 at year-end 2009, inflation during 2009 was: The inflation rate is (189 - 180) / 180 * 100% = 5%.

5%

Given the supply and demand for steak conditions illustrated in the following figure, the equilibrium price of steak is:

6

Suppose that the GDP of the United States this year is $20 trillion. If the annual growth rate of GDP is expected to be 10% indefinitely, in how many years will the U.S. GDP double? Enter this number of years below.

7

Use the data below to answer the following question: Civilian population 200 million Number employed 120 million Number unemployed 40 million What is the labor force participation rate in this economy? Enter its value (in percentage points) below:

80

Consider the market for pizza, and let P and Q stand for the price and quantity of pizza, respectively. Suppose that the demand is given by an equation P = 60 - 4Q and the supply is P = 15 + Q. What is the market equilibrium quantity? Enter it below:

9 (with margin: 0)

If a country has a working-age population of 200 million, 145 million people with jobs, and 15 million people unemployed and seeking employment, then its unemployment rate is approximately:

9.4%

Consider the following information for an economy (figures are in billions of dollars): Personal consumption500 Compensation of employees450 Gross private investment200 Government consumption and net investment150 Government consumption and gross investment250 Exports50 Indirect business taxes100 Imports100 Depreciation300 Self-employment income75 What is the economy's GDP? Enter its value below:

900 (with margin: 0)

Which of the following best describes a situation related to microeconomics?

A company deciding to purchase new computers for its employees.

For several years policymakers have systematically boosted aggregate demand so that the economy is operating with very low unemployment and sustained inflation. If this sustained expansion to aggregate demand is halted, what is the likely result?

An inflationary recession

Which of the following is a nondurable consumption good?

An orange.

The following figure shows the PPF of a country that produces wine and wheat: Which of the points indicated on the figure are attainable and Pareto efficient? Check all that apply. Note: points are awarded for correct answers and subtracted for wrong answers.

B and D

If the consumer price index changed from 220 to 235 between January 2010 and January 2011, what was the rate of inflation (in percentage points) during 2010? Enter this rate below (rounded to the first decimal):

Between 0.068 and 0.069 Between 6.8 and 6.9

The country of Levonia has a progressive personal income tax, with the tax brackets specified as follows: Pat, who is a taxpayer in Levonia, has a taxable personal income of $12,000. What is Pat's average tax rate? Enter this rate (in percentage points) below, rounded to the first decimal point:

Between 6.6 and 6.67 Between 0.06 and 0.067

What is one reason that input prices change only gradually?

Binding labor contracts.

Which of the following components of GDP is the largest for the U.S. economy?

Consumption.

People who are absent from their jobs because of illness, bad weather, or labor disputes are which of the following?

Employed

Which of the following is an example of a government sponsored enterprise specializing in mortgage loans?

Fannie Mae and Freddie Mac

Which of the following Federal Reserve district banks is geographically closest to Ames, IA?

Federal Reserve Bank of Minneapolis.

Two neighboring countries, Treeland and Flowerland, have recently severed diplomatic and trade relations. Each country produces two goods, pyramids and stealth fighters. It takes 1,000 Treeland's workers 30 days to build a pyramid and 10 days to assemble 4 stealth fighters, while 1,000 Flowerland's workers can construct a pyramid in 60 days and make a stealth fighter in 10 days. According to the opportunity costs of both products in each country, Treeland has a comparative advantage in pyramids. Flowerland has a comparative advantage in stealth fighters.

Flowerland Treeland

Which of the following are examples of institutional elements essential to economic growth? Check all that apply. Note: points are awarded for correct answers and subtracted for wrong answers.

Free trade Open capital markets

Which of the following assets is the most liquid one?

Funds in a checking account.

The long-run aggregate supply curve will not shift to the right in which of the following cases?

Greater profitability due to higher prices.

In the NIPA, "GDI" stands for:

Gross Domestic Income

In practice, a government can monetize its debt by doing which of the following?

Issuing more currency or selling bonds while the central bank buys back an equal value of existing bonds

Which of the following compose the M2 money supply aggregate?

M1 plus savings deposits, small denomination time deposits, and retail money market mutual funds.

Which state in the United States has two Federal Reserve district banks?

Missouri.

Which of the following transactions would be included in GDP?

Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

Are funds available on a credit card included in the definition of the money supply?

No, because these funds are not a store of value.

According to econometric studies of the U.S. economy, the macroeconomic short run, during which real output increases following an increase in aggregate demand is usually how long?

One to two years

GDP is designed to measure an economy's output. However, it is NOT designed to be a measure of which of the following? Check all that apply. Note: points are awarded for correct answers and subtracted for wrong answers.

Quality of life Income inequality

Which of the following will most likely occur during the expansionary phase of a business cycle?

Real GDP rises and unemployment falls.

Which of the following equations correctly expresses the relationship between the real and nominal interest rates?

Real interest rate = nominal interest rate - rate of inflation

In an aggregate demand curve diagram, what is plotted on the horizontal axis?

Real output

Based on the experience of many countries over a long period of time, it appears that periods of rapid inflation are accompanied by which of the following?

Slow or negative growth of real GDP

Evidence suggests that when the average price level of final goods increases, then the prices of inputs are likely to adjust in which of the following ways?

Slowly in the same direction

What are the twin goals of macroeconomic policy?

Stability and prosperity

Which of these is not an automatic stabilizer?

Stimulus package

Which of the following is an example of fiscal consolidation?

The authorities choose to reduce government spending and increase taxes by enough to make the deficit sustainable

Which of the following is held constant along a given short-run aggregate supply curve?

The expected level of input prices.

Consider the aggregate demand curve. Suddenly, business confidence increases and consumer confidence decreases. What can we predict?

The movement of the AD curve is unknown, given this information.

In the second quarter of 2020, which of the following was true of the unemployment rate in the United States?

The rate exceeded 10%

What is the government budget constraint?

The relationship between what a government purchases and its sources of funds

Which of the following contributed to the rising mortgage default and foreclosure rates and the eventual economic crisis of 2008 (i.e., the Great Recession)?

The substantial increase in sub-prime and adjustable rate mortgages as a share of the total during 2001-2006.

The small economy of Pizzania produces three goods (bread, cheese, and pizza). Each is produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively. The pizza company uses the bread and cheese from the other companies to make its pizzas. All three companies employ labor to help produce their goods, and the difference between the value of goods sold and the sum of labor and input costs is the firm's profit. The accompanying table on the next slide summarizes the activities of the three companies when all the bread and cheese produced are sold to the pizza company as inputs in the production of pizzas. Which of the following is incorrect?

Total factor income in the economy is $210.

Which of the following BLS labor under-utilization measures is the official unemployment rate?

U-3

When is Cindy said to have a comparative advantage in plastic surgery compared to David?

When Cindy can perform plastic surgeries at a lower opportunity cost than David.

Which of the following countries experienced hyperinflation in the 2000s?

Zimbabwe

If the government owes $10.0 trillion and then borrows $700 billion more, this leads to

a national debt of $10.7 trillion and a deficit of $700 billion.

If the supply and demand curves intersect at $14, then any price below that would result in:

a shortage.

The Fed currently considers anything __________ annual inflation to be excessive.

above 2 percent

When a customer deposits $100 into a checking account at a bank, the bank's accountants will record:

an increase in both the bank's liabilities and its assets.

A choice made _____ is a choice whether to do a little more or a little less of something.

at the margin

Elements of fiscal policy that move the budget toward surplus as the economy expands and toward deficit as it contracts without a deliberate action taken by Congress are called:

automatic stabilizers.

A farmer finds that when he produces more corn, he also has more cornstalks that he can sell as decorations. To the farmer, corn and cornstalks are:

complements in production.

An increase in the demand for gasoline today caused by concerns that gasoline prices will be higher tomorrow is most likely attributable to a change in:

consumer expectations.

Because some resource prices are set by long-term contracts, in the short run:

costs will increase by less than product prices when the aggregate demand increases.

The risk that a person who borrows from a bank may not be able to repay the loan is known as _________ risk.

credit

Stores need not accept your check but must accept currency, because:

currency is legal tender; checks are not.

Without an adequate source of domestic saving, a country can invest by borrowing from abroad. In its international accounts, the borrowing will be reflected in a current account ________, balanced by a financial ________.

deficit; inflow

During the Great Depression, the United States underwent a movement _____ along the short-run aggregate supply curve; during the 1979 oil crisis, the United States underwent a _____ shift in the short-run aggregate supply curve.

down; leftward

Two events occur simultaneously in the market for automobiles: (1) an improvement in assembly line technology and (2) the economy enters a recession. An economist would predict with certainty that:

equilibrium price will fall.

The neoclassical model implies that a shift to a more expansionary fiscal policy will:

exert little or no impact on the real interest rate, aggregate demand, and employment.

According to the neoclassical view, budget deficits will:

fail to stimulate aggregate demand because people will save more in order to pay the higher future taxes implied by the expansion in government debt.

According to the crowding-out theory, expansionary fiscal policy will lead to:

higher interest rates, an appreciated dollar, and reduced net exports.

Tom loses his job and immediately begins looking for another. Other things the same, the unemployment rate:

increases, and the labor force participation rate is unaffected.

"Stagflation" happens when:

inflation and unemployment both rise.

Look at the figure for the PPF of Tealand: If Tealand is producing 10 million scones and 10 million cups of tea (point A), we know that the economy:

is using its resources inefficiently.

When the U.S. real interest rate falls, purchasing U.S. financial assets such as bonds is:

less attractive and so U.S. net capital outflow rises.

In the mid-1970s, prices were _______ than in the 2000s; but in general, the inflation rate was ________.

lower; higher

Expansionary monetary policy leads to _____ interest rates, a(n) _____ in investment spending, and a(n) _____ in equilibrium GDP.

lower; increase; increase

The purpose of indexing Social Security payments to the consumer price index is to:

maintain the purchasing power of retirees.

Monetary policy from 1929 to 1933, and again in 1937 to 1938, was characterized by:

monetary contraction, which led to deflation.

Olive oil is an example of a good whose price varies greatly from year to year. Explain how the following would affect the market: Event: Medical research proves that the Mediterranean diet, which includes abundant use of olive oil, is not just a fad, but is really good for you. In response, millions of consumers start following the diet. 1. Would the supply curve shift? _________ 2. Would the demand curve shift? The demand curve would _______ 3. What will happen to the price and the quantity? The market would move up and to the right along the supply curve to a new equilibrium where both price and quantity are ________ than before.

not shift shift to the right higher

Before 1950:

positive and negative growth rates in double digits were not uncommon in the case of real GDP.

To an economist, which of the following items is an investment?

purchase of a new farm tractor.

A price ceiling set below an equilibrium price tends to cause a persistent imbalance in the market, because:

quantity demanded exceeds quantity supplied, but price cannot rise to remove the shortage.

Within the AD/AS model, if consumers increase their savings and cut back on spending, the:

real interest rate will decrease and, thereby, cushion the reduction in consumption spending.

If the Federal Reserve shifts to a more restrictive monetary policy in order to help control inflation, the policy shift will generally:

reduce aggregate demand and help bring the inflation under control, but the effects may not be felt for several months

Automatic stabilizers are government programs that tend to:

reduce the ups and downs in aggregate demand without legislative action.

The market that coordinates the exchange of productive inputs between the household and business sectors is the:

resource market.

A certain country experiences inflation as a result of a severe crop failure, beginning from a situation of price stability. This inflation would best be called:

supply-side inflation

In a country that is experiencing economic growth at 7 percent per year, per capita income will double in approximately: 70 / 7 = 10 (years).

ten years

If the long run equilibrium of an economy is disrupted by an unanticipated increase in aggregate demand (e.g., due to an unexpectedly strong demand for exports):

the actual unemployment rate will temporarily fall below the natural rate.

A bank finds itself short of required reserves and, therefore, borrows from another commercial bank. The interest rate on this loan is:

the federal funds rate.

When an economy operates at its long run potential output level:

the natural and actual rates of unemployment will be equal.

If a person is out of a job and has been actively looking for a job in the past four weeks, this person is classified by the BLS as:

unemployed.

Most frictional unemployment is ________ and _______.

voluntary; short-term

Older Americans living on a pension and, therefore, on a fixed income, tend to be made:

worse off when prices rise.