ECON 320 Exam 1 Study Guide

All of these actions increase government purchases of goods and services EXCEPT the: a) federal government sending a Social Security check to a retired firefighter. b) federal government sending a paycheck to the president of the United States. c) federal government buying weapons. d) city of Boston buying a library book

a) federal government sending a Social Security check to a retired firefighter.

People use money as a store of value when they: a) hold money to transfer purchasing power into the future. b) use money as a measure of economic transactions. c) use money to buy goods and services. d) hold money to gain power and esteem.

a) hold money to transfer purchasing power into the future.

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts taxes, holding other factors constant? a) point A b) point B c) point C d) point D

a) point A

When the unemployment rate is at a steady state: a) no hiring or firings are occurring. b) the number of people finding jobs equals the number of people losing jobs. c) the number of people finding jobs exceeds the number of people losing jobs. d) the number of people losing jobs exceeds the number of people finding jobs.

b) the number of people finding jobs equals the number of people losing jobs.

A policy that decreases the job separation rate _____ the natural rate of unemployment. a) will increase b) will decrease c) will not change d) could either increase or decrease

b) will decrease

A policy that increases the job-finding rate _____ the natural rate of unemployment. a) will increase b) will decrease c) will not change d) could either increase or decrease

b) will decrease

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will: a) increase by $1 million. b) decrease by $1 million. c) increase by more than $1 million. d) decrease by more than $1 million.

c) increase by more than $1 million.

The currency-deposit ratio is determined by: a) the Federal Reserve b) business policies of banks and the laws regulating banks c) preferences of households about the form of money they wish to hold d) the Federal Deposit Insurance Corporation (FDIC)

c) preferences of households about the form of money they wish to hold

People use money as a medium of exchange when they: a) hold money to transfer purchasing power into the future b) use money as a measure of economic transactions. c) use money to buy goods and services. d) hold money to gain power and esteem.

c) use money to buy goods and services.

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: a) 0.02. b) 0.08. c) 0.10. d) 0.18.

d) 0.18. (b + 0.02) × 0.1 = 0.02 b + 0.2 = 0.02 b = 0.18

The table shows consumer price index data for the United Kingdom. In which year was the inflation rate the highest? U.S. Consumer Price Index Year CPI 2013 98.2 2014 99.6 2015 100 2016 101 2017 103.6 2018 106 a) 2014 b) 2015 c) 2016 d) 2017

d) 2017 2017 has the highest CPI out of the answers given.

Suppose that over the course of a year 100 people are unemployed for four weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total weeks of unemployment were attributable to the long-term unemployed? a) 9 percent b) 10 percent c) 43.5 percent d) 56.5 percent

d) 56.5 percent

Assume GDP (Y) = 6,000 C is given by the equation C = 600 + 0.6(Y - T) I is given by the equation I = 2,000 - 100r, where r = real rate of interest (%) T = 500; G = 500 A) What are the equilibrium values of C, I, and r? B) What are the values of private saving, public saving, and national saving? C) If government spending rises to 1,000, what are the new equilibrium values of C, I, and r? D) What are the new equilibrium values of private saving, public saving, and national saving?

A) C = 600 + 0.6(Y - T) = 600 + 0.6(6,000 - 500) = 600 + 3600 - 300 = 3900 Y = C + I + G, 6,000 = 3900 + I + 500, I = 1600 I = 2000 - 100r, 1600 = 2000 - 100r, -400 = 100r, 4% = r B) Private Saving = Y - T - G = 6000 - 500 - 500 = 5000 Public Saving = T - G = 500 - 500 = 0 National Saving = Private Saving + Public Saving = 5000 + 0 = 5000 C) C = 3900 I = 6000 - 3900 - 1000 = 1100 1100 = 2000 - 100r, -900 = -100r, r = 9% D) Private Saving = 6000 - 500 - 500 = 5000 Public Saving = 500 - 1000 = -500 National Saving = Private Saving + Public Saving = 5000 + (-500) = 4500

Consider two countries: Flexiland and Stuckland. The labor force in each country consists of 10,000 workers. In Flexiland a different 500 workers are unemployed each month. In Stuckland the same 500 workers are unemployed for the entire year. Compare and contrast the unemployment situation in the two countries by explaining: A) the unemployment rate. B) the number of spells of unemployment. C) the average duration of each unemployment spell. D) whether the unemployment is more likely to be frictional or structural.

A) Flexiland => 10000 + 12 × 500 = 106000 500/106000= 5.66%, Stuckland => (500/10,000) × 100 = 5% B) In Flexiland, there are 12 spells of unemployment (monthly). In Struckland, there's 1 spell of unemployment through the year. C) 500 each month D) Frictional unemployment is due to the time it takes to match workers with jobs and structural unemployment is the result from wage rigidity. With this, I believe Flexiland's unemployment is more likely to be frictional and Suckland's unemployment is more likely to be structural.

Assume that the monetary base (B) is $100 billion, the reserve-deposit ratio (rr) is 0.1, and the currency-deposit ration (cr) is 0.1. A) What is the money supply? B) If rr changes to 0.2, but cr is 0.1, and B is unchanged, what is the money supply? C) If rr is 0.1 and cr is 0.2, but B is unchanged, what is the money supply?

A) M = m × B = ((cr + 1)/(cr + rr)) × B = ((0.1 + 1)/(0.1 + 0.1)) * 100 billion = 550 billion B) ((0.1 + 1)/(0.1 + 0.2)) * 100 billion = 366.667 billion C) ((0.2 + 1)/(0.2 + 0.1)) * 100 billion = 400 billion

Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where: Y = national income i = the nominal interest rate (%) The real interest rate (r) is fixed is 3% by the investment an saving functions. The expected inflation rate equals the rate of nominal money growth. A) If Y is 1000, M is 100, and the growth rate of nominal money is 1%, what must i and P be? B) IF Y is 1000, M is 100, and the growth rate of nominal money is 2%, what must i and P be?

A) Nominal rate of interest = real interest rate + growth rate of nominal money = 3% + 1% = 4% i = 4% 0.6(1000) - 100(4) = 200; (M/P)d = M/P, 200 = 100/P, P = 0.5 B) 3% + 2% = 5%, i = 5% 0.6(1000) - 100(5) = 100; (M/P)d = M/P, 100 = 100/P P = 1

Assume that the demand for real money because (M/P) is M/P = 0.5Y - 120i, where Y = national income and i = nominal interest rate (%). The real interest rate (r) is fixed at 2% by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. A. If Y = 2,500, M is 325, and the growth rate of nominal money is 3%, what must i and P be? B. If Y = 3000, M is 340, and the growth rate of nominal money is 2%, what must P be?

A. Fisher equation: i = r + π = 3% + 2% = 5% M/P = 0.5Y - 120i => 325/P = 0.5(2500) - 120(5) => 325/P = 650 => P = 0.50 B. Fisher equation: i = r + π = 2% + 2% = 4% M/P = 0.5Y - 120i => 340/P = 0.5(3000) - 120(4) => 340/P = 1020 => P = 0.33

Assume that the monetary base in United States is $500 billion, the reserve-deposit ratio is 0.20, and the currency-deposit ratio is 0.20. a) What is the money multiplier? b) What is the money supply? c) If reserve-deposit ratio changes to 0.3, but currency-deposit ratio is 0.2 and monetary base is unchanged, what is the money supply? d) If reserve-deposit ratio is 0.20 and currency-deposit ratio is 0.30, but monetary base is unchanged, what is the money supply?

A. Money multiplier = (cr + 1)/(cr + rr) = (0.20 + 1)/(0.20 + 0.20) = 1.20/0.40 = 3 B. Money Supply = (cr + 1)/(cr + rr) × B = (0.20 + 1)/(0.20 + 0.20) × 500,000,000,000 = 1.20/0.40 × 500,000,000,000 = 1,500 billion C. (0.20 + 1)/(0.20 + 0.30) × 500,000,000,000 = 1,200 billion D. (0.30 + 1)/(0.30 + 0.2) × 500,000,000,000 = 1,300 billion

Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,000 +0.3 (Y - T). Investment (I) is given by the equation I = 1,500 - 50r, where r is the real interest rate, in percent. Taxes (T) are 1,000, and government spending (G) is 1,500. A. What are the equilibrium values of C, I, and r? B. What are the values of private saving, public saving, and national saving? C. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r? D. What are the new values of private saving, public saving, and national saving?

A. Y = C + I + G 5000 = (1,000 +0.3(5000 - 1000)) + (1500 - 50r) + (1500) 5000 = 2200 + 1500 - 50r + 1500 5000 = 5200 - 50r -200 = -50r *r = 4* C = *2200* I = 1500 - 50(4) = 1500 - 200 = *1300* B. private saving = Y - C - T = 5000 - (1,000 + 0.3(5000 - 1000)) - (1000) = 5000 - 2200 - 1000 = *1800* public saving = T - G = 1000 - 1500 = *-500* national saving = public saving + privates saving = -500 + 1800 = *1300* C. 5000 = (1,000 +0.3(5000 - 1000)) + (2000 - 50r) + (1500) 5000 = 2200 + 2000 - 50r + 1500 5000 = 5700 - 50r -700 = -50r *r = 14* C = *2200* I = 2000 - 50(14) = 2000 - 700 = *1300* D. private saving = Y - C - T = 5000 - (1,000 +0.3(5000 - 1000)) - (1000) = 5000 - 2200 - 1000 = *1800* public saving = T - G = 1000 - 1500 = *-500* national saving = public saving + privates saving = -500 + 1800 = *1300*

Assume that a society consists of two types of workers, A and B. There are 50,000 type A workers that are unemployed for a month each. There are 10,000 type B workers that are unemployed for a whole year each. Answer the following questions: A) Calculate the total months of unemployment that occur each year in this society. B) What percentage of the months of unemployment are short-term? C) What percentage of the unemployment are long-term? D) Identify which type of worker is likely experiencing frictional unemployment. E) Identify which type of worker is likely experiencing structural unemployment.

A. type A = 50,000 × 1 month = 50,000 months of unemployment type B = 10,000 × 12 months = 120,000 months of unemployment total months of unemployment = 50,000 + 120,000 = *170,000 months of unemployment* B. short-term unemployment = shorter # of months/total # of months = 50,000/170,000 = *29.41%* C. long-term unemployment = longer # of months/total # of months = 120,000/170,000 = 70.59% D. Short term => frictional E. long-term => structural

You make some new friends at a party. Who described here is unemployed? a) Kevin, who is a lifeguard in the summer but does not work the rest of the year b) Jason, who is a full-time student c) Jacinta, who is a full-time student on an unpaid internship d) Melinda, who was recently laid off

Melinda, who was recently laid off - not Kevin because he chose to only work in the summer - not Jason because he is a student - not Jacinta because she is a student and chose an unpaid internship

29: Most spells of unemployment are _____ term, and most weeks of unemployment are attributable to _____ term unemployment. a) short; short b) short; long c) long; long d) long; short

b) short; long

Policies to substantially reduce the natural rate of unemployment should be targeted at: a) the short-term unemployed. b) the long-term unemployed. c) discouraged workers. d) insiders and outsiders.

b) the long-term unemployed.

If gross domestic product (GDP) measured in billions of current dollars is $5,465,consumption is $3,657, investment is $741, and net exports are −$1,910, then government purchases are: a) $2,977 b) $1,910 c) -$843 d) $1,067

a) $2,977 Y = C + I + G + NX 5465 = 3657 + 741 + G + (-1910) G = 2977

Assume that blackberries cost $3.50 in 2005 and $6.25 in 2015, whereas raspberries cost $3.75 in 2005 and $5.95 in 2015. If 120 blackberries were produced in 2005 and 135 in 2015,whereas 110 raspberries were produced in 2005 and 145 in 2015, then nominal gross domestic product (GDP) in 2005 was: a) $832.50 b) $900.25 c) $1,025.75 d) $1,100.00

a) $832.50 NGDP2005 = ($3.50 × 120) + (3.75 × 110) = *$832.50*

If income is 4,800, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, public saving is: a) -200 b) 200 c) 500 d) 1,800

a) -200 public saving = T - G = 800 - 1000 = -200

In an economy, if 5 percent of the employed lose their job every month (s = 0.05) and 15 percent of the unemployed find a job every month (f = 0.15), what is the steady rate of unemployment of the economy? a) 25 percent b) 20 percent c) 15 percent d) 10 percent.

a) 25 percent s/(s + f) = 0.05/(0.05 + 0.15) = 0.25

If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real gross domestic product (GDP) must be _____ percent. a) 3 b) 4 c) 9 d) 11

a) 3 M = +12%, V = -4%, P = 5%, change in Real GDP = Y M × V = P × Y % change in M + % change in V = % change in P + % change in Y 12% - 4% = 5% + % change in Y % change in Y = 3%

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 5 percent rate, real output is growing at a 2 percent rate, and k is constant, what is the average inflation rate in this economy? a) 3 percent b) 7 percent c) 10 percent d) 15 percent.

a) 3 percent average inflation rate = change in M/M - change in Y/Y = 5% - 2% = 3%

You're an economist for the Organization for Economic Co-operation and Development (OECD), using data from each country to publish an Economic Survey Overview. In Sweden, 5,609,600 people are in the labor force, and 5,120,300 people are employed. What is the unemployment rate in Sweden? a) 8.72% b) 9.56% c) 91.28% d) 90.44

a) 8.72% unemployed = labor force - employed = 5609600 - 5120300 = 489300 unemployment rate = (# of unemployed / labor force) × 100 = (489300/5609600) × 100 = 8.72

Which of these is an example of frictional unemployment? a) Andy searches for a new job after voluntarily moving to Utah to be with his girlfriend. b) Dylan is willing to work for less than the minimum wage, but employers cannot hire him for less than the minimum wage. c) Nathan is qualified and would like to be a full-time professor, but colleges do not find it profitable to hire him at the wage established by the teachers' union. d) Kenny is willing to work for less than the going wage, but there are no jobs available.

a) Andy searches for a new job after voluntarily moving to Utah to be with his girlfriend.

In the national income accounts, the purchases of durables, nondurables, and services by households are classified as: a) Consumption b) Investment c) Government purchases d) Net exports

a) Consumption

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _____ determines real gross domestic product (GDP) and _____determines nominal GDP. a) the productive capability of the economy; the money supply b) the money supply; the productive capability of the economy c) velocity; the money supply d) the money supply; velocity

a) the productive capability of the economy; the money supply

Here is U.S. economic data for 2017. What was total spending? Dollars (in trillions) Consumption 13.312 Investment 3.371 Government spending 3.412 Exports 2.357 Imports 2.932 a) $22.45 trillion b) $19.52 trillion c) $20.67 trillion d) $20.10 trillion

b) $19.52 trillion Total Spending = C + I + G = 13.312 + 3.371 + 3.412 = 19.52

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real gross domestic product (GDP) (in 2002 prices) in 2009 was: a) $5. b) $6.50. c) $9.50. d) $11.

b) $6.50 GDP2009 = (P2002A × Q2009A) + (P2002O × Q2009O) = (0.50 × 5) + (1 × 4) = 6.50

According to the Bureau of the Labor Statistics, the following table consist of the U.S. Consumer Price Index. What is the inflation rate in 2020? Year U.S. Consumer Price Index 2019 255.7 2020 258.8 a) 1.50% b) 1.21% c) 1.05% d) 0.18%

b) 1.21%

If the quantity of real money balances is kY, where k is a constant, then velocity is: a) k b) 1/k c) kP d) P/k.

b) 1/k

If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, private saving is: a) 300 b) 500 c) 1,000 d) 1,300

b) 500 Income = C + Government Revenue + private savings 4800 = 3500 + 800 + private savings Private savings = 4800 - 4300 Private savings = 500

Consider the money demand function that takes the form (M/P)d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy? a) 3 percent b) 7 percent c) 10 percent d) 13 percent

b) 7 percent M = money supply (M/P)d = kY (M/P)d = (M/P)s M = PkY change in M = change in P + change in k + change in Y 10% = P + 0 + 3 P = 7%

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if businesses find investment projects to be more profitable, holding other factors constant? a) Point A b) Point B c) Point C d) Point D

b) Point B

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, holding other factors constant? a) Point A b) Point B c) Point C d) Point D

b) Point B

Based on historical observations, if many banks fail, this is likely to: a) cause surviving banks to lower their ratios of reserves to deposits. b) cause surviving banks to raise their ratios of reserves to deposits. c) have no effect on the ratio of reserves to deposits in surviving banks. d) cause surviving banks to hold less currency

b) cause surviving banks to raise their ratios of reserves to deposits.

When the Fed decreases the interest rate paid on reserves, it: a) increases the reserve-deposit ratio (rr). b) decreases the reserve-deposit ratio (rr). c) increases the monetary base (B). d) decreases the monetary base (B).

b) decreases the reserve-deposit ratio (rr).

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation: a) increases by 2 percent. b) increases by 1 percent. c) remains constant. d) decreases by 1 percent.

b) increases by 1 percent. Fisher equation = i = r + π real interest rate = nominal interest rate - inflation rate nominal interest rate = real interest rate + inflation rate nominal interest rate = -1% + 2% = 1%

The economy begins in equilibrium at point E, representing the real interest rate r1 at which saving S1 equals desired investment I1. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods? a) point A b) point B c) point C d) point D

b) point B

The inconvenience associated with reducing money holdings to avoid the inflation tax is called: a) menu costs. b) shoeleather costs. c) variable yardstick costs. d) fixed costs.

b) shoeleather costs. Shoeleather Cost: the costs and inconveniences of reducing money balances to avoid the inflation tax Menu Costs: the costs of changing prices

The money supply will decrease if the: a. monetary base increases b. currency-deposit ratio increases c. discount rate decreases d. reserve-deposit ratio decreases

b. currency-deposit ratio increases

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals: a) $50 billion. b) $100 billion. c) $150 billion. d) $600 billion.

c) $150 billion. B = C + R = 100 + 50 = 150

Based on the table, what is the leverage ratio at the bank? Assets Reserves 500 Loans 1,000 Securities 500 Liabilities and Owners' Equity Deposits 1,400 Debt 400 Owners' equity 200 a) 3 percent b) 5 percent c) 10 percent d) 15 percent

c) 10 percent assets/capital = (500 + 1000 + 500)/(200) = 10

If the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is: a) 1 percent b) 9 percent c) 10 percent d) about 11 percent

c) 10 percent unemployment rate = s/(s + f) = 0.01/(0.01 + 0.09) = 0.1 = 10%

Given the following table, determine the level of L where diminishing marginal returns start to show and how many workers to hire should the firm hire if W/P is equal to 15? Labor, L Output, Y 0 0 1 20 2 45 3 65 4 80 5 90 a) 1st worker, 2nd worker b) 2nd worker; 3rd worker c) 3rd worker; 4th worker d) 4th worker; 5th worker

c) 3rd worker; 4th worker Y => -, 25, 20, 15

Given the following table, how many capital units should the firm rent if R/P is equal to 15? Capital, K Output, Y 0 0 1 30 2 55 3 75 4 90 5 100 6 105 7 107 a) 6 units. b) 5 units. c) 4 units. d) 3 units.

c) 4 units. 15 = R/P

In 2022, the total number of persons employed in New York is 9,207,903 and the total number of persons unemployed is 408,607. What is New York's unemployment rate in 2022? a) 5.25% b) 5.00% c) 4.25% d) 4.00%

c) 4.25% L = E + U = 9,207,903 + 408,607 = 9,616,510 unemployment rate = # of people unemployed/labor force = 408,607/9,616,510 = 0.04249015495 = 4.25%

If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is _____ times per year. a) 0.2 b) 2 c) 5 d) 10

c) 5 V = (P × Y)/M = (10 × 100)/200 = 5

Bank Balance Sheet Assets Reserves $10,000 Loans 100,000 Securities 40,000 Liabilities and Net Worth Deposits $100,000 Debt 20,000 Equity 30,000 Based on the table, what is the leverage ratio at the bank? a) 3 b) 4.67 c) 5 d) 10

c) 5 leverage ratio = assets/capital = (10000 + 100000 + 40000)/30,000 = 5

Which of these is the BEST example of structural unemployment? a) Tim is looking for a job with flexible hours but has not been offered one yet. b) Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. c) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. d) Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left.

c) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

If bread is produced using a constant returns to scale production function, then if the: a) number of workers is doubled, twice as much bread will be produced. b) amount of equipment is doubled, twice as much bread will be produced. c) amounts of equipment and workers are both doubled, twice as much bread will be produced. d) amounts of equipment and workers are both doubled, four times as much bread will be produced.

c) amounts of equipment and workers are both doubled, twice as much bread will be produced. If bread is produced by using a constant returns to scale production function, then if the amounts of equipment and workers are both doubled, twice as much bread will be produced

If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage: a) increased 4 percent b) increased 2 percent c) decreased 2 percent d) decreased 6 percent.

c) decreased 2 percent r = i - π = 4% = 6% - π = -2%

Which transaction would count in 2020's GDP? i. 2001 3-bedroom apartment. ii. 2020 4-bedroom bungalow. iii. A food stamp payment in April of 2020. iv. A google stock sold in 2000. v. Commercial mixers bought by a bakery in 2020. vi. New construction of campsites in National Parks. a) i, ii, and vi. b) ii, iv, and v. c) ii, v, and vi. d) iv, v, and vi.

c) ii, v, and vi.

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent. a) 1; 5 b) 5; 1 c) 1; 1 d) 5; 5

d) 5; 5 According to quantity theory of money, at given real GDP & velocity of money: % of change in money supply = inflation rate => Inflation rate = 5%. & from the Fisher Equation, at given real interest: % of change in nominal Interest = inflation rate = 5%

Given the following table, determine the level of K where diminishing marginal returns start to show. Capital, K Output, Y 0 0 1 30 2 55 3 75 4 90 5 100 6 105 7 107 a) After hiring the 7th worker b) After hiring the 5th worker c) After hiring the 4th worker d) After hiring the 2nd worker

d) After hiring the 2nd worker Diminishing Marginal Returns occur when increasing one unit of production, whilst holding other factors constant - results in lower levels of output. In other words, production starts to become less efficient.

Out of the four people below, identify which person is unemployed per the definition of Bureau of the Labor Statistics. a) Jennifer, who is working as a second-grade schoolteacher. b) Frank, who is attending a college full-time to earn a degree in Engineering. c) Martin, who is working nurse but is at home sick with the flu. d) Kyle, who does not have a job, but has sent many resumes to pharmacies across the county.

d) Kyle, who does not have a job, but has sent many resumes to pharmacies across the county.

In a 100-percent-reserve banking system, banks: a) can increase the money supply. b) can decrease the money supply. c) can either increase or decrease the money supply. d) cannot affect the money supply.

d) cannot affect the money supply.

Assume that a country experiences a reduction in productivity that lowers the marginal product of labor for any given level of labor. In this case, the labor: a) supply curve shifts to the right. b) supply curve shifts to the left. c) demand curve shifts upward and to the right. d) demand curve shifts downward and to the left.

d) demand curve shifts downward and to the left.

The investment function slopes _____ because there are _____ investment projects that are profitable as the interest rate decreases. a) upward; fewer b) upward; more c) downward; fewer d) downward; more

d) downward; more I = I (r) r = the real interest rate

Which transaction would count in this year's GDP? i. buying a new car ii. selling a used car iii. buying a painting by an old master iv. buying a share in a mutual fund v. paying for advice from a financial consultant vi. making a loan repayment vii. government-funded construction of a bridge viii. California wine bought in France ix. a Social Security payment x. selling an antique rug a) ii, iv, vi, ix b) i, ii, vi, viii c) iii, v, vii, x d) i, v, vii, viii

d) i, v, vii, viii GDP: total expenditure on domestically produced final goods and services; total income earned by domestically located factors of production

When bread is baked but put away for later sale, this is called: a) waste. b) saving. c) fixed investment. d) investment in inventory.

d) investment in inventory (the change in the value of all firms' inventories)

Given that M/P = kY, when the demand for money parameter, k, is large, the velocity of money is _____, and money is changing hands _____. a) large; frequently b) large; infrequently c) small; frequently d) small; infrequently

d) small; infrequently