Econ Exam 2
On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $14,000, and at the end of the year the market value of all of Sophie's beds was $24,000. What was Sophie's net investment?
4000
In Blogsville last month, ______ million people were in the labor force and ______ million people were in the working-age population.
44; 65
The CPI in 2013 is 240 and the CPI in 2014 is 259.2
8% (259.2/240 = 1.08)
Choose the correct statement.
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
Choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
Choose the statement that is incorrect.
Each additional hour of labor increases real GDP by successively larger amounts.
Choose the statement that is incorrect.
Most economists believe that the Ricardo-Barro effect holds in the loanable funds market.
I = ______.
S + (T-G) + (M-X)
Private saving _____________ and investment ______________.
increase, decrease
Money serves as a ______.
medium of exchange, which means that it is generally accepted in exchange for goods and services
The inflation rate in 2014 ______.
might be higher, lower, or the same as in 2013
Between 1960 and 2010, the gap between real GDP per person in the United States and real GDP per person in Japan ______.
narrowed
The main sources of bias in the CPI are ______.
new goods bias, quality change bias, commodity substitution bias, and outlet substitution bias
The demand for money is the relationship between the quantity of real money demanded and the __________________ when all other influences on the amount of money that people wish to hold remain the same.
nominal interest rate
A government budget surplus occurs, which increases the __________ loanable funds
supply of
The table gives information reported by the Bureau of Labor Statistics for September, 2011. What is the employment-to-population ratio? LF:154 U:14 N:86
58.3 (labor force-unemployment/labor force + not in labor force)
Choose the statement that is incorrect.
A benefit of a money market mutual fund is that shareholders can write checks on their accounts with no restrictions.
Choose the statement that is incorrect.
An unexpected inflation or deflation has no effect on the economy.
During the 100 years from 1914 to 2014, real GDP per person in the United States grew at ______.
an average of 2 percent a year
The higher than normal unemployment at a business cycle trough and the lower than normal unemployment at a business cycle peak is ____________ unemployment
cyclical
Draw a labor supply curve and a labor demand curve. Label them LS0 and LD0. Draw a point at the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Draw and label a curve that shows the effect of an increase in population. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2.
https://gyazo.com/fede91320f02a7803390a9f7673cb035
When the unemployment rate ______ the natural unemployment rate, real GDP ______ potential GDP.
is greater than; less than
The natural unemployment rate _______.
is the unemployment rate when there is no cyclical unemployment
The bias in the CPI is a problem because ______ .
it distorts wage agreements linked to the CPI
According to new growth theory, ______ experience diminishing returns.
knowledge is capital that does not
All of the following statements are correct except _______.
the return to full employment in an expansion phase of the business cycle is economic growth
An economy is at full employment when ______.
the unemployment rate equals the natural unemployment rate
Choose the statement that is incorrect.
Coins, which are issued by the Treasury are an asset of the Fed and a component of the monetary base.
The table gives information reported by the Bureau of Labor Statistics for September, 2012. What is the unemployment rate?
143/155
The table provides official estimates of U.S. wealth and U.S. saving in three years. The change in U.S. wealth exceeds U.S. saving in ______. U.S. saving exceeds the change in U.S. wealth in ______. https://gyazo.com/6fc03d983310ef4963c581db2eec1898
1996 and 1997; none of the years on the table.
The people who live on Second Life Island consume only juice and cloth. Last year, which was the CPI base year, the price of juice was $2 a bottle, the price of cloth was $4 a length, and the average urban household spent $12 on juice and $20 on cloth. This year, the price of juice is $9 a bottle and the price of cloth is $2 a length. What is the CPI in the current year?
200 (cpi a/cpi b) x 100
Cindy takes a summer job painting houses. During the summer, she earns an after-tax income of $3000 and she spends $1000 on living expenses. What was Cindy's saving during the summer?
2000
Rob takes a summer job with a landscaping firm. During the summer, he earns an after-tax income of $4,000 and he spends $1,500 on living expenses. Everything else remaining the same, what was the change in Rob's wealth during the summer?
2500
The table gives information reported by the Bureau of Labor Statistics for February, 2014. What is the labor force participation rate? E:145 U:11 N:91
63.2 (employ +unemployment/total)
Choose the statement that is incorrect.
A government budget surplus competes with investment for funds.
The liabilities of the Fed are ______, and these liabilities along with ______ make up the monetary base.
Federal Reserve notes held by households and businesses and reserves of depository institutions; coins issued by the Treasury
Choose the statement that is incorrect.
If a financial institution's net worth is positive, the institution must be solvent and liquid.
Suppose that potential GDP and the velocity of circulation are constant. What is the change in the price level in the long run if the quantity of money increases by 3 percent a year?
If the quantity of money increases by 3 percent a year, in the long run the change in the price level is 3 percent a year.
Choose the statement that is incorrect.
Labor hours are all equally productive.
On January 1, 2014, Sophie's Sunlounge owned 4 tanning beds valued at $20,000. During 2014, Sophie's bought 3 new beds at a total cost of $14 comma 000. At the end of the year, the market value of all of Sophie's beds was $25,00.0 Calculate Sophie's gross investment and depreciation during 2014.
Sophie's gross investment during 2014 was $ 14000. Sophie's depreciation during 2014 was $ 9000.
Choose the statements concerning neoclassical growth theory that are true. 1. Neoclassical growth theory states that growth in real GDP per person can persist indefinitely. nothing 2. Neoclassical growth theory implies that growth rates and income levels per person around the globe will diverge. nothing 3. Economic growth will stop if technology stops advancing. nothing 4. Technological change results from chance.
Statements 3 and 4 are correct.
How can the change in U.S. wealth differ from U.S. saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items.
Choose the statement about growth in labor productivity that is incorrect.
The demand for labor increases, the production function does not change, but a movement occurs along the production function.
The table provides some data on real GDP and the population of Atlantis in 2011 and 2012. What was the growth rate of real GDP in Atlantis in 2012? What was the growth rate of real GDP per person in Atlantis in 2012? https://gyazo.com/1b819d79a3f17fa964bf7687bbf45f4f
The growth rate of real GDP in Atlantis is 6% (31815/30000) The growth rate of real GDP per person in Atlantis in 2012 (5%)
Suppose an increase in the monetary base of $100,000 increases the quantity of money by $300,000. Calculate the money multiplier.
The money multiplier is 3.
Choose the statement that is incorrect.
The nominal interest rate is the real interest rate adjusted to remove the effects of inflation on the buying power of money.
Choose the statement about an increase in the population that is incorrect.
The production function shifts upward.
Choose the statement that is incorrect.
The unemployment rate includes all underutilized labor.
Choose the statement that is incorrect.
US and Britian were the only countries that suffered during the great depression.
When real GDP decreases, ______.
a decrease in the demand for money occurs
A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
In the United States, the CPI basket consists of items that ______ . ______ has the greatest weight in the CPI basket.
an average urban household buys; Housing
Over time, on average the demand for loanable funds ______, so the real interest rate ______.
and the supply of loanable funds increase at a similar pace; has no trend
A central bank is ______. The central bank in the United States is the ______.
a bank's bank and a public authority that regulates a nation's depository institutions and conducts monetary policy; Federal Reserve System
If the interest rate is 5 percent, people will ______.
buy bonds, bid up their price, and the interest rate will fall
Labor supply growth is influenced by all of the following except_______.
changes in labor productivity
As a result of financial innovation, ______ have become ______.
checking deposits at thrift institutions; an increasing percentage of M1
The deposits of the following three types of depository institutions make up the nation's money: ______.
commercial banks, thrift institutions, and money market mutual funds
Depository institutions provide four benefits, which are ______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
An increase in current income taxes ______ the supply of loanable funds today because it ______.
decreases; decreases disposable income, which decreases saving
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; excess reserves
The Bank of America's total assets ______ and its total liabilities ______.
do not change; do not change
The table provides some data on real GDP and the population of Europa in 2011 and 2012. If the growth rates of 2012 are maintained in future years, real GDP per person in Europa will ______. https://gyazo.com/d09132a186c00d8809e39711cdc3e0dc
double by 2024
The Ricardo-Barro effect __________crowding out.
eliminates
An increase in labor productivity increases potential GDP because ______.
employment increases and a given amount of employment produces more real GDP
The supply of loanable funds is influenced by all of the following except ______.
expected profit
A depository institution takes deposits from ______ and earns most of its income by _______.
households and firms; making loans and buying securities that earn a higher interest rate than that paid to depositors
The graph shows demand for loanable funds curve. Suppose the real interest rate falls. Draw either an arrow along the demand curve showing the direction of change or a new demand curve.
https://gyazo.com/17b1eee62557464c854c8d2e956ccf1e
The graph shows the loanable funds market. During the 1990s, the invention and use of fiber-optic technologies required billions of dollars to be spent laying new cables under the oceans and launching communications satellites. Draw a curve that shows the effect of this event. Label it. Draw a point to show the new equilibrium quantity of loanable funds and real interest rate.
https://gyazo.com/1a2a7c40d8d2aadbb9f1876ad6943fed
Draw a labor supply curve and a labor demand curve. Label them LS0 and LD0. Draw a point the equilibrium quantity of labor and the equilibrium real wage rate. Label it 1. Draw and label a curve that shows the effect of an increase in labor productivity. Draw a point at the new equilibrium quantity of labor and the equilibrium real wage rate. Label it 2.
https://gyazo.com/1cd6bdde160c098fb284052d51ebe389
When the Fed buys securities from a bank, a sequence of events begins. The events are listed below. Number each event in the order in which it occurs.
https://gyazo.com/6cc3088967bf7e5f008ef8ec857a8658
The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget surplus of $1 trillion. Draw a curve that shows the effect of this surplus in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of investment. Label it 2. Draw a point to show private saving when the government budget surplus is $1 trillion. Label it 3.
https://gyazo.com/75e01874e7923163279f7ac5c76c5959
Draw a demand for money curve. Label it MD0. Draw a demand for money curve that shows the effect of a decrease in real GDP. Label it MD1. Draw a demand for money curve that shows the effect of financial innovation that decreases the demand for money and that follows the decrease in real GDP. Label it MD2.
https://gyazo.com/7c2bd80fd2ae8d830f50781150b64b82
The figure shows the demand for money curve in Epsilon. The quantity of money is $3.1 trillion. Draw the supply of money curve. Label it. Draw a point at the equilibrium in the money market.
https://gyazo.com/c2084898f35ccfba2841e318f0b5dc68
A slump in the global economy makes firms pessimistic about expected profits. Draw a curve that shows the effect of this event. Draw a point at the new equilibrium quantity of loanable funds and the new equilibrium real interest rate
https://gyazo.com/d61046375c4c617a745e2749f2b88a17
The graph shows the loanable funds market when there is neither a government budget surplus nor a government budget deficit. Draw a point at the equilibrium quantity of loanable funds and the equilibrium real interest rate. Label it 1. Now suppose that the government has a budget deficit of $1 trillion. Draw a curve that shows the effect of this deficit in the loanable funds market. Label it. Draw a point at the new equilibrium real interest rate and quantity of saving. Label it 2. Draw a point to show investment when the government budget deficit is $1 trillion. Label it 3.
https://gyazo.com/eee32bea6f853b2bae32f1e828cf6159
The graph shows the private demand for loanable funds curve and the supply of loanable funds curve. Draw a curve that shows the effect on the loanable funds market when the government has a budget deficit. Label it C1. Draw a curve that shows the Ricardo-Barro effect on the loanable funds market. Label it C2. Draw a point at the new real interest rate and quantity of loanable funds.
https://gyazo.com/fa314232e5333741d472fe71b8103671
Suppose the Fed buys $50 million of government securities from the Bank of America. The Fed's total assets ______ and its total liabilities ______.
increase by $50 million; increase by $50 million
A decrease in expected future income ______.
increase the supply of loadable funds today because households with smaller expected future income will save more today
A government budget deficit occurs, which ______.
increases the demand for loanable funds; rises
Suppose the Fed increases the quantity of money. In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
Assume that the preconditions for labor productivity growth are in place. The pace of labor productivity growth is influenced by all of the following except ______.
population growth
When the real interest rate falls, the ______ because the ______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded increases;real interest rate
By measuring ______, we can see that the economy of Singapore has caught up to and surpassed the economy of the United States, but that the economies of Central and South America have not.
real GDP per person
On average in the United States, the inflation rate and the money growth rate minus the real GDP growth rate ______.
rise and fall together
According to classical growth theory, when real GDP per person ______, the population grows.
rises above the subsistence level
A ______ is a depository institution that accepts savings deposits and makes mostly home-purchase loans. A ______ is a depository institution owned by a social or economic group such as a firm's employees that accepts savings deposits and makes mostly personal loans.
savings bank; credit union
All of the following statements are included in new growth theory except ______.
the forces of competition destroy incentives to make new discoveries
The fundamental precondition for labor productivity growth is _______.
the incentive system created by firms, markets, property rights, and money
When the price of an asset rises, ______.
the interest rate falls
One of the Fed's main policy tools is ______.
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
The CPI tells us ______.
the price level in a given period expressed as a percentage of the price level in the base period, which is by definition equal to 100
An open market operation is ______.
the purchase or sale of securities by the Federal Reserve System in the loanable funds market
In an economy, there is $175 million in currency held outside banks, $100 million in traveler's checks, $200 million in currency held inside the banks, $200 million in checking deposits, $800 million in savings deposits, $1 comma 800 million in time deposits, and $600 million in money market mutual funds and other deposits. The value of M1 is ______ and the value of M2 is ______.
475 million; $3 ,675 million
Once a month, the Bureau of ______ Statistics calculates the Consumer Price Index, which is a measure of the ______ consumers for a fixed basket of consumer goods and services.
Labor; average of the prices paid by urban
The real interest rate ______, household saving ______,
falls; decreases and investment increases
An increase in the population ______ potential GDP and ______ potential GDP per hour of labor.
increases; decreases
An increase in real GDP ______ the demand for money and financial innovation ______.
increases; might increase the demand for some types of deposits and decrease the demand for others
The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of real money demanded ______.
rises; decreases
