ECON Final

Refer to Table 29-1. What is the value of M1 in billions of dollars?

$1,915 billion

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

$10,000 of new money.

Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals

$15,300.

Refer to Figure 32-1. If the real interest rate is 6 percent, the quantity of loanable funds demanded is

$20 billion, and the quantity supplied is $60 billion.

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

$250 to GDP.

Refer to Figure 32-2. At what real exchange rate is the quantity of dollars demanded equal to 500?

.6

The multiplier for changes in government spending is calculated as

1/(1 - MPC).

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was

116.9 and the inflation rate was 9.8%.

If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch that costs $25 US dollars costs

125 Egyptian pounds

The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown below. The base year is 2015.

15.4% from 2016 to 2017.

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be

2013

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?

22,000

Refer to Table 28-2. The unemployment rate of Aridia in 2011 was

31.6%

If M = 3,000, P = 2, and Y = 6,000, what is velocity?

4

If the MPC = 0.75, then the government purchases multiplier is about

4

If the price of a sofa is $800 in the U.S. and 2400 pesos in Argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

4/3

The price of a basket of goods is $2000 in the U.S. If purchasing-power parity holds, and the dollar buys two units of some country's currency, then how many units of foreign currency does the same basket of goods cost in that country?

4000

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

67.65

If the nominal interest rate is 5 percent and the rate of inflation is -2.5 percent, then the real interest rate is

7.5 percent.

Refer to Table 29-3. The bank's reserve ratio is

8.5 percent.

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

9 percent

In the production function Y=AF(L,K,H,N) which symbol reflects the state of technology?

A

Refer to figure 35-5. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?

A, D

A double coincidence of wants

All of the above are correct.

Unemployment insurance

All of the above are correct.

Which of the following are residents of rich countries likely to have in greater quantities, or better quality, than residents of poor countries?

All of the above.

Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in the money supply growth rate moves the economy to

B and 2

Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in government expenditures moves the economy to

B and 2.

Refer to Figure 33-4. A decrease in taxes would move the economy from C to

B in the short run and A in the long run.

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

It has $250 in reserves and $4,750 in loans.

Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?

LRAS3

Meredith is looking for work as a computer programmer. Although her prospects are good, she has not yet taken a job. Julie is looking for work in a steel mill. Every time she shows up for an interview, there are more people looking for work than there are openings. Someone waiting in line with her tells her it has been that way for a long time.

Meredith is frictionally unemployed, and Julie is structurally unemployed.

Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

None of the above is correct.

Refer to Figure 33-8. Suppose the economy starts at Z. Stagflation would be consistent with the move to

P3 and Y1 .

One way to characterize the difference between positive statements and normative statements is as follows:

Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.

Which of the following is correct?

The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

The first of these is public saving; the second one is private saving.

Which of the following is a requirement for the Bureau of Labor Statistics to place someone in the "unemployed" category?

The person must have tried to find employment during the previous four weeks.

Which of the following equations represents GDP for an open economy?

Y = C + I + G + NX

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right.

Inflation is defined as

an increase in the overall level of prices in the economy.

Refer to Figure 35-9. Which of the following events could explain the shift of the aggregate-supply curve from AS 1 to AS 2?

an increase in the world price of oil

Automatic stabilizers

are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.

If purchasing-power parity holds, a dollar will buy

as many goods in foreign countries as it does in the United States.

Technological knowledge refers to

available information on how to produce things.

The federal funds rate is the interest rate

banks charge each other for short-term loans of reserves.

Refer to Scenario 26-1. This economy's government is running a

budget deficit of $3,000.

Egypt has exports of $500 million and imports of $750 million. Egypt

buys more from overseas then it sells overseas; it has a trade deficit.

According to the circular-flow diagram GDP

can be computed as the total income paid by firms or as expenditures on final goods and services.

When inflation causes relative-price variability,

consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.

If Y and V are constant and M doubles, the quantity equation implies that the price level

doubles

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

e(P/P*).

Macroeconomics is the study of

economy-wide phenomena.

In the late 1960's, Milton Friedman and Edmund Phelps argued that a tradeoff between inflation and unemployment

existed in the short run but not the long run.

Financial intermediaries are

financial institutions through which savers can indirectly provide funds to borrowers.

Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

g

Fiscal policy refers to the idea that aggregate demand is affected by changes in

government spending and taxes.

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

import quota.

Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included

in German GDP, but is not included in U.S. GDP.

Keynes believed that economies experiencing high unemployment should adopt policies to

increase aggregate demand.

The source of hyperinflations is primarily

increases in money-supply growth.

Crowding out occurs when

investment declines because a budget deficit makes interest rates rise.

Which of the following public policies would be least likely to result in more rapid economic growth for a poor or developing country?

inward-oriented policies

When the Fed conducts open-market purchases,

it buys Treasury securities, which increases the money supply.

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

Human capital is the

knowledge and skills that workers acquire through education, training, and experience.

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

liquidity trap.

One thing economists do to help them understand how the real world works is

make assumptions.

The primary economic function of the financial system is to

match one person's saving with another person's investment.

In the circular-flow diagram, which of the following is not a factor of production?

money

Michael decides to hire some additional workers for his roofing company. The equilibrium wage is $17 per hour. Efficiency wage theory suggests that it is reasonable for Michael to offer

more than $17 per hour in order to attract a better pool of applicants.

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called

natural resources.

In an open economy,

net capital outflow = net exports.

Refer to Figure 32-3. The curve in panel b shows that as the interest rate rises,

net capital outflow declines.

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

raises GDP.

The theory by which people optimally use all available information when forecasting the future is known as

rational expectations.

The aggregate quantity of goods and services demanded changes as the price level falls because

real wealth rises, interest rates fall, and the dollar depreciates.

Refer to Figure 35-9. The shift of the aggregate-supply curve from AS 1 to AS 2

represents an adverse shock to aggregate supply.

An adverse supply shock causes inflation to

rise and the short-run Phillips curve to shift right.

Stagflation exists when prices

rise and unemployment rises.

Which of the following is included in M2 but not in M1?

savings deposits

Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

sell government bonds, which will reduce the money supply.

Refer to Figure 34-8. An increase in government purchases will

shift aggregate demand from AD1 to AD2.

Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

shifting the supply curve in panel a to the left and the supply curve in panel c to the left.

Most economists use the aggregate demand and aggregate supply model primarily to analyze

short-run fluctuations in the economy.

An unexpected increase in the price level that temporarily lowers real wages and induces more employment and output in an economy, occurs in

sticky-wage theory.

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

store of value

Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?

substitution bias

A tax on imported goods is called a(n)

tariff

Thomas Malthus's predictions turned out to be wrong due to

technological advances such as those during the Industrial Revolution.

The short-run relationship between inflation and unemployment is often called

the Phillips curve.

Refer to Figure 32-3. Which curve shows the relation between the exchange rate and net exports?

the demand curve in panel c.

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then

the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars.

Refer to Figure 30-1. When the money supply curve shifts from MS 1 to MS 2,

the equilibrium value of money decreases.

Which of the following is an example of physical capital?

the equipment in a factory

According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in

the interest rate.

The aggregate demand and aggregate supply graph has

the price level on the vertical axis. The price level can be measured by the GDP deflator.

Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point D).

Refer to Figure 34-2. What is measured along the horizontal axis of the left-hand graph?

the quantity of money

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve.

Net capital outflow equals

the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.

An example of an automatic stabilizer is

unemployment benefits.

When we measure and record economic value, we use money as the

unit of account.

The aggregate supply curve is

vertical in the long run and slopes upward in the short run.