Econ

If real GDP increases from $5 billion to $5.25 billion and the population increases from 2 million to 2.02 million, real GDP per person increases by ___ percent.

4.0

If the price of a U.S. government bond is $50 and the owner of the bond is entitled to $2.50 income each year, then the interest rate on the bond is

5 percent

The following statements about the business cycle are correct except

it is a regular predictable cycle in real GDP around potential GDP

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

In the long run, money market equilibrium determines the

price level

An open market _______ of $100 million of securities ______

purchase; increases bank reserves

A commercial bank creates money when it does all the following except

puts cash in its ATMs

The Fed fights inflation by

raising the federal funds rate, which raises interest rates and decreases aggregate demand

Gross domestic product is the market value of all the _______ in a given time period.

final goods and services produced by all firms located in the United States

A ________ is a final good and ________ is an intermediate good.

gasoline bought by you; jet fuel bought by Southwest Airlines

A commodity or token is money if it is

generally accepted as means of payment

Saving equals

income minus consumption expenditure minus net taxes

The full-employment quantity of labor

increases if labor becomes more productive

6. The natural unemployment rate _______.

increases if unemployment benefits become more generous

The natural unemployment rate

increases if unemployment benefits become more generous

An increase in the government budget deficit

increases private saving and decreases investment

Job rationing

increases the natural unemployment rate

A government budget surplus

increases the supply of loanable funds

An increase in expected profit _______ the real interest rate and ________ the quantity of loanable funds.

increases; increases

U.S. national debt _______ when the federal government's _______.

increases; outlays exceed tax revenue

The increase in real GDP per hour of labor that results from an increase in capital per hour of labor

is larger at a small quantity of capital than at a large quantity of capital

Money in the United States today includes

the currency in people's wallets, stores' tills, and the bank deposits that people and businesses own

The CPI bias arises from all of the following items except

the goods and services bought by poor people

Crowding out occurs when

the government budget is in deficit and the real interest rate rises

Aggregate supply increases when

the money wage rate falls

The quantity of money demanded increases if

the nominal interest rate falls

Households' labor supply decisions are influenced by all of the following except

the number of full-time jobs available

In new growth theory, the source of economic growth is ______

the persistent want for a higher standard of living

The quantity of real GDP demanded increases if

the price level falls

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 BLS count Jody as being unemployed if she

wants a job and is willing to take a job but after searching last week cannot find a job

The supply of loanable funds increases

when disposable income increases or wealth decreases

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

The Fed's policy tools include all the following except

taxing banks' deposits at the Fed

If the population growth rate is 2 percent, real GDP per person will double in 7 years if real GDP grows by ______ percent per year.

12

When the price level is rising at ______ and the real interest rate is 1 percent a year, the nominal interest rate is 3 percent a year

2 percent a year

If nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a year, then real GDP increases by

3 percent a year

Of the alternative measures of the price level, _________ overcomes the bias of the CPI and is a better measure of the cost of living because it

PCE price index; uses a current basket of all consumption goods

The federal government's major outlay in its budget is_______ and its major source of revenue is

Social Security and other benefits; personal income taxes

The Fed's operational goals include

a core inflation rate between 1 and 2 percent a year and an output gap as small as possible

When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to

add indirect taxes less subsidies to convert aggregate income from factor cost to market prices

The Fed's choice of monetary policy strategy is

adjusting the federal funds rate to best fulfill its dual mandate

A tax cut increases

aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor

If the economy is at full employment and the Fed increases the quantity of money, _______.

aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise

When potential GDP increases,

aggregate supply increases

The expenditure approach to measuring U.S. GDP equals

all expenditure by Americans on goods and services produced in the United States in a given time period

When the economy goes into recession, the biggest increase in unemployment is _________

cyclical because jobs are lost in many industries as they cut production

All of the following increase labor productivity except

an increase in consumption

The costs of inflation do not include

an increase in saving and investment

An efficiency wage results in all of the following except

an increase in the full-employment quantity of labor

An economy can achieve faster economic growth without

an increase in the population growth rate

Needs-tested spending is _______ fiscal policy because it _______.

automatic; increases in recession and decreases in expansion

Holding money provides a benefit

because it is a means of payment

An increase in expected future income increases

consumption expenditure, which increases current aggregate demand

When the CPI increases from 200 in 2010 to 210 in 2011 and the nominal wage rate is constant at $10 an hour, the real wage rate

decreases by 5 percent

The money multiplier

decreases if banks increase their desired reserve ratio

Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.

demanded; real GDP supplied

A marginally attached worker is a person who _

doesn't work, is available and willing to work, but hasn't looked for job recently

When the government lowers the income tax rate,

employment increases and potential GDP increases

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

The opportunity cost of holding money

equals the nominal interest rate on bonds

A government expenditure multiplier

exceeds 1

When the unemployment rate _________ the natural unemployment rate, real GDP is _________ potential GDP and the output gap is _________.

exceeds; below; negative

In the loanable funds market, an increase in

expected profit increases the demand for loanable funds

The Fed's monetary policy instrument is the

federal funds rate

Commercial banks' assets include

loans to individuals and businesses and government securities

The Fed's "dual mandate" is to achieve

low inflation and maximum employment

The Fed's "dual mandate" is to achieve

low inflation and maximum employment C. a stable quantity of money and stable prices

Discretionary fiscal policy to stimulate the economy includes

lowering the tax rate paid by households with middle incomes

Financial capital is the

money used to buy physical capital

The increase in real GDP per hour of labor that results from an advance in technology makes labor _______ productive ________.

more; at all quantities of capital

If the quantity theory of money is correct and other things remain the same, an increase in the quantity of money increases

nominal GDP and the price level

Real GDP per person is not an accurate measure of the standard of living because it

omits the goods and services that people produce for themselves

The classical growth theory is that real GDP per person ______.

only temporarily rises and then returns to the subsistence level

Automatic fiscal policy

operates as the economy moves along its business cycle

When the price level_______, the inflation rate ______

rises rapidly; is high

Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a

rising price level and demand-pull inflation

To fight unemployment and close a recessionary gap, the Fed

stimulates aggregate demand by lowering the federal funds rate, which increases the quantity of money

The economy is at full employment when all unemployment is

structural and frictional

A monetary policy rule is ______ to discretionary monetary policy because

superior; a rule keeps inflation expectations anchored

A monetary policy rule is ______ to discretionary monetary policy because______.

superior; a rule keeps inflation expectations anchored

The demand for labor curve shows the relationship between

the quantity of labor businesses are willing to hire and the real wage rate

The supply of labor is the relationship between

the real wage rate and the quantity of labor supplied

Potential GDP is the value of real GDP when

the unemployment rate equals the natural unemployment rate

If the Fed increases the quantity of money, people will be holding

too much money, so they buy bonds and the interest rate falls

If the BLS included all marginally attached workers as being unemployed, the ________ would be __________.

unemployment rate; higher

The CPI measures the average prices paid by __________ for _________.

urban consumers; a fixed basket of consumption goods and services