test 2

Which of the following equations represents the equation of exchange?

MV = PY

if the real wage rate is such that the quantity of labor supplied is grater than the quantity of labor demanded

actual real GDP will not equal potential GDP

saving and investment that increase a nations capital lead to

an increase in labor productivity

which of the following is TRUE regarding the real interest rate? I. the real interest rate is the opportunity cost of borrowed funds II. the real interest rate equals the nominal interest rate adjusted for inflation

both I and II

all of the following are sources of loanable funds EXCEPT

business investment

In an open market purchase, the Fed ________ government securities, which ________ bank reserves.

buys, increases

A new financial innovation results in people switching their funds from checking deposits to savings accounts. The quantity of M1 ________ and the quantity of M2 ________.

decreases; does not change

suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. over this time period, the real GDP growth rate is

decreasing

The Federal Open Market Committee (FOMC)

determines the Fed's monetary policy

the decreasing slope of a production function reflects

diminishing returns

Liquidity is the

ease with which an asset can be converted into money.

the funds used to buy and operate physical capital are

financial capital

net investment equals

gross investment minus depreciation

if a banks net worth (equity) is negative, the the bank definitely is

insolvent

moving along the aggregate production function shows the relationship between ___ , holding all else constant

labor input and real GDP

Depository institutions

make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans.

Commercial banks are able to create money by

making loans

Suppose prices are quoted in dollars and transactions are conducted in pesos. The peso serves as a

medium of exchange

a key feature of the new growth theory is the assumption of

no diminishing returns to knowledge

all of the following contribute to labor productivity growth EXCEPT

population growth

U.S. investment is financed from

private saving, government budget surpluses, and borrowing from the rest of the world

all of the following lead to more rapid economic growth EXCEPT

restricting international trade

When the nominal interest rate rises, the opportunity cost of holding money

rises and people hold less money

the idea that a government budget deficit decreases investment is called

the crowding-out effect

a financial decision should be pursued when

the net present value is positive

suppose the nominal wage rate and the price level both fall by 5%. as a result

the quantity of labor demanded does not change because there is no change in the real wage

as a result of the recession in 2008, the default risk increased. how did this change affect the loanable funds market?

there was a leftward shift in the supply of loanable funds curve

an advance in technology increases the productivity of labor. as a result, the nations production function shifts __ and the __ labor curve shifts rightward

upward; demand for

which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

a lower real interest rate makes more investment projects profitable