Econ: Set 6
The term "efficient markets hypothesis" refers to
"informational efficiency" of the stock market.
Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a
"speculative bubble."
A bank which must hold 100 percent reserves opens in an economy that had no banks and a total initial money supply (currency) of $1,000. If customers deposit $87 into the bank, what is the value of the money supply?
$1,000
From the standpoint of the economy as a whole, the role of insurance is not to eliminate the risks inherent in life, but to spread them around more efficiently.
True
Fundamental analysis refers to a detailed analysis of a company to determine its value.
True
First Bank of Zogua, a fictional bank, has made a $1 million loan. This loan appears on what part of T-account of the First Bank of Zogua?
assets.
Suppose that consumers decide to ride buses more often and own fewer cars. Bus companies hire more drivers, while automobile companies lay off workers. The unemployment this creates is an example of
frictional unemployment created by sectoral shifts.
One purpose of government sponsored job training is to reduce
frictional unemployment by giving workers skills to work in growing industries.
The Fed changes the discount rate and, as a direct result, reserves have decreased. The Fed has most likely
increased the discount rate.
Assume banks hold no excess reserves. If the Fed decreases the reserve ratio from 20 percent to 10 percent, then the money multiplier
increases from 5 to 10.
The worker health version of the efficiency wage theory is
less relevant for explaining unemployment in developed countries than in less developed countries.
Unemployment insurance makes workers _____ likely to negotiate for job security when searching for a job and _____ likely to have a long job search.
less, more
First Bank of Zogua, a fictional bank, has just received a $100 deposit from an individual. This deposit appears on what part of T-account of the First Bank of Zogua?
liabilities.
The efficient markets hypothesis implies that a worse-than-expected news about a company's performance will
lower the price of the stock.
According to 2012 data on the U.S. population, which of the following was correct for the adult population of prime working age, ages 25-54? White females had a
lower unemployment rate than black females but a similar labor force participation rate.
If outsiders had more say in union contracts then it is likely that union wages would be
lower which would make structural unemployment lower.
The two primary tasks of the Federal Reserve are
monetary policy and bank regulation.
Which of the following decrease when the Fed makes open market purchases?
neither currency nor reserves
One issue with using changes in U-3 as evidence of the health of the labor market is that an increase in the number of people working part-time who were working full-time (and would still like to work full-time) will ____
not change U-3, all else being equal, because part-time and full-time work are both counted as employed.
Someone who quits their job is _________ for unemployment benefits. Someone who loses their job because the company they work for has gone out of business is _______ for unemployment insurance benefits.
not eligible, eligible
When the Fed buys U.S. government bonds, it has conducted
open market purchases, which increase the money supply.
The Fed has decreased the money supply through open market operations. Which of the following has occurred?
open market sales, and bank reserves decrease.
When the Fed sells U.S. government bonds, it has conducted
open market sales, which decrease the money supply.
Mary manages a data entry center. Workers sometimes play games on the internet, check their personal email, or go slow. According to efficiency wage theory to reduce this shirking Mary could
pay above equilibrium wages. This would raise unemployment.
The official government unemployment rate (U-3) fails to fully capture labor utilization because it does not capture
people who are working part-time and would like to work full-time.
The official government unemployment rate (U-3) fails to fully capture labor utilization because it does not capture
potential skill mismatches.
The New York Federal Reserve Bank
president always gets to vote at the FOMC meetings.
Suppose that your research shows that the present value of a stock's dividend stream and future price exceeds its price. This should lead you to believe that the stock is
undervalued and you should consider buying it.
Frictional unemployment in the U.S. is inevitable because
sectoral shifts are always happening.
Caroline is the president of a nationwide company that provides janitorial services. She decides to raise the wages of her workers so that they are above equilibrium. According to the theory of efficiency wages her workers are likely to
shirk less and stay on the job longer.
Gwen is on layoff expecting to be recalled. The Bureau of Labor Statistics counts Gwen as
unemployed and in the labor force.
Sasha deposited $1,500 into an account three years ago. In the first two years the interest rate was 5%, whereas in the third year the interest rate was 6%. How much money does Sasha have in her account today?
$1,752.98
You would be equally happy, assuming that the interest rate is 4%, if you received a gift of either $100 today or a gift of
$112.49 three years from today.
The manager of the bank where you work tells you that the bank has $500 million in deposits and $350 million dollars in loans. If the reserve requirement is 5 percent, how much is the bank holding in excess reserves?
$125 million
A year ago, Bertha created a new saving account, which earned 4%. Now, the bank statement shows that she has $130 in her account. How much did Bertha deposit one year ago?
$125.00
You consider whether to buy a bond that would pay $20,000 in 4 years. If the interest rate is 6%, you will buy the bond only if its price today is no greater than
$15,841.87.
A scholarship gives you $2,000 today and promises to pay you $1,000 one year from today. Which formula determines the present value of these payments?
$2,000 + $1,000/(1 + r)
Keira deposited $2,000 into an account two years ago. In the first year the interest rate was 5%; in the second year the interest rate was 6%. How much money does Keira have in her account today?
$2,226.00
A bank's reserve ratio is 20 percent and the bank has $1,000 in deposits. Its reserves amount to
$200.
Which of the following is the present value of $4,000 to be received in 6 years, if the interest rate is 4%?
$3,161.26
Anna deposited $5,000 into an account three years ago. The first year she earned 12% interest, the second year the interest rate was 8%, and the third year the interest rate was 4%. How much money does she have in her account today?
$6,289.92
If a bank has just enough reserves to meet the required reserve ratio of 25 percent, and receives a deposit of $800, it has initially experienced a
$600 increase in excess reserves and a $200 increase in required reserves.
Which of the following formulas determines the future value of $600 put into an account that earns 2% interest for 10 years?
$600 × (1 + 0.02)10
If today you deposit $600 into a bank account, which pays the annual interest rate of 3%, in 1 year, the future value of the deposit will be
$618.00.
If the reserve ratio is 20 percent, then $150 of new reserves can generate
$750 of new money in the economy.
Suppose the banking system currently has $100 billion in reserves, the reserve requirement is 10 percent, and excess reserves amount to $5 billion. What is the level of deposits?
$950 billion
Spells of unemployment end with job seekers exiting the labor force about
1/2 of the time.
At an annual interest rate of 7%, about how many years will it take $200 to double in value?
10
About what fraction of U.S. jobs are destroyed in the U.S. each year?
10 in 100
Economists have found that union workers earn what percent more than similar nonunion workers?
10 to 20
About what percentage of manufacturing jobs are destroyed every year, and about what percentage of workers leave their jobs in a typical month?
10% and 3%
Under what reserve ratio is a bank unable to create money?
100%
Suppose that the adult non-institutionalized population of California is 30 million. If 18 million people are employed and 1.5 million are unemployed, then
19.5 million are in the labor force.
Suppose a bank has total assets of $1,000, capital of $50, and liabilities of $950; the leverage ratio for this bank is ____.
20
If $200 of new reserves generates $1,000 of new money in the economy, then the reserve ratio is
20 percent.
About what fraction of workers leave their jobs in a typical month?
3 in 100
If the reserve ratio is 20 percent, the money multiplier is
5.
A typical American worker covered by unemployment insurance receives _____ percent of his former wages for up to ________ weeks.
50, 26
Suppose that you deposited $175 in the bank. In one year, the bank statement shows that you have $190 in your account. What interest rate did your account earn?
8.6%
Which of the following is not an example of currency?
A $1,000 balance stored in a checking account
Which of the following would fit an economist's definition of "money"?
A $20 bill
Suppose Klara is a risk averse person, which of the following games might she play?
A game where she has a 60% chance of winning $1 and a 40% chance of losing $1.
Which of the following investment options would a risk averse investor of $100,000 prefer?
A risk-free government bond that pays 3% each year for two years.
Which of the following is not a function of money?
A tool to increase barter
Which of the following does the Federal Reserve do?
Act as a lender of last resort to banks
Which of the following is an example of an efficiency wage?
An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants.
Which of the following is not true in a system of 100-percent-reserve banking?
Banks influence the supply of money.
Which of the following is not correct?
Collective bargaining by unions raises the wages of both union and nonunion workers.
Which of the following describes the difference between compounding and discounting?
Compounding produces a future value, whereas discounting produces a present value.
Which of the following are used to defer payments and are therefore not money?
Credit cards
Which of the following lists accurately describes M1?
Demand deposits, traveler's checks, other checkable deposits and currency
Which of the following most accurately describes what data are included in fundamental analysis of the value of a stock?
Dividends, the expected final sale price, and the ability of the corporation to earn profits.
The government of fictional country of Dobar has decided to use paper currency, known as Dobar dollars, as money. Which of the following best describes Dobar dollars?
Dobar dollars are fiat money with no intrinsic value.
Efficiency wages create frictional unemployment.
False
If the efficient markets hypothesis is correct then some stocks may be better buys than other.
False
According to the theory of efficiency wages, it cannot be profitable for firms to keep wages above equilibrium.
False
An index fund holds only stocks and bonds that are indexed to inflation.
False
An index fund includes only the best stocks available in the stock market.
False
As the number of stocks in a person's portfolio increases, the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio.
False
Ashley owns a home worth $500,000 and owes $100,000 in student loans. If you asked an economist, she would say Ashley has $400,000 worth of money.
False
Compounding refers to finding the future value of a present sum of money.
False
Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate is sometimes very close to zero.
False
Diminishing marginal utility of wealth implies that the utility lost from losing a $100 bet is less than the utility gained from winning it.
False
Diversification of a portfolio can eliminate market risk, but it cannot eliminate firm-specific risk.
False
If the number of people unemployed rises from 3 million to 3.2 million while the number of people employed rises from 60 million to 66 million, and the population rises from 100 million 103 million, the unemployment rate rises.
False
In 1914, Henry Ford began paying his workers $5 per day, about twice the going wage. As a result, turnover and absenteeism fell. However, profits fell.
False
Since money is the most liquid asset, most people seek to allocate all of their wealth towards currency.
False
Someone who loses his job at a futon store because the demand for futons has fallen and the demand for other types of beds has risen, is structurally unemployed.
False
Suppose that Black&White Company announces that its revenue in the last quarter decreased by less than its investors had anticipated. According to the efficient markets hypothesis, the value of the company's stock will decline.
False
The Fed most often influences the money supply by changing reserve requirements for banks.
False
The Federal Open Market Committee (FOMC) is responsible for carrying out the Fed's tasks of regulating banks and ensuring the health of the financial system.
False
The U.S. minimum-wage laws has a large effect on the employment of workers with some basic skills and experience.
False
The agency responsible for regulating the money supply in the United States is U.S. Treasury.
False
The efficient market hypothesis implies that news has no effect on stock prices.
False
The efficient markets hypothesis implies that building a portfolio based on a published list of the "most respected" companies is likely to produce a better-than-average return.
False
The primary reason for unemployment in the U.S. is the minimum wage.
False
The unemployed who quit their jobs are eligible for unemployment insurance.
False
Today, you deposit $350 into a bank account, which pays an annual interest rate of 6%. The future value of the $350 in 4 years is $1,400.
False
Unemployment generated by the existence of labor unions is frictional unemployment and so contributes to the natural rate of unemployment.
False
When the Fed sells government bonds the money supply increases and the federal funds rate decreases.
False
You would prefer $100 today to receiving $200 in 10 years if the interest rate were 5%.
False
About 25% of U.S. workers belong to unions.
False - About 11% of U.S. workers belong to unions.
Which type of money has no intrinsic value?
Fiat money
Under what system do banks generally lend out the majority of the funds deposited?
Fractional reserve banking
Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages?
Henry Ford
Suppose, the annual interest rate is 3.45%. In which of the following instances is the future value of the present payment of $1,000 the largest?
In 7 years
Which of the following does the efficient market hypothesis imply?
Index funds should outperform professionally managed funds. And they usually do.
The banking system currently has $200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 20 percent. If the Fed lowers the reserve requirement to 10 percent and at the same time buys $20 billion worth of bonds, then by how much does the money supply change?
It rises by $1,200 billion.
Three friends go to the bank to cash in their accounts. Keira kept her money in the bank for 25 years at 4% interest. Sasha held her money for 20 years at 5% interest. Anna held her money for 5 years at 20% interest. If each of them originally deposited $1,000, who gets the most money when they cash in their accounts?
Keira - The formula for the future value is as follows: Present Value × (1 + Interest rate)Years.
You purchase a beer at a bar using cash. The fact that the bar accepts your cash for the beer beUt illustrates which function of money?
Medium of exchange
You sell your old smartphone online for cash. The fact that you accept cash for your old smartphone best illustrates which function of money?
Medium of exchange
Who of the following would be included in the Bureau of Labor Statistics' "unemployed" category?
Mike, who is waiting to be recalled from a job from which he has been laid off
Which of the following assets is most liquid?
Money
Which of the following is not included in M1?
Money market mutual funds
Which of the following best defines commodity money?
Money that takes the form of a commodity with intrinsic value
Sam quit his job because he wanted to move somewhere else. Amy just started looking for work after being out of the labor market for a couple of years. Mason was laid off because his employer's sales had fallen due to economic conditions. Who is currently eligible for unemployment insurance benefits?
Only Mason.
Suppose the money multiplier is equal to 1 in the economy of the fictional country of Opria. What does this indicate about the type of banking system in Opria?
Opria uses a 100-percent reserve system and banks do not create money.
If R represents the reserve ratio for all banks in the economy, then the money multiplier must be equal to 1 divided by what?
R
Which of the following lists all items included in M2 but not in M1?
Savings deposits, small time deposits, money market mutual funds and other minor categories
Suppose the Fed wishes to decrease the money supply, which of the following open market operations will the Fed conduct to accomplish this goal?
Sells bonds to the public.
The Bureau of Labor Statistics classifies some marginally attached workers as discouraged workers. What additional criteria has to be met for a marginally attached worker to be a discouraged worker?
She provides a job-market related reason for not looking for work.
Blake is not looking for work because there have been many job cuts where he lives, and he doesn't think it is likely that he will find work. Sierra hasn't looked for work for six weeks, but she would like a job, and she has looked for work in the past. Who does the Bureau of Labor Statistics count as marginally attached workers?
Sierra but not Blake
Which of the following is an example of stock market irrationality?
Speculative bubbles in the stock market occur because the price that people pay for stock depends on what they think someone else will pay for it in the future.
Which of the following is consistent with the efficient market hypothesis?
Stock prices follow a random walk.
Which of the following best describes what occurs under the Fed's Term Auction Facility?
The Fed auctions a set amount of funds, and the bank that offers to pay the highest rate for the funds will get to borrow from the Fed.
Which of the following will make banks want to hold more reserves at the Fed, causing the money multiplier to decrease?
The Fed increases the interest rate on bank deposits held at the Fed.
Which of the following is not true regarding the Federal Reserve?
The Fed was created to facilitate the federal government's collection of taxes as well as its expenditures.
Which of the following is not correct about the Fed?
The Federal Reserve Chair is appointed by the speaker of the house to a four-year term.
Which of the following best defines liquidity?
The ease with which an asset is converted to the medium of exchange.
Which of the following scenarios does not involve the use of commodity money?
The government of the fictional country of Owana orders the use of paper dollars as money.
Clyde is the president of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Clyde decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?
The higher the wage, the less turnover in his work force.
Which of the following most closely fits an economist's definition of "money"?
The set of assets in an economy that people regularly use to buy goods and services
A public company announces that it has hired a new chief executive officer who has a reputation of successfully raising the profitability of the corporation. Which of the following is the most likely consequence of the announcement?
The value of the company's stock will rise.
Which of the following is correct?
There is no consensus among economists that unions are either good or bad for the economy.
Suppose fundamental analysis indicates that a stock is undervalued. Which of the following is true?
This means its value is more than its price and you should consider adding the stock to your portfolio.
Fundamental analysis shows that the stock of Gold Fish corporation has a present value that is lower than its price. Which of the following is true?
This stock is overvalued.
A minimum wage above equilibrium results in unemployment by creating a surplus in some labor markets.
True
Advocates of government-run employment agencies and public-training programs believe they make job search more efficient and that they reduce the inequities of changing job markets.
True
All other things being the same, the future value of a deposit in a savings account will be larger the higher the interest rate is.
True
All other things being the same, the future value of a deposit in a savings account will be larger the longer a person waits to withdraw the funds.
True
As the number of stocks in a person's portfolio increases, the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio.
True
Bertha is a risk averse person. Therefore she will be upset losing $1,000 on a bet more than pleased winning $1,000 on a bet.
True
Cyclical unemployment is closely associated with the short-run ups and downs of economic activity.
True
Discounting refers to finding the present value of a future sum of money
True
Diversification of a portfolio can eliminate firm-specific risk, but it cannot eliminate market risk.
True
If stock prices follow a random walk, it means that stock prices are just as likely to rise as to fall at any given time.
True
If the interest rate is 4.5%, you are better off having $1,000 today than $X in 7 years if and only if X is less than $1,360.86 (or X < $1,360.86).
True
If today you deposit $700 into a bank account, which pays the annual interest rate of 2.5%, in 2 years, the future value of the deposit will be $735.44.
True
Most economists agree that eliminating unemployment insurance would decrease the amount of unemployment in the economy.
True
Other things the same, if people who were employed become unemployed, real GDP falls.
True
Raymond works as a valuation expert. His job is to look at companies, assess how much their assets and liabilities are worth, and place a dollar valuation on the company that other companies must pay in an acquisition. Raymond's company valuations are an example of the unit of account function of money.
True
Sectoral shifts are changes in the demand for workers across industries or regions.
True
Suppose that Orange Company announced that it hired a new CEO away from its successful competitor. The efficient markets hypothesis implies that the price of the stock should increase.
True
Suppose that Purple Company unexpectedly announces a significant improvement in the production technology. The efficient markets hypothesis implies the price of the stock should increase. Suppose this news has no effect on the price of the stock. Fundamental analysis would now show that the company's stock is undervalued.
True
The formula $X × (1 + r)n determines the future value of $X that earns r percent interest for n years.
True
The unemployment that results from the process of matching workers and jobs is called frictional unemployment.
True
U.S. dollars are an example of fiat money and alcohol used to make trades is an example of commodity money.
True
When a union raises the wage above the equilibrium level, it raises the quantity of labor supplied and reduces the quantity of labor demanded, resulting in higher unemployment.
True
When the Fed purchases government bonds the money supply increases and the federal funds rate decreases.
True
You have to choose between $200 today and $400 in 10 years. Suppose that the interest rate is 5%. You would prefer the $200 today if the interest rate were 8%, but would rather wait for the future amount if the interest rate were 5%.
True
You will receive $500 at some point in the future. If the annual interest rate is 7.5%, then in 5 years, the present value of the $500 is $348.28. In 10 years, the present value of the $500 will decrease to $242.60.
True
Which of the following is not correct?
Union membership is very small in most European countries.
Which of the following is not correct?
Unions are subject to antitrust laws.
You have to decide between $X today or $2,500 in 5 years. If the interest rate is 4%, you are better off taking the $X today if and only if
X > $2,054.82.
Suppose that fundamental analysis indicates a particular company's stock is overvalued. Which of the following is true?
You avoid adding the stock to your portfolio.
Suppose you believe in the efficient markets hypothesis. Which of the following is true?
You believe that stock prices follow a random walk.
Which of the following is the best example of the medium of exchange function of money?
You give a maid money to clean your house
Which scenario is the best example of the unit of account function of money?
You have a yard sale, and you put a price tag of $50 on your old television and $10 for your old pots.
Which of the following best illustrates the concept of a store of value?
You purchase a home in anticipation of selling it in 2 years when the real estate market "heats up."
Frictional unemployment is caused by
job search and sectoral shifts.
Paying efficiency wages means that wages are
above equilibrium, and unemployment is higher than otherwise.
A store of value is
an item that people can use to transfer purchasing power from the present to the future.
Tony has just finished high school and started looking for his first job, but has not yet found one. Other things the same, when Tony starts looking for work the unemployment rate
and the labor-force participation rate both increase.
Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed?"
anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off.
Jerome Powell was
appointed Chair of the Board of Governors in 2017 by President Donald Trump.
An argument for the presence of unions is that they ____
are a necessary antidote to the market power of firms.
The members of the Federal Reserve's Board of Governors
are appointed by the president of the U.S. and confirmed by the U.S. Senate.
Unions
are cartels and they may balance a firm's power and so protect workers.
Stocks and bonds
are examples of stores of value, but not units of account nor medium of exchange.
All else equal, which of the following will cause the money supply to fall?
banks decide to hold more excess reserves relative to deposits
Tony manages a company where electrical engineers work to improve existing products and develop new ones. He considers paying higher wages in hopes of attracting better applicants. According to efficiency wage theory Tony will get a
better pool of applicants but hire fewer workers.
According to 2012 data for U.S. teenagers (ages 16-19) ______ had the highest unemployment rate and _______ had the lowest unemployment rate.
black males, white females.
In the 1990s, Fed Chairperson Alan Greenspan questioned whether the stock market
boom at that time reflected "irrational exuberance."
Banks can borrow money from the Fed's discount window. Alternatively banks can
borrow money from the Fed's Term Auction Facility.
Derrick worked part time for his mother's business without pay. Tyler was absent from work because he had the flu. The Bureau of Labor Statistics counts
both Derrick and Tyler as employed.
Suppose there are a large number of teens who used to work or seek work who now no longer do either, but instead focus on school work to prepare for college and careers. Other things the same, this makes
both the number of people unemployed and the labor force fall.
The natural rate of unemployment includes
both unemployment created by job search and unemployment created by above equilibrium wages.
In order to ensure banks can pay back depositors, Bank regulators impose
capital requirements.
Which of the following was not among the four industries with the largest employment in the United States a century ago?
communications
The Fed conducts open market operations that cause bank withdrawals and lending to decrease. The Fed has
conducted open market sales.
When it buys government bonds to increase the money supply, the Fed is
conducting an open-market purchase.
When it sells government bonds to decrease the money supply, the Fed is
conducting an open-market sale.
Which of the following is not among the four industries with the largest employment in the United States today?
cotton goods
Efficiency wages
create a surplus of labor and so create structural unemployment.
If the natural rate of unemployment is 5 percent and the actual rate of unemployment is 5.5 percent, then by definition there is
cyclical unemployment amounting to 0.5 percent of the labor force.
One issue with using changes in U-3 as evidence of the health of the labor market is that an increase in the number of unemployed persons who become disabled will ____
decrease U-3, all else being equal, because they are not counted in the labor force.
According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)
decrease in the quality of job applicants and need to replace workers more frequently.
As a result of sizable losses in 2008 and 2009, banks experienced a shortage of capital, which induced them to ____
decrease lending because they had to meet capital requirements.
To increase the money supply the Fed can conduct open-market purchases. Alternatively, the Fed can
decrease the discount rate.
In a 100-percent-reserve banking system, if an individual deposits money in their checking account, currency would
decrease, but demand deposits would increase by the same amount and M1 would not change.
If the minimum wage were currently above the equilibrium wage, then a decrease in the minimum wage that kept it above equilibrium would _____ the _______ of labor.
decrease, surplus
The Fed changes the discount rate and, as a direct result, reserves have increased. The Fed has most likely
decreased the discount rate.
Assume banks hold no excess reserves. If the Fed increases the reserve ratio from 5 percent to 10 percent, then the money multiplier
decreases from 20 to 10.
As the reserve ratio increases, the money multiplier
decreases.
Funds in an account where you can access by writing a check or through your debit card are best described as
demand deposits.
In a system of fractional-reserve banking, the amount of money in the economy depends on the behavior of ____
depositors and bankers, which prevents the Fed from perfectly controlling the money supply.
Central banks are institutions
designed to oversee the banking system and regulate the quantity of money in the economy.
The official government unemployment rate (U-3) fails to fully capture labor utilization because it does not capture
discouraged workers.
Discouraged workers, as defined by the Bureau of Labor Statistics, are
excluded from both the number of unemployed and the labor force.
Since the 1940's U.S. union membership has
fallen. This decline should have reduced the natural rate of unemployment
The theory of efficiency wages explains why
firms may increase productivity and profits by setting wages above the equilibrium level.
Suppose that people choose to increase the use of e-readers and decrease the number of printed books they buy. Companies hire more workers to produce e-readers and publishing companies lay off printers. The unemployment this creates is an example of
frictional unemployment created by sectoral shifts.
Suppose that the Bureau of Labor Statistics predicts that the number of jobs for nurses will grow faster than most occupations, while the number of jobs for oil workers will decline. This change in the labor market would lead to
frictional unemployment created by sectoral shifts.
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called
frictional unemployment.
Government-run employment agencies and public job training programs are intended primarily to reduce
frictional unemployment. Some economists claim that government can't do these things better than private firms and individuals.
The unemployment that results from the job search is ____
frictional.
An argument for the presence of unions is that they ____
help firms respond to workers' concerns.
A wage above equilibrium
helps explain structural unemployment and the natural rate of unemployment.
The money supply increases if
households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.
One reason that the Fed's control of the money supply is not precise is because ____
households' decisions, which are out of the Fed's control, impact the money supply.
One of the key differences between a fractional-reserve banking system and a 100-percent-reserve banking system is that
in a fractional reserve banking system, banks only keep a fraction of deposits as reserve, while banks in a 100-percent-reserve banking system keep all deposits as reserves.
The unemployment rate is computed as 100 times the number of people unemployed divided by the number of people
in the labor force.
If the reserve ratio is 10 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $50 million worth of government bonds, bank reserves
increase by $50 million and the money supply eventually increases by $500 million.
Suppose the Fed purchases $50,000 worth of government bonds from the public. You know that eventually the money supply will
increase by more than $50,000.
Efficiency wages
increase productivity and profits.
Efficiency wages
increase profits and unemployment
To decrease the money supply the Fed can conduct open-market sales. Alternatively, the Fed can
increase the discount rate.
An argument for the presence of unions is that they ____
increase the happiness and productivity of workers.
In a 100-percent-reserve banking system, if an individual withdraws money from their checking account, currency would
increase, but demand deposits would decrease by the same amount and M1 would not change.
Suppose that coffeehouse employees are not unionized. If they unionize, then the supply of labor in other sectors of the economy will
increase, reducing wages in industries that are not unionized.
If the minimum wage is above the equilibrium wage, then an increase in the minimum wage ______ the quantity of labor supplied and ______ the quantity of labor demanded.
increases, decreases
An argument against the presence of unions is that the resulting allocation of labor ____
is inequitable.
Steve manages a warehouse where workers need to find, pack, and ship items ordered by online customers. He considers raising wages hoping that workers will spend more time doing their work and less time chatting with each other and checking their cell phones. According to efficiency wage theory if Steve decides to pay higher wages
profits will rise but he will hire fewer workers.
In response to the credit crunch in 2008 and 2009, the U.S. Treasury ____
put public funds into the banking system to increase the amount of bank capital.
Hasina is a plant manager at a factory in a relatively poor country. Even though market wages are low, she decides to raise the wages of her workers so they can have a more nutritious diet. According to efficiency wage theory the increase in wages will
raise productivity but increase unemployment.
Efficiency wages
raise structural unemployment.
When a union forms in some industry its negotiations
raise wages and create a surplus in the market for labor in that industry.
If the minimum wage were currently above equilibrium, then a decrease in the minimum wage would
reduce structural unemployment.
Economists mostly agree that reducing unemployment benefits would
reduce unemployment, but there is disagreement about its effects on economic well-being.
Evidence shows that unemployment benefits may _________ job search efforts which by itself would ________.
reduce, raise frictional unemployment.
The amount of reserves banks must hold against deposits is known as
reserve requirement.
Unionization in one industry causes wages to
rise in that industry causing labor supply to rise in industries that are not unionized.
Suppose that neither workers in the paper industry nor workers in the furniture industry are unionized. If workers in the paper industry unionize, the supply of workers in the furniture industry will
rise, reducing the wages of workers in the furniture industry.
Suppose that autoworkers are unionized. If autoworkers choose to abolish their union, then the quantity of autoworkers demanded will
rise. The supply of workers in other industries will fall.
You are hired by the state to help people find jobs. You meet with each unemployed person for half an hour each week. Over the course of the year most of the persons you work with will be unemployed for a _______ time. Over the course of a day most of your time will be spent working with people who will be unemployed for a ______ time.
short, long
Minimum wages create
structural unemployment if they create a surplus in the labor market.
If the wage is kept above its equilibrium for any reason, the result is
structural unemployment.
The unemployment that results from minimum-wage laws is ____
structural.
People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as
structurally unemployed.
Tom has no job but keeps applying for one at a business that is unionized. He is qualified and he finds the pay attractive, but the firm always has many applicants. Tom is
structurally unemployed. Structural unemployment is created by above equilibrium wages.
Minimum wages create unemployment in markets where they create a
surplus of labor. Most U.S. workers get paid more than the minimum wage.
In the U.S. minimum-wage laws create significant unemployment for
teenagers but not workers such as experienced plumbers.
Claire manages a health clinic. Once receptionists, patient-care representatives, and record keepers are trained they often leave to find other work. Claire considers paying a higher wage hoping workers will stay on the job longer. According to the theory of efficiency wages, if Claire raises wages paid to these types of employees they will
tend to stay on the job longer and profits will rise.
One reason that the Fed's control of the money supply is not precise is because ____
the Fed does not control the amount that banks choose to lend.
The rate charged at the Fed's "discount window" is known as the
the discount rate.
The interest rate at which banks lend reserves to each other overnight is known as
the federal funds rate.
Bank assets divided by bank capital is known as
the leverage ratio
Insured people tend to be less careful than uninsured people about their risky behavior. This is called
the moral hazard problem.
When a union bargains successfully with employers, in that industry,
the quantity of labor demanded falls and the quantity of labor supplied rises.
Suppose the money multiplier has increased. Which of the following is the most likely cause?
the reserve ratio decreases.
If 1/R is the money multiplier in an economy, what must R represent?
the reserve ratio for all banks in the economy
The value of a stock is based on the present values of the dividend stream and final price. As a result,
the value of a stock falls when interest rates rise.
Unemployment data are collected
through a regular survey of about 60,000 households.
A difference between the unemployment arising from minimum-wage laws and from frictional unemployment is that with minimum-wage laws people are ____ for jobs and with frictional unemployment, people are ____ for jobs.
waiting, searching.
Suppose a bank is operating with a leverage rate of 20. A 4 percent increase in the value of assets
will result in an 80 percent increase in owner's equity.
Over the past several decades in the United States, the labor force participation rate(s) of
women has increased while that of men has decreased.
In which of the following situations is a firm most likely to see the largest benefits by paying above equilibrium wages?
worker turnover is high, the cost of hiring and training new workers is high.
Right-to-work laws mean that
workers cannot be required to join the union where they work.
Frictional unemployment can be the consequence of
workers leaving jobs to find ones that suit them better, firms going out of business, and firms firing workers.
