econ 2013
The central bank of the United States is ______.
the bank that provides services to commercial banks and governments and that regulates the banking system
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
In the United States in 2014, nominal GDP was $17 trillion and real GDP was $16.0 trillion. The GDP price index in 2014 was ______.
106.3
Sally has a credit card balance of $5 comma 000. The credit card company charges a nominal interest rate of 21 percent a year on unpaid balances. The inflation rate is 9 percent a year. Calculate the real interest rate that Sally pays the credit card company. The real interest rate that Sally pays the credit card company is ___ percent a year.
12
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
Sara has $100 in currency and $5 comma 000 in a bank account on which the bank pays no interest. The inflation rate is 4 percent a year. Calculate the amount of inflation tax that Sara pays in a year. Sara pays $ ___ inflation tax.
204
The central bank of Canada is the Bank of Canada. Suppose that in Canada, Bank of Canada notes were $80 billion, the quantity of coins was $3 billion, and the monetary base in Canada was $88 billion. What were banks' reserves at the Bank of Canada? Banks reserves at the Bank of Canada were $___ billion.
5
Which of the following events increases the amount of job-rationing unemployment?
An increase in the efficiency wage rate
Consumer price index falls 0.4% in April The CPI in April 2013 was 233 and 0.4% lower than the March. In April, food prices rose 0.2% while energy prices fell 4.3%. Source: USA Today, June 15, 2011 Distinguish between the price level and the inflation rate and explain why the CPI fell by only 0.4 percent when energy fell by 4.3 percent. The ______ is the price level and the ______ is the inflation rate. Because the CPI fell by only 0.4 percent when energy prices fell 4.3 percent, then
CPI; percentage change in the CPI other prices must have risen by more than 0.4 percent
Rick withdraws $500 from his savings account, keeps $100 as currency, and deposits $400 in his checking account.
M1 increases by $500 and M2 does not change.
The GDP price index in the United States in 2000 was about 82, and real GDP in 2000 was $12.6 trillion (2009 dollars). The GDP price index in the United States in 2001 was about 84, and real GDP in 2001 was $12.7 trillion (2009 dollars). Calculate nominal GDP in 2000 and in 2001 and the percentage increase in nominal GDP between 2000 and 2001.
Nominal GDP in 2000 is $ 10.3 trillion. Nominal GDP in 2001 is $ 10.7 trillion. The percentage increase in the nominal GDP between 2000 and 2001 is 3.9 percent.
In Brazil, the reference base period for the CPI is 2000. By 2005, prices had risen by 51 percent since the base period. The inflation rate in Brazil in 2006 was 10 percent, and in 2007, the inflation rate was 9 percent. Calculate the CPI in Brazil in 2006 and 2007. Brazil's CPI in 2008 was 173. Did Brazil's inflation rate increase or decrease in 2008? Brazil's inflation rate _______ in 2008.
The CPI in Brazil for 2006 is 166.1 The CPI in Brazil for 2007 is 181.0. decreased
A Consumer Expenditure Survey in the city of Firestorm shows that people buy only firecrackers and bandages. A Consumer Expenditure Survey in 2016 shows that the average household spent $33 on firecrackers and $21 on bandages. In 2016, the reference base year, the price of a firecracker was $1, and the price of bandages was $3 a pack. In the current year, 2017, firecrackers are $6 each and bandages are $3 a pack. Calculate the CPI market basket and the percentage of a household's budget spent on firecrackers in the base year.
The CPI market basket is 33 firecrackers and 7 packs of bandages . The percentage of a household's budget spent on firecrackers in the base year is 61.1 percent.
The nominal interest rate is 6 percent a year and the real interest rate is 2 percent a year. What is the inflation rate?
The inflation rate is 4 percent a year.
In 1982-84 dollars, the real average hourly wage rate in 2004 was $8.24 and in 2005, it was $8.18. In 2004, the CPI was 188.9 and in 2005, the CPI was 195.3. Calculate the nominal wage rate in 2004 and in 2005.
The nominal wage rate in 2004 is $ 15.57. The nominal wage rate in 2005 is $ 15.98.
The real wage rate is $15.00 an hour and the CPI is 112. What is the nominal wage rate?
The nominal wage rate is $ 16.80 an hour.
Bureau of Economic Analysis data show that with base year 2005 = 100, the GDP price index was 109.7 in the second quarter of 2009. In that same quarter, the PCEPI was 108.8. Given the further information that the prices of capital goods (investment) and foreign traded goods (exports and imports) increased at a slower pace than the prices of consumption goods and services, how would you explain the difference in the GDP price index and PCEPI measures of inflation? Choose the correct statement.
The prices of government goods and services increased at a faster pace than the prices of consumption goods
A structural boom ______.
lowers the natural unemployment rate because new jobs are found quickly
Ford says it cut its labor costs by 35 percent between 2006 and 2011. Ford's wage rate, including benefits, was $80 an hour in 2006 and $58 an hour in 2011. The CPI was 202 in 2006 and 218 in 2011. Did the real wage rate fall by more or less than 35 percent?
The real wage rate in 2006 was $ 39.60 and the real wage rate in 2011 was $ 26.61. Between 2006 and 2011, the real wage rate fell by less than 35 percent.
agreed to pay its workers $10 an hour in 2009 and $12 an hour in 2011. The CPI was 166 in 2009 and 180 in 2011. Calculate the real wage rate in each year. Did these workers really get a pay raise between 2009 and 2011?
The real wage rate in 2009 was $ 6.02. The real wage rate in 2011 was $ 6.67. The workers did get a real raise between 2009 and 2011
In the United States in 2001, real GDP was $ 12 comma 070 billion and nominal GDP was $ 10 comma 622 billion. What is the value of the GDP price index in 2001?
The value of the GDP price index in 2001 isnbsp 88.
In the United States in 2007, nominal GDP was $ 14 comma 478 billion and real GDP was $ 14 comma 029 billion. What is the value of the GDP price index in 2007?
The value of the GDP price index in 2007 isnbsp 103.2.
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
Job search is the activity of looking for _____ job.
an acceptable vacant
The costs of inflation do not include _______.
an increase in saving and investment
Unemployment is a normal feature of our economy and the Congressional Budget Office believes the "natural" unemployment rate increased from 5 percent in 2007 to 6 percent in 2012. Source: Wall Street Journal, September 7, 2012 Provide some reasons why the natural unemployment rate might have increased.
an increase in the minimum wage and an increase in the number of firms paying an efficiency wage
Suppose a huge scientific breakthrough doubles the output that an additional hour of U.S. labor can produce. As a result, there is ______ in the U.S. production function. There is ______ in the U.S. demand for labor and ______ in the U.S. supply of labor.
an upward shift an increase, no change
When the Fed increased the monetary base between 2008 and 2014, which component of the monetary base increased most: banks' reserves or currency? How did the banks' borrowed reserves change? When the Fed increased the monetary base between 2008 and 2014, the component that increased most was ______. The reserves that the banks borrow from the Fed ______.
banks' reserves; increased initially and then returned to an amount close to zero
The money multiplier _______.
decreases if banks increase their desired reserve ratio
An early goldsmith banker earned a profit (sometimes a large profit) simply by writing notes to certify that a person had deposited a certain amount of gold in his vault. By writing more notes than the amount of gold held, the goldsmith could lend the notes and charge interest on them. Did the goldsmith bankers make money out of thin air in a form of legal theft? Should the goldsmith bankers have been regulated to ensure that the amount of gold in their vaults equaled the value of the notes they created? The goldsmith bankers ______ make money out of thin air in a form of legal theft. The goldsmith bankers ______ have been regulated to ensure that the amount of gold in their vaults equaled the value of the notes they created.
did not; should not
In the long run with a constant velocity of circulation, the inflation rate _______.
equals the money growth rate minus the growth rate of real GDP
Inflation-adjusted savings bonds hit 0% rate for first time Inflation-adjusted savings bonds purchased from May through October 2009 will earn 0% for the first six months. The fixed interest rate on these bonds is 0.1% and over the previous 6 months, inflation fell at an annual rate of 5.56%. The minimum interest rate on savings bonds is set at 0%. Source: USA Today, May 5, 2009 Are these savings bonds a better deal than cash under the mattress? At an interest rate of 0 percent, the return on the bonds ______ the return on money. If inflation starts to rise, and bonds receive a fixed interest rate of 0.1 percent, the return on the bonds ______ the return on money.
equals; is greater than
Which of the events in the table increase the equilibrium quantity of labor and which decrease the equilibrium quantity of labor? An increase in the equilibrium quantity of labor is a result of ______. A decrease in the equilibrium quantity of labor is a result of ______. Event 1 Dell introduces a new supercomputer that everyone can afford. 2 A major hurricane hits Florida. 3 More high school graduates go to college. 4 The CPI rises. 5 An economic slump in the rest of the world decreases U.S. exports.
event 1; events 2 and 3
Last month, the interest rate on a money fund averaged 0.08% a year and on 5-year CDs it was 2.6% a year. The inflation rate was 0.1% a year. USA Today, August 12, 2009 To maintain these real interest rates in the coming months, how will these nominal rates change if the inflation rate increases to 0.2 percent a year? To maintain these real interest rates in the coming months, the nominal interest rate will ______ if the inflation rate increases to 0.2 percent a year.
increase on both assets by 0.1 percent
Money market funds are yielding almost nothing Last month, the interest rate on a money fund averaged 0.08% a year and on 5-year CDs it was 2.6% a year. The inflation rate was 0.1% a year. USA Today, August 12, 2009 To maintain these real interest rates in the coming months, how will these nominal rates change if the inflation rate increases to 0.2 percent a year? To maintain these real interest rates in the coming months, the nominal interest rate will ______ if the inflation rate increases to 0.2 percent a year.
increase on both assets by 0.1 percent
The Fed increases the quantity of money. In the short run, the quantity of money demanded ______ and the nominal interest rate ______.
increases ; falls
Currency _________.
inside the banks is not money because it isn't available as a means of payment
If the money wage rate increased from $20.00 to $26.68 an hour and consumer prices rose by 16 percent, we would expect ______ people to try to find a job and employed people to want to work ______ hours. the ______ would ______
more; longer quantity of labor supplied; increase
Imagine that you are given $1,000 to spend and told that you must spend it all buying items from a Sears catalog. But you do have a choice of catalog. You may select from the 1903 catalog or from Sears.com today. You will pay the prices quoted in the catalog that you choose. The ______ bias in the CPI is relevant to your choice of catalog.
new goods bias and the quality change
NITC bridge project Canada is the United States' largest trading partner and 25 percent of the goods trade crosses the Detroit River. The NITC bridge, costing $1 billion, will increase capacity, reduce traffic bottlenecks and improve opportunities for businesses in both countries by providing a state-of-the-art, publicly operated border crossing. Source: CNN, June 28, 2013 Explain how this huge project will influence potential GDP in Canada and the United States.
shift Canada`s production function upward, create a movement up along the production function as the full-employment quantity of labor increases, and increase potential GDP shift the U.S. production function upward, create a movement up along the production function as the full-employment quantity of labor increases, and increase potential GDP
When unemployment benefits increase, the ______.
supply of labor decreases, and potential GDP decreases as a movement occurs down along the production function
A minimum wage ______.
that is above the equilibrium wage rate creates unemployment from job rationing
When will U.S. interest rates rise? The Federal Reserve Chairman Ben Bernanke said Thursday that while interest rates will stay low for some time, interest rates will rise as the recovery picks up, in order to fight off the threat of inflation. Source: CNNMoney, October 9, 2009 Explain why, other things remaining the same, interest rates will rise the economy recovers from recession. Other things remaining the same, interest rates will rise as the economy recovers from recession because ______.
the increase in real GDP increases the demand for money
Households' labor supply decisions are influenced by all of the following except _______.
the number of full-time jobs available
The BLS reported that the CPI in July 2010 was 226. This news tells you that _______.
the prices of consumption goods and services have risen, on average, by 126 percent since the base year
The demand for labor curve shows the relationship between _______.
the quantity of labor businesses are willing to hire and the real wage rate
Helicopter Money Primer: The possible next frontier in quantitative easing Central bankslong dashthe Fed, the Bank of Japan, the European Central bank, the People's Bank of China, and otherslong dashhave bought trillions of dollars of bonds. The Fed alone has bought $4 trillion-worth. Source: Daily FX, July 15, 2016 The Fed's policy tools include ______. To increase its assets to $4 trillion, the Fed used ______.
the required reserve ratio, discount rate, and open market operations large-scale open market operations called quantitative easing
The CPI market basket consists of items that ______ buy and ______.
urban households; the Consumer Expenditure Survey is used to update it frequently
U.S. potential GDP is the value of the goods and services produced in the United States _______.
when the U.S. economy is at full employment
Classical macroeconomics is the view that the market economy _____, that aggregate fluctuations are _____, and that government intervention _____ improve the efficiency of the market economy.
works well; a natural consequence of an expanding economy; cannot
Close to 100 percent of Canada's unemployed receive generous benefits compared to 38 percent in the United States. If the United States adopted the level of unemployment benefits that Canada has, we would expect the U.S. natural unemployment rate to ______ and U.S. potential GDP to ______.
increase; decrease
The Fed's $2.2 trillion fire hose The Fed threw a lot of money at the financial crisis in 2008 to unfreeze credit markets and encourage economic activity. As part of its effort to keep the interest rate low, the Fed purchased government bonds worth $300 billion between March and September 2009. By October, the Fed held $770 billion in government securities, nearly double its pre-crisis total. Before the crisis, the Fed held mainly government securities, which it used to control the quantity of money in the economy. Now government securities make up just 35% of the Fed's balance sheet. Source: CNN Money, October 9, 2009 If the Fed purchased the government securities on the open market, explain why the purchase of $300 billion of government securities would influence the interest rate. If the Fed purchases the government securities on the open market, the quantity of money ______ because _______. The nominal interest rate _______.
increases; bank reserves increase falls
