Econ Exam 2 Review

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be a) $500 higher and M2 would be $1,500 higher. b) $1,000 higher and M2 would be $1,500 higher. c) M2 and M1 would be $1,500 higher. d) $1,000 high and M2 would be $500 higher.

$1,000 higher and M2 would be $1,500 higher.

Nate collected Social Security payments of $220 a month in Year 1. If the price index rose from 90 to 108 between Year 1 and Year 2, then his Social Security payments for Year 2 should have been a) $257. b) $228. c) $238. d) $257. e) $264.

$264

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits? a) $5,000 billion b) $4,937.5 billion c) $5,062.5 billion d) $4,995 billion

$4,937.5 billion

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? a) $250, $8,250, and $8,500, respectively b) $15,000, $26,250, and $13,250, respectively c) $8,250, $250, and $8,500, respectively d) $26,250, $15,000, and $13,250, respectively

$8,250, $250, and $8,500, respectively

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced a) 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. b) 10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. c) 10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. d) 11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. e) 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

The following table lists the per gallon prices of gas and milk for the months of September, October, and November. Assume that the typical consumer buys 100 gallons of gas and 7 gallons of milk each month, and that September is the base period. Gas Milk September 4.00 3.50 October 4.40 3.52 November 4.60 3.58 Refer to the Table. What is the consumer price index for November? a) 87.51 b) 91.36 c) 87.51 d) 114.27 e) 95.79

114.27

Suppose that the Bureau of Labor Statistics reported that there were 62 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 45.3 million were employed and 3.6 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group? a) 7.4% and 78.9% b) 78.9% and 7.4% c) 126.8% and 7.4% d) 78.9% and 126.8%

78.9% and 7.4%

Which of the following is an example of barter? a) A parent gives a teenager a $10 bill in exchange for her babysitting services. b) A homeowner gives an exterminator a check for $50 in exchange for extermination services. c) A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet. d) A doctor performs surgery on a patient whose insurance pays 100% of the bill.

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

Which of the following does the Federal Reserve not do? a) Conduct monetary policy b) Act as a lender of last resort c) Conduct fiscal policy d) Serve as a bank regulator

Conduct fiscal policy

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? a) Corporate bond, municipal bond, U.S. government bond b) Corporate bond, U.S. government bond, municipal bond c) Municipal bond, U.S. government bond, corporate bond d) U.S. government bond, municipal bond, corporate bond

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

Which list ranks assets from most to least liquid? a) Currency, houses, stocks b) Currency, stocks, houses c) Houses, currency, stocks d) Houses, stocks, currency

Currency, stocks, houses

You receive money as payment for mowing your neighbor's lawn. Which function of money does this best illustrate? a) Medium of exchange b) Unit of account c) Store of value d) Liquidity

Medium of exchange

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent? a) National saving b) Investment c) Private saving d) Public saving

Public saving

Which of the following is not included in M1? a) Currency b) Demand deposits c) Savings deposits d) Traveler's checks

Savings deposits

Which of the following is correct? a) The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. b) The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. c) The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. d) The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

Which of the following best represents fiat money? a) The euro b) A gold bar c) Monopoly money d) Baseball cards

The euro

What basket of goods and services is used to construct the CPI? a) A random sample of all goods and services produced in the economy b) The goods and services that are typically bought by consumers as determined by government surveys c) Only food, clothing, transportation, entertainment, and education d) The least expensive and the most expensive goods and services in each major category of consumer expenditures

The goods and services that are typically bought by consumers as determined by government surveys

Suppose private saving in a closed economy is $21b and investment is $8b. a) The government budget surplus must equal $13b. b) National saving must equal $21b. c) Public saving must equal $13b. d) The government budget surplus must equal $13b. e) The government budget deficit must equal $13b.

The government budget deficit must equal $13b.

Which of the following is correct statements is about the relationship between the nominal interest rate and the real interest rate? a) The real interest rate is the nominal interest rate minus the rate of inflation. b) The real interest rate is the nominal interest rate times the rate of inflation. c) The real interest rate is the nominal interest rate minus the rate of inflation. d) The real interest rate is the nominal interest rate plus the rate of inflation. e) The real interest rate is the nominal interest rate divided by the rate of inflation.

The real interest rate is the nominal interest rate minus the rate of inflation

What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income? a) There would be an increase in the equilibrium quantity of loanable funds. b) There would be a reduction in the equilibrium quantity of loanable funds. c) There would be no change in the equilibrium quantity of loanable funds. d) The change in loanable funds is uncertain.

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

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals a) [(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100. b) [(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100. c) [(CPI in Year 2 − CPI in Year 1)/CPI in Year 2] × 100. d) [(CPI in Year 1 − CPI in Year 2)/CPI in Year 1] × 100.

[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.

When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. The money supply increases. b) borrow more from the Fed and lend less to the public. The money supply decreases. c) borrow less from the Fed and lend more to the public. The money supply increases. d) borrow less from the Fed and lend less to the public. The money supply decreases.

borrow more from the Fed and lend more to the public. The money supply increases.

Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes a) the number of people unemployed rise but does not change the labor force. b) the number of people unemployed rise but makes the labor force fall. c) both the number of people unemployed and in the labor force fall. d) the number of people unemployed fall but does not change the labor force.

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

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the a) consumer price index rises slightly more than does the GDP deflator. b) GDP deflator rises much more than does the consumer price index. c) consumer price index rises much more than does the GDP deflator. d) GDP deflator and the consumer price index rise by about the same amount. e) consumer price index rises slightly more than does the GDP deflator.

consumer price index rises much more than does the GDP deflator.

If the Federal Open Market Committee decides to increase the money supply, it a) creates dollars and uses them to purchase government bonds from the public. b) sells government bonds from its portfolio to the public. c) creates dollars and uses them to purchase various types of stocks and bonds from the public. d) sells various types of stocks and bonds from its portfolio to the public.

creates dollars and uses them to purchase government bonds from the public.

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 a) cyclical unemployment amounting to 0.8 percent of the labor force. b) frictional unemployment amounting to 0.8 percent of the labor force. c) structural unemployment amounting to 0.8 percent of the labor force. d) search unemployment amounting to 0.8 percent of the labor force.

cyclical unemployment amounting to 0.8 percent of the labor force.

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI a) fails to account for the introduction of new goods. b) fails to account for consumer spending on housing. c) accounts only for consumer spending on food, clothing, and energy. d) fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods. e) fails to account for the introduction of new goods.

decreased from Year 1 to Year 2 and decreased from Year 2 to Year 3.

Other things the same, if reserve requirements are decreased, the reserve ratio a) increases, the money multiplier increases, and the money supply increases. b) decreases, the money multiplier increases, and the money supply increases. c) increases, the money multiplier decreases, and the money supply decreases. d) decreases, the money multiplier decreases, and the money supply increases.

decreases, the money multiplier increases, and the money supply increases.

The unemployment rate is computed as the number of unemployed a) divided by the labor force, all times 100. b) divided by the number of employed, all times 100. c) divided by the adult population, all times 100. d) times the labor-force participation rate, all times 100.

divided by the labor force, all times 100.

Providing training for unemployed individuals is primarily intended to reduce a) frictional unemployment. b) seasonal unemployment. c) structural unemployment. d) cyclical unemployment.

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 a) structurally unemployed. Structural unemployment exists even in the long run. b) structurally unemployed. There is no structural unemployment in the long run. c) frictionally unemployed. Frictional unemployment can exist even in the long run. d) frictionally unemployed. There is no frictional unemployment in the long run.

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

Other things the same, when the interest rate rises, people would want to lend a) more, making the supply of loanable funds decrease. b) less, making the supply of loanable funds increase. c) more, making the quantity of loanable funds supplied increase. d) less, making the quantity of loanable funds supplied decrease.

more, making the quantity of loanable funds supplied increase

Long-term bonds are a) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. b) riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. c) riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. d) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. e) less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

riskier 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 a) saver or as a supplier of funds. b) saver or as a supplier of funds. c) borrower or as a demander of funds. d) saver or as a demander of funds. e) borrower or as a supplier of funds.

saver or as a supplier of funds.

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a a) shortage and the interest rate is below the equilibrium level. b) surplus and the interest rate is above the equilibrium level. c) surplus and the interest rate is below the equilibrium level. d) shortage and the interest rate is above the equilibrium level.

shortage and the interest rate is below the equilibrium level.

A problem that the Fed faces when it attempts to control the money supply is that a) the 100-percent-reserve banking system in the United States makes it difficult for the Fed to carry out its monetary policy. b) the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c) the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. d) the Fed does not control the amount of money that households choose to hold as deposits in banks.

the Fed does not control the amount of money that households choose to hold as deposits in banks.