Econ Exam 2

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On January​ 1, 2014,​ Sophie's Sunlounge owned 4 tanning beds valued at​ $20,000. During​ 2014, Sophie's bought 3 new beds at a total cost of ​$14,000​, and at the end of the year the market value of all of​ Sophie's beds was ​$24,000. What was​ Sophie's net​ investment?

4000

In Blogsville last​ month, ______ million people were in the labor force and​ ______ million people were in the​ working-age population.

44; 65

The CPI in 2013 is 240 and the CPI in 2014 is 259.2

8% (259.2/240 = 1.08)

Choose the correct statement.

Commercial banks are financial institutions that accept​ deposits, provide payment​ services, and make loans to firms and households.

Choose the correct statement.

Deposits are​ money, checks are not​ money, and credit cards are not money.

Choose the statement that is incorrect.

Each additional hour of labor increases real GDP by successively larger amounts.

Choose the statement that is incorrect.

Most economists believe that the​ Ricardo-Barro effect holds in the loanable funds market.

I​ = ______.

S​ + ​(T-G​) ​+ ​(M-X​)

Private saving _____________ and investment ______________.

increase, decrease

Money serves as a​ ______.

medium of​ exchange, which means that it is generally accepted in exchange for goods and services

The inflation rate in 2014 ​______.

might be​ higher, lower, or the same as in 2013

Between 1960 and​ 2010, the gap between real GDP per person in the United States and real GDP per person in Japan​ ______.

narrowed

The main sources of bias in the CPI are​ ______.

new goods​ bias, quality change​ bias, commodity substitution​ bias, and outlet substitution bias

The demand for money is the relationship between the quantity of real money demanded and the __________________ when all other influences on the amount of money that people wish to hold remain the same.

nominal interest rate

A government budget surplus​ occurs, which increases the __________ loanable funds

supply of

The table gives information reported by the Bureau of Labor Statistics for September​, 2011. What is the​ employment-to-population ratio? LF:154 U:14 N:86

58.3 (labor force-unemployment/labor force + not in labor force)

Choose the statement that is incorrect.

A benefit of a money market mutual fund is that shareholders can write checks on their accounts with no restrictions.

Choose the statement that is incorrect.

An unexpected inflation or deflation has no effect on the economy.

During the 100 years from 1914 to​ 2014, real GDP per person in the United States grew at​ ______.

an average of 2 percent a year

The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak is ____________ unemployment

cyclical

Draw a labor supply curve and a labor demand curve. Label them LS0 and LD0. Draw a point at the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Draw and label a curve that shows the effect of an increase in population. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2.

https://gyazo.com/fede91320f02a7803390a9f7673cb035

When the unemployment rate​ ______ the natural unemployment​ rate, real GDP​ ______ potential GDP.

is greater than; less than

The natural unemployment rate​ _______.

is the unemployment rate when there is no cyclical unemployment

The bias in the CPI is a problem because​ ______ .

it distorts wage agreements linked to the CPI

According to new growth​ theory, ______ experience diminishing returns.

knowledge is capital that does not

All of the following statements are correct except​ _______.

the return to full employment in an expansion phase of the business cycle is economic growth

An economy is at full employment when​ ______.

the unemployment rate equals the natural unemployment rate

Choose the statement that is incorrect.

​Coins, which are issued by the Treasury are an asset of the Fed and a component of the monetary base.

The table gives information reported by the Bureau of Labor Statistics for September​, 2012. What is the unemployment​ rate?

143/155

The table provides official estimates of U.S. wealth and U.S. saving in three years. The change in U.S. wealth exceeds U.S. saving in​ ______. U.S. saving exceeds the change in U.S. wealth in​ ______. https://gyazo.com/6fc03d983310ef4963c581db2eec1898

1996 and 1997; none of the years on the table.

The people who live on Second Life Island consume only juice and cloth. Last​ year, which was the CPI base​ year, the price of juice was ​$2 a​ bottle, the price of cloth was ​$4 a​ length, and the average urban household spent ​$12 on juice and ​$20 on cloth. This​ year, the price of juice is ​$9 a bottle and the price of cloth is ​$2 a length. What is the CPI in the current​ year?

200 (cpi a/cpi b) x 100

Cindy takes a summer job painting houses. During the​ summer, she earns an​ after-tax income of ​$3000 and she spends ​$1000 on living expenses. What was​ Cindy's saving during the​ summer?

2000

Rob takes a summer job with a landscaping firm. During the​ summer, he earns an​ after-tax income of ​$4,000 and he spends ​$1,500 on living expenses. Everything else remaining the​ same, what was the change in​ Rob's wealth during the​ summer?

2500

The table gives information reported by the Bureau of Labor Statistics for February​, 2014. What is the labor force participation​ rate? E:145 U:11 N:91

63.2 (employ +unemployment/total)

Choose the statement that is incorrect.

A government budget surplus competes with investment for funds.

The liabilities of the Fed are​ ______, and these liabilities along with​ ______ make up the monetary base.

Federal Reserve notes held by households and businesses and reserves of depository​ institutions; coins issued by the Treasury

Choose the statement that is incorrect.

If a financial​ institution's net worth is​ positive, the institution must be solvent and liquid.

Suppose that potential GDP and the velocity of circulation are constant. What is the change in the price level in the long run if the quantity of money increases by 3 percent a​ year?

If the quantity of money increases by 3 percent a​ year, in the long run the change in the price level is 3 percent a year.

Choose the statement that is incorrect.

Labor hours are all equally productive.

On January​ 1, 2014,​ Sophie's Sunlounge owned 4 tanning beds valued at​ $20,000. During​ 2014, Sophie's bought 3 new beds at a total cost of ​$14 comma 000. At the end of the​ year, the market value of all of​ Sophie's beds was ​$25,00.0 Calculate​ Sophie's gross investment and depreciation during 2014.

Sophie's gross investment during 2014 was ​$ 14000. ​Sophie's depreciation during 2014 was ​$ 9000.

Choose the statements concerning neoclassical growth theory that are true. 1. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. nothing 2. Neoclassical growth theory implies that growth rates and income levels per person around the globe will diverge. nothing 3. Economic growth will stop if technology stops advancing. nothing 4. Technological change results from chance.

Statements 3 and 4 are correct.

How can the change in U.S. wealth differ from U.S.​ saving?

The change in wealth includes changes in the prices of assets owned and saving excludes these items.

Choose the statement about growth in labor productivity that is incorrect.

The demand for labor​ increases, the production function does not​ change, but a movement occurs along the production function.

The table provides some data on real GDP and the population of Atlantis in 2011 and 2012. What was the growth rate of real GDP in Atlantis in 2012​? What was the growth rate of real GDP per person in Atlantis in 2012​? https://gyazo.com/1b819d79a3f17fa964bf7687bbf45f4f

The growth rate of real GDP in Atlantis is 6% (31815/30000) The growth rate of real GDP per person in Atlantis in 2012 (5%)

Suppose an increase in the monetary base of ​$1​00,000 increases the quantity of money by ​$300,000. Calculate the money multiplier.

The money multiplier is 3.

Choose the statement that is incorrect.

The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money.

Choose the statement about an increase in the population that is incorrect.

The production function shifts upward.

Choose the statement that is incorrect.

The unemployment rate includes all underutilized labor.

Choose the statement that is incorrect.

US and Britian were the only countries that suffered during the great depression.

When real GDP​ decreases, ______.

a decrease in the demand for money occurs

A mortgage is​ _______.

a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments​ (repayments and​ interest)

In the United​ States, the CPI basket consists of items that​ ______ . ​______ has the greatest weight in the CPI basket.

an average urban household​ buys; Housing

Over​ time, on average the demand for loanable funds​ ______, so the real interest rate​ ______.

and the supply of loanable funds increase at a similar​ pace; has no trend

A central bank is​ ______. The central bank in the United States is the​ ______.

a​ bank's bank and a public authority that regulates a​ nation's depository institutions and conducts monetary​ policy; Federal Reserve System

If the interest rate is 5​ percent, people will​ ______.

buy​ bonds, bid up their​ price, and the interest rate will fall

Labor supply growth is influenced by all of the following except​_______.

changes in labor productivity

As a result of financial​ innovation, ______ have become​ ______.

checking deposits at thrift​ institutions; an increasing percentage of M1

The deposits of the following three types of depository institutions make up the​ nation's money:​ ______.

commercial​ banks, thrift​ institutions, and money market mutual funds

Depository institutions provide four​ benefits, which are​ ______.

creating​ liquidity, lowering the cost of​ borrowing, lowering the cost of monitoring​ borrowers, and pooling risk

An increase in current income taxes​ ______ the supply of loanable funds today because it​ ______.

decreases​; decreases disposable​ income, which decreases saving

The ratio of reserves to deposits that a bank plans to hold is its​ ______. If a bank has​ $10 million in actual reserves and​ $8 million in desired​ reserves, then it has​ ______.

desired reserve​ ratio; excess reserves

The Bank of​ America's total assets​ ______ and its total liabilities​ ______.

do not​ change; do not change

The table provides some data on real GDP and the population of Europa in 2011 and 2012. If the growth rates of 2012 are maintained in future​ years, real GDP per person in Europa will​ ______. https://gyazo.com/d09132a186c00d8809e39711cdc3e0dc

double by 2024

The​ Ricardo-Barro effect __________crowding out.

eliminates

An increase in labor productivity increases potential GDP because​ ______.

employment increases and a given amount of employment produces more real GDP

The supply of loanable funds is influenced by all of the following except ​______.

expected profit

A depository institution takes deposits from​ ______ and earns most of its income by​ _______.

households and​ firms; making loans and buying securities that earn a higher interest rate than that paid to depositors

The graph shows demand for loanable funds curve. Suppose the real interest rate falls. Draw either an arrow along the demand curve showing the direction of change or a new demand curve.

https://gyazo.com/17b1eee62557464c854c8d2e956ccf1e

The graph shows the loanable funds market. During the​ 1990s, the invention and use of​ fiber-optic technologies required billions of dollars to be spent laying new cables under the oceans and launching communications satellites. Draw a curve that shows the effect of this event. Label it. Draw a point to show the new equilibrium quantity of loanable funds and real interest rate.

https://gyazo.com/1a2a7c40d8d2aadbb9f1876ad6943fed

Draw a labor supply curve and a labor demand curve. Label them LS0 and LD0. Draw a point the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Draw and label a curve that shows the effect of an increase in labor productivity. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2.

https://gyazo.com/1cd6bdde160c098fb284052d51ebe389

When the Fed buys securities from a​ bank, a sequence of events begins. The events are listed below. Number each event in the order in which it occurs.

https://gyazo.com/6cc3088967bf7e5f008ef8ec857a8658

The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget surplus of​ $1 trillion. Draw a curve that shows the effect of this surplus in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of investment. Label it 2. Draw a point to show private saving when the government budget surplus is​ $1 trillion. Label it 3.

https://gyazo.com/75e01874e7923163279f7ac5c76c5959

Draw a demand for money curve. Label it MD0. Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD1. Draw a demand for money curve that shows the effect of financial innovation that decreases the demand for money and that follows the decrease in real GDP. Label it MD2.

https://gyazo.com/7c2bd80fd2ae8d830f50781150b64b82

The figure shows the demand for money curve in Epsilon. The quantity of money is​ $3.1 trillion. Draw the supply of money curve. Label it. Draw a point at the equilibrium in the money market.

https://gyazo.com/c2084898f35ccfba2841e318f0b5dc68

A slump in the global economy makes firms pessimistic about expected profits. Draw a curve that shows the effect of this event. Draw a point at the new equilibrium quantity of loanable funds and the new equilibrium real interest rate

https://gyazo.com/d61046375c4c617a745e2749f2b88a17

The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget deficit of​ $1 trillion. Draw a curve that shows the effect of this deficit in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of saving. Label it 2. Draw a point to show investment when the government budget deficit is​ $1 trillion. Label it 3.

https://gyazo.com/eee32bea6f853b2bae32f1e828cf6159

The graph shows the private demand for loanable funds curve and the supply of loanable funds curve. Draw a curve that shows the effect on the loanable funds market when the government has a budget deficit. Label it C1. Draw a curve that shows the​ Ricardo-Barro effect on the loanable funds market. Label it C2. Draw a point at the new real interest rate and quantity of loanable funds.

https://gyazo.com/fa314232e5333741d472fe71b8103671

Suppose the Fed buys​ $50 million of government securities from the Bank of America. The​ Fed's total assets​ ______ and its total liabilities​ ______.

increase by​ $50 million; increase by​ $50 million

A decrease in expected future income​ ______.

increase the supply of loadable funds today because households with smaller expected future income will save more today

A government budget deficit​ occurs, which​ ______.

increases the demand for loanable​ funds; rises

Suppose the Fed increases the quantity of money. In the long​ run, supply and demand in the​ ______ market determines the real interest rate. The​ ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.

loanable​ funds; price level

Assume that the preconditions for labor productivity growth are in place. The pace of labor productivity growth is influenced by all of the following except​ ______.

population growth

When the real interest rate falls​, the​ ______ because the​ ______ is the opportunity cost of loanable funds.

quantity of loanable funds demanded increases;real interest rate

By measuring​ ______, we can see that the economy of Singapore has caught up to and surpassed the economy of the United​ States, but that the economies of Central and South America have not.

real GDP per person

On average in the United​ States, the inflation rate and the money growth rate minus the real GDP growth rate​ ______.

rise and fall together

According to classical growth​ theory, when real GDP per person​ ______, the population grows.

rises above the subsistence level

A​ ______ is a depository institution that accepts savings deposits and makes mostly​ home-purchase loans. A​ ______ is a depository institution owned by a social or economic group such as a​ firm's employees that accepts savings deposits and makes mostly personal loans.

savings​ bank; credit union

All of the following statements are included in new growth theory except​ ______.

the forces of competition destroy incentives to make new discoveries

The fundamental precondition for labor productivity growth is​ _______.

the incentive system created by​ firms, markets, property​ rights, and money

When the price of an asset​ rises, ______.

the interest rate falls

One of the​ Fed's main policy tools is​ ______.

the last resort​ loan, which means that if a bank is short of​ reserves, it can borrow from the Fed

The CPI tells us​ ______.

the price level in a given period expressed as a percentage of the price level in the base​ period, which is by definition equal to 100

An open market operation is​ ______.

the purchase or sale of securities by the Federal Reserve System in the loanable funds market

In an​ economy, there is ​$175 million in currency held outside​ banks, ​$100 million in​ traveler's checks, ​$200 million in currency held inside the​ banks, ​$200 million in checking​ deposits, ​$800 million in savings​ deposits, ​$1 comma 800 million in time​ deposits, and ​$600 million in money market mutual funds and other deposits. The value of M1 is​ ______ and the value of M2 is​ ______.

​475 million; ​$3 ,675 million

Once a​ month, the Bureau of​ ______ Statistics calculates the Consumer Price​ Index, which is a measure of the​ ______ consumers for a fixed basket of consumer goods and services.

​Labor; average of the prices paid by urban

The real interest rate​ ______, household saving​ ______,

​falls; decreases and investment increases

An increase in the population​ ______ potential GDP and​ ______ potential GDP per hour of labor.

​increases; decreases

An increase in real GDP​ ______ the demand for money and financial innovation​ ______.

​increases; might increase the demand for some types of deposits and decrease the demand for others

The money multiplier is the ratio of the change in the quantity of​ ______ to the change in the quantity of​ ______.

​money; monetary base

When the nominal interest rate​ rises, the opportunity cost of holding money​ ______ and the quantity of real money demanded​ ______.

​rises; decreases


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