Econ 302 Study for Finals GDP, Money, AD/ AS

Suppose a bank has $100,000 in deposit and a required reserve ratio of 20 percent. Then required reservces are:

$20,000 100,000* .20= 20,000

Suppose the total banking system has $120 million in deposits, a required reserve ratio of 20 percent, and total bank reserves for the whole system of $100 million. THen the potential deposit creation for the whole system is:

$380 million 120 million * 1/.20= 600 million 120 million + 100 million= 220 million 220 million- 600 million= 380 million

A bank with $20,000 of reserves ratio of 25 percent could support total transactions-account balances of at most:

$80,000 20,000= .25x

Suppose a bank has $2 million a demand deposits, a required reserve ratio of 10 percent, and total reserves of $1 million. Then it has excess reserves of:

$800,000 2,000,000* .10= 200,000 (rr) 200,000+1,000,000= 1,200,000 2,000,000- 1,200,000= 800,000

FInd Real GDP if... Nominal GDP= 6244.4 GDP Deflator= 100.00

6244.4 100*6244.4/100=

Find Nominal GDP if... Real GDP= 6742.2 GDP Deflator= 107.59

7253.9 7253.9/107.59*100=

Find GDP Deflator if... Nominal GDP= 4180.7 Real GDP= 5323.5

78.53 4180.7/5323.5*100=

The money supply becomes smaller when:

A loan is repaid. (this will reduce the money supply. it will increase the banks excess reserves)

Which of the following best describes the relationship between educational level and the unemployment rate?

An inverse relationship

Deposit creation occurs when:

Banks make loans to borrowers.

Farmer brown wants some bacon for breakfast. He gets the bacon from Farmer Hernandez by giving him a dozen eggs. This type of transaction is referred to as:

Barter

Banks make loans to:

Businesses for new plant and equipment. Consumers for new homes and cars. The government for its projects. All of the above.

What are the values for each component of GDP (C+I+G+NX) Suppose the country of CRC produces 200 cars in 2003. These cars sell for $15,000 per car.140 cars are sold to consumers. 40 cars are sold to businesses. 10 are sold to the government. 5 are sold to other countries. No cars are imported.

C= 2,100,000 I= 600,000 G=150,000 NX= 75,000

Which of the following groups generally has the lowest unemployement rate?

College graduates.

Suppose a supply disruption causes oil prices to rise which leads to a recession in the United States, and many Americans lose their jobs. Which type of unemployement would develop in the U.S. Economy?

Cyclical

True or False? GDP and value added should not be the same

False. (The sum of value added is equal to GDP.)

The various money supply measures (M1, M2, M3, and L) are used to distinguish the:

Liquidity and accessibility of assets.

Transactions-account balances are included in:

M1 only

Traveler's checks are included in which of the following? M1 M2 M3 All of the above

M2

Savings accounts are included in: M1, M2, and M3 M1 but not M2 M2 but not M3 M2 and M3

M2 but not M3

Currency in circulation is included in: M1 only M2 only M3 only All of the above

M2 only

When money is used to acuire a good and services it is functioning as a:

Medium of exchange

What is the Nominal GDP formula?

Nominal GDP= GDP deflator * real GDP/ 100

When money is used to express the market value of goods and services it is functioning as a:

Standard of Value

When money serves as a mechanism for transforming current income into future purchases it is functioning as a:

Store of Value

When there is a mismatch between the skills required for a job and the skills of job seekers, the unemployment that results is, an example of:

Structural unemployment.

Which of the following insures deposits at banks?

The FDIC.

Which of the following sets the legal minimum-reserve ratio?

The Federal Reserve

Which of the following gave the federal government permanent authority to issue money?

The National Banking Act of 1863

Individuals who are working part-time while seeking full-time employment are classified as:

Underemployed.

If the banking system ahas a required reserve ratio of 10 percent , then the money multiplier is:

10 Solution: 1/.10

If the number of employed is 220,000, the labor force is 250,000, the nuber of discouraged workers is 15,000, and the numbe of underemployed is 15,000. Underemployed workers are defined as workers who work 32 hours per week but like to work 40 hours per week.

18.1 percent.

Suppose the country of CRC produces 200 cars in 2003. These cars sell for $15,000 per car. 140 cars are sold to consumers. 40 cars are sold to businesses. 10 are sold to the government. 5 are sold to other countries. No cars are imported. What is GDP in 2003?

3,000,000 is the market value of final goods and services produced.

Suppose MIke withdraws $200 from his checking account and deposits it into his savings account. This transaction causes M1 to:

Decrease by $200 and M2 to remain the same.

What are the two main reasons the unemployment rate might underestimate unemployment. Briefly explain each one.

Discouraged Workers- workers who stop looking for work even though they would like to work. The job market may be in a downturn or recession. Underemployment- workers who would like to work full time but are only emloyed part-time.

Discouraged workers:

Do not actively seek employment, although they desire to be employed.

If you invest in $100 today in the bank account that pays a one time interest at the end of each year (you leave the interest you collect from the bank from the first year in the bank to collect interest during the second year). If you have $121 at the end of the second year what is the interest rate the bank pays each year on your account?

Formula: PV(r+1)^t= FV 100(1+r)^2= 121 (1+r)^2= 121/100= 1.21 (1+r)= 1.1 R= .1 or 10 percent interest

What are the three main types of unemployment. Briefly explain each.

Frictional- movement from job to job Structural- Shifts in the way things are produced- either by technological improvements or by international competition. Old skills are no longer useful in securing employment. Cyclical- unemployment due to insufficient aggregate demand

What is the GDP deflator formula?

GDP deflator= Nominal GDP/ Real GDP * 100

M1:

Includes the most liquid forms of money. Is the narrowest definition of the money supply. Largely consists of transactions-account balances. All of the above

Suppose that Juan withdraws $150 from his savings account and deposits it into his checking account. This transaction causes M1 to:

Increase by $150 and M2 to remain the same.

What is the Real GDP formula?

Real GDP= Nominal GDP/ GDP deflator * 100

A sudden increase in inflation, ceteris paribus:

Reduces the nominal income of those who have constant real incomes.

Excess reserves are:

Total reserves less required reserves.

Banks perform the essential function of:

Transferring funds from savers to spenders.

Which of the following functions do banks perform?

Transferring money from savers to spenders. Lending funds held on deposit. Creating money. All of the above.

Suppose a bank has $100,000 in deposits, a required reserve ratio of 10 percent, and a total reserves of 10,000. Then the bank can make a new loans in the amount of:

Zero. 100,000* .10= 10,000 (RR) 10,000 (total reserves)- 10,000 (RR)= 0