305 Tests/Quizzes

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Suppose the consumption equation is represented by the​ following: C​ = 250​ + .75YD. Given this​ information, the marginal propensity to save is

.25

In the​ expectations-augmented Phillips​ curve, π​ = πe−3(u−u​). If π​ = 0.03 when πe= 0.06 and u​ = 0.06, then u=

0.05

Use the information provided below to answer the following questions. Suppose a country using the United​ States' system of calculating official unemployment statistics has 100 million​people, of whom 50 million are working age. Of these 50​ million, 20 million have jobs. Of the​ remainder: 10 million are actively searching for​ jobs; 10 million would like jobs but are not​ searching; and 10 million do not want jobs at all. Refer to the information above. The official unemployment rate is

0.33

If C​ = 2000​ + .9YD​, what increase in government spending must occur for equilibrium output to increase by​ 1000?

100

If C​ = 2000​ + .9YD​, what decrease in taxes must occur for equilibrium output to increase by​ 1000?

111

Suppose that money demand is given by Md=$Y(0.21−1.2i) where $Y is ​$100. If the Federal Reserve sets an interest rate target of 7​%, the money supply it must create is ​$12.6. If the Federal Reserve wants to increase the interest rate i from 7 to 11​%, the new level of the money supply it must set is ​$7.8. As a result of the increase in the interest rate from 7 to 11​%, the Federal​ Reserve's balance sheet contracts in terms of the assets and liabilities it holds.

12.6, 7.8, contracts

Use the information provided below to answer the following questions. The non−institutional civilian population is 250​ million, of which 100 million are employed and 10 million are unemployed. Based on the information​ above, the labor force participation rate is

44%

Suppose the consumption equation is represented by the​ following: C​ = 250​ + .8YD. The multiplier for the above economy equals

5

If the nominal interest rate​ 8% and expected inflation​ 3%, the expected real interest rate in year t is​approximately:

5%

Suppose a one−year discount bond offers to pay​ $1000 in one year and currently sells for​ $950. Given this​information, we know that the interest rate on the bond is

5.3%

Based on our understanding of the​ IS-LM model that takes into account​ dynamics, we know that an increase in government spending will cause

A gradual increase in Y

Which of the following is one possible explanation for the change in the natural rate of unemployment in the United States during the​ 1970s?

A. contractionary fiscal policy B. contractionary monetary policy C. an increase in the proportion of labor contracts that were indexed D. all of the above E. none of the above ANSWER: E

Which of the following statements is false​?

A. A​ bank's assets are its uses of funds. B. The​ bank's assets provide the bank with income. C. Bank capital is recorded as an asset on the bank balance sheet. Your answer is correct. D. A bank issues liabilities to acquire funds ANSWER: C

Which of the following will occur when the central bank pursues expansionary monetary​ policy?

A. a rightward shift in the money demand curve and a leftward shift in the money supply curve. B. a leftward shift in the money demand curve and a leftward shift in the money supply curve C. a rightward shift in the money demand curve and a rightward shift in the money supply curve. D. a leftward shift in the money demand curve and a rightward shift in the money supply curve. E. none of the above. ANSWER: E

The money demand curve will shift to the left when which of the following​ occurs?

A. an increase in the interest rate B. an open market sale of bonds by the central bank C. a reduction in the interest rate D. an increase in income E. none of the above ANSWER: E

Which of the following individuals would be considered​ unemployed?

A. an individual who works only part−time. B. an individual who is not working and is not looking for work. C. an individual who works full−time in a family​ business, but is not paid. D. all of the above. E. none of the above. ANSWER: E

Suppose the actual unemployment rate decreases. This will​ cause:

A. an upward shift in the WS curve B. a downward shift in the WS curve C. a downward shift in the PS curve D. an upward shift in the PS curve E. none of the above ANSWER: E

Which of the following is a component of​ money?

A. coins held by the nonbank public. B. checkable deposits. C. bills held by banks. D. all of the above ANSWER: D

Suppose the economy is currently operating on both the LM curve and the IS curve. Which of the following is true for this​ economy?

A. financial markets are in equilibrium. B. the quantity supplied of bonds equals the quantity demanded of bonds. C. production equals demand. D. the money supply equals money demand. E. all of the above. ANSWER: E

When a liquidity trap situation​ exists, we know​ that:

A. fiscal policy will have no effect on the demand for goods B. an open market operation will have no effect on the supply of money C. expansionary monetary policy will be deflationary D. an open market operation will have no effect on the monetary base E. none of the above ANSWER: E

Which of the following variables is most directly determined in the labor​ market?

A. interest rates B. stock prices C. nominal wages Your answer is correct. D. all of the above E. none of the above ANSWER: C

An open market sale of bonds by the central bank will cause which of the following when a liquidity trap situation​exists?

A. output will decrease B. the money​ supply, M, will not change C. the interest rate will not change Your answer is not correct. D. the interest rate will increase E. none of the above ANSWER: E

Which of the following events will cause a reduction in equilibrium​ output?

All of the above

The interest rate will increase as a result of which of the following​ events?

An increase in income

Consider the simplified bank balance sheet shown below. Assets = 120 Liabilities = 100 Capital = 20 If the​ bank's assets decline in​ value, its leverage ratio will rise The bank will remain solvent provided its assets decline by no more than 19 Suppose the​ bank's assets fall by 10. In this​ case, the bank might consider which of the following​ options? A​ one-for-one reduction in assets and liabilities. Increasing its capital from investors.

Answer in problem

Suppose that the Phillips curve is given​ by: πt= πet + (m + z) − α ut Given this equation for the Phillips​ curve, what would be the equation for the natural rate of​ unemployment? The equation for the natural rate of unemployment can be written as un ​= m+z/a According to the equation for the natural rate of​ unemployment, an increase in α will lead to a decrease in the natural rate of unemployment. Using the equations​ above, calculate the natural rate of unemployment given the following information. Assume m = 0.02 and z = 0.05. If α ​= 1, the natural rate of unemployment is 77​%. ​(Round your response to one decimal place.​) If α ​= 2, the natural rate of unemployment is 3.5​%.

Answer in problem

Consider the following simplified production​ function: Y =N ​, where Y is output and N is employment. According to the production​ function, labor's productivity​ (output per​ worker) is _______ Given the value of​ labor's productivity in the simplified production​ function, Y =N ​, it follows that the cost of one more unit of output​ (that is, the marginal​ cost) is equal to the cost of employing one more​ worker, at wage W . If the goods market is perfectly​ competitive, then Upper P equals Upper W P=W .

Constant and equal to 1

Suppose there is an increase in consumer confidence. Which of the following represents the complete list of variables that must increase in response to this increase in consumer​ confidence?

Consumption and output

Which of the following​ long-term bonds has the highest interest​ rate?

Corporate BBB bonds

Suppose that the economy is characterized by the following behavioral​ equations: C​ = 130 ​+ 0.90YD I​ = 140 G​ = 150 T​ = 100

Equilibrium output ​(Y​) ​= 3,300. ​ Total demand ​(Z​) ​= 3,300. ​ Total demand is equal to production.

Which of the following would NOT be considered part of fixed investment spending​ (I)?

Exxon increases its inventories of unsold gasoline.

Which of the following is an exogenous variable in our model of the goods market in Chapter​ 3?

Government spending (g)

When x decreases

IS curve shifts to the right.

The purchase by the Canadian government of a fighter jet produced in the United States is included in U.S.

Net exports

Based on price setting​ behavior, we know that a reduction in the unemployment rate will​ cause:

No change in the real wage

An economy produces three​ goods: cars,​ computers, and oranges. Quantities and prices per unit for years 2012 and 2013 are as​ follows:

Picture 1

Consider a bank that has assets of​ 100, capital of​ 20, and​ short-term credit of 80. Among the​ bank's assets are securitized assets whose value depends on the price of houses. These assets have a value of 50. Suppose that as a result of a housing price​ decline, the value of the​ bank's securitized assets falls by an uncertain​ amount, so that these assets are now worth somewhere between 25 and 45. Call the securitized assets​ "troubled assets." The value of the other assets remains at 50. As a result of the uncertainty about the value of the​ bank's assets, lenders are reluctant to provide any​ short-term credit to the bank.

Picture 10

Uncoventional monetary​ policy: financial policy and quantitative easing Suppose that the IS and LM relations are IS: Y=C(Y−T)+I(Y, r+χ)+G LM: r=r Interpret the interest rate as the federal funds rate adjusted for expected​ inflation, the real policy interest rate of the Federal Reserve. Assume that the rate at which firms can borrow is much higher than the federal funds​ rate, equivalently that the premium χ​, in the IS equation is high.

Picture 11

The​ IS-LM view of the world with more complex financial markets Consider an economy described by the figure on the right. The units on the vertical axis of the figure are percents. If the nominal policy interest rate is 7​% and the expected rate of inflation is 3​%, the value for the vertical intercept of the LM curve is 4​%. Suppose the nominal policy interest rate is 7​%. If expected inflation increases from 3​% to 4​%, in order to keep the LM curve from​ shifting, the central bank must increase the nominal policy rate of interest to 8​%.

Picture 12/13

The real wage implied by the​ price-setting behavior of firms having some market power is given by This wage does not depend on the rate of unemployment. In the figure on the​ right, show the determination of the equilibrium real wage and the natural rate of unemployment. ​1.) Using the line drawing​ tool, graph the​ price-setting relation. Label your curve ​'PS​'. ​2.) Using the point drawing​ tool, indicate the equilibrium point. Label your point ​'A​'.

Picture 14

The figure on the right shows the average monthly flows​ (in millions) between​ employment, unemployment, and​ non-participation for a hypothetical economy. According to the​ figure, the proportion of unemployed workers finding jobs in an average month is 21.821.8​%. ​(Round your response to one decimal place​.) U.S. data covering the 1996-2014 period show that the proportion of unemployed workers finding jobs has

Picture 15

Consider a closed economy with the following​ data: Production Y=$15trillion Consumption C=$11trillion Taxes T=$3 trillion Investment I=$0 trillion

Picture 2

The figure on the right displays a simplified consumption function. Which of the following expressions describes this​function? If consumption falls by ​$60 when disposable income falls by​ $100, the value of the parameter c1 must be 0.60.6. ​(Enter your response in decimal form​.) Suppose households become less optimistic about the future. All else​ constant, this attitude change will cause the consumption function to

Picture 3

More often than​ not, policymakers find it useful to employ monetary and fiscal policies in combination. Suppose the economy shown in the accompanying figure is experiencing a recession at point A and policymakers want to implement a​ same-direction policy mix to raise output. ​1.) Using the​ 3-point curved line drawing​ tool, reflect the appropriate fiscal policy. Label your curve ​'IS′​'. ​2.) Using the line drawing​ tool, reflect the appropriate monetary policy. Label your curve ​'LM′​'. ​3.) Using the point drawing​ tool, identify the new equilibrium point. Label your point ​'A′​'.

Picture 8

In response to the financial​ crisis, policymakers enacted an assortment of corrective measures. Which of the following were among​ these? ​(Check all that apply​.) C. Stimulation of demand via fiscal policy. Your answer is correct. D. Efforts to strengthen the financial system via financial policies. Your answer is correct. E. Attempts to reduce borrowing costs for consumers and firms. Your answer is correct. In terms of the ​IS-LM figure on the​ right, the onset of the crisis sent the economy reeling from point A to point Upper B. The combination of fiscal and financial policies moved the economy from point B to point Upper C. The implementation of monetary policy moved the economy from point C to point Upper D.

Picture 9

Consider the following IS-LM Model All of the following statements accurately describe the outcome of a contractionary fiscal policy that involves a decrease in government spending except​ __________. With the​ government's contractionary fiscal​ policy, the value of the real money supply becomes Now suppose the real money supply is fixed at 2550 and government spending still decreases to G ​= 269. Calculate the new equilibrium values of the​ following:

Pictures 6/7

The appropriate concept to use when seeking to measure production and its change over time. Economists focus on this statistic when they wish to assess the performance of the economy from year to year. The sum of the quantities of final goods produced times their current prices. This variable is generally considered to be a reasonably good indicator of the average standard of living.

Real GDP Real gdp growth Nominal GDP Real GDP per person

Based on our understanding of the model presented in the​ text, a reduction in investment will cause

Reduction in output

The text proposes the following model of expected inflation πet = (1 − θ) π + θ πt−1 What do we know about your process of the formation of expected inflation when θ ​= 0? What do we know about your process of the formation of expected inflation when θ = 1? If you look mainly at what the long−run trends have been for inflation when trying to predict what inflation will be this​ year, then you believe that θ is near 0

Regardless of what inflation was last​ year, you would expect it to be at the​ long-run average inflation rate this year. Last​ year's inflation rate will be the only input for you to revise your estimates for this​ year's expected rate regardless of what the​ long-run average inflation rate is.

The figure on the right shows the determination of the interest rate in the financial market. Of the two curves drawn in the​ figure, the one drawn for a given level of nominal income is the money demand curve. The supply of money curve is drawn as a vertical line to indicate that the quantity of money in circulation is independent of the interest rate. Suppose there is a decrease in the​ economy's money supply. ​1.) Using the line drawing​ tool, show the effect of this event in the accompanying figure. Label your new curve appropriately. ​2.) Using the point drawing​ tool, identify the new equilibrium point. Label your point ​'A'​'

See Picture 4

Changes in GDP in the medium run are determined primarily​ by:

Supply factors

________ was/were introduced in October 2008 to clean up banks.

TARP

Which of the following is not an action taken by governments to help stabilize the financial​ sector? The American Recovery and Reinvestment Act

The government created additional tax cuts. A. was created to help stimulate aggregate demand Your answer is not correct. B. was a fiscal stimulus tool used by the government C. was intended to raise output and reduce the recession D. All of the Above ASNWER: D

During a given​ year, the following activities occur in two​ stages: i. A pearl harvesting company pays its workers ​$70,000 to harvest​ 6,000 saltwater pearls. The pearls are then sold to a jewelry manufacturer for ​$110,000. ii. The jewelry manufacturer pays the jewelry artists it employs ​$1,100,000 to make​ 3,000 sets of​ one-of-a-kind, high-quality pearl​ earrings, which the manufacturer sells directly to customers for ​$1,800,000.

Using the​ production-of-final-goods approach, GDP in this economy is ​$1800000. ​(Round your response to the nearest dollar.​) What is the value added at each stage of​ production? First stage​ = ​$110000. ​(Round your response to the nearest dollar.​) Second stage​ = ​$1690000. ​(Round your response to the nearest dollar.​) Using the​ value-added approach, GDP is ​$1800000. ​(Round your response to the nearest dollar.​) What are the total wages and profits​ earned? Total wages​ = ​$1170000. ​(Round your response to the nearest dollar.​) Profits earned​ = ​$630000. ​(Round your response to the nearest dollar.​) Using the income​ approach, GDP is ​$1800000. ​(Round your response to the nearest dollar)

Suppose that a​ person's yearly income is ​$90,000. Also suppose that this​ person's money demand function is given by Md=$Y(0.35−i) When the interest rate is 10​%, this​ person's money demand is ​$22500. ​(Round your response to the nearest dollar​.) When the interest rate is 15​%, this​ person's money demand is ​$18000. ​(Round your response to the nearest dollar​.) Which of the following statements correctly describes the relationship between the interest rate and money​demand?

When the interest rate​ increases, money demand decreases because​ interest-paying bonds become more attractive than the money balance.

A reduction in unemployment benefits will tend to cause which of the​ following?

a downward shift in the WS curve

A reduction in consumer confidence will likely have which of the following​ effects?

a leftward shift in the IS curve

We would expect which of the following to occur when the central bank pursues contractionary monetary​ policy?

a reduction in bond prices and an increase in i

Based on wage setting​ behavior, we know that an increase in the unemployment rate will cause

a reduction in the real wage.

An increase in the real interest​ rate, with no other changes that affect aggregate​ expenditure, is best represented by​ ________ in panel​ (a) and​ ________ in panel​ (b).

a shift from AE2 to AE1​; a movement from point B to point A Picture 5

The Fed conducts open market operations with the primary goal of

affecting the federal funds rate.

Pure inflation occurs​ when:

all prices and nominal wages rise by the same percentage.

The IS curve will shift to the right when which of the following​ occurs?

an increase in government spending.

Which of the following statements is consistent with a given​ (i.e., fixed) LM​ curve?

an increase in output causes an increase in money demand.

Based on our understanding of the labor market model presented in the​ text, we know that a reduction in the markup will cause

an increase in the equilibrium real wage.

For this​ question, assume that the Phillips curve equation is represented by the​ following: πt−π​t-1= (m​ + z)−αut. Which of the following will NOT cause a decrease in the natural rate of​ unemployment?

an increase in the expected rate of inflation

For this​ question, assume that the Phillips curve equation is represented by the​ following: πt−π​t-1= (m​ + z) − αut. Which of the following will cause a reduction in the natural rate of​ unemployment?

an increase in α

In​ economics, money refers to

assets used and accepted as payment.

The process by which simultaneous withdrawals by a particular​ bank's depositors results in the bank closing is known as a

bank run

Suppose there is a fiscal contraction. Which of the following is a complete list of the variables that must​decrease?

consumption and output.

In the efficiency wage​ model, a decrease in productivity would

decrease output but have no effect on the real wage.

Suppose the economy is initially in short−run equilibrium and the Fed decreases the nominal money supply. If the price level remains​ constant, real GDP will​ ________ relative to potential GDP and the real interest rate will​________.

decrease, increase

Suppose nominal GDP increased in a given year. Based on this​ information, we know with certainty​ that:

either real output or the price level​ (GDP deflator) have increased

Suppose that a​ person's wealth is ​$60,000 and that her yearly income is ​$70,000. Also suppose that her money demand function is given​ by: MD= $70,000(0.35−i) The corresponding bond demand function is given​ by: Bd=​$60,000−​$70,000×​(0.35−i​) From these demand​ functions, one can conclude that if this​ person's income increases but her wealth remains unchanged​ ____________.

her demand for money increases but her demand for bonds decreases.

When inflation has been​ persistent, as was the case in the United States during the​ 1970s, low unemployment rates will likely be associated with

increases in the inflation rate.

Which of the following explains why the original Phillips curve relation disappeared​ or, as some economists have​remarked, "broke​ down" in the​ 1970s?

individuals changed the way they formed expectations of inflation.

The Phillips curve describes the relationship betwee

inflation and unemployment .

Holding large amounts of bank capital helps prevent bank failures because

it can be used to absorb the losses resulting from bad loans.

When the Fed attempts to increase real GDP and employment by​ ________ its target for the federal funds​ rate, it is conducting​ ________ monetary policy.

lowering, expansionary

When an analysis is conducted of the factors underlying supply (e.g., the capital stock) as the determinant of output in an​ economy, the time frame under consideration is the medium run. When an assessment is made of an​ economy's prospects over a period​ of, say, a few years​, the time frame under consideration is the short run.

medium, short

Assume that expected inflation is based on the​ following: πet= θπt−1. An increase in θ will​ cause:

no change in the natural rate of unemployment

Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty​ that:

output will increase and the interest rate will decrease.

Equilibrium in the goods market requires that

production equals demand

The goal of fiscal policy is to​ ________, and typically focuses on​ ________.

reduce the severity of economic​ fluctuations; employment and production

The Phillips curve suggests that monetary policymakers could use monetary policy to

reduce the unemployment rate at the expense of higher inflation.

An increase in the desire to save by households will​ cause:

reduction in output

Based on our understanding of the model presented in Chapter​ 3, we know with certainty that an equal and simultaneous reduction in G and T will​ cause:

reduction in output

Some policymakers claim that raising the minimum wage will result in economic growth. If increasing the minimum wage would actually generate economic​ growth, we would expect to eventually see nominal wages​________ and unemployment​ ________.

rise, fall

An increase in the expected rate of inflation would

shift the​ short-run Phillips curve upward.

In the fall of​ 2012, more than three years after the end of the​ recession, the unemployment rate remained just below​ 8% and nearly half of the unemployed had been out of work for at least six months. Unemployment had been so high for so​ long, that many economists had begun speaking of the​ "new normal", in which unemployment rates might be stuck at higher levels for many years. If this​ "new normal" does​ materialize, these higher unemployment rates would most likely be the result of​ ________ unemployment.

structural

If government spending and taxes increase by the same​ amount,

the IS curve shifts rightward

A reduction in the marginal propensity to save from .4 to .3 will​ cause:

the ZZ line to become steeper and a given change in autonomous consumption ​(c0​) to have a larger effect on output

Which of the following best defines the real interest rate​ (r)?

the amount of goods we must give up next year in order to consume more goods today.

Which of the following best defines the LM​ curve?

the combinations of i and Y that maintain equilibrium in financial markets

The economy is considered to be at full employment when

the cyclical unemployment rate is zero.

During the late​ 1990s, Japan experienced reductions in the GDP deflator. Given this​ information, we know with certainty​ that:

the overall price level in Japan decreased during these periods

Since approximately​ 1970, the most stable Phillips−type relationship for the United States has been between which of the​ following?

the unemployment rate and the change in the rate of inflation.

The mortgage is said to be underwater when

the value of the mortgage exceeds the value of the house.

Gross domestic product is calculated as the sum of the

total market value of final goods and services produced in the economy during a period of time.

For this​ question, assume that investment spending depends only on output and no longer depends on the interest rate. Given this​ information, an increase in the money supply

will cause a reduction in the interest rate.


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