JWU Macro Exam 2

When workers lose their jobs and become officially unemployed, the unemployment rate

increases

Oil shocks, the shift from manufacturing to service jobs, and the use of new technologies are reasons for _____unemployment.

structural

f per capita real GDP was $30,000 in the year 2000 and $31,000 in 2001, the growth rate of per capita GDP in 2001 was approximately A. 0.3 percent. B. 3.3 percent. C. 33 percent. D. None of the answers is correct.

B. 3.3 percent.

One of the indicators of a country's economic well-being is infant mortality. Piped water and flush toilets together reduce infant mortality by approximately A. 40 percent. B. 70 percent. C. 50 percent. D. 60 percent

B. 70%

Which of the following assets would you classify as being most liquid? A. small-time deposits B. demand deposits C. gold bullion D. a home

B. demand deposits

see problem 16 on ch. 28 problem set

...

see question 14 on ch. 28 problem set

...

A country has 24 million people in the labor force and 21.5 million of them are employed. What is the unemployment rate in this country?

10.4 percent

The United States and Western European countries began to experience accelerated economic growth during which century?

19th

If the required reserve ratio is 4 percent, the money multiplier is

25

A country has a population of 160 million. Thirty million of its people are under the age of 16, and ten percent of the population is either in the military or institutionalized. Seventy million people have jobs and five million are looking for work. What is the labor force participation rate in your country?

66 percent

If $100 is saved at an annual interest rate of 10 percent, what will be the return in one year? A. $10 B. $110 C. $111 D. $11

A. $10

At an 8 percent interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5 percent? A. $190 billion B. $250 billion C. $300 billion D. $500 billion

A. $190 billion

If 10 percent of the population had an average income of $46,000 and the population as a whole had an average income of $10,000, what would the average income be for the other 90 percent of the population? A. $6,000 B. $10,000 C. $9,000 D. There is not enough information provided to answer the question.

A. $6,000

What is the overnight lending rate from one bank to another? A. Federal Funds rate B. money market rate C. money multiplier rate D. Federal Reserve rate

A. Federal Funds rate

The main difference between M1 and M2 is that A. M2 includes some less liquid assets in addition to the assets in M1. B. M1 includes some less liquid assets in addition to the assets in M2. C. M2 includes more liquid assets in addition to the assets in M1. D. M1 includes more liquid assets in addition to the assets in M2.

A. M2 includes some less liquid assets in addition to the assets in M1.

Which of the following best describes the effects of a major labor union that maintains a union wage above the market equilibrium wage? A. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases. B. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate decreases. C. The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate decreases. D. The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate increases.

A. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases.

Wealthier nations tend to have A. better educational opportunities. B. lower infant survival rates. C. lower life expectancy rates. D. None of the answers is correct

A. better educational opportunities.

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to A. decrease. B. become difficult to predict. C. remain constant. D. increase.

A. decrease.

Holding reserves is costly for banks because A. it leads to fewer profits. B. the Fed charges banks interest on required reserves. C. it forces banks to pay for ATMs. D. it leads to the risk of bank robberies.

A. it leads to fewer profits.

Technological knowledge is the A. knowledge about how the world works that is used to produce goods and services. B. organizational skills of business owners. C. stock of tools including machines, structures, and equipment. D. productive knowledge and skills that workers acquire through education, training, and experience

A. knowledge about how the world works that is used to produce goods and services.

The money multiplier equals A. one divided by the reserve ratio. B. one divided by the discount rate. C. one divided by the difference between the reserve ratio and the required reserve ratio. D. the amount of money supply divided by the amount of reserves.

A. one divided by the reserve ratio.

Factors of production that contribute to growth in per capita GDP include A. physical capital, skilled labor, and technological know-how. B. proximal and ultimate factors of production. C. organization of resources. D. institutions.

A. physical capital, skilled labor, and technological know-how.

One measure of student output is number of completed math problems produced. Using pen and paper only, a student can complete 50 math problems in 2 hours. Using pen, paper and calculator, this same student can complete 100 math problems in 2 hours. (The student is already familiar with, and knows how to use, the calculator.) This scenario illustrates the use of which factor of production? A. physical capital. B. human capital. C. technological knowledge. D. both human capital and technological knowledge.

A. physical capital.

Human capital is the A. productive knowledge and skills that workers acquire through education, training, and experience. B. stock of tools including machines, structures, and equipment. C. organizational skills of business owners. D. knowledge about how the world works that is used to produce goods and services.

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

Which of the following is NOT a function of the Federal Reserve? A. providing loans to small businesses B. regulating the U.S. money supply C. regulating the U.S. financial system D. serving as the lender of last resort

A. providing loans to small businesses

Which of the following assets would you classify as being most liquid? A. small-time deposits B. small-cut diamonds C. money market mutual funds D. an oil painting by Claude Monet

A. small-time deposits

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus, A. they are somewhat insulated from the political process. B. the chairman of the board of governors also has a 14-year term. C. every president of a federal reserve district bank will serve at least 14 years on the BOG. D. the New York Federal Reserve District Bank President can only serve 14 years on the FOMC.

A. they are somewhat insulated from the political process.

The presence of discouraged workers causes the measured unemployment rate to be A. understated. B. either overstated, understated, or correctly stated. C. overstated. D. correctly stated.

A. understated.

In a country, where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case? A. A large percentage of the population consists of children. B. A large percentage of the population is aging and thus has retired. C. A large percentage of the population is unemployed. D. None of these answers is correct.

B. A large percentage of the population is aging and thus has retired.

Which of the following scenarios provides an example of a good institution that is conducive to economic growth? A. In Peru it only takes 72 days and 32.5 percent of income per capita to start a business. B. Entrepreneurs can invest more than $200,000 in Indian garment factories. C. In Zimbabwe, nationalization of private property can occur without warning. D. In Haiti it takes an average of 203 days to start a business.

B. Entrepreneurs can invest more than $200,000 in Indian garment factories.

Why does South Korea have a higher level of physical and human capital than North Korea? I. Markets constitute much more of the primary organizations of economic activity in South Korea than they do in North Korea. II. Economic incentives are better installed in South Korea. III. South Korea has a different culture from North Korea. A. I only B. I and II only C. III only D. II only

B. I and II only

Why is the demand for loanable funds downward sloping? A. People save less when the interest rates are low. B. More people borrow money when interest rates are low than when they are high. C. Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates. D. Each of these answers is correct.

B. More people borrow money when interest rates are low than when they are high.

When the Federal Reserve makes an open market purchase, the reserves of the banking system will A. remain constant. B. increase. C. decrease. D. become difficult to predict.

B. increase.

All else being equal, a working-age person who has more patience tends to have A. more collateral. B. more savings. C. less investment. D. fewer savings.

B. more savings.

Institutions A. are unimportant in market economies. B. provide structure for economic incentives. C. matter only when backed by law. D. Each of these answers is correct.

B. provide structure for economic incentives.

What is one of the causes of frictional unemployment? A. uneducated work force B. scarcity of information C. overabundance of job vacancies D. willingness to take lower level jobs

B. scarcity of information

Which of the following individuals can be counted as part of the labor force? A. someone who retired four months ago B. someone who is collecting unemployment benefits C. someone who just celebrated a fifteenth birthday D. someone who is on active military duty in Afghanistan

B. someone who is collecting unemployment benefits

All of the following are means of payment in the United States EXCEPT A. savings deposits. B. stock options. C. Federal Reserve notes. D. checkable deposits.

B. stock options.

If consumers expect to have shorter life expectancy and desire to save less, then the A. demand for loanable funds will increase, and the equilibrium interest rate will increase. B. supply of loanable funds will decrease, and the equilibrium interest rate will increase. C. the supply of loanable funds will increase, and the equilibrium interest rate will decrease. D. demand for loanable funds will decrease, and the equilibrium interest rate will decrease.

B. supply of loanable funds will decrease, and the equilibrium interest rate will increase.

An open market operation occurs when A. banks increase the reserve ratio. B. the Fed buys or sells government bonds. C. the Fed enforces regulations on the banking industry. D. banks loan funds to each other.

B. the Fed buys or sells government bonds.

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on A. M2. B. the Federal Funds rate. C. M1. D. the discount rate.

B. the Federal Funds rate.

When the U.S. government borrows, it sells A. federal paper. B. treasury bonds. C. government stocks. D. Each of these answers is correc

B. treasury bonds.

To be considered money, an asset must be A. backed by gold or other precious metals. B. widely accepted as a means of payment. C. currency. D. Each of these answers is correct.

B. widely accepted as a means of payment.

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change? A. $160,000 B. $16 million C. $1.6 million D. $1.76 million

C. $1.6 million

How might changes in marginal tax rates on married couples affect labor force participation rates? A. Higher marginal tax rates on married couples encourage lower labor force participation rates by the secondary income earner. B. Lower marginal tax rates on married couples encourage lower labor force participation rates by the secondary income earner. C. Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner. D. Higher marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.

C. Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.

Which of the following chains of logic explain the functions of banks in the process of economic growth? A. The demand for loanable funds shows an inverse relationship between the real interest rate that banks charge and the quantity of loans demanded. B. Firms borrow from stock and bond markets. These funds are used for investment, which leads to the capital accumulation that furthers economic growth. C. Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth. D. Savers deposit their savings in banks. Banks engage in capital accumulation, which plays an important role in economic growth.

C. Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.

Which of the following is NOT directly related to human capital? A. schooling B. an understanding of chemistry C. a life-saving drug D. work experience

C. a life-saving drug

Which of the following individuals can be counted as unemployed? A. a woman who works only part time B. a temp worker, who is currently responding to job advertisements from the newspaper C. a man who was laid off from an auto manufacturing plant in Detroit D. Each of these answers is correct.

C. a man who was laid off from an auto manufacturing plant in Detroit

The reserve ratio is the ratio of bank reserves to A. currency demand. B. the monetary base. C. bank deposits. D. bank loans

C. bank deposits.

What term do economists use to describe the growth rate of GDP per capita? A. national growth B. aggregate growth C. economic growth D. real growth

C. economic growth

Firms primarily raise money by using which two methods? A. making sure all funds are distributed in the most equitable fashion B. seeking to pass all of the returns on investment to the savers C. evaluating the quality of investment opportunities D. providing the highest return available in the market

C. evaluating the quality of investment opportunities

Countries that have high per capita GDP have A. high levels of physical capital per worker. B. high levels of human capital per worker. C. high levels of all three factors of production. D. high levels of technology per worker.

C. high levels of all three factors of production.

Compared to the United States, unemployment rates in Western Europe tend to be A. lower because of more labor regulations. B. higher because of fewer labor regulations. C. higher because of more labor regulations. D. lower because of fewer labor regulations.

C. higher because of more labor regulations.

Workers ability to use various tools is known as _____________. A. knowledge B. experience C. human capital D. technological knowledge

C. human capital

The Federal Reserve acquires its exclusive powers through its ability to A. tax individuals and firms. B. stop economic recessions. C. issue money. D. All of the answers are correct.

C. issue money.

The text defines economic growth as an increase in A. real GDP. B. GDP. C. real per capita GDP. D. per capita GDP.

C. real per capita GDP.

When the Fed wants to increase interest rates, it A. adjusts the fractional reserve ratio. B. instructs banks across the nation that they must raise their rates. C. sells bonds in the open market. D. buys bonds in the open market.

C. sells bonds in the open market.

A rural village in a developing country has an economy based on agriculture. Then the government of the country provides the village with newly developed hybrid seeds that more than double the agricultural yield per acre. This story illustrates the growth of per capita GDP in the village through which factor(s) of production? A. physical capital B. human capital C. technological knowledge D. institutional knowledge

C. technological knowledge

Investment is A. the purchase of new consumption goods. B. the purchase of gold and silver during inflationary times. C. the purchase of new capital goods. D. the purchase of shares of stock on the New York Stock Exchange.

C. the purchase of new capital goods.

Discouraged workers and underemployed workers are examples of A. poor national employment planning. B. populations that cause higher unemployment taxes. C. workers not included in the unemployment rate. D. users of unemployment insurance.

C. workers not included in the unemployment rate.

Mario is saving if he does which of the following? A. makes a deposit in a savings account at the bank B. buys a share of stock in a computer company C. buys a corporate bond D. Each of these answers is correct.

D. Each of these answers is correct.

The Federal Reserve is the A. federal government's bank. B. U.S. central bank. C. banker's bank in the United States D. Each of these answers is correct.

D. Each of these answers is correct.

The institutions of economic growth include A. property rights. B. a dependable legal system. C. competitive and open markets. D. Each of these answers is correct.

D. Each of these answers is correct.

Which of the following programs could help overcome structural unemployment? A. worker retraining B. limitations to unemployment benefits C. job search assistance programs D. Each of these answers is correct.

D. Each of these answers is correct.

Which of the following did NOT contribute to the financial crisis of 2007-2008? A. highly leveraged investment banks B. highly leveraged homeowners C. fear on the part of short-term lenders D. Each of these contributed to the crisis.

D. Each of these contributed to the crisis.

Why do firms and individuals borrow? A. They want to smooth consumption. B. Debt is often necessary for large purchases. C. They believe their return will be greater than the interest rate. D. Each of these explanations provides a reason for borrowing.

D. Each of these explanations provides a reason for borrowing.

Which of the following scenarios illustrates the "free-rider problem"? A. Three classmates working on a group project all know they will receive the same grade and one of the students contributes very little effort into the project. B. Local residents on a small island pay taxes to have its beaches cleaned. Tourists visiting the island leave garbage on the beaches because they know that the beaches are cleaned regularly. C. The servers at a restaurant agree to split all of the tips equally and some diners receive bad service. D. Each of these scenarios illustrates a form of free riding.

D. Each of these scenarios illustrates a form of free riding.

Trading in the market for loanable funds determines the equilibrium A. amount of borrowing. B. level of savings. C. interest rate. D. It determines all three of these.

D. It determines all three of these.

Which of the following can be defined as saving according to economics? A. Andrea finances her new car through an auto loan. B. Microsoft sells stock at an initial public offering. C. General Motors issues corporate bonds. D. Sandra purchases a certificate of deposit from a bank.

D. Sandra purchases a certificate of deposit from a bank.

What is a result of a high level of government corruption? A. Politicians hold little power over the market. B. Government officials do not have a high standard of living. C. Education and health care are actually better for citizens. D. There are few entrepreneurs.

D. There are few entrepreneurs.

To increase the money supply in the economy, the Fed would A. increase the discount rate and/or lower the reserve ratio. B. carry out open market sales and/or lower the discount rate. C. carry out open market purchases and/or raise the reserve ratio. D. carry out open market purchases and/or lower the discount rate.

D. carry out open market purchases and/or lower the discount rate.

Which of the following is the most liquid asset? A. checkable deposits B. money market mutual funds C. savings deposits D. currency

D. currency

If the interest rate rises from 5 percent to 9 percent, the number of new businesses will A. sharply increase, then level off. B. remain the same. C. increase. D. decrease.

D. decrease.

At lower interest rates, the cost of investing ______ and the funds that are demanded for investment ______. A. increases; increase B. increases; decrease C. decreases; decrease D. decreases; increase

D. decreases; increase

A firm that pays for workers to attend a technical college is increasing its A. technical knowledge. B. physical capital. C. gains from trade. D. human capital.

D. human capital.

Which of the following would be most effective in ensuring sustained long-term economic growth? A. increasing physical capital B. increasing human capital C. increasing government control of land use D. increasing technological knowledge

D. increasing technological knowledge

In the United States, the amount of cash per capita is about $3,000. This figure A. accurately represents the size of the underground economy in the United States. B. shows how much the world depends on the U.S. monetary system. C. shows how much currency each American holds in their checking accounts. D. misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country

D. misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country

The supply of savings is positively sloped because A. when people have more incomes they save more. B. of time preference. C. firms borrow more when interest rates are low. D. people are enticed to forgo consumption when interest rates are higher

D. people are enticed to forgo consumption when interest rates are higher

When workers lose their jobs and become officially unemployed, the number of people in the labor force A. increases. B. becomes difficult to predict. C. decreases. D. remains constant.

D. remains constant.

The supply of loanable funds comes from ______ and the demand for loanable funds comes from ______. A. saving; consumption B. investment; saving C. investment; consumption D. saving; investment

D. saving; investment

Physical capital is the A. organizational skills of business owners. B. knowledge about how the world works that is used to produce goods and services. C. productive knowledge and skills that workers acquire through education, training, and experience. D. stock of tools including machines, structures, and equipment.

D. stock of tools including machines, structures, and equipment.

What is the most proximate (or direct) cause of growth in real GDP per capita? A. political system in the economy B. institutions C. incentives D. the factors of production

D. the factors of production

One of the indicators of a country's economic well-being is infant mortality. Most of the world's children live in countries with an infant mortality rate that is A. close to zero. B. about the same as the infant mortality rate in the United States. C. below the infant mortality rate in the United States. D. well above the infant mortality rate in the United States.

D. well above the infant mortality rate in the United States.

T or F: For most of recorded human history there has been a steady, sustained growth in real GDP per capita.

False

T or F: The United States is one of the world's ten least corrupt countries.

False

T or F: The origins of institutions that lead to economic growth are well-known.

False

T or F: The unemployment rate in the United States has typically been higher than the unemployment rate in Europe.

False

T or F: When information about jobs becomes scarcer, frictional unemployment tends to decrease.

False

Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs

I and II only

Which of the following raises structural unemployment? I. higher union membership II. more unemployment benefits III. higher minimum wages

I, II, and III

The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending.

I, II, and III only

Financial intermediation can break down as a result of I. low and stable inflation II. government controls on interest rates III. bank failures

II and III only

The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector.

II and III only

T or F: If the Fed decides to increase the money supply by $200 million, it can buy government bonds in the open market for less than $200 million.

True

T or F: If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.

True

T or F: The difference between human capital and technological knowledge is that human capital relates to skills and education that reside within an individual, while technological knowledge is ideas and discoveries that lead to technological advancement.

True

T or F: The most liquid asset is cash.

True