ECON EXAM

Who reconciles differences between legislation that has passed in the House and the Senate?

A conferencing committee

Ceteris paribus, if the government imposes an excise tax on a good, then the price paid by buyers will _______; while the (net) price received by sellers will _______

increase; decrease.

Karen chooses to go to university fulltime rather than to work. Karen:

is not part of the labor force.

When banks hold reserves in excess of the reserve requirement because they don't see good lending opportunities:

it negatively affects expansionary monetary policy.

Ceteris paribus, when the Fed conducts an "open-market sale,"

it sells Treasury securities, which puts downward pressure on the money supply.

Ceteris paribus, we would expect the value of currency in circulation to be _______; _______.

less than M1; and less than M2.

Which of the following is not a function of money?

mechanism of wealth

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer's true cost of living, because it doesn't take into account that the person can substitute between goods according to changes in their relative prices.

overstate

Craigburg has a working age population of 20 million. Of those, 11 million are employed and 1 million are unemployed. The unemployment rate is ________ and the participation rate is __________.

8.3%; 60%.

The total expenditure on a fixed basket of consumption goods in France over four years is: year 1=€500, year 2=£600, year 3=£700, and year 4=£800. Use year 2 as the base year. What is the price index value in year 1?

83

Suppose a U.S. weapons manufacturer increases the price of the M-1 tank it sells to the U.S. Army. It follows that, ceteris paribus, the increase in the price will increase:

the GDP deflator but not the CPI

Which of the following is the best example of a good or service that would be considered non-rival and non-excludable?

the United States Navy

A government began 2013 with a budget deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause:

the exchange rate and the trade deficit to decrease.

When an economist refers to "an efficient allocation of resources," she typically means _______ is maximized.

the sum of consumer and producer surplus

When the central bank lowers the reserve requirement on deposits:

the supply of loanable funds increases and interest rates decrease.

Ceteris paribus, goods with "positive externalities" tend to be_______ by the free-market private sector; thus, in modern developed economies these goods are often_______ by the government.

under-supplied; supplied or otherwise subsidized

When inflation begins to climb to unacceptable levels in the economy, the government should

use contractionary fiscal policy to shift aggregate demand to the left.

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?

countercyclical

Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:

exports exceed imports by $50 billion.

Which of the following is not a consequence of an increase in the government's budget deficit?

exports increase while imports and all other variables are held constant

Suppose, as an instrument of monetary policy, the Fed decreases the interest rate it pays on commercial bank reserves held at the Fed. Ceteris paribus, it follows that the commercial banks will want to hold _______ reserves at the Fed; and thus there would be _____ pressure on the money supply; and there would be _______ pressure on nominal interest rates

fewer; upward; downward

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow contractionary monetary policy.

A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be:

frictionally unemployed.

Final goods or services used to compute GDP refer to:

goods and services purchased by the ultimate users.

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

higher interest rate

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:

a contractionary monetary policy.

Ceteris paribus, which of the following would be the most likely to contribute to an increase in cyclical unemployment?

a decrease in real GDP

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$620 million

Suppose country ABC has a working-age population of 40 citizens. Of the working-age population, there are 10 people who are not employed and not actively seeking work. There are 20 people who are employed. There are also 10 people who are not employed but who are actively seeking work. What is the labor force participation rate in ABC?

((10+20)/40)) x 100% = 75.0%

Suppose country ABC has a total population of 50 and a working-age population of 40 citizens. Of the working-age population, there are 10 people who are not employed and not actively seeking work. There are 20 people who are employed. There are also 10 people who are not employed but who are actively seeking work. What is the official unemployment rate in ABC?

(10/(10+20)) x 100% = 33.3%

Suppose the consumer price index (CPI) accurately measures inflation, and at the end of 2000, the CPI in the nation state of Wensleyville was 111.1. If the CPI at the end of 2001 was 113.2, then what was the rate of inflation (or deflation) in 2001?

1.89%

The total price of purchasing a basket of goods in France over four years is: year 1=€500, year 2=£600, year 3=£700, and year 4=£800. Use year 2 as the base year. What is the price index value in year 2?

100

If the Nominal GDP is $800, the price level 100, and the money supply is 400. What is the velocity of Money?

2

Suppose Home Depot issues 30-year bonds on which it pays a 5.0% nominal interest rate (issuing a bond means that they are essentially borrowing money from investors). Further, suppose that both Home Depot and the purchasers of its bonds anticipate inflation will average 2.75% during the life of the loan (i.e. the bond). Now suppose the inflation rate after the loan is made (i.e. after the bond is purchased) is actually 3.00% per annum. It follows that the actual real rate of interest is ____ and ________________ are better off than anticipated as a result of the difference between the anticipated and the actual rate of inflation.

2.00%, Home Depot

A government deficit has decreased from 100 to 60. The country's trade deficit is 120 and private savings equal 80 and investment equals 100. If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal:

40

Assume South Korea and United States are starting from the same GDP, $100. South Korea grows at a sustained rate of 4% and the United States grows at sustained rate of 1%. By what factor is South Korea's economy larger after 20 years?

Approx 1.8

A "debt ceiling crisis" occurs because:

Arguments among politicians over whether they should pay for spending that has already been authorized

____________ is a completely inadequate mechanism ____________________ in a modern advanced economy.

Barter; for trying to coordinate trades

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest

Bonds

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

Central Bank; safety and stability of the banking system.

Individuals and small-to-medium size enterprises are the customers of which of the following:

Commercial Banks

A landscaper is laid off in response to a drop in new housing construction during a recession. What type of unemployment (cyclical, frictional, or structural) applies to this scenario?

Cyclical

Which of does NOT count as an austerity measure in the face of a sovereign debt crises?

Decreasing taxes

Assume the U.S. is running both a trade deficit and federal deficit. Which of the following is not plausible under an increase in the federal deficit?

Demand for loanable funds shifts right leading to lower interest rate

______________________ argues that the productivity of workers will increase if they are paid more, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate.

Efficiency wage theory

Through financial engineering, risk can be eliminated from the financial system.

False

Which of the following statements is true?

GDP includes spending on recreation and travel, but it does not cover leisure time.

When discussing economic growth, it is often useful to focus on ____________, to avoid studying changes in the size of GDP that represent only having more people in the economy, and focus on those increases in GDP which represent an actual rise in the standard of living on a per person basis.

GDP per capita

In the early 1990's extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ___________________.

Hyperinflation

Corporations, pension funds, other financial institutions, governments, and hedge funds are typically clients of:

Investment Banks

Of the following individuals, which would be included in the Bureau of Labor Statistics' "unemployed" category for the calculation of the unemployment rate?

Mr. L, who has been laid off and is looking for work.

If marginal private benefits associated with the use of a good are higher than the marginal social benefits associated with the use of that good, the good has a:

Negative consumption externality

Which of the following is NOT a typical service of commercial banks?

Negotiation mergers and acquisitions

The CPI in France over years is: year 1=105, year 2=106, year 3=107, and year 4=108. Is the inflation from year 1 to year 2 the same as the inflation from year 3 to year 4?

No

You are considering purchasing a share of Coca-Cola stock today. Assume the following is true: a) you will be able to sell it in 2 years for $65 and b) you will receive a $1 dividend at the end of each of those two years. If the prevailing interest rate is 7% and the present price is $60, should you purchase the share?

No

Which of the following is NOT a characteristic of a credit derivative?

Only investment banks can trade them

Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the year), has 2 years left to maturity, and has a discount rate of 6.5%. Which of the following would give you the present value - i.e. the price - of the bond?

Present Value = Price = [$500/(1.065)] + [$500/(1.065)2] +[$10,000/(1.065)2]

Coal miners are laid off due to increasing grid reliance on renewable energy resulting in their mine's closure. What type of unemployment (cyclical, frictional, or structural) applies to this scenario?

Structural

Which of the following is NOT a typical service of investment banks?

Take deposits

Who acts as a lender-of-last resort to countries facing sovereign debt crises?

The International Monetary Fund

Which of the following does not belong to the "Troika"?

The World Bank

Which of the following best describes the economic concept of "deadweight loss"?

The decrease in total surplus resulting from the "distortion" to the market from a tax.

The nation state of Wensleyville produces one final good: Dog food. Ceteris paribus, which of the scenarios below will unambiguously lead to an increase in real GDP?

The quantity of dog food produced increases.

Which of the following is NOT a characteristic of an over-the-counter derivative arrangement?

They go through an exchange or other type of formal intermediaries

Infant mortality declines. Does this change cause GDP to overstate or understate the change in the broader standard of living?

Understate

Which of the following goods is the best example of a good with a positive consumption externality?

Vaccines

Assume Wensleyland and Ayeshaland are economies starting off at a GDP of $100. Whose GDP is larger at the end of 40 years: Wensleyland growing at 2% for 40 years or Ayeshaland growing at 4% for 20 years and not growing at all for the remaining 20 years?

Wensleyland

Assuming nominal interest rates are positive, which of the following statements about real and nominal interest rates is correct?

When the inflation rate is positive, ceteris paribus, the nominal interest rate will be greater than the real interest rate.

The total price of purchasing a basket of goods in France over four years is: year 1=€500, year 2=£600, year 3=£700, and year 4=£800. Let's say you calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Are the inflation rates calculated using one index the same as the other?

Yes

You are considering purchasing a share of Pfizer stock today. Assume the following is true: a) you will be able to sell it in 2 years for $50 and b) you will receive a $3 dividend at the end of each of those two years. If the prevailing interest rate is 5% and the present price is $42, should you purchase the share?

Yes

After widespread press reports about the dangers of contracting "mad cow disease" by consuming beef from Canada, the likely economic effect on the US demand curve for beef from Canada is:

a shift of the demand curve for beef to the left.

If imports exceed exports, as in recent years, then __________ exists.

a trade deficit

What distinguishes the real value of a statistic from the nominal value of a statistic?

adjusting for inflation

The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay.

adverse selection of wage cuts

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

an asset-liability time mismatch

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

an asset-liability time mismatch; diversify its loans

Which of the following is a valid criticism of the use of money as a store of value in modern economies?`

annual inflationary loss of buying power

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:

budget surplus.

Cyclical unemployment arises when:

business activity in the macroeconomy declines.

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. Ceteris paribus, this shift from home-produced to market-produced goods and services would unambiguously:

cause GDP to increase

Suppose the market for pizza is characterized by a downward sloping demand curve and an upward sloping supply curve. Now suppose an excise tax, to be collected by pizza sellers, is imposed on this market. Ceteris paribus, it follows that the Consumer Surplus will _______, and the Producer Surplus will _______.

decrease; decrease

Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the year), has 2 years left to maturity, and has a discount rate of 6.5%. Further suppose you purchase this bond, but then, after you purchase it, you discover that the credit (i.e. "default" risk) on the bond has increased. Ceteris paribus, it follows that the present value (i.e. the market price) would _____, and the yield would _____.

decrease; increase

Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the year), has 2 years left to maturity, and has a discount rate of 6.5%. Further suppose you purchase this bond, but then, after you purchase it, you discover that the inflation risk on the bond has increased. Ceteris paribus, it follows that the present value (i.e. the market price) would _____, and the yield would _____.

decrease; increase

Ceteris paribus, to _______ the money supply and _______ nominal interest rates, the Fed could _______.

decrease; increase; increase the required reserve ratio.

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

depend on borrowed money

Suppose some of the country's largest commercial banks decide to increase their holdings of excess reserves relative to deposits. Ceteris paribus, this action will put _______ pressure on the money supply, and to reduce the impact of this action the Fed could _______.

downward; conduct open market purchases.

If the Fed is increasing the required reserve ratio, then one would expect, ceteris paribus, that this activity would: (1) put ________ pressure on the money supply; and (2) in the short run put ________ pressure on nominal interest rates.

downward; upward

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

expansionary fiscal policy; lead to a budget deficit

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

Which of the following was developed by the Federal Reserve as an innovative and nontraditional method to expand the quantity of money and credit in response to the 2008 Financial Crisis and subsequent U.S. recession?

quantitative easing

The quantity of money in an economy and the _____________________ are inextricably intertwined.

quantity of credit for loans

The most commonly cited measure of inflation in the United States is:

the Consumer Price Index (CPI).