MACRO 3

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Which of the following plays a role in new growth​ theory?

many people can use discoveries at the same​ time, and physical activities can be replicated

The central bank of the United States is​ ______.

the bank that provides services to commercial banks and governments and that regulates the banking system

One of the​ Fed's policy tools is​ ______.

the discount​ rate, which is the interest rate at which the Fed stands ready to lend reserves to commercial banks

The central novel proposition of new growth theory is that​ ______ experience diminishing returns.

the economy does not

Diminishing returns do not limit growth in new growth theory because​ ______.

many people can use discoveries at the same time

The money multiplier can also be calculated as​ ______, where ​C/D is the currency drain ratio and ​R/D is the desired reserve ratio.

(1 + C/D​)divided by÷​(​R/D+ C/D​)

Sally has a credit card balance of ​$2 comma 0002,000. The credit card company charges a nominal interest rate of 1919 percent a year on unpaid balances. The inflation rate is 88 percent a year. Calculate the real interest rate that Sally pays the credit card company.

11 percent

Sally has a credit card balance of ​$500. The credit card company charges a nominal interest rate of 18 percent a year on unpaid balances. The inflation rate is 8 percent a year. If the inflation rate falls to 7 percent a year and the nominal interest rate remains the​ same, calculate the real interest rate that Sally pays.

11 percent a year

In 2000​, the United Kingdom economy was at full employment. Nominal GDP was pound £825 ​billion, the nominal interest rate was 8 percent a​ year, the price level was 110​, and the velocity of circulation was constant at 5. The quantity of money in the United Kingdom in 2000 is​ ______.

165 billion

Peter Howitt of Brown University has estimated that if inflation is lowered from 3 percent a year to​ zero, then after 30​ years, real GDP would be​ ______ percent higher.

2.3

The central bank of Canada is the Bank of Canada. Suppose that in​ Canada, Bank of Canada notes Bank of Canada notes were ​$7070 ​billion, the quantity of coins the quantity of coins was ​$55 ​billion, and the monetary base in Canada the monetary base in Canada was ​$7979 billion. What were banks' reserves at the Bank of Canada banks' reserves at the Bank of Canada​?

4 billion

The economy is at full employment. The quantity of money grows at a rate of 13 percent a​ year, real GDP grows at 66 percent a year in the long​ run, and the velocity of circulation is constant. What is the inflation rate in the long​ run?

7 percent

The quantity of money​ ______.

Decreases

Think about the definition of​ money, and then choose the correct statement.

Deposits are​ money, checks are not​ money, and credit cards are not money.

Sara withdraws ​$2 comma 5002,500 from her checking account at Bank of​ America, keeps ​$200200 in​ cash, and deposits the balance in her small time deposit small time deposit account at Citibank. What is the immediate change in M1 and​ M2?

M1 decreases by $2 comma 3002,300 and there is no change in M2.

1. Human capital expands because of choices and discoveries result from choices.Human capital expands because of choices and discoveries result from choices. 2. Discoveries bring profit comma and competition destroys profit.Discoveries bring profit, and competition destroys profit. 3. Taxes influence incentives and discourage investment.Taxes influence incentives and discourage investment. 4. Stock markets sometimes crash and sometimes are gripped by irrational optimism.Stock markets sometimes crash and sometimes are gripped by irrational optimism.

Fact 1 is emphasized by new growth theory and Fact 2 is emphasized by new growth theory.

______ is an example of a place where there is economic freedom and rapid economic growth but not democracy.

Hong Kong

In November2016 in Vespugia​: Currency held by individuals and​ businesses, ​$698698 billion Money market funds and other​ deposits, ​$714714 billion. Savings​ deposits, ​$3 comma 5043,504 billion Small time​ deposits, ​$811811 billion Checkable deposits owned by individuals and​ businesses, ​$669669 billion ​Traveler's checks held by individuals and​ businesses, ​$88 billion Calculate M1 and M2 in November 2016 in Vespugia

M1 in NovemberNovember 2016 was ​$1,3751,375 billion. M2 in NovemberNovember 2016 was ​$6,4046,404 billion.

Suppose that potential GDP and the velocity of circulation are constant. What is the change in the price level in the long run if the quantity of money increases by 3 percent a​ year?

If the quantity of money increases by 3 percent a​ year, the change in the price level is 3 percent a year in the long run.

Choose the correct statement.

Inflation is a tax on holding money.

Is economic freedom the same as​ democracy?

No. Economic freedom does not have to occur in a democracy.

The sign of the money multiplier is​ ______.

Positive

A central bank is​ ______. The​ ______ is the central bank of the United States.

a public authority that provides banking services to banks and governments and regulates financial institutions and​ markets; Federal Reserve System

_______ results in slow or absent economic growth.

The absence of property rights

Choose the statement that is correct.

The income tax on interest income drives a wedge between the​ before-tax interest rate paid by borrowers and the​ after-tax interest rate received by lenders.

Choose the correct statement.

The increased uncertainty of inflation misallocates resources.

The real GDP growth ratereal GDP growth rate is 2 percent a​ year, the rate of increase in velocityrate of increase in velocity is 0 percent a​ year, and the money growth ratemoney growth rate is 12 percent a year. What is the inflation rate inflation rate​?

The inflation rate is 10 percent a year.

In 1999 the United Kingdom economy was at full employment. Nominal GDP was ​£770 ​billion, the real interest rate was 4 percent per​ year, the inflation rate was 3 percent a​ year, and the price level was 110. Calculate the nominal interest rate.

The nominal interest rate is 7 percent a year. In the long​ run, if the real interest rate remains the same but the inflation rate increases to 9 percent a​ year, then the nominal interest rate increases to 13 percent a year.

Money serves the function of being​ ______.

a medium of​ exchange, which means that it is generally accepted in return for goods and services

A savings and loan association has ​$750750 in checkable deposits ​$2,0602,060 in home loans ​$1,0001,000 in savings deposits ​$550550 in government securities ​$900900 in time deposits ​$4040 in currency No deposit at the Fed. Calculate the​ S&L's loans and reserves.

The​ S&L's loans are ​$2,0602,060. The​ S&L's reserves are ​$4040.

A savings and loan association has ​$750750 in checkable deposits ​$1 comma 8901,890 in home loans ​$1 comma 1501,150 in savings deposits ​$650650 in government securities ​$700700 in small time deposits ​$6060 in currency No reserve deposit at the Fed. Calculate the​ S&L's total​ deposits, deposits that are part of​ M1, and deposits that are part of M2.

The​ S&L's total deposits are ​$2,6002,600. Deposits that are part of M1 are ​$750750. Deposits that are part of M2 are ​$2,6002,600.

Think about the banking system and then choose the correct statement.

Upper A bank balances security for the depositors against profit for its stockholders.

Your bank manager tells you that she does not create​ money; she just lends what is deposited. Explain why she is wrong and how she creates money. The banking system creates money because​ ______.

a bank that has excess reserves can make loans. When a bank creates a​ loan, the bank increases the balance of the​ borrower's account and that increase in deposits is new money

The fraction of a​ bank's total deposits that it holds in reserve is the​ ______, and the ratio of reserves to deposits that a bank wants to hold is its​ ______.

actual reserve​ ratio; desired reserve ratio

A savings and loan association​ (S&L) has ​$550 in​ interest-bearing checkable deposits ​$1,600 in home loans ​$900 in savings deposits ​$600 in government securities ​$800 in time deposits ​$50 in currency No deposit at the Fed. The​ S&L pays interest on​ ______ and receives interest on​ ______.

all deposits​ (checkable, savings, and small​ time), although it may be zero percent on checking​ deposits; government securities and home loans

The​ "shoe-leather costs" of inflation are costs that arise from​ ______.

an increase in the velocity of circulation of money

The money multiplier is equal to​ ______.

change in the quantity of money divided by÷change in monetary base

If the Fed makes an open market salesale of​ $1 million of​ securities, the quantity of money​ _____ by​ $1 million multiplied by​ _____.

decreases​;the money multiplier

If the price level​ falls, the​ _______.

demand for money decreases and the nominal interest rate falls

When the inflation rate falls and the nominal interest rate remains​ unchanged, Sally's opportunity cost of holding money​ _______.

does not change

According to classical growth​ theory, when real GDP per person​ ______, the population grows.

exceeds the subsistence level

Other things remaining the​ same, a country or region that adopts free international trade​ (for example, Hong​ Kong) has a faster economic growth rate than a country that restricts international trade​ (for example,​ Myanmar) because free international trade​ ______.

extracts all the available gains from specialization and trade

According to​ Malthusians, _______.

if​ today's global population reaches 11 billion by​ 2200, we will return to a primitive standard of living

Economic growth​ _______.

is a sustained expansion of production possibilities

A bank maximizes its​ stockholders' wealth by​ ______.

lending for long terms at high interest rates and borrowing from depositors and others

The​ ______ determines the equilibrium real interest rate. The real interest is​ ______ the inflation rate in the long run.

loanable funds​ market; independent of

Markets are a necessary precondition for economic growth because​ ______.

market prices send signals to buyers and sellers that create incentivesmarket prices send signals to buyers and sellers that create incentives

The demand for money is the relationship between the quantity of money demanded and the​ _______ when all other influences on the amount of money that people wish to hold remain the same.

nominal interest rate

Real GDP growth depends on​ _______

the quantity of labor growth and labor productivity growth

In the United States​ today, money includes​ ______.

the quarters inside public phones and an American Express traveler's check

The greater the desired reserve​ ratio, _______.

the smaller the money multiplier

Desired reserve ratio​ = ​R/D​; Currency drain ratio​ = ​C/D​; Monetary base​ = MB​; Quantity of money​ = M. If the Fed makes an open market salesale of​ $1 million of​ securities, the magnitude of the money multiplier is​ _____.

​(1 +C/D​)/(​R/D+C/D​)

If the Fed makes an open market sale of​ $1 million of securities to a​ bank, the​ bank's reserves​ ______. Excess reserves​ ______.

​decrease; decrease

Bank deposits​ ______ and the quantity of money​ ______.

​decrease; decreases

An increase in real GDP​ ______ the demand for money and changes in financial technology​ ______.

​increases; can increase the demand for money or decrease the demand for money

After the banks introduce the described​ changes, at an interest rate of 2 percent a​ year, people want to hold​ _____ money so they​ _____ bonds.

​less; buy

The equilibrium interest rate before real GDP decreases is 8 percent a year. After real GDP​ decreases, at an interest rate of 8 percent a​ year, people want to hold​ _____ money so they​ _____ bonds.

​less; buy

When the nominal interest rate​ rises, the opportunity cost of holding money​ ______ and the quantity of money demanded​ ______.

​rises; decreases

The price of a bond​ _____ and the interest rate​ _____.

​rises; falls

The price of a bond​ _____ and the interest rate​ ______.

​rises; falls

The price of a bond​ ______, and the interest rate​ ______.

​rises; falls


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