Econ. Exam 3

Crowding out occurs when

investment declines because a budget deficit makes interest rates rise

An increase in government purchases ceteris paribus will

reduce investment

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?

the prices of the goods and services

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Bond A has a term of 20 years and Bond B has a term of 2 years.

Figure 10-2: Which of the following is consistent with the graph depicted above?

New government regulations decrease the profitability of new investment.

You earned 30,000 in 2000 and your salary rose to 80,000 in 2013. If the CPI rose from 82 to 202 between 2000 and 2013, which of the following is true

The purchasing power of your salary increased between 2000 and 2013.

Figure 10-6: The market is in equilibrium. If the government budget deficit rises, which of the following would you expect to see?

The quantity of loanable funds demanded by firms will fall below $120 million.

An increase in the real interest rate results in which of the following?

in increase in the demand for loanable funds

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?

1,000 , 500 and 1,500 respectively

For a closed economy GDP is 11 trillion, consumption is 7 trillion, taxes are 2 trillion and the government runs a deficit of 1 trillion. What are private saving and national saving?

2 trillion and 1 trillion, respectively

The consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

2.5 percent

If in a closed economy, real GDP is 30 billion, consumption is 20 billion and government purchases are 5 billion, what is total saving in the economy?

5 billion

If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?

5%

Rueben earned a salary of 60,000 in 2001 and 80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

64,000; thus, Ruben's purchasing power increased between 2001 and 2006.

The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of 40,000 in 1990, what would be a salary with equivalent purchasing power in 2010>

66, 565

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.

Figure 10-1: Which of the following is consistent with the graph depicted above?

Technological change increases the profitability of investment.

Table 9-4. Assume the market basket for the consumer price index has two products - meat and potatoes - with the following values in 2006 and 2013 for price and quantity:

The Consumer Price Index for 2013 equals 129.

Which of the following is not correct?

The consumer price index is used to measure the quantity of goods and services that the economy is producing.

In a particular economy, the price index was 270 in 2005 and 300 in 2006. Which of the following statements is correct?

The economy experienced a rising price level between 2005 and 2006.

Table 9-6. Consider the following values of the consumer price index for 1996, 1997, and 1998.

The inflation rate for 1997 was equal to 2.5 percent.

An increase in the demand for loanable funds will occur if there is

a decrease in the real interest rate

Which of the following would you expect to increase the equilibrium interest rate?

an increase in the budget deficit

Which of the following will increase investment spending in the economy, holding everything else constant?

an increase in the government surplus

The substitution bias in the consumer price index refers to the idea that consumers change the quantity of products they buy in response to price,

and the CPI does not reflect this and overestimates the cost of the market basket.

In comparison to a government that runs a balanced budget, when the government runs a budget deficit

business investment will fall

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

demand for existing shares of the stock and the price will both fall

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

demand funds from the financial system by selling bonds.

If technological change increases the profitability of new investments for firms then the demand curve

for loanable funds will shift to the right

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living