EC 111 Exam 2
Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
$4,937.5 billion
Suppose that in a closed economy GDP is equal to $33,000, consumption equal to $18,000, government purchases equal $6,500, and taxes equal $6,750. What are private saving, public saving, and national saving?
$8,250, $250, and $8,500, respectively
If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Smileville now hold (look at table)?
$900
If the government imposes a minimum wage of $8, then how many workers will be unemployed (look at table)?
40,000
If the local government imposed a minimum wage of $7 in Productionville, how many people would be unemployed (look at table)?
5,000
This bank's leverage ratio is (look at table)
50
Suppose that the Bureau of Labor Statistics reported that there were 59 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 42.6 million were employed and 10.2 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group?
89.5% and 19.3%
Which of the following is an example of barter?
A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.
Which of the following is an example of an efficiency wage? A high wage paid to compensate for dangerous work such as coal mining An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants A wage below the minimum wage but supplemented by customer tips A high wage paid to a college graduate for a high-skill job such as electrical engineering
An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants
Which of the following does the Federal Reserve not do? Conduct monetary policy Act as a lender of last resort Conduct fiscal policy Serve as a bank regulator
Conduct fiscal policy
Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?
Corporate bond, U.S. government bond, municipal bond
Which of the following events would shift the demand curve from D1 to D2 (up)? The government goes from running a budget deficit to running a budget surplus. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. A change in the tax laws encourages people to consume less and save more. A change in the tax laws encourages people to consume more and save less.
Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.
Suppose that garbage collectors and landscaping workers have no unions. Now suppose that garbage collectors form unions. What does this do to the labor supply and wages of landscaping workers?
Labor supply increases, and wages decrease
You receive money as payment for mowing your neighbor's lawn. Which function of money does this best illustrate?
Medium of exchange
Meredith is looking for work as a computer programmer. Her prospects are good but so far she has not taken a job. Jenna is looking for work in a steel mill. Every time Jenna shows up for an interview, there are more people looking for work than there are openings. She realizes that it has been that way for a long time.
Meredith is frictionally unemployed, and Jenna is structurally unemployed
In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?
Public saving
Which of the following is not included in M1? Currency Demand deposits Savings deposits Traveler's checks
Savings deposits
Which of the following best represents fiat money? The euro A gold bar Monopoly money Baseball cards
The euro
Which of the following statements is correct? -The expected future profitability of a corporation influences the demand for its stock. -When a corporation sells stock as a means of raising funds it is engaging in debt finance. -The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. -A corporation is paid every time its shares of stock are traded organized stock exchanges.
The expected future profitability of a corporation influences the demand for its stock.
Suppose private saving in a closed economy is $21b and investment is $8b.
The government budget deficit must equal $13b.
What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income?
There would be an increase in the equilibrium quantity of loanable funds.
Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes
both the number of people unemployed and in the labor force fall.
Which list ranks assets from most to least liquid?
currency, stocks, houses
If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, then by definition there is
cyclical unemployment amounting to 0.8 percent of the labor force.
Other things the same, if reserve requirements are decreased, the reserve ratio
decreases, the money multiplier increases, and the money supply increases.
The unemployment rate is computed as the number of unemployed
divided by the labor force, all times 100.
Providing training for unemployed individuals is primarily intended to reduce
frictional unemployment.
Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium
interest rates rise and the equilibrium quantity of loanable funds fall.
Given that Sarah's income exceeds her expenditures, Sarah is best described as a
saver or as a supplier of funds.
If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a
shortage and the interest rate is below the equilibrium level
A problem that the Fed faces when it attempts to control the money supply is that
the Fed does not control the amount of money that households choose to hold as deposits in bank
If the Federal Reserve increases the interest rate on bank reserves at the Fed, banks will want to hold
more reserves, so the reserve ratio will rise
Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct? "U.S. government bonds generally pay a higher rate of interest than corporate bonds." "The interest received on corporate bonds is taxable." "U.S. government bonds have the lowest default risk." "If you purchase a municipal bond, you can sell it before it matures."
"U.S. government bonds generally pay a higher rate of interest than corporate bonds."
The quantity of loanable funds demanded is (look at table)
$3.2 trillion
Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?
Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate
If the Federal Open Market Committee decides to increase the money supply, it
creates dollars and uses them to purchase government bonds from the public.
Sandy has graduated from college and is devoting her time to searching for a job. She has seen plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is
frictionally unemployed. Frictional unemployment can exist even in the long run.
Other things the same, when the interest rate rises, people would want to lend
more, making the quantity of loanable funds supplied increase.
Long-term bonds are
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be
$1,000 higher and M2 would be $1,500 higher.