Econ Exam 3

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

$859.09

Figure 28-3​ Refer to Figure 28-3. If the government imposes a minimum wage of $4, then employment will decrease by

0 workers.

The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from

1 to 10

Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now

1.5 times its old value.

If P denotes the price of goods and services measured in terms of money, then

1/P represents the value of money measured in terms of goods and services

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the labor-force participation rate was

154/234.9.

You put money into an account that earns an 8 percent nominal interest rate. The inflation rate is 5 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest?

2.2 percent

Figure 28-3 ​Refer to Figure 28-3. If the government imposes a minimum wage of $8, then how many workers will be unemployed?

4,000

At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

5

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. Refer to Figure 30-2. At the end of 2009 the relevant money-demand curve was the one labeled MD2. At the end of 2010 the relevant money-demand curve was the one labeled MD1. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

75 percent

Figure 27-2. The figure shows a utility function for Britney. Refer to Figure 27-2. From the appearance of the utility function, we know that

Britney would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 2 percent to a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent.

Figure 27-5. The figure shows a utility function for Dexter. Refer to Figure 27-5. From the appearance of the graph, we know that

Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.

Refer to Figure 2. From the appearance of the graph, we know that

Dexter's level of satisfaction increases by more when his wealth increases from $1,001 to $1,002 than it does when his wealth increases from $1,000 to $1,001.

Three employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory?

Dick pays his workers less than the equilibrium wage so that they will not have the time or money to look for work somewhere else.

Which of the following is not a reason that paying efficiency wages may increase a firm's profit?

Efficiency wages are below the equilibrium wage rate but still attract a sufficient number of workers.

The agency responsible for regulating the U.S. monetary system is the

Federal Reserve

Government-run employment agencies and public training programs are operated by the government to try to facilitate job search and reduce unemployment.

Some economists claim that the government can do these things no better than firms and individuals could do them for themselves.

Which of the following is not a central bank? The Bank of England The Bank of Japan Correct! The Bank of America The Federal Reserve

The Bank of America

Figure 28-2 Refer to Figure 28-2. What do the two lines in the figure measure?

The top line is the labor force participation rates of men, and the bottom line is the labor force participation rates of women.

Refer to Table 1. The required reserve ratio is 12 percent. Which of the following is true? First National Bank Assets Liabilities and Owners' Equity Reserves $1,200 Deposits $9,000 Loans $8,000 Debt $800 Short-term securities $800 Capital (owners' equity) $200

This banks reserve ratio is 13.3 percent. Its excess reserves are $120.

Suppose that fundamental analysis indicates a particular company's stock is overvalued.

This means its present value is less than its price. You shouldn't consider adding the stock to your portfolio.

The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will

increase First National's reserves by $120. Its excess reserves are $240.

If the public decides to hold less currency and more deposits in banks, bank reserves

increase and the money supply eventually increases.

Efficiency wages

increase productivity but increase unemployment.

Monetary neutrality implies that an increase in the quantity of money will

increase the price level.

Sectoral shifts in demand for output

increase unemployment due to job search.

Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in other sectors of the economy will

increase, reducing wages in industries that are not unionized.

In a fractional-reserve banking system, a decrease in reserve requirements

increases both the money multiplier and the money supply.

Suppose monetary neutrality holds and velocity is constant. A 4 percent increase in the money supply

increases the price level by 4 percent.

When there is inflation, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

If the efficient market hypothesis is correct, then

index funds should typically beat managed funds, and usually do.

Over one time horizon or another, Fed policy decisions influence

inflation and employment.

According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

inflation and nominal interest rates, but does not change real interest rates.

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.

When inflation rises, people will desire to hold

less money and will go to the bank more frequently.

What does the Fed auction at the Term-Auction Facility?

loans of a quantity it sets

If there is inflation, then a firm that has kept its price fixed for some time will have a

low relative price. Relative-price variability rises as the inflation rate rises.

Commodity money is

money with intrinsic value.

Jai Li just lost her job, and she has not yet started looking for a new one. The Bureau of Labor Statistics counts Jai Li as

neither in the labor force nor unemployed.

In the fourteenth century, the Western African Emperor Kankan Musa traveled to Cairo where he gave away much gold, which was in use as a medium of exchange. We would predict that this increase in gold

raised the price level, but decreased the value of gold in Cairo.

Diversification

reduces the likely fluctuation in a portfolio's return and reduces firm-specific risk.

On a bank's T-account, which are part of the bank's assets?

reserves but not deposits made by its customers

Shoeleather cost refers to

resources used to maintain lower money holdings when inflation is high.

Suppose that neither food-service workers nor retail salespeople are unionized. If food-service workers unionize, then the supply of retail salespeople will

rise, and the wages of retail salespeople will fall.

If the value of a dollar falls, then the quantity of money demanded

rises, meaning people want to hold more of their wealth in a liquid form.

Other things the same, as the number of stocks in a portfolio rises,

risk decreases and the standard deviation of the return falls.

The Fed decreases reserves if it conducts open market

sales but not if it auctions term credit

Which of the following is not included in M1? currency demand deposits Correct! savings deposits traveler's checks

savings deposits

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply

If Joanna is risk averse, then

she dislikes bad things more than she likes comparable good things.

The efficient markets hypothesis says that

stock prices follow a random walk.

Refer to Figure 5. If the money supply is MS2 and the value of money is 2, then there is an excess

supply of money that is represented by the distance between points A and B.

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess

supply of money, causing people to spend more.

The supply of money increases when

the Fed makes open-market purchases.

Unions contribute to frictional unemployment but not the natural rate of unemployment. the natural rate of unemployment but not frictional unemployment. both frictional unemployment and the natural rate of unemployment. neither frictional unemployment nor the natural rate of unemployment.

the natural rate of unemployment but not frictional unemployment.

Refer to Figure 1. From the appearance of Alex's utility function, we know that

the property of diminishing marginal utility does not apply to Alex

The Fed can influence unemployment in

the short run, but not in the long run.

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

the value of money

Wealth is redistributed from creditors to debtors when inflation is

unexpectedly high.

Figure 27-1. The figure shows a utility function. Refer to Figure 27-1. What is measured along the vertical axis?

utility

Which of the following best illustrates moral hazard?

After a person obtains life insurance, she takes up skydiving

At any given time, the voting members of the Federal Open Market Committee include a. five of the presidents of the regional Federal Reserve banks. b. the president of the Federal Reserve Bank of New York. c. the seven members of the Board of Governors. d. All of the above are correct

All of the above are correct

M1 includes a. currency. b. demand deposits. c. traveler's checks. d. All of the above are correct

All of the above are correct

According to the classical dichotomy, which of the following is not influenced by monetary factors? real GDP. real wages. real interest rates. All of the above are correct.

All of the above are correct.

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.

It has $10,000 in deposits

Discouraged workers are included in a. the number of unemployed. b. frictional unemployment. c. the labor force. d. None of the above is correct

None of the above is correct.

Which of the following is correct? (Federal Reserve)

The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $11,000 two years from today. Of the following interest rates, which is the lowest one at which Harry would be better off paying $11,000 two years from today?

5%

Since 1960, the natural rate of unemployment in the U.S. has been between

5% and 6%.

Figure 28-3 ​Refer to Figure 28-3. At the equilibrium wage, how many workers are employed?

5,000

Refer to Figure 4. At the equilibrium wage, how many workers are employed?

5,000 (Graph Crosses at 50,6)

Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 6 percent?

500/(1.06)^2

If the reserve ratio is 15 percent, the money multiplier is

6.7

Table 28-42010 Labor Data for Adults (ages 16 and older) in Meditor Refer to Table 28-4. What is the adult labor-force participation rate in Meditor?

66.7%

At an annual interest rate of 10 percent, about how many years will it take $100 to double in value?

7

The adult population in the town of Shelbyville is 150 thousand. If 100 thousand people are employed and 20 thousand are unemployed, then the labor force participation rate is approximately

80%.

When the money market is drawn with the value of money on the vertical axis, if the value of money is above the equilibrium level

the price level will rise.

Tonya put $250 into an account three years ago. The first year he earned 6 percent interest, the second year 7 percent, and the third year 8 percent. About how about much does Tonya have in her account now?

$306.23

Which of the following is not an explanation for the existence of unemployment in the long run?

The business cycle

David increases the number of companies in which he holds stocks.

This reduces risk's standard deviation and firm-specific risk.

Which of the following best illustrates the concept of a store of value?

You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies.

Minimum-wage laws can keep wages

above equilibrium and cause a surplus of labor.

According to the efficient market hypothesis

changes in the prices of stocks are not predictable. Evidence shows that indexed funds typically do better than managed funds.

The ease with which an asset can be

converted into the economy's medium of exchange determines the liquidity of that asset.

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

His real salary has fallen and his nominal salary has risen.

Tami knows that people in her family die young, and so she buys life insurance. Preston knows he is a reckless driver and so he applies for automobile insurance.

These are both examples of adverse selection.

You bought some shares of stock and, over the next year, the price per share decreased by 7 percent and the price level decreased by 9 percent. Before taxes, you experienced

a nominal loss and a real gain.

A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits. Its reserves amount to

$500.

9. Refer to Figure 4. If the government imposes a minimum wage of $8, then unemployment will increase by

4,000 workers

When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money

demanded increases

Minimum-wage laws are least likely to affect the wages paid to

highly-educated workers.

Open-market purchases by the Fed make the money supply

increase, which makes the value of money decrease.

As the reserve ratio decreases, the money multiplier

increases.

When the Consumer Price Index increases from 100 to 120

more money is needed to buy the same amount of goods, so the value of money falls.

If there were no factors keeping wages from reaching equilibrium then there would be no

structural unemployment.

One way to characterize the difference between compounding and discounting is to say that

the process of compounding produces a future value, whereas the process of discounting produces a present value.

If a country experienced deflation, then

the real interest rate would be greater than the nominal interest rate.

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by

$1,764.71

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

It has $800 in reserves and $9,200 in loans.

Who of the following would be included in the Bureau of Labor Statistics' "unemployed" category?

Kevin, who is on temporary layoff

On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.

The $750 is a nominal variable. The 300 cups of coffee is a real variable

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

The $80 is a nominal variable. The quantity of shoes is a real variable.

Which of the following is not included in either M1 or M2?

U.S. Treasury bills

The term hyperinflation refers to

a period of very high inflation

Esmerelda worked part-time for her mother's business without pay. Tabitha was absent from work because she had strep throat. Who is counted as "employed" by the Bureau of Labor Statistics?

both Esmerelda and Tabitha

Olga owns her own business. Sven is an unpaid worker in his family's business. Who is included in the Bureau of Labor Statistics' "employed" category?

both Olga and Sven

Minimum-wage laws, unions, and efficiency wages contribute to

both structural unemployment and the natural rate of unemployment.

When a union raises the wage above the equilibrium level

both the quantity of labor supplied and unemployment rise

Higher inflation

causes firms to change prices more frequently and makes relative prices more variable.

A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job is

counted as unemployed but should be counted as out of the labor force.

Which of the following defer payments?

credit cards but not debit cards

In a fractional-reserve banking system, an increase in reserve requirements

decreases both the money multiplier and the money supply.

Suppose that efficiency wages become more common in the economy. Imposing efficiency wages

decreases the quantity demanded and increases the quantity supplied of labor.

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

Which of the following is correct? Inflation

impedes financial markets in their role of allocating resources.

If the Fed raised the reserve requirement, the demand for reserves would

increase, so the federal funds rate would rise.

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

inflation averaged 5% per year and the real rate of return was 4%

The price of a Honda Accord

is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real variable.

Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank

is in a position to make a new loan of $18,000.

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

it increases by $150,000

If a bank desires to hold no excess reserves, the reserve requirement is 8 percent, and it receives a new deposit of $500,

its required reserves increase by $40.

If the discount rate is raised then banks borrow

less from the Fed so reserves decrease

Which of the following are costs incurred by people trying to protect themselves from the effects of inflation?

menu costs and shoeleather costs

When the money market is drawn with the value of money on the vertical axis, the value of money decreases if

money demand shifts right or money supply shifts left.

Michael decides to hire some additional workers for his roofing company. The equilibrium wage is $17 per hour. Efficiency wage theory suggests that it is reasonable for Michael to offer

more than $17 per hour in order to attract a better pool of applicants

According to the classical dichotomy, which of the following is influenced by monetary factors?

nominal wages

Market economies rely on which of the following to allocate scarce resources?

relative prices

Consider two labor markets in which jobs are equally attractive in all respects other than the wage rate. All workers are equally able to do either job. Initially, both labor markets are perfectly competitive. If a union organizes workers in one of the markets, then the wage rates will tend to

rise for the union jobs and fall for the nonunion jobs.

Suppose that college professors at public universities are unionized. If public university college professors change their minds and vote not to be unionized, the quantity of public university college professors demanded will

rise. The supply of workers in other similar professions will fall.

Relative-price variability

rises with inflation, leading to a misallocation of resources.

When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to

spend less so the value of a dollar rises.

People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as

structurally unemployed.

Minimum-wage laws are most likely to affect the wages paid to

teenagers.

Which of the following entities actually executes open-market operations?

the New York Federal Reserve Bank

An automobile manufacturer unexpectedly announces that it has hired a new chief executive officer. It is widely believed that the presence of this individual will raise the profitability of the corporation. At the same time interest rates unexpectedly rise. Which of the above would tend to make the price of the stock rise?

the announcement but not the rise in interest rates

Menu costs refers to

the cost of more frequent price changes induced by higher inflation.

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

the money supply and the price level decrease.

Other things the same, a decrease in velocity means that

the rate at which money changes hands falls, so the price level falls.

Economists use the term "money" to refer to

those types of wealth that are regularly accepted by sellers in exchange for goods and services.

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money

to decrease, while the equilibrium quantity of money increases.

With the value of money on the vertical axis, the money supply curve is

vertical because we assume the central bank controls the money supply.

Which of the following methods of picking stocks is not consistent with fundamental analysis?

viewing individual stock prices as unpredictable

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank

will be able to make new loans up to a maximum of $9.50.

When the Fed makes open-market sales bank

withdrawals increase and lending decreases.

Cyclical unemployment refers to

year-to-year fluctuations of unemployment around its natural rate.

FOMC voting rights

​rotate among the twelve regional bank presidents, except the president of the New York Fed, who always gets a vote.

Paying efficiency wages means that wages are

above equilibrium, and profits are higher than otherwise.

Table 29-6. Refer to Table 29-6. Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

$10,000.

If the reserve ratio is 20 percent, then $100 of new reserves can generate

$500 of new money in the economy.

The BLS reports the U-6 measure of labor underutilization. Which of the following is how it computes U-6?

(total unemployed + marginally attached workers + part time employed for economic reasons)/(labor force + marginally attached workers)

The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax laws, how is after-tax real return computed?

.04(1 - .20) - .01

Figure 28-3 ​Refer to Figure 28-3. If the government imposes a minimum wage of $4, how many workers will be unemployed?

0

Table 28-8 Below is data about the labor market in the state of Northwoods. Refer to Table 28-8. If the state government imposed a minimum wage of $8, how many people would be unemployed?

0

Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =

2.

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?

20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.

Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are employed and 5 million are unemployed, then

30 million are not in the labor force

Which of the following is correct?

A bank's deposits at the Federal Reserve counts

Which of the following is not correct?

Unemployment insurance decreases frictional unemployment.

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

a nominal gain, but no real gain, and you paid taxes on the nominal gain.

When in France you notice that prices are posted in euros, this best illustrates money's function as

a unit of account.

For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must

be available for work.

If the public decides to hold more currency and fewer deposits in banks, bank reserves

decrease and the money supply eventually decreases.

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

decrease by $25.5 million and the money supply eventually decreases by $170 million.

According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)

decrease in the number of job applicants and a decrease in how long workers stay on the job.

The set of items that serve as media of exchange clearly includes

demand deposits.

If all workers and all jobs were the same such that all workers were equally well suited for all jobs, then there would be no

frictional unemployment.

If the reserve ratio is 10 percent, the money multiplier is

10

If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to

$16,000 of new money.

Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The future value of the $500 after 2 years is

$583.20.

Suppose you will receive $800 in two years. If the interest rate is 5 percent, then the present value of this future payment is

$725.62. It would be lower if the interest rate were higher.

Table 29-9Metropolis National Bank is currently holding 2% of its deposits as excess reserves. Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

10

If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?

10 percent

If the reserve ratio is 8 percent, then the money multiplier is

12.5

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is

25 percent

Refer to Table 1. This bank's leverage ratio is

50

Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the interest rate is

8 percent

If the price level increased from 120 to 130, then what was the inflation rate?

8.3 percent

Suppose that garbage collectors and landscaping workers have no unions. Now suppose that garbage collectors form unions. What does this do the labor supply and wages of landscaping workers?

Labor supply increases, and wages decrease.

Who would be included in the labor force?

Lisa, who is unhappy with her current job.

Small time deposits are included in

M2 but not M1

Suppose there is a surplus in the money market

This could have been created by an increase in the money supply. The value of money will fall.

Sirius has just finished high school and started looking for his first job, but has not yet found one. Other things the same, the unemployment rate

and the labor-force participation rate both increase.

The federal funds rate is the interest rate that

banks charge one another for loans.

In a system of 100-percent-reserve banking

banks do not influence the supply of money

Policies that reduce the time it takes unemployed workers to find new jobs

can reduce both frictional unemployment and the natural rate of unemployment.

Which of the following is a store of value?

cash and stocks

An increase in the number of corporations in a portfolio from 110 to 120 reduces

firm-specific risk by less than an increase from 1 to 10.

Providing training for unemployed individuals is primarily intended to reduce

frictional unemployment.

For a given real interest rate, a decrease in the inflation rate would

increase the after-tax real interest rate and so increase saving.

Unions

lower the wages of workers in industries without unions.

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

lower then she had expected, and the real value of the loan is lower than she had expected.

Which of the following does the U.S. president appoint and the U.S. Senate confirm?

members of the Board of Governors but not the regional Federal Reserve Bank Presidents

If your research leads you to believe that the present value of a stock's dividend stream and future price is less than its price then you believe the stock is

overvalued so you should not consider buying it.

Velocity is computed as the

price level times real GDP divided by the money supply.

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

selling bonds. This selling would reduce reserves.

Unions contribute to

structural unemployment.

Money demand depends on

the price level and the interest rate.

Cash payments that companies make to shareholders are called

dividends.

Money demand refers to

how much wealth people want to hold in liquid form.

Printing money to finance government expenditures

imposes a tax on everyone who holds money.

A firm may pay efficiency wages in an attempt to

improve productivity by reducing turnover.

Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles. Each bicycle would cost them $249.66. At the end of the first year the increase to their revenues would be $140 per bicycle. At the end of the second year the increase to their revenues again would be $140 per bicycle. Thereafter, there are no increases to their revenues. At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?

8%

If the reserve ratio is 12 percent, then the money multiplier is

8.3.

In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered was short term, and what percentage of the unemployment you encountered in a given week was long term?

86.7% was short term; 88.9% was long term

Which of the following is correct?

A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.

According to the classical dichotomy, which of the following is not influenced by monetary factors? real GDP. real wages. real interest rates. Correct Answer All of the above are correct.

All of the above are correct.

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it must increase required reserves by $50. will initially see reserves increase by $500. will be able to use this deposit to make new loans amounting to $450. Correct! All of the above are correct.

All of the above are correct.

Refer to Figure 3. Point A represents a situation in which all of a person's savings are allocated to a class of safe assets. b. the person knows with certainty that his or her return will be 3 percent. c. the standard deviation of the person's portfolio is zero. d. All of the above are correct.

All of the above are correct.

The Bureau of Labor Statistics places people in the "employed" category if they a. are temporarily absent from their jobs (e.g. vacation). b. are self-employed. c. work without pay in a family member's business. d. All of the above are correct.

All of the above are correct.

To decrease the money supply, the Fed could sell government bonds. increase the discount rate. increase the reserve requirement. Correct! All of the above are correct.

All of the above are correct.

Who is included in the labor force by the Bureau of Labor Statistics?

Sarah, who does not have a job but is looking for work

Fundamental analysis shows that Quadrangle Company is fairly valued. Then Quadrangle Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful competitor. Suppose this has no effect on the price of the stock of Quadrangle Company.

Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year

His real salary has fallen and his nominal salary has risen.

Which of the following is correct? Inflation impedes financial markets in their role of allocating savings to alternative investments. Inflation encourages savings through the tax treatment on capital gains. Inflation encourages larger holdings of currency by the public. Inflation reduces people's real purchasing power.

Inflation impedes financial markets in their role of allocating savings to alternative investments.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer

M1 decreases by $2,100 and M2 stays the same.

Which of the following is not consistent with the efficient market hypothesis?

News has no effect on stock prices.

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Nominal and real tuition were both higher in 2011

Consider five individuals with different occupations. Allen prepares taxes wants ribs Betty does dry cleaning wants computer fixed Calvin fixes computers wants bread Diedre bakes bread wants taxes prepared Eric barbecues ribs wants dry cleaning In a barter system which of the following pairs has a double coincidence of wants? a. Allen and Eric b. Diedre and Calvin c. Both A and B are correct. d. None of the above are correct

None of the above are correct

In June 2009 the Bureau of Labor Statistics reported a U.S. foreign-born population of 35.3 million. Of these, 22.7 million were employed and 1.4 million were unemployed. Based on these numbers what were the unemployment rate and the labor-force participation rate of the foreign-born U.S. population? a. 1.4/35.3 and 22.7/35.3 b. 1.4/35.3 and 24.1/35.3 c. 1.4/24.1 and 22.7/24.1 d. None of the above is correct.

None of the above is correct.

Laura says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Cassie says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

Only Cassie is correct.

Which of the following is an example of an efficiency wage?

an above-equilibrium wage offered by a firm to attract a more talented pool of job applicants

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.

Matilda just graduated from college. In order to devote all her efforts to college, she didn't hold a job. She is going to tour around the country on her motorcycle for a month before she starts looking for work. Other things the same, the unemployment rate

and the labor-force participation rate are both unaffected.

Matt's Utility Function Wealth Utility $50,000 7000 51,000 7250 52,000 7499 53,000 7746 If Matt's current wealth is $52,000, then

his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is risk averse.

In the 1990's Ireland made unemployment benefits less generous. This change would likely have reduced

both frictional unemployment and the natural rate of unemployment.

Which of the following is included in both M1 and M2? savings deposits Correct! demand deposits small time deposits money market mutual funds

demand deposits

When the Fed makes open-market purchases bank

deposits and lending increase.

Fiat money

has no intrinsic value

In the early 1900s, Henry Ford introduced a

high-wage policy, and this policy produced many of the effects predicted by efficiency-wage theory.