ECON - Macro Final Guide

IN the loanable funds model, an increase in an investment tax credit would create

Shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate

A problem that the fed faces when it attempts to control the money supply is thay

Since the US had a fractional reserve banking system, the amount of morn in the economy depends in part on the behavior of depositors and bankers

Comparative advantage

Someone else is better than them at producing a good or service

Policy 1: Saving Incentives

Sp(up) => S (up) => Scurve Tax incentives for saving increase the supply of L.F. ...which reduces the eq'm interest rate and increases the eq'm quantity of L.F. Curve Shifts Right

Wages in excess of their equilibrium level help explain

Structural but not frictional unemployment

Unemployment (often caused by job skills becoming obsolete with improvements in technology) that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called

Structural unemployment

What determines interest rates?

Supply and demand

In the first part of the decade that began in 2000, the US government went from a surplus to a deficit. Other things the same, this means

Supply of loanable funds shifted to the left

What would happen to demand and supply of loanable funds for investment? Interest rates?

Supply would stay the same and demand would increase; higher interest rates

Balanced Budget

T - G = 0

Budget Surplus Formula

T-G

Public Saving Formula

T-G

T/F: Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

TRUE

T/F: The government finances deficits by borrowing.

TRUE

The Supply of loanable funds would shift to the right if either

Tax reforms encourages greater saving or the budget deficit became smaller

Public saving

Tax revenue (less) minus government spending = T - G

Bond Characteristics:

Term- length of time until maturity All else being equal, long-term bonds pay higher rates of interest than short-term bonds. Credit risk- probability of default All else being equal, more risky bonds pay higher interest rate. Tax treatment All else equal, tax treatment makes the bonds more attractive, lowering the interest rate needed to entice people to buy them.

A general, persistent decline in stock prices may signal what?

That the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.

Suppose the price index was 100 in 2004, 118 in 2005, and the inflation rate was lower between 2005 and 2006 than it was between 2004 and 2005. this means that

The price index in 2006 was lower than 139.24

Banks

The primary role: to take deposits from savers and lends them out to investors (Borrowers). Banks pay depositors interest on their deposits and charge borrowers a slightly higher rate of Banks also allow individuals to use checking deposits as a medium of exchange.

Collective bargaining refers to

The process by which unions and firms agree on the terms of employment

Investment

The purchase of new capital. Examples: General Motors spends $250 million to build a new factory in Flint, Michigan. Investment You buy $5000 worth of computer equipment for your business. Investment Your parents spend $300,000 to have a new house built. Investment Remember: In economics, investment is NOT the purchase of stocks and bonds!

When a union raises the wage above the equilibrium level

The quantity of labor supplied and unemployment both rise

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The relevant time horizon is short.

Debt finance

The sale of bonds to raise money

Equity Finance

The sale of stock to raise money

The fed can influence unemployment in

The short run, but not in the long run

The Fisher effect suggests that, in the long run, if the rate of inflation rises from 3 percent to 7 percent, the nominal interest rate should increase 4 percentage points, and the real interest rate should remain unchanged.

True

The story The Wizard of Oz can be interpreted as an allegory about U.S. monetary policy in the late 19th century.

True

The use of money allows trade to be roundabout. a. True b. False

True

True or false? If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right.

True

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved. a. True b. False

True

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange. a. True b. False

True

If a U.S. citizen buys a television made in Korea by a Korean firm, then

U.S. net exports decrease and U.S. GDP is unaffected.

Which of the following is human capital

Understanding how to repair cars

Which of the following typically rises during a recession?

Unemployment

Which of the following is not correct

Unions play a much larger role in the US labor market now than they did in the past

15. In the last part of the 1800's a. deflation made it harder for farmers to pay off their debt. b. deflation made it easier for farmers to pay off their debt. c. inflation made it harder for farmers to pay off their debt. d. inflation made it easier for farmers to pay off their debt.

a. deflation made it harder for farmers to pay off their debt.

30. When the money market is drawn with the value of money on the vertical axis, as the price level increases the quantity of money a. demanded increases. b. demanded decreases. c. supplied increases. d. supplied decreases.

a. demanded increases.

The value of money rises as the price level

a. rises, because the number of dollars needed to buy a representative basket of goods rises.???????????????????????????????????????????????????????/

Over extended periods of time, population growth a. has no effect on the standard of living. b. has uncertain effects on the standard of living. c. clearly raises the standard of living. d. clearly lowers the standard of living.

b

Real GDP ... a. is the current dollar value of all goods produced by the citizens of an economy within a given time b. measures economic activity and income c. is used primarily to measure long-run trends rather than short-run fluctuations d. all of the above are correct

b

When the dollar depreciates, US ... a. exports and imports increase b. exports increase, while imports decrease c. exports decrease, while imports increase d. exports and imports decrease

b

When the price level rises ... a. interest rates rise, so firms increase investment b. interest rates rise, so firms decrease investment c. interest rates fall, so firms increase investment d. interest rates fall, so firms decrease investment

b

Which of the following is correct concerning recessions? a. they come at fairly regular and predictable intervals b. they are associated with comparatively large declines in investment spending c. hey are any period when real GDP growth is less than average d. they tend to be associated with falling unemployement

b

Which of the following statements is true? a. Productivity is calculated as hours worked divided by output produced. b. Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers. c. Both A and B are correct. d. None of the above are correct.

b

Which of the following typically rises during a recession? a. garbage collection b. unemployment c. corporate profits d. automobile sales

b

Given that a country's real output has increased, in which of the following cases can we be sure that its productivity also has increased?

b The total number of hours worked stayed the same. c. The total number of hours worked fell. (both B and C)

23. A bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. It's reserves amount to a) $5. b) $50. c) $95. d) $950.

b) $50.

4. The "yardstick" people use to post prices and records debts is called a) A medium of exchange. b) A unit of account. c) A store of value. d) Liquidity.

b) A unit of account.

2. The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money a) Being a unit of account. b) Being a medium of exchange. c) Serving as a store of value. d) Having intrinsic value.

b) Being a medium of exchange.

6. When the Federal Reserve conducts open-market operations to increase the money supply, it a) Redeems Federal Reserve notes b) Buys government bonds from the public. c) Raises the discount rate. d) Decreases its lending to member banks.

b) Buys government bonds from the public.

7. When the Fed conducts open-market sales, a) It sells Treasury securities, which increase the money supply. b) It sells Treasury securities, which decreases the money supply. c) It auctions term loans, which increases the money supply. d) It auctions term loans, which decreases the money supply.

b) It sells Treasury securities, which decreases the money supply.

5. Which of the following is not included in either M1 or M2? a) A money market deposit accounts b) Large time deposits c) Demand deposits d) Money market mutual funds.

b) Large time deposits

1. Economists use the word "money" to refer to a) Income generated by the production of goods and services. b) Those assets regularly used to buy goods and services. c) Financial assets such as stocks and bonds. d) Any type of wealth

b) Those assets regularly used to buy goods and services.

21. Under a fractional-reserve banking system, banks a) hold more reserves than deposits. b) generally lend out a majority of the funds deposited. c) cause the money supply to fall by lending out reserves. d) All of the above are correct.

b) generally lend out a majority of the funds deposited.

18. When inflation rises, the nominal interest rate a) rises, and people desire to hold more money. b) rises, and people desire to hold less money. c) falls, and people desire to hold more money. d) falls, and people desire to hold less money.

b) rises, and people desire to hold less money.

16. The inflation tax falls mostly heavily on a) those who hold a lot of currency and accounts for a large share of U.S. government revenue. b) those who hold a lot of currency but accounts for a small share of U.S. government revenue. c) those who hold little currency and account for a large share of U.S. government revenue d) those who hold little currency but account for a small share of U.S. government revenue.

b) those who hold a lot of currency but accounts for a small share of U.S. government revenue.

If the reserve ratio is 5 percent, $1,000 of additional reserves can create

b. $20,000 of new money.

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

b. 10

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

b. 3 percent.

Refer to Labor Stats. What is the adult unemployment rate in Meditor?

b. 6.25%

Which of the following could explain a decrease in the interest rate and the equilibrium quantity of loanable funds?

b. The demand for loanable funds shifted left.

Which of the following is true?

b. The prices of most natural resources are stable or falling relative to other prices.

Which of the following people purchased the correct asset to meet their objective?

b. Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric.

If the demand for loanable funds shifts left, the equilibrium interest rate

b. and quantity of loanable funds fall.

If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same,

b. its output and productivity would increase, but less than double.

International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated w

b. longer life expectancy and a higher percentage of the population that is literate.

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

b. market prices.

The CPI is calculated

b. monthly by the Bureau of Labor Statistics.

Suppose that the country of Samiam produces only eggs and ham. In 2005 it produced 100 dozen eggs at $3 per dozen and 50 pounds of ham at $4 per pound. In 2004, the base year, eggs sold for $1.50 per dozen and ham sold for $5 per pound. For 2005,

b. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be investment in the language of macroeconomics?

b. only Curly Corporation's

Suppose there are constant returns to scale. Now suppose that over time a country doubles its workers, its natural resources, and its human capital, but its technology is unchanged. Which of the following would double?

b. output, but not productivity

The slope of the supply of loanable funds curve represents the

b. positive relation between the real interest rate and saving.

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

b. raise national saving and reduce private saving.

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers improves while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

b. the CPI will fall.

Which of the following has a four-year term?

b. the Chair of the Board of Governors

Suppose that the US offered a tax credit for firms who would build new factories in the US. Then,

b. the demand for loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate.

What basket of goods is used to construct the CPI?

b. the goods and services that are typically bought by consumers as determined by government surveys

In the economy of Xland in 2010, consumption was $500, exports were $200, GDP was $1200, government purchases were $250, and investment was $300. What were Xland's imports in 2010?

b. $50

10. If the price level increased from 200 to 250, then what was the inflation rate? a. 50 percent b. 25 percent c. 20 percent d. None of the above is correct.

b. 25 percent

If nominal GDP is $10 trillion and real GDP is $12 trillion, then the GDP deflator is a. 120, and this indicates that the price level has increased by 120 percent since the base year. b. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year. c. 83.33, and this indicates that the price level has increased by 83.33 percent since the base year. d. 120, and this indicates that the price level has increased by 20 percent since the base year.

b. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year.

Which of the following statements is true? a. Productivity is calculated as hours worked divided by output produced. b. Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers. c. Trends in the market prices of most resources indicate that they have become increasingly scarce over time. d. All of the above are correct.

b. Americans have a higher standard of living than Indonesians because American workers are more productive than Indonesian workers.

Consider two countries. Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods. a. Country A has higher productivity and higher real GDP per person than country B. b. Country A has lower productivity and lower real GDP per person than country B. c. Country A has higher productivity, but lower real GDP per person than country B. d. Country B has lower productivity, but higher real GDP per person than country B.

b. Country A has lower productivity and lower real GDP per person than country B.

Which of the following is not correct? a. The inflation rate is measured as the percentage change in a price index. b. For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent. c. During the 19th century there were long periods of falling prices in the U.S. d. Some economists argue that the costs of moderate inflation are not nearly as large as the general public believes.

b. For the last 40 or so years, U.S. inflation hasn't shown much variation from its average rate of about 2 percent.

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely? a. The 2 percent bond has a longer term than the 5 percent bond. b. The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond. c. The 2 percent bond is more risky than the 5 percent bond. d. The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond.

b. The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.

68. Suppose there is a surplus in the money market. a. This could have been created by an increase in the money supply. The value of money will rise. b. This could have been created by an increase in the money supply. The value of money will fall. c. This could have been created by a decrease in the money supply. The value of money will rise. d. This could have been created by a decrease in the money supply. The value of money will fall.

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

John buys a used car for $5,400 and spends $600 on new parts, made in the U.S., to fix the car. The end result of these two transactions is

b. U.S. consumption purchases increase by $600 and U.S. GDP increases by $600.

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

Changes in nominal GDP reflect

both changes in prices and changes in the amounts being produced.

The natural unemployment rate includes

both frictional and structural unemployment

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?

both sticky price theory and sticky wage theory

When a union bargains successfully with employers, in that industry

both wages and unemployment increase

The producer price index measures the cost of a basket of goods and services

bought by firms

An increase in a country's population may contribute to the rate of technological progress because a larger population

brings with it more scientists, inventors, and engineers.

To increase the money supply, the Fed can

buy government bonds or decrease the discount rate

what are the policies in the Fed's monetary toolbox?

buying government bonds, increasing the quantity of reserves, lending reserves to banks.

The money supply increases when the Fed

buys bonds. The increase will be larger, the smaller is the reserve ratio.

When the Federal Reserve conducts open-market operations to increase the money supply, it

buys government bonds from the public.

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply

According to classical macroeconomic theory, changes in the money supply affect ... a. real GDP and the price level b. real GDP but not the price level c. the price level but not real GDP d. neither the price level or real GDP

c

An understanding of the best ways to produce goods and services is called a. human capital. b. physical capital. c. technology. d. productivity.

c

As recessions begins, production ... a. and unemployment both rise b. rises and unemployment falls c. falls and unemployment rises d. and unemployment both fall

c

26. The discount rate is the interest rate that a) Banks charge one another for loans. b) Banks charge the Fed for loans. c) The Fed charges banks for loans. d) The fed charges congress for loans.

c) The Fed charges banks for loans.

By far the largest category of goods and services in the CPI basket is

housing

The nominal interest rate tells you

how fast the number of dollars in your bank account rises over time.

In CPI, goods and services are weighted according to

how much consumers buy of each good or service

In the CPI, goods and services are weighted according to

how much consumers buy of each good or service.

The mathematical equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), expresses

how output deviates in the short run from its long run natural rate.

Matt is going to college to become a pharmacist. What he learns about existing information increases

human capital but not technological knowledge.

Perry accumulated a lot of mathematical skills while in high school, college, and graduate school. Economists include these skills as part of Perry's

human capital.

When prices rise at an extraordinarily high rate, it is called

hyperinflation.

In the calculation of the CPI, tea is given greater weight than beer if

if consumers buy more tea than beer

A country's human capital increases

if its workers become better educated or healthier.

Government corruption

impedes the coordinating power of markets and discourages investment

Government corruption

impedes the coordinating power of markets and discourages investment.

Printing money to finance government expenditures

imposes a tax on everyone who holds money.

The Federal Reserve was created

in 1913 by Congress

According to the 2007 New York Times article,

in Zimbabwe most commodities are now available only on the black market.

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.

Countries that have lower levels of real GDP per person than the United States

in some cases have growth rates that are higher than that of the United States and in other cases lower than that of the United States.

Every unit of good X that is produced in the United States is exported to other countries. An increase in the price of good x shows up

in the GDP deflator, but not in the consumer price index

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

in the GDP deflator, but not in the consumer price index.

Countries that pursued outward-oriented policies in the 20th century

include Singapore, South Korea, and Taiwan

Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is

included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.

Gross domestic product measures

income and expenditures

Gross domestic product measures...

income and expenditures.

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good.

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

increase and the money supply will eventually increase

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

increase by $20 million and the money supply eventually increases by $400 million.

Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity

increased by 3.75%.

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

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

increases both the money multiplier and the money supply.

If there are diminishing returns to capital, then

increases in the capital stock increase output by ever smaller amounts.

IF there are diminishing returns to capital, then

increases in the capital stock increases output by ever smaller amounts

The CPI differs from the GDP deflator in that

increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.

According to studies using international data, an increase in the saving rate

increases the growth rate of output for several decades.

In the long run, a higher saving rate

increases the level of productivity

If the CPI rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

Sheamous loses his job and decides to sit on the beach rather than look for work during the next few months. Other things the same, the unemployment rate

increases, and the labor force participation rate decreases

Satchel loses his job and immediately begins looking for another. Other things the same, the unemployment rate

increases, and the labor-force participation rate is unaffected

As the price level decreases, the value of money

increases, so people want to hold less of it.

On a production function, as capital per worker increases, output per worker

increases. This increase is smaller at larger values of capital per worker.

If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.

increases; fall

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

inflation

Mutual funds

institutions that institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds. A portfolio is a collection of investments. You diversify your assets. You don't have all your money in one stock. You modify the risk.

Financial intermediaries

institutions through which institutions through which savers indirectly provide funds to borrowers Banks Mutual Funds

Financial markets

institutions through which savers can directly provide funds to borrowers Bond market. Stock market.

When the money supply increases, interest rates ___ and so aggregate demand shifts ___.

interest rates fall, and aggregate demand shifts right.

In a closed economy, equilibrium in the market for loanable funds occurs where saving equals

investment

Which of the following is included in the demand for loanable funds?

investment but not government borrowing

Crowding out occurs when

investment declines because a budget deficit makes interest rates rise

When public saving falls by $2b and private saving falls by $1b in a closed economy,

investment falls by $3b

In a closed economy, national saving equals

investment, income minus the sum of consumption and government purchases, and private saving plus public saving

Suppose a country increases trade restrictions. This country would be pursing an

inward policy, which most economists believe has adverse effects on the economy

A mutual fund

is a financial institution that stands between savers and borrowers, is a financial intermediary, and allows people with small amounts of money to diversify their holdings

The classical theory of inflation

is also known as the quantity theory of money; was developed by some of the earliest economic thinkers; is used by most modern economists to explain the long-run determinants of the inflation rate.

A mutual fund

is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

is consistent with the view that capital is subject to diminishing returns.

Governments may prefer an inflation tax to some other type of tax because the inflation tax

is easier to impose

By far the largest category of goods and services in the CPI

is housing

The source of the supply of loanable funds

is saving and the source of demand for loanable funds is investment

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

The theory of efficiency wages explains why

it may be in the best interest of firms to offer wages that are above the equilibrium level.

When the Fed conducts open-market sales,

it sells Treasury securities, which decreases the money supply.

If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same,

its output and productivity would increase, but less than double.

Which of the following would, by itself, reveal the most about a country's standard of living?

its productivity

Productivity is the

key determinant of living standards, and growth in productivity is the key determinant of growth in living standards.

Human capital is the

knowledge and skills that workers acquire through education, training, and experience.

Human capital is

knowledge and skills that workers have acquired.

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

Other things being equal, a __________ supply of workers tends to __________ real wages.

larger; decrease

Which of the following rises during recessions?

layoffs but not consumer spending

Suppose that China undertakes a policy to increase its saving rate. This policy will likely...

lead to higher GDP growth for a period of several decades.

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

leave national saving unchanged and reduce private saving.

International data on GDP and socioeconomic variables

leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.

A decrease in the price of large tractors imported into the United States from Russia

leaves both the GDP deflator and the consumer price index unchanged.

Gross domestic product includes all

legal final goods and services, but it excludes illegal final goods and services.

When the dollar depreciates, each dollar buys

less foreign currency, and so buys fewer foreign goods.

Kathleen is considering expanding her dress shop. If interest rates rise she is

less likely to expand. This illustrates why the demand for loanable funds slopes downward

The price of milk increases dramatically, causing a 0.5 percent increase in the CPI. The price increases will most likely cause the GDP deflator to increase by

less than 0.5 percent

If the money supply grows 5 percent, and real output grows 2 percent, prices should rise by

less than 5 percent.

A reduction in the inflation rate would make relative prices

less variable, making it more likely that resources will be allocated to their best use.

Municipal bonds pay a relatively

low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax

If a reform of the tax laws encourages greater saving, the result would be...

lower interest rates and greater investment.

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.

Last year a country had 800 workers who worked an average of 8 hours and produced 12,800 units. This year the same country had 1000 workers who worked an average of 8 hours and produced 14,000 units. This country's productivity was

lower this year than last year. A possible source of this change in productivity is a change in the size of the capital stock

Demand deposits are included in

m1 and m2

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

makes saving ore attractive

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of

market prices.

Rapid population growth

may depress economic prosperity bby reducing the amount of capital which each worker has to work with

Suppose that, because of inflation, a business in Russia must calculate, print, and mail a new price list to its customers each month. This is an example of

menu costs.

An important difference between the GDP deflator and the consumer price index is that

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

A low P/E for a stock indicates that

people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition.

Other things the same, when the interest rate rises,

people would want to lend more, making the quantity of loanable funds supplied increase

Other things the same, if the interest rate rises...

people would want to lend more, making the quantity of loanable funds supplied increase.

When economists talk about growth in the economy, they measure that growth as the

percentage change in real GDP from one period to another.

The inflation rate is the

percentage change in the price level from one period to another.

A bond that never matures is known as a

perpetuity

The saws, lathes, and drill presses that woodworkers at Cedar Valley Furniture use to produce furniture are called

physical capital.

An increase in the price of Irish whiskey imported into the United States will be reflected in

the U.S. CPI, but not the U.S. GDP deflator.

In a closed economy, private saving is

the amount of income that households have left after paying for their taxes and consumption

Velocity is

the annual rate of turnover of the money supply.

The economy's two most important financial markets are

the bond market and the stock market

We associate the term debt finance with

the bond market, and we associated the term equity finance with the stock market

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

the consumer price index will increase in the future.

If the CPI was 110 this year and 100 last year, than

the cost of the CPI basket of goods and services increased by 10 percent this year.

The Wagner Act of 1935

prevents employers from interfering when workers try to organize a union

The quantity of aggregate goods and services demanded rises when the

price level falls, because the interest rate falls.

Inventors often obtain patents on new products and processes, thereby turning new ideas into

private goods and increasing the incentive to engage in research.

For an imaginary closed economy, T=$5,000; S=$11,000; C=$48,000; and the government is running a budget surplus of $1000. Then

private saving= $10,000 and GDP= $55,000

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

The price index that measures the cost of goods and services bought by firs is called the

producer price index

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

production is more profitable and employment rises.

If a country's saving rate increases, then in the long run

productivity and real GDP per person are both higher.

The rate at which the Fed lends money to banks is

the discount rate.

22. suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent, it follows that:

the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent

Nominal GDP measures

the dollar value of the economy's output of final goods and services.

If a price floor is not binding, then

the equilibrium price is above the price floor

If a bank posts a nominal interest rate of 11 percent, and inflation is expected to be 4 percent, then

the expected real interest rate is 7 percent.

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer

What basket of goods and services is used to construct the CPI? a. a random sample of all goods and services produced in the economy b. the goods and services that are typically bought by consumers as determined by government surveys c. only food, clothing, transportation, entertainment, and education d. the least expensive and the most expensive goods and services in each major category of consumer expenditures

the goods and services that are typically bought by consumers as determined by government surveys

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

the government has a budget deficit and investment is 2,00

Which of the following events could explain a decrease in interest rates together with an increase in investment

the government reduced the tax rate on savings

Which of the following if a good gauge of economic growth?

the growth rate of real GDP per person, but not the level of real GDP per person

Assuming diminishing returns...

the increase in output from an increase in the saving rate falls over time, and that, other things the same, poor countries should grow faster than rich ones.

Assuming diminshing returns

the increase in output growth from an increase in the savings rate falls over time, and that, other things the same, poor countries should grow faster than rich ones

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

the increase in output was greater last year than this year.

The statement "inflation does not in itself reduce people's real purchasing power" is an idea also called

the inflation fallacy.

The percentage change in the price level from one period to another is called

the inflation rate.

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax- deferred retirement accounts?

the interest rate would decrease and the quantity of loanable funds would increase

In the long run, the demand for money is most dependent upon

the level of prices.

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land

the supply of money increases and the value of money falls.

If a firm sells a total of 10 shares of stock, then

the supply of, and demand for, those shares determine the price per share, each share represents ownership of 1 percent of the firm, and the firm is engaging in equity finance

Ralph is a plumber, Which of the following are induced in his physical capital

the tools he uses but NOT the knowledge he learned on the job

A) nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.

the value of leisure, the value of goods and services produced at home, and the quality of the environment.

If the price level doubles,

the value of money has been cut by half.

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

the value of money will rise.

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

their investments are being financed by someone else's saving

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary finds from someone else,

their investments are bing financed by someone else's savings

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied

there is a shortage and the interest rate is below the equilibrium level

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied

there is a shortage so interest rates will rise

Unemployment data are collected

through a regular survey of about 60,000 households

Bill has an eggplant wants a head of cabbage Tim has a head of lettuce wants a cucumber Mike has a tomato wants an eggplant Amy has a cucumber wants a head of lettuce Which, if any, pairs of traders has a double coincidence of wants?

tim and amy

If the supply of a product decreases, then we would expect equilibrium price

to increase and equilibrium quantity to decrease.

Which of the following does the level of real GDP measure?

total real income productivity the standard of living d. All of the above are correct.

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent . This difference between actual and expected inflation

transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected.

According to some estimates, over the last two decades China has had an annual average growth rate of about 12 percent.

true

If a production function has constant returns to scale, then if all inputs double so does production.

true

If the current year CPI is 140, then the price level has increased 40 percent since the base year.

true

Inflation can be measured using either the GDP deflator or the consumer price index.

true

Over the period 1890-2010, Japan experienced a 2.65 percent average annual growth rate of real GDP per person.

true

Since 1870 Canadian and U.S real GDP per person grew from below to above that in the United Kingdom. The explanation for this is likely that productivity grew faster in Canada and the U.S. than in the United Kingdom.

true

Managed funds

typically have a lower rate of return and higher costs than index funds

Wealth is redistributed from debtors to creditors when inflation is

unexpectedly low.

Indexation refers to

using a law or contract to automatically correct a dollar amount for the effects of inflation.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

GDP is defined as the...

value of all final goods and services produced within a country in a given period of time.

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.

based on CPI*

we are going to adjust social security payments*

The measure of the money stock called M1 includes

wealth held by people in their checking accounts.

If actual inflation turns out to be greater than people had expected, then

wealth was redistributed to borrowers from lenders.

Refer to Table 29-2. What is the M2 money supply? a. $1,300 billion b. $580 billion c. $880 billion d. $1,000 billion

$1,000 billion

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about

$1,132,895.

Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. Ruth's 1931 salary was equivalent to a 2012 salary of about

$1,208,421

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by a. $25. b. between $200 and $300. c. $1,600. d. $2,500.

$1,600.

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. Assets; Reserves $4,250 Loans 45,750 Liabilities; Deposits $50,000 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

If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?

$10 trillion

Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $48,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

$100,000

A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?

$1200

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to

$140,000 of new money

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?

$15 billion.

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?

$150

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

$19.5 million

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007?

$2.50

If the CPI was 95 in 1955 and is 475 today, then $100 today purchases the same amount of goods and services as a. $4.75 purchased in 1955. b. $20.00 purchased in 1955. c. $95.00 purchased in 1955. d. $500 purchased in 1955.

$20.00 purchased in 1955

Refer to Table 1. In 2012, this country's GDP deflator was...

$200.

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as

$23.86 purchased in 1965.

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

$24.15

In 1983, one could buy a model radio-controlled airplane for $11.50 each. Those same planes are available today and the price increased at exactly the rate of inflation. If the CPI today is 220.5 and in 1983 was 105, what is the price of the airplane today?

$24.15

Suppose private saving in a closed economy in $12b and investment is $10b, the government budget deficit must equal

$2b

16. if the CPI was 108 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

$31.20 purchases today

In the economy of Ukzten in 2010, consumption was $200, exports were $50, government purchases were $100, imports were $125, and investments was $100. What was Ukzten's GDP in 2010?

$325.

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

$4,000.

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to

$45,600

To the nearest dollar, Will's 2010 food expenditures in 2009 dollars amount to

$5,524

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

$500.

Henri earned a salary of $50,000 in 2001 and $60,000 in 2012. The consumer price index was 177 in 2001 and 225 in 2012. Henri's 2001 salary in 2012 dollars is

$63,559.32.

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 215 today?

$63.24

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

$67.65

Velocity is computed as

(P x Y)/M.

Bond

- IOU certificate of indebtedness Time of Maturity- the loan will be repaid Rate of Interest Principal - amount borrowed

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

-1 percent

21. suppose the consumer price index was 184 in 2009 and 198.17 in 2010. the nominal interest rate during this period was 5.8 percent. what was the real interest rate during this period?

-1.9 percent

the increase in CPI automatically determines:

-the COLA (cost of leading allowances) in many multi-year labor contracts -adjustments in social security payments and federal income tax brackets

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

0.33

Which country is correctly matched with its 2007 inflation rate?

0.7 percent inflation in Japan

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

0.75

In the special case of the 100 percent-reserve banking, the money multiplier is

1 and banks do not create money.

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

1,000 and 500, respectively

Babe Roths 1931 salary was $80,000. salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. Ruth's 1931 salary was equivalent to a 2009 salary of about Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009. Ruth's 1931 salary was equivalent to a 2009 salary of about

1,128,947

Suppose that in a closed economy GDP is 11,000 consumption is 7,500 , and taxes are 500. What value of government purchases would make national savings equal to 2000 and at that value would the government have a deficit or surplus

1,500 surplus

Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $200 billion. In each of the following two scenarios, determine what happens to public saving, private saving, national saving, and investment. 1. Consumers save the full proceeds of the tax cut. 2. Consumers save 1/4 of the tax cut and spend the other 3/4.

1. (up 200)S = Y(same)-C(same)-T(dwn 200) I (same)=S (same) = Sp (up 200) = Sq (down 200) Private Saving: Y-C-T= 10-6.5-1.5= 2.0 trillion National Saving: 1.7 - .2= 1.5 trillion Public Saving: Y-C-T= -.5 trillion If consumers save the full $200 billion, national saving is unchanged, so investment is unchanged. 2. Sp (up 50) = Y - C 3/4 (up 150) - T (dwn 200) Private Saving: .5 trillion National Saving: Private Saving + Public Saving Public Saving:

If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is

1.20

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

1.33

The consumer price index was 200 in 2006 and 210 in 2007. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

1.5 percent

An economy recently reported nominal GDP of 3 trillion euro and a GDP deflator of 200. What was real GDP?

1.5 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.

. The term inflation is used to describe a situation in which a. the overall level of prices in the economy is increasing. b. incomes in the economy are increasing. c. stock-market prices are rising. d. the economy is growing rapidly.

A

11. A country sells more to foreign countries than it buys from them. It has A) a trade surplus and positive net exports. B) a trade surplus and negative net exports. C) a trade deficit and positive net exports. D) a trade deficit and negative net exports.

A

19. What adjustment mechanism moves the economy to the long-run equilibrium? A) SRAS shifts up B) LRAS shifts right C) AD shifts left D) all of the above

A

All else equal, which of the following would tend to cause real GDP per person to rise?

A change from inward-oriented policies to outward-oriented policies, an increase in investment in human capital, and strengthening of property rights.

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

A change in the price of Korean televisions is reflected in the U.S. consumer price index but not in the U.S. GDP deflator.

The consumer price index and the GDP deflator are two alternative measure of the overall price level. Which of the following statements about the two measures is correct

A change in the price of Korean televisions is reflected in the US consumer price index but not in the US GDP deflator

Stock represents...

A claim to a share of the profits of a firm, ownership in the firm, and equity finance.

Stock

A claim to partial ownership in a firm Stocks are sold in organized stock exchanges (such as the New York Stock Exchange or NASDAQ) and the prices of stocks are determined by supply and demand Stock, no guarantee of money.

What increases money supply?

A decrease in the discount rate and a decrease in the interest rate on reserves.

What shifts aggregate demand to the left?

A decrease in the money supply.

Industrial machinery is an example of

A factor of production that in the past was an output from the production process, physical capital, and something that influences productivity.

The Slope of the Demand Curve

A fall in the interest rate reduces the cost of borrowing, which increases the quantity of loanable funds demanded.

What is a financial intermediary?

A mutual fund.

On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions?

A relatively simple way to increase growth rates permanently is to increase a country's saving rate.

Which of the following is a financial-market transaction?

A saver buys a bond a corporation has just issued so it can purchase capital

Which of the following is a function of money?

A unit of account, a store value, medium of exchange

Policy 2: Investment Incentives

An investment tax credit increases the demand for L.F. ...which raises the eq'm interest rate and increases the eq'm quantity of L.F. Demand curve shifts up and to the right.

The members of the federal reserves board of governors

Are appointed by the president of the U.S. And confirmed by the U.S. Senate

Credit cards

Are not considered money

The leverage ratio is calculated as

Assets divided by bank capital

If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria, then

Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners working in Austria.

When box office receipts are not corrected for inflation, the most popular movie of all time is

Avatar

The consumer price index is used to a. convert nominal GDP into real GDP. b. turn dollar figures into meaningful measures of purchasing power. c. characterize the types of goods and services that consumers purchase. d. measure the quantity of goods and services that the economy produces.

B

The price index that measures the cost of a basket of goods and services bought by firms is called the a. industrial price index. b. producer price index. c. core price index. d. GDP deflator.

B

The CPI is calculated a. monthly by the Department of Commerce. b. monthly by the Bureau of Labor Statistics. c. quarterly by the Department of Commerce. d. quarterly by the Bureau of Labor Statistics.

B

Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

D. All of the above are correct.

What would happen to demand and supply of loanable funds for savings? Interest rates?

Demand would stay the same and supply would increase; lower interest rates

The traditional view of the production process is that capital is subject to what?

Diminishing returns.

Which of the following statements regarding the consumer price index and the GDP deflator is correct?

Divergence between the two price measures is the exception, not the rule.

Minimum wage laws

Do none of the above

Suppose that demand for a good decreases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

Sales of stock=

Equity finance

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

Fall from 10 to 5

An increase in the budget deficit shifts the demand for loanable funds to the right. a. True b. False

False

As banks create money, they create wealth. a. True b. False

False

Bank runs and the accompanying increase in the money multiplier caused the U.S. money supply to rise by 28 percent from 1929 to 1933. a. True b. False

False

Because of the multiple tools at its disposal, the Fed can control the money supply very precisely. a. True b. False

False

If inflation turns out to be higher than people expected, wealth is redistributed to lenders from borrowers.

False

If the nominal interest rate is 7 percent and the inflation rate is 5 percent, the real interest rate is 12 percent.

False

In a closed economy, each unit of output is either consumed by households or invested. a. True b. False

False

In a period of inflation real interest rates will be greater than nominal interest rates.

False

In the long run, an increase in the money supply tends to have an effect on real variables but no effect on nominal variables.

False

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases. a. True b. False

False

Inflation erodes the value of people's wages and reduces their standard of living.

False

Inflation tends to stimulate saving because it raises the after-tax real return to saving.

False

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment. a. True b. False

False

Monetary neutrality means that a change in the money supply doesn't cause a change in anything at all.

False

One study found that unemployment is the economic term mentioned most often in U.S. newspapers.

False

Roundabout trade decreases production. a. True b. False

False

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms. a. True b. False

False

The largest sector in the consumer price index market basket is food and beverage purchases.

False

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000. a. True b. False

False

The quantity theory of money suggests that an increase in the money supply increases real output proportionately.

False

The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier. a. True b. False

False

The shoeleather costs of inflation should be approximately the same for a medical doctor and for an unemployed worker.

False

Evidence shows that other things the same, poor countries grow

Faster than rich countries. In fact, some countries that were poor in 1870 are now rich

The demand for loanable funds comes from investment:

Firms borrow the funds they need to pay for new equipment, factories, etc. Households borrow the funds they need to purchase new houses. Interest Rate is the cost of borrowing

When the price level falls

Firms will want to spend more on new business buildings and business equipment and households will want to spend more building new homes

People who are unemployed because they are in search of a job that suites their skills are included within

Frictional unemployment

Budget Deficit Formula

G-T

Consumption is $5.5 trillion, investment is $1 trillion, government expenditures are $1.5 trillion, transfer payments are $.5 trillion, exports are $.75 trillion and imports are $1.25 trillion. What is GDP?

GDP = C + I + G + NX = $5.5 trillion + $1 trillion + $1.5 trillion + $.75 trillion - $1.25 trillion = $7.5 trillion

GDP is not a perfect measure of well-being; for example,

GDP excludes the value of volunteer work. GDP does not address the distribution of income. GDP does not address environmental quality.

GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is...

GDP per person.

Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increases, but there is considerably more pollution. Based on this scenario, which of the following statements is correct?

GDP would definitely increase because GDP excludes environmental quality.

Under a fractional reserve banking system, banks

Generally lend out a majority of the funds deposited

Suppose a country imposes new restrictions on how many hours people can work. If these restrictions reduce the total number of hours worked in the economy, but all other factors that determine output are held fixed, then

productivity rises and output falls.

The one variable that stands out as the most significant explanation of large variations in living standards around the world is

productivity.

National defense and knowledge are generally considered to be

public goods

In a closed economy, what does (T-G) represent?

public saving

An increase in the government's budget surplus means

public saving is greater than $0 and increasing

In a simple circular-flow diagram, firms

purchase resources from households.

When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through

purchases of government bonds, which reduces interest rates and causes people to hold more money.

Which of the following is included in the consumption component of U.S. GDP?

purchases of natural gas by U.S. households

The Fed can increase the money supply by conducting open-market a. sales or by raising the discount rate. b. sales or by lowering the discount rate. c. purchases or by raising the discount rate. d. purchases or by lowering the discount rate.

purchases or by lowering the discount rate.

An increase in the budget deficit would cause a

shortage of loanable funds at the original interest rate, which would lead to rising interest rates

Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150. What happened to the real GDP per person?

It was unchanged.

When a government reduces its budget deficit what will be an outcome?

It will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds.

Which of the following would, by itself, reveal the most about a country's standard of living?

Its productivity

Which of the following does not create unemployment by keeping wages about the equilibrium level?

Job Search

Which of the following is included in the investment component of GDP?

John's law firm buys him a new computer.

Efficiency wages, Minimum wage laws, and unions all

Keep wages above the equilibrium level, causing a surplus of labor

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Kroger's plans to use debt financing and its action is part of the demand for loanable funds.

Refer to Figure 33-6. Which of the long-run aggregate-supply curves is consistent with a recession?

LRAS3

The growth rate for the American economy is

Lower in the 21st century than for the previous 250 years

Unions

Lower the wages of workers in industries WITHOUT unions

Which of the following is not among the four industries with the largest employment in the US today?

Lumber

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,

M1 increases by $2,500 and M2 stays the same.

Savings deposits are included in

M2 but not M1

Small time deposits are included in

M2 but not M1

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Medium of exchange

The costs of changing price tags and price listings are known as

Menu Costs

A central banks setting (or altering) of the money supply is known as

Monetary policy

Productivity explains what?

Most of the differences in the standard of living across countries.

What happens if the supply curve has a change in quantity supplied?

Movement along the curve, results only from a change in the interest rate (ex. tax credit on saving)

The slope of the demand for loanable funds curve represents the...

NEGATIVE relation between the real interest rate and investment.

Mandy purchases 68.2 shares of a mutual fund for $1500. Cassie's purchase of these shares contributes $1500 to which magnitude in the identity Y=C+I+G

NONE

The amount of unemployment that an economy normally experiences is called the

Natural rate of unemployment

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium

Saving and the interest rate

If the budget deficit increases then

Saving falls and the interest rate falls

Which of the following does not include M1

Savings deposits

When conducting an open market sale, the fed

Sells government bonds, and in so doing decreased the money supply

What happens if the supply curve has a change in supply?

Shifting of the curve itself, results from a change in any relevant factor, except for change in interest rate

As the price level rises

people are less willing to lend, so interest rates rise.

As the price level falls

people are more willing to lend, so interest rates fall.

If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is

37.5%

Which of the following does the Federal Reserve not do?

It makes loans to any qualified business that requests one

Which of the following does the Federal Reserve not do?

It makes loans to any qualified business that requests one.

Which of the following is an example of a barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barbers leaky faucet

The Slope of the Supply Curve

An increase in the interest rate makes saving more attractive, which increases the quantity of loanable funds supplied.

Over the past 80 years, prices in the US have risen on average about

3.6 percent per year

The Dow Jones Industrial Average is now based on the prices of the stocks of

30 major US corporations

Which of the following is not included in GDP

carrots grown in your garden and eaten by your family

Spells of unemployment end about

1/2 of the time with the person leaving the labor force

Recent entrants into the labor force account for about

1/3 of those who are unemployed

The money multiplier equals

1/R, where R represents the quantity of reserves in the economy

In the US each additional year of schooling has historically raised a person's wage on average by about

10 percent

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%

Refer to Table 1. This country's inflation rate from 2011 to 2012 was...

100%.

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of CPI in 2004 was

104.0

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basket's cost was $80; in 2014, the basket's cost was $86; and in 2015, the basket's cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

Suppose the nominal interest rate is 7 percent while the money supply is growing at a rate of 5 percent per year. Assuming real output remains fixed, if the government increases the growth rate of the money supply from 5 percent to 9 percent, the Fisher effect suggests that, in the long run, the nominal interest rate should become

11 percent.

Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $58. The value of the CPI in 2016 was

111.5.

A barber shop produces 192 haircuts a day. Each barber in the shop works 8 hours per day and produces the same number of haircuts per hour. If the shop's productivity is 2 haircuts per hour of labor, then how many barbers does the shop employ?

12

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was

12.4/154

In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

12.5 percent

If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is

120, and this indicates that the price level has increased by 20 percent since the base year.

If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is

125, and this indicates that the price level has increased by 25 percent since the base year.

Suppose some country had an adult population of about 25 million, a labor-force participation rate of 60%, and an unemployment rate of 6%. How many people were unemployed

14.1 Million

For an imaginary economy, the value of the consumer price index was 140 in 2013, and the inflation rate was 5.0 percent between 2013 and 2014. The consumer price index in 2014 was

147.0

Suppose that in a closed economy GDP is11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

1500, deficit

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

160 in Washington, D.C. and 72 in Austin, TX

The price index was 220 in one year and 260 in the next year. What was the inflation rate?

18.2

Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

180.6

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. (MS1 at 10000, MS2 at 5000, MD curve intersects at MS1 at .5 and MS2 at .33) Refer to Figure 30-3. If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is

2 and the equilibrium value of money is 0.5.

If the nominal interest rate is 6 percent and the rate of inflation is 4 percent, then the real interest rate is

2 percent

If the real interest rate is 4 percent, the inflation rate is 6 percent, and the tax rate is 20 percent, what is the after-tax real interest rate?

2 percent

Over the past century in the United States, real GDP per person has grown, on average, by about

2 percent per year.

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

In 2009, the imaginary nation of Mainland had a population of 7,000 and real GDP of 210,000. In 2010 the population was 7,300 and real GDP of 223,380. Over the year in question, real GDP per person in Mainland grew by

2 percent, which is about the same as average U.S. growth over the last one-hundred years.

In 2010, the imaginary nation of Bovina had a population of 5,000 and real GDP of 600,000. In 2011 it had a population of 5,200 and real GDP of 636,480. During 2011 real GDP per person in Bovina grew by

2 percent, which is about the same as average U.S. growth over the last one-hundred years.

Over the last century, U.S. real GDP per person grew at a rate of about...

2% per year, so that is now 8 times as high as it was a century ago.

You put money into an account that earns a 5 percent nominal interest rate. The inflation rate is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest?

2.0 percent.

In 2012, the imaginary nation of Kanmiw had a population of 8,044 and real GDP of 36,198,000. In 2013 it had a population of 7,800 and real GDP of 35,880,000. What was the growth rate of real GDP per person in Kanmiw between 2012 and 2013?

2.2 percent

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 40 percent. What is your after-tax real rate of interest?

2.2 percent

Countries that grew the fastest over the last 100 or so years had growth rates of real income per person of about what?

2.5 percent

If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?

2.5 percent

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

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

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded

If the consumer price index was 96 in 2012 and 100 in 2013 and 102 in 2014, then the base year must be

2013 because the CPI 100 %

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

208

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

215

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

215

If the reserve ratio is 4 percent, then the money multiplier is

25

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%

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of a. 50, which is high by historical standards. b. 50, which is low by historical standards. c. 25, which is high by historical standards. d. 25, which is low by historical standards.

25, which is high by historical standards.

If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator?

250

Senator Noitall says that in order to help poor con tries develop, the US should: 1. Encourage poor countries to allow US and other foreign firms to build and operate businesses in their country. 2. Reduce or eliminate subsidizes to US producers when poor countries have a cooperative advantage producing those goods the US subsidizes; 3. Work to promote political stability in poor countries; and 4. Reduce poor countries reliance on market forces in their economies. How many of these ideas are likely to help poor countries grow?

3

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

3 percent

You put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

3 percent

If the nominal interest rate is 6 percent and the inflation rate is 3 percent, the real interest rate is

3 percent.

Based on the quantity equation, if M = 3,000, P = 2, and Y = 4,500, then V =

3.

The consumer price index was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 6.5 percent. What was the real interest rate during this period?

3.3 percent

In 2010, the imaginary nation of Bovina had a population of 5,000 and real GDP of 500,000. In 2011 it had a population of 5,100 and real GDP of 520,000. During 2011 real GDP per person in Bovina grew by

4 percent, which is high compared to average U.S. growth over the last one-hundred years.

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

4.6 percent.

48. Which of the following is physical capital? a. the strength of workers b. the knowledge of workers c. financial assets like cash and bonds d. the equipment in a factory

48. Which of the following is physical capital? a. the strength of workers b. the knowledge of workers c. financial assets like cash and bonds d. the equipment in a factory

If the reserve ratio is 20%, the money multiplier is

5

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

5 percent.

Since 1960, the natural rate of unemployment in the US has been

5% and 6%

A typical American worker covered by unemployment insurance recieves

50 percent of his former wages for 26 weeks

From 2013 to 2014, the CPI for medical care increased from 150 to 159. What was the inflation rate for medical care?

6.0 percent

18. john just graduated law school and has two competing job offers. the first is in Phoenix and pays a salary of $150,000. he has a similar job offer in Cleveland that pas $90,000. which pair of CPI's would make the two salaries have the same purchasing power?

70 in Phoenix and 42 in Cleveland

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

70 in Phoenix and 42 in Cleveland

If M = 12,000, P = 3, and Y = 32,000, then velocity =

8. Velocity will rise if money changes hands more frequently.

Suppose that the adult population is 4 million, the number of unemployed is 0.25 million, and the labor-force participation rate is 75%. What is the unemployment rate?

8.3%

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. Assets; Reserves $4,250 Loans 45,750 Liabilities; Deposits $50,000 The bank's reserve ratio is

8.5%

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%

If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP deflator?

87.5

Bank of Springfield; Assets; Reserves $19,800, Loans 160,200 Liabilities; Deposits $180,000 Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

9.1

The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

9.5 percent

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is

96.1 so prices are lower than in the base year.

National Saving

=S = Y - C - G = ( Y-C-T ) + ( T-G) <--- (Public Saving) ^(Personal Saving) T=Taxes-Transfer payments

A country reported nominal GDP of $200 billion in 2006 and $180 billion in 2005; it reported a GDP deflator of 125 in 2006 and 105 in 2005. Between 2005 and 2006,

?

On the basis of theory and empirical evidence economists have concluded several things concerning growth. Which of the following is not one of these conclusions?

?

Suppose that we added up all the weeks that each person who was unemployed during a year was unemployed. We'd find that

?

The single most important piece of information about a stock is the

?

. The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced a. 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. b. 7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. c. 5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. d. 7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.

A

22. Aggregate demand includes A) both the quantity of goods and services the government and customers abroad want to buy. B) neither the quantity of goods and services the government wants to buy nor the quantity of goods and services customers abroad want to buy. C) the quantity of goods and service the government wants to buy, but not the quantity of goods and services customers abroad want to buy. D) the quantity of goods and services customers abroad want to buy, but not the quantity of goods and services the government wants to buy.

A

4. Which of the following is true? A) If the money supply growth rate equals the growth rate of real GDP, there will be no inflation. B) If a country's inflation rate is zero, we know the country's money supply growth rate is zero. C) If a country is experiencing deflation, we know the country's real GDP is falling. D) all of the above

A

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is a. an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. b. an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. c. a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. d. a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.

A

A problem that the Fed faces when it attempts to control the money supply is that a. since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. while the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. d. federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks.

A

All new housing (new apartment buildings and new single‐family houses) are counted as investment expenditure A) True B) False

A

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate in 2014 was a. 4.6 percent. b. 6.5 percent. c. 4.4 percent. d. 46.5 percent.

A

For which rate of inflation given below will the real interest rate be higher than the nominal interest rate? a. -0.5% b. 0.2% c. 0.5% d. 1.5%

A

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves a. increase by $20 million and the money supply eventually increases by $400 million. b. decrease by $20 million and the money supply eventually decreases by $400 million. c. increase by $20 million and the money supply eventually increases by $100 million. d. decrease by $20 million and the money supply eventually decreases by $100 million.

A

Prisoners sometimes determine a single good to be used as money. This good becomes a. a medium of exchange and a unit of account. b. a medium of exchange, but not a unit of account. c. a unit of account, but not a medium of exchange. d. neither a unit of account nor a medium of exchange.

A

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is a. $75,000; thus, Ruben's purchasing power increased between 2001 and 2006. b. $75,000; thus, Ruben's purchasing power decreased between 2001 and 2006. c. $85,000; thus, Ruben's purchasing power increased between 2001 and 2006. d. $85,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

A

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy a. more milk and more T-shirts. b. more milk and fewer T-shirts. c. less milk and more T-shirts. d. less milk and fewer T-shirts.

A

The 2008 credit crunch occurred when banks reduced lending in response to a. ​the loss of asset value for mortgage backed securities and mortgage loans. b. ​having too little capital to satisfy capital requirements. c. ​an excess of bank capital. d. ​an increase in the required reserve ratio.

A

The CPI and the GDP deflator a. generally move together. b. generally show different patterns of movement. c. always show identical changes. d. always show different patterns of movement.

A

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period? a. 5.00 percent b. 1.00 percent c. 5.15 percent d. 13.00 percent

A

The federal funds rate is the interest rate that a. banks charge one another for loans. b. banks charge the Fed for loans. c. the Fed charges banks for loans. d. the Fed charges Congress for loans

A

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate? a. 8.3 percent b. 108.3 percent c. 4.8 percent d. 38.2 percent

A

The value of final goods and services produced equals value added in all goods and services produced. A) True B) False

A

Which list ranks assets from most to least liquid? a. money, bonds, cars, houses b. money, cars, houses, bonds c. bonds, money, cars, houses d. bonds, cars, money, houses

A

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170? a. 80 to 100 b. 100 to 120 c. 150 to 170 d. All of these changes produce the same rate of inflation.

A

Which of the following is included in consumption expenditure? A household purchases A) airplane tickets to go on a family vacation B) a second‐hand boat C) shares of stock D) a newly‐constructed house

A

Which of the following is not included in GDP? A) carrots grown in your garden and eaten by your family B) carrots purchased at a farmer's market and eaten by your family C) carrots purchased at a grocery store and eaten by your family D) None of the above are included in GDP.

A

A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth of apples to a company that uses them all to produce cider, and $75,000 worth of apples to a grocery store that will sell them to households. How much of the farmer's sales will be included as apples in GDP?

A) $25,000

For the purpose of calculating the consumer price index, the basket of goods

A) is kept the same from year to year so that the effects of price changes are isolated from the effect of any quantity changes that might be occurring at the same time.

Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010,

A) nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.

A country experiencing a growth rate of 12% per year can go from being one of the poorest to one of the richest in

A) one generation. In the last couple of decades China's growth rate has been higher than 12%.

The term inflation is used to describe a situation in which

A) the overall level of prices in the economy is increasing.

If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is A) -0.3 trillion euros, so it must have a trade deficit. B) -0.3 trillion euros, so it must have a trade surplus. C) 0.3 trillion euros, so it must have a trade deficit. D) 0.3 trillion euros, so it must have a trade surplus.

A. -.3 trillion euros, so it must have a trade deficit

If P denotes the price of goods and services measured in terms of money, then A) 1/P represents the value of money measured in terms of goods and services. B) P can be interpreted as the inflation rate. C) the supply of money influences the value of P, but the demand for money does not. D) All of the above are correct.

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

Refer to figure 5. In the short run, a favorable shift in aggregate supply would move the economy from A) A to B. B) B to C. C) C to D. D) D to A.

A. A to B

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a A. bond. B. mutual fund. C. stock. D. All of the above are correct.

A. Bond

According to the circular-flow diagram GDP

A. Can be computed as the total income paid by firms or as expenditures on final goods and services.

Which advantage(s) do mutual funds claim to provide? A. diversification and access to the skills of professional money managers B. access to the skills of professional money managers but not diversification C. diversification but not access to the skills of professional money managers D. neither diversification nor access to the skills of professional money managers.

A. Diversification and access to the skills of professional money managers

Mutual funds A. provide diversification. Shareholders assume all of the risk associated with the mutual fund. B. do not provide diversification. Shareholders assume all of the risk associated with the mutual fund C. do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders. D. provide diversification. Government insurance eliminates the risk of mutual fund shareholders.

A. Provide diversification. Shareholders assume all of the risk associated with the mutual fund.

If a firm wants to borrow it can A. supply bonds by selling them. B. supply bonds by buying them. C. demand bonds by selling them. D. demand bonds by buying them.

A. Supply bonds by selling them

Suppose there is a surplus in the money market.

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

You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced

A. both a nominal gain and a real gain, and you paid taxes on the nominal gain.

Which of the following would INCREASE productivity?

An increase in the physical capital stock per worker, an increase in human capital per worker, and and increase in natural resources per worker.

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is A) higher than he had expected, and the real value of the loan is higher than he had expected. B) higher than he had expected, and the real value of the loan is lower than he had expected. C) lower than he had expected, and the real value of the loan is higher than he had expected. D) lower than he had expected, and the real value of the loan is lower than he had expected.

A. higher than he had expected, and the real value of the loan is higher than he had expected

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest? A) Inflation is 3 percent; the tax rate is 25 percent. B) Inflation is 2 percent; the tax rate is 50 percent. C) Inflation is 1 percent; the tax rate is 75 percent. D) The after-tax real interest rate is the same for all of the above.

A. inflation is 3 percent; the tax rate is 25 percent

Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area. If the nominal exchange rate is .75 euros per dollar, the prices of which goods have prices that are consistent with purchasing power parity? A) Neither the tall latte nor the Big Mac. B) Both the tall latte and the Big Mac. C) The tall latte but not the Big Mac. D) The Big Mac but not the tall latte.

A. neither the tall latte nor the big mac

Refer to figure 5 and to question 93. After the initial shock as a consequence of the higher taxes and government expenditures, suppose the economy automatically adjusts to its short-run equilibrium. Then, the adjustment to the long-run equilibrium A) occurs as agents adjust their expectations of prices downwards, which shifts the SRAS curve to the right. B) occurs as agents adjust their expectations of potential output downwards, which shifts the LRAS curve to the left. C) occurs as agents increase their levels of consumption and investment, which shifts the SRAS curve to the right. D) never occurs as, in the long-run, we are all dead.

A. occurs as agents adjust their expectations of prices downwards, which shifts the SRAS curve to the right.

The aggregate quantity of goods and services demanded changes as the price level rises because A) real wealth falls, interest rates rise, and the dollar appreciates. B) real wealth falls, interest rates rise, and the dollar depreciates. C) real wealth rises, interest rates fall, and the dollar appreciates. D) real wealth rises, interest rates fall, and the dollar depreciates.

A. real wealth falls, interest rates rise, and the dollar appreciates

During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1 percent, but people had been expecting 1.5 percent . This difference between actual and expected inflation A) transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0.5 percentage points higher than what you had expected. B) transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected. C) transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0.5 percentage points lower than what you had expected. D) transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0.5 percentage points lower than what you had expected.

A. transferred wealth from the borrower to you and caused your after-tax real interest rate to be .5 percentage points higher than what you had expected

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

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

If Congress increased the tax rate on interest income, investment...

AND saving would decrease.

Which of the following is not an example of menu costs?

All of the Above: deciding on new prices, printing new price lists, and advertising new prices

Which of the following is consistent with the catch-up effect?

All of the above

During recessions a. workers are laid off. b. factories are idle. c. firms may find they are unable to sell all they produce. d. All of the above are correct.

All of the above are correct

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.

All things the same, when the U.S. real interest rate decreases what is induced?

Americans to buy more foreign assets, which increases U.S. net capital outflow.

Budget Surplus

An excess of tax revenue from govt spending T-G> 0 = T - G = public saving

. Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that a. the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year. b. neither the number of apples nor the number of pears bought by the typical consumer changes from year to year. c. the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year. d. neither the price of apples nor the price of pears changes from year to year.

B

. Which of the following is the most accurate statement? a. In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation. b. In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. c. In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. d. In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation.

B

10. Net exports of a country are the value of A) goods and services imported minus the value of goods and services exported. B) goods and services exported minus the value of goods and services imported. C) goods exported minus the value of goods imported. D) goods imported minus the value of goods exported.

B

13. The law of one price states that A) a good must sell at the price fixed by law. B) a good must sell at the same price at all locations. C) a good cannot sell for a price greater than the legal price ceiling. D) nominal exchange rates will not vary.

B

15. Which of the following would decrease aggregate demand? A) an increase in expected future income B) investors become pessimistic about the future marginal product of capital C) an increase in the quantity of money D) all of the above

B

3. Inflation can be measured by the A) change in the consumer price index. B) percentage change in the consumer price index. C) percentage change in the price of a specific commodity. D) change in the price of a specific commodity.

B

7. Open-market purchases by the Fed make the money supply A) increase, which makes the value of money increase. B) increase, which makes the value of money decrease. C) decrease, which makes the value of money decrease. D) decrease, which makes the value of money increase.

B

9. The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. What are the price level and velocity in Muckland? A) The price level and velocity are both 8. B) The price level is 2 and velocity is 8. C) The price level and velocity are both 4. D) The price level is 4 and velocity is 8.

B

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP A. increases by $40. B. increases by $220. C. increases by $280. D. increases by $1500.

B

A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) is (are) GDP higher? A) the first and the second B) the first but not the second C) the second but not the first D) neither the first nor the second

B

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action a. increases the money multiplier and increases the money supply. b. decreases the money multiplier and decreases the money supply. c. does not change the money multiplier, but increases the money supply. d. does not change the money multiplier, but decreases the money supply.

B

Economists use the word "money" to refer to a. income generated by the production of goods and services. b. those assets regularly used to buy goods and services. c. financial assets such as stocks and bonds. d. any type of wealth.

B

GDP - NFIA = GNP A) True B) False

B

Gross private domestic investment does not include investment firms undertake in order to replace depreciated capital. A) True B) False

B

If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be a. 2012. b. 2013. c. 2014. d. The base year cannot be determined from the given information.

B

If the quality of a good improves while its price remains the same, then the value of a dollar a. rises and the cost of living increases. b. rises and the cost of living decreases. c. falls and the cost of living increases. d. falls and the cost of living decreases.

B

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to a. $140 of new money. b. $14,000 of new money. c. $140,000 of new money. d. None of the above is correct.

B

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be a. $500 higher and M2 would be $1,500 higher. b. $1,000 higher and M2 would be $1,500 higher. c. M2 and M1 would be $1,500 higher. d. $1,000 high and M2 would be $500 higher.

B

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are a. housing, transportation, and recreation. b. housing, transportation, and food & beverages. c. housing, food & beverages, and education & communication. d. housing, medical care, and education & communication.

B

Suppose a bank is operating with a leverage ratio of 10. A 6 percent increase in the value of assets a. will reduce liabilities by 6 percent. b. will result in a 60 percent increase in owner's equity. c. will result in a 60 percent decrease in owner's equity. d. will reduce liabilities by 10 percent.

B

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was a. 98.0. b. 102.0. c. 104.0. d. 151.0.

B

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year? a. the quantities of the goods and services purchased b. the prices of the goods and services c. the goods and services making up the basket d. All of the above are correct.

B

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth a. more, and the cost of living increases. b. more, and the cost of living decreases. c. less, and the cost of living increases. d. less, and the cost of living decreases.

B

When the consumer price index falls, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can save less because they do not need to offset the effects of rising prices.

B

Which of the following functions of money is also a common function of most other financial assets? a. a unit of account b. a store of value c. medium of exchange d. None of the above is correct.

B

Which of the following is the correct formula for calculating the consumer price index? a. CPI in year 1-CPI in year 2 *100/ CPI in year 2 b. price of basket of goods and services in current yer*100/price of basket in base year c. price of basket of goods and services in current year -price of basket in base year *100/price of basket in base year d. price of basket of goods and services in base year*100/price of absket in current year

B

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?

B) $2.08

Ryan lives in an apartment where he pays $7,000 a year in rent. Sarah lives in a house that could be rented for $21,000 a year. How much do these housing services contribute to GDP?

B) $28,000

Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of good B which sells at $1 per unit. Production of good A contributes

B) 3/2 times as much to GDP as the production of good B.

Adam and Doug both build birdhouses. Adam works 30 hours a week and produces 15 bird houses. Doug works 20 hours a week and produces 12 bird houses. Which of the following is correct?

B) Adam's production is higher than Doug's, but Doug's productivity is higher than Adam's.

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

B) Why do wages differ across industries?

The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP accounts this transaction is included in

B) government expenditures and imports.

Economists use the term inflation to describe a situation in which

B) the economy's overall price level is rising.

The consumer price index is used to

B) turn dollar figures into meaningful measures of purchasing power.

if 2012 is the base year then the inflation rate for 2012 equals

B-A/B x 100

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion? A. C = $13 trillion, G = -$1 trillion B. C = $7 trillion, G = $1 trillion C. C = $9 trillion, G = $5 trillion D. C = $8 trillion, G = $3 trillion

B. C=$7 trillion, G=$1 trillion

To increase the money supply, the Fed could A) sell government bonds. B) decrease the discount rate. C) increase the reserve requirement. D) None of the above is correct.

B. Decrease in the discount rate

Which of the following is correct? A) Real GDP is the variable most commonly used to measure short-run economic fluctuations. These fluctuations can be predicted with some accuracy. B) Real GDP is the variable most commonly used to measure short-run economic fluctuations. It is almost impossible to predict these fluctuations with much accuracy. C) Nominal GDP is the variable most commonly used to measure short-run economic fluctuations. These fluctuations can be predicted with some accuracy. D) Nominal GDP is the variable most commonly used to measure short-run economic fluctuations. It is almost impossible to predict these fluctuations with much accuracy.

B. Real GDP is the variable most commonly used to measure short-run economic fluctuations. It is almost impossible to predict these fluctuations with much accuracy.

A bond buyer is a A. borrower. Long term bonds have less risk than short term bonds. B. saver. Long term bonds have more risk than short term bonds. C. saver. Long term bonds have less risk than short term bonds. D. borrower. Long term bonds have more risk than short term bonds.

B. Saver. Long term bonds have more risk than short term bonds

Which of the following is correct? A) The short-run, but not the long-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. B) The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables. C) The long-run and short-run supply curves are both consistent with the idea that nominal variables affect real variables. D) Neither the long-run nor the short-run aggregate supply curve is consistent with the idea that nominal variables affect real variables.

B. The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables

A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,

B. U.S. investment and GDP increase, but German GDP is unaffected.

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

B. decreases, so the value of money rises.

Monetary neutrality means that a change in the money supply A) does not change real GDP. Most economists think this is a good description of the economy in the short run and in the long run. B) does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run. C) does change real GDP. Most economists think this is a good description of the economy in the shortrun and the long run. D) does change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.

B. does not change real GDP. Most economists think this is a good description of the economy in the long run but not in the short run

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also A) either a rise in output or a rise in velocity. B) either a rise in output or a fall in velocity. C) either a fall in output or a rise in velocity. D) either a fall in output or a fall in velocity.

B. either a rise in output or a fall in velocity

An appreciation of the U.S. real exchange rate induces U.S. consumers to buy A) fewer domestic goods and fewer foreign goods. B) fewer domestic goods and more foreign goods. C) more domestic goods and fewer foreign goods. D) more domestic goods and more foreign goods.

B. fewer domestic goods and more foreign goods

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

B. lenders and people holding a lot of currency

When inflation rises, people will desire to hold A) less money and will go to the bank less frequently. B) less money and will go to the bank more frequently. C) more money and will go to the bank less frequently. D) more money and will go to the bank more frequently.

B. less money and will go to the bank more frequently

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

B. movement to the left along the money demand curve.

In which of the following cases was the inflation rate 10 percent over the last year? A) One year ago the price index had a value of 110 and now it has a value of 120. B) One year ago the price index had a value of 120 and now it has a value of 132. C) One year ago the price index had a value of 126 and now it has a value of 140. D) One year ago the price index had a value of 145 and now it has a value of 163.

B. one year ago the price index had a value of 120 and now it has a value of 132

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

B. right, raising the price level.

23. The long-run aggregate supply curve would shift right if immigration from abroad A) increased or Congress made a substantial increase in the minimum wage. B) decreased or Congress abolished the minimum wage. C) increased or Congress abolished the minimum wage. D) decreased or Congress made a substantial increase in the minimum wage.

C

6. Money demand refers to A) the total quantity of financial assets that people want to hold. B) how much income people want to earn per year. C) how much wealth people want to hold in liquid form. D) how much currency the Federal Reserve decides to print.

C

Suppose that more British people decide to vacation in the U.S. and that the British purchase more U.S. Treasury bonds. Ignoring how payments are made for these purchases, A) the first action by itself raises U.S. net exports, the second action by itself raises U.S. net capital outflow. B) the first action by itself raises U.S. net exports, the second action by itself lowers U.S. net capital outflow. C) the first action by itself lowers U.S. net exports, the second action by itself raises U.S. net capital outflow. D) the first action by itself lowers U.S. net exports, the second action by itself lowers U.S. net capital outflow.

B. the first action by itself raises U.S net exports, the second action by itself lowers U.S net capital outflow

In the long run, money demand and money supply determine

B. the price level but not the real interest rate.

Wealth is redistributed from creditors to debtors when inflation is

B. unexpectedly high.

Which of the following countries had the lowest level of real GDP per person in 2010?

Bangladesh

Know how to calculate CPI

Baskets from current year/Baskets from base year x 100

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Bond A has a term of 20 years and Bond B has a term of 2 years

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls?

Both the equilibrium price and quantity would decrease.

On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?

Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.

What is included in GDP?

Both the market value of rental housing services and the market value of owner-occupided housing services.

Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. In the short run what happens to the price level and real GDP?

Both the price level and real GDP rise.

When a union bargains successfully with employers, in the industry,

Both wages and unemployment increase

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

Buy $300,000 worth of bonds

Examples of saving:

Buy Bonds Buy Stocks Buy shares of a mutual fund Let accumulate in in saving or checking accounts

When the federal reserve conducts open market operations to increase the money supply, it

Buys government bonds from the public in an attempt to raise interest rates

"Income going to labor" is approximately _____ of national income. A) 1/3 B) 2/3 C) 1/2 D) 3/4

C

. If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to increase by about a. 1.7 percent. b. 3.3 percent. c. 4.2 percent. d. 10 percent

C

1. The idea that inflation by itself reduces people's purchasing power is called A) the inflation tax. B) menu costs. C) the inflation fallacy. D) shoeleather costs.

C

12. The nominal exchange rate is the A) nominal interest rate in one country divided by the nominal interest rate in the other country. B) the ratio of a foreign country's interest rate to the domestic interest rate. C) rate at which a person can trade the currency of one country for another. D) the real exchange rate minus the inflation rate.

C

14. A politician makes the following comment when testifying before the Senate. "The US should pursue a strong US dollar. We should let the US dollar appreciate against the euro. This will encourage investment in the US and it is good for US households when imports are cheaper. However, we should also make sure that the US doesn't slip into deflation. The Fed should make sure that US inflation is at least 2% per year." In Europe, the real GDP growth rate and money growth rate are forecasted to be 2% and 6%, respectively. The US growth rate of real GDP is forecast to be 3%. What money growth rate should the Fed target? A) no more than 3% B) at least 3% C) at least 5% D) the politician's goals are incompatible -- there is no money growth rate that can achieve both goals

C

18. The short-run equilibrium is at point _____, and the long-run equilibrium is at point _____. A) A; B B) B; C C) C; A D) D; A

C

8. When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an A) excess demand for money which causes the price level to rise. B) excess demand for money which causes the price level to fall. C) excess supply of money which causes the price level to rise. D) excess supply of money which causes the price level to fall.

C

Assume most athletic apparel bought by U.S. consumers is imported from other nations. If all else is constant, an increase in the price of foreign-made athletic apparel will cause the U.S. a. consumer price index and GDP deflator to increase by exactly the same amount. b. GDP deflator to increase more than the consumer price index. c. consumer price index to increase more than the GDP deflator. d. GDP deflator to decrease less than the consumer price index.

C

Bank regulators impose capital requirements in order to a. increase the amount of leverage in the economy. b. provide an incentive for banks to hold risky assets. c. ensure banks can pay off depositors. d. increase the probability of a credit crunch.

C

Consumption expenditure is approximately _____ percent of GDP. A) 50 B) 60 C) 70 D) 80

C

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant? a. substitution bias b. introduction of new goods c. unmeasured quality change d. income bias

C

Given the following information, what are the values of M1 and M2? Small time deposits $600 billion Demand deposits and other checkable deposits $400 billion Savings deposits $800 billion Money market mutual funds $700 billion Traveler's checks $30 billion Large time deposits $400 billion Currency $250 billion Miscellaneous categories in M2 $20 billion a. M1 = $650 billion, M2 = $2,830 billion. b. M1 = $400 billion, M2 = $3,080 billion. c. M1 = $680 billion, M2 = $2,800 billion. d. M1 = $680 billion, M2 = $3,200 billion.

C

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years? a. 60 in 1972 and 95 today b. 60 in 1972 and 120 today c. 90 in 1972 and 150 today d. 96 in 1972 and 154 today

C

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct? a. The base year is always the first year among the years for which computations are being made. b. It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. c. The value of the consumer price index is always 100 in the base year. d. The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

C

In the CPI, goods and services are weighted according to a. how long a market has existed for each good or service. b. the extent to which each good or service is regarded by the government as a necessity. c. how much consumers buy of each good or service. d. the number of firms that produce and sell each good or service.

C

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called a. price-change neglect. b. unmeasured quality change. c. substitution bias. d. relative bias.

C

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $77; in 2013, the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was a. 109.8 and the inflation rate was 9.8%. b. 109.8 and the inflation rate was 16.9%. c. 116.9 and the inflation rate was 9.8%. d. 116.9 and the inflation rate was 16.9%.

C

The CPI differs from the GDP deflator in that a. the CPI is a price index, while the GDP deflator is an inflation index. b. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. c. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. d. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.

C

The CPI is a measure of the overall cost of the goods and services bought by a. a typical firm. b. the government. c. a typical consumer. d. All of the above are correct.

C

The existence of money leads to a. greater specialization in production, but not to a higher standard of living. b. a higher standard of living, but not to greater specialization. c. greater specialization and to a higher standard of living. d. neither greater specialization nor to a higher standard of living.

C

The inflation rate is calculated a. by determining the change in the price index from the preceding period. b. by determining the change in the price index from the base year. c. by determining the percentage change in the price index from the preceding period. d. by determining the percentage change in the price index from the base year.

C

The inflation rate is defined as the a. price level in an economy. b. change in the price level from one period to the next. c. percentage change in the price level from the previous period. d. price level minus the price level from the previous period.

C

The primary purpose of measuring the overall level of prices in the economy is to a. allow for the measurement of GDP. b. allow consumers to know what kinds of prices to expect in the future. c. allow for the comparison of dollar figures from different points in time. d. allow for the comparison of dollar figures from the same point in time.

C

The problems with using the consumer price index as a measure of the cost of living are important because a. even the appearance of high rates of inflation cause voters to become disenchanted. b. politicians have manipulated the measurement problems to their advantage. c. many government programs use the CPI to adjust for changes in the overall level of prices. d. if the price level is overstated, consumers will be taken advantage of by sellers of consumer goods.

C

Transfer payments are A) included in GDP because they represent income to individuals. B) included in GDP because they eventually will be spent on consumption. C) not included in GDP because they are not payments for currently produced goods or services. D) not included in GDP because taxes will have to be raised to pay for them.

C

Which of the following is a way to compute GDP? A) add up the wages paid to all workers B) add up the quantities of all final goods and services C) add up the market values of all final goods and services D) add up the difference between the market values of all final goods and services and then subtract the costs of producing those goods and services

C

Which of the following is an example of depreciation? A) falling stock prices B) the retirement of several employees C) computers becoming obsolete D) All of the above are examples of depreciation.

C

Which of the following is included in investment (according to the definition used by the national income and product accounts)? A) a household buys a new car B) a mutual fund buys some shares of stock C) a developer builds a new condominium complex D) all of the above

C

Over the past 80 years, prices in the U.S. have risen on average about a. 2 percent per year. b. 4 percent per year. c. 3.6 percent per year. d. 6 percent per year.

C 3.6 percent per year.

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI. Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today. If the CPI is currently 130 and was 125 a year ago, the firm should increase the hourly wages of its workers by

C) $0.30.

Suppose, in year 1, consumption and income in a given economy are given by $5,200 and $8,000, respectively. In year 2, consumption and income in the same economy are given by $5,536 and $8,400, respectively. An initial increase of $500 in government purchases in this economy translates into A) $1,428.57 increase in aggregate demand in the absence of the crowding-out effect. B) $2,725.00 increase in aggregate demand in the absence of the crowding-out effect. C) $2,725.00 increase in aggregate demand if the crowding-out effect reduces aggregate demand, in total, by $400. D) $3,125.00 increase in aggregate demand if the crowding-out effect reduces aggregate demand, in total, by $400.

C) $2,725.00 increase in aggregate demand if the crowding-out effect reduces aggregate demand, in total, by $400.

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

C) $63,195.34

If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is

C) 120, and this indicates that the price level has increased by 20 percent since the base year.

During the past century the average growth rate of U.S. real GDP per person implies that it doubled, on average, about every

C) 35 years.

Which of the following is correct?

C) Historically, in periods where the rate of population growth was high, so was the rate of growth in world real GDP per person.

Mexico is

C) a middle-income country, and over the past century its rate of economic growth has been higher than that of the United States.

All of the following are examples of a nondurable good except

C) a queen-size bed.

According to the circular-flow diagram, GDP

C) can be computed as either the revenue firms receive from the sales of goods and services or as revenues they receive from the sales of goods and services.

Other things equal, relatively poor countries tend to grow

C) faster than relatively rich countries; this is called the catch-up effect.

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

C) gross domestic product

For an economy as a whole,

C) income must equal expenditure.

The value of goods added to a firm's inventory in a certain year is treated as

C) investment, since GDP aims to measure the value of the economy's production that year.

The average income in a rich country

C) is more than ten times that in a poor country. Further, people in rich countries have longer life expectancy.

One can argue that the average American today is "richer" than the richest American 100 years ago, given that 100 years ago,

C) many of the goods and services that we now take for granted were not available.

Average income has been stagnant for many years in

C) some Sub-Saharan African countries.

In 1870, the richest country in the world was

C) the United Kingdom.

A nation's standard of living is determined by

C) the productivity of its workers.

GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. Refer to Scenario 26-2. For this economy, national saving is equal to A. $1.7 trillion. B. $2.9 trillion. C. $1.2 trillion. D. $1.1 trillion.

C. $1.2 trillion

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving? A. $2.5 trillion and $1.5 trillion, respectively B. $1.5 trillion and $1.5 trillion, respectively C. $1.5 trillion and $2.5 trillion, respectively D. $2.5 trillion and $2.5 trillion, respectively

C. $1.5 trillion and $2.5 trillion, respectively

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate? A) 28.00 percent. B) 36.25 percent. C) 43.75 percent. D) 67.50 percent.

C. 43.75 percent

Money demand refers to A) the total quantity of financial assets that people want to hold. B) how much income people want to earn per year. C) how much wealth people want to hold in liquid form. D) how much currency the Federal Reserve decides to print.

C. How much wealth people want to hold in liquid form

Profits not paid out to stockholders are A. known as dividends. B. the denominator in the price-earnings ratio. C. retained earnings. D. All of the above are correct.

C. Retained earnings

Greg, a U.S. citizen, opens an ice cream store in Bermuda. His expenditures are U.S. A) foreign portfolio investment that increase U.S. net capital outflow. B) foreign portfolio investment that decrease U.S. net capital outflow. C) foreign direct investment that increase U.S. net capital outflow. D) foreign direct investment that decrease U.S. net capital outflow.

C. foreign direct investment that increase U.S net capital outflow

A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is A) less than one. Haircuts in Mexico are cheaper than in the U.S. B) less than one. Haircuts in Mexico are more expensive than in the U.S. C) greater than one. Haircuts in Mexico are cheaper than in the U.S. D) greater than one. Haircuts in Mexico are more expensive than in the U.S.

C. greater than one. Haircuts in Mexico are cheaper than in the U.S

Recession come at A) regular intervals. During recessions consumption spending falls relatively more than investment spending. B) regular intervals. During recessions investment spending falls relatively more than consumption spending. C) irregular intervals. During recessions consumption spending falls relatively more than investment spending. D) irregular intervals. During recessions investment spending falls relatively more than consumption spending.

C. irregular intervals. During recessions consumption spending falls relatively more than investment spending

Refer to figure 5 and to question 95. As the economy automatically adjusts to is long-run equilibrium, it will experience A) higher prices as people adjust their expectations of prices upwards and output will increase. B) higher prices as people adjust their expectations of prices upwards and output will decrease. C) lower prices as people adjust their expectations of prices downwards and output will increase. D) lower prices as people adjust their expectations of prices downwards and output will decrease.

C. lower prices as people adjust their expectations of prices downwards and output will increase

In which of the following sets of assets are the assets correctly ranked from most liquid to least liquid? A) Bonds, money, cars, houses. B) Bonds, cars, money, houses. C) Money, bonds, cars, houses. D) Money, cars, houses, bonds.

C. money, bonds, cars, houses

The idea that inflation by itself reduces people's purchasing power is called

C. the inflation fallacy.

Shawn puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods. A) The nominal interest rate was 11 percent and the inflation rate was 5 percent. B) The nominal interest rate was 6 percent and the inflation rate was 5 percent. C) The nominal interest rate was 5 percent and the inflation rate was -1 percent. D) None of the above is correct.

C. the nominal interest rate was 5 percent and the inflation rate was -1 percent

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

D. All of the above are correct

Refer to figure 2. If the money supply is MS2 and the value of money is 2, then A) the quantity of money demanded is greater than the quantity supplied; the price level will rise. B) the quantity of money demanded is greater than the quantity supplied; the price level will fall. C) the quantity of money supplied is greater than the quantity demanded; the price level will rise. D) the quantity of money supplied is greater than the quantity demanded; the price level will fall.

C. the quantity of money supplied is greater than the quantity demanded; the price level will rise

Other things the same, an increase in velocity means that A) the rate at which money changes hands falls, so the price level rises. B) the rate at which money changes hands falls, so the price level falls. C) the rate at which money changes hands rises, so the price level rises. D) the rate at which money changes hands rises, so the price level falls.

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

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

C. three percent and prices fell one percent.

If 2010 is the base year, then the inflation rate in 2015 equals

CPI in 2015- CPI in 2014 / CPI in 2014 x100

Lawn mowers

CPI will rise

Who of the following are included in the bureau of labor statistics' "employed" category

Certain unpaid workers, part time workers, workers on vacation

Which of the following is not an important stock exchange in the United States? a. New York Stock Exchange b. American Stock Exchange c. Chicago Mercantile Exchange d. NASDAQ

Chicago Mercantile Exchange

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

Classical Dichotomy

According to the loanable funds model. Which of the following events would result in higher interest rates and greater saving?

Congress passes a reform of the tax laws that encourages greater investment

An important function of the U.S. Federal reserve is to

Control the supply of money

Which list ranks assets from most to least liquid

Currency, demand deposits, money market mutual funds

Can be caused by underspending leading to job losses, refers to the year to year fluctuation in unemployment, is closely associated with short run ups and downs

Cyclical unemployment

. Core CPI is a. the CPI including only food, clothing, and energy. b. the CPI including only food and energy. c. the CPI excluding food, clothing, and energy. d. the CPI excluding food and energy.

D

. Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars? a. $5.39 b. $25.00 c. $29.11 d. $37.11

D

16. An increase in potential real GDP shifts A) neither the SRAS curve nor the LRAS curve. B) the LRAS curve but not the SRAS curve. C) the SRAS curve but not the LRAS curve. D) both the SRAS and LRAS curves

D

17. Which of the following would result in a below full-employment equilibrium? (Start from a full-employment equilibrium.) A) AD increases less than expected. B) Production costs increase more than expected. C) Potential real GDP increases more than expected. D) All of the above.

D

2. Shoeleather costs arise when higher inflation rates induce people to A) spend more time looking for bargains. B) spend less time looking for bargains. C) hold more money. D) hold less money.

D

20. During recessions A) workers are laid off. B) factories are idle. C) firms may find they are unable to sell all they produce. D) All of the above are correct.

D

21. The classical dichotomy refers to the separation of A) variables that move with the business cycle and variables that do not. B) changes in money and changes in government expenditures. C) decisions made by the public and decisions made by the government. D) real and nominal variables.

D

24. If aggregate demand shifts left, then in the short run A) the price level and real GDP both rise. B) the price level rises and real GDP falls. C) the price level falls and real GDP rises. D) the price and real GDP both fall.

D

25. Read the description below. Applying the story to the AD-AS model, what happens to the price level and real GDP in the short run? Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. A) both the price level and real GDP rise B) the the price level level rises and real GDP falls C) the the price level level falls and real GDP rises D) both the price level and real GDP fall

D

5. Suppose an economy produces only ice cream cones. If the price level rises, the value of currency A) rises, because one unit of currency buys more ice cream cones. B) rises, because one unit of currency buys fewer ice cream cones. C) falls, because one unit of currency buys more ice cream cones. D) falls, because one unit of currency buys fewer ice cream cones.

D

Banks are able to create money only when a. interest rates are above 2%. b. the Fed sells U.S. government bonds. c. the reserve ratio is 100%. d. only a fraction of deposits are held in reserve.

D

Refer to figure 3. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy's real GDP amounts to A) 5,000. B) 7,500. C) 10,000. D) 15,000.

D. 7500

Consider three imaginary countries. In Aire, saving amounts to $4,000 and consumption amounts to $12,000; in Bovina, saving amounts to $3,000 and consumption amounts to $24,000; and in Cartar, saving amounts to $10,000 and consumption amounts to $50,000. The saving rate is A. higher in Cartar than in Aire, and it is higher in Aire than in Bovina. B. higher in Aire than in Bovina, and it is the same in Aire and Cartar. C. higher in Cartar than in Bovina, and it is the same in Bovina and Aire. D. higher in Aire than in Cartar, and it is higher in Cartar than in Bovina.

D

If 2010 is the base year, then the inflation rate in 2015 equals a. CPI in 2015-CPI in 2014 *100/ CPI in 2010 b. CPI in 2015-CPI in 2010 *100/ CPI in 2010 c. CPI in 2015-CPI in 2010 *100/ CPI in 2014 d. CPI in 2015-CPI in 2014 *100/ CPI in 2014

D

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

D

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct? a. When 2006 is chosen as the base year, the consumer price index is 90 in 2007. b. When 2006 is chosen as the base year, the inflation rate is 150 percent in 2007. c. When 2007 is chosen as the base year, the consumer price index is 100 in 2006. d. When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.

D

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was a. -4 percent. b. 4 percent. c. 6 percent. d. 14 percent.

D

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been a. $228. b. $238. c. $257. d. $264.

D

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was a. 100 in 2012. b. 105 in 2013. c. 109.5 in 2014. d. All of the above are correct.

D

The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982? a. $270.35 b. $1,255.00 c. $2,698.92 d. $3,698.92

D

The consumer price index tires to measure how much consumer incomes must rise in order to maintain a constant a. level of real GDP. b. ratio of consumption to GDP. c. ratio of net exports to GDP. d. standard of living.

D

The price index was 92 in 2014, and the inflation rate was 8.7 percent between 2013 and 2014. The price index in 2013 was a. 100.0. b. 100.7. c. 83.3. d. 84.6.

D

When conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply.

D

Which of the following both increase the money supply? a. an increase in the discount rate and an increase in the interest rate on reserves b. an increase in the discount rate and a decrease in the interest rate on reserves c. a decrease in the discount rate and an increase in the interest rate on reserves d. a decrease in the discount rate and a decrease in the interest rate on reserves

D

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living? a. substitution bias b. introduction of new goods c. unmeasured quality change d. unmeasured price change

D

Over the past 80 years, the overall price level in the U.S. has experienced a(n) a. 4-fold increase. b. 10-fold increase. c. 13-fold increase. d. 17-fold increase.

D 17-fold increase.

Over the last 80 years, the average annual U.S. inflation rate was about a. 3.6 percent, implying that prices have increased 16-fold. b. 4 percent, implying that prices have increased 17-fold. c. 4 percent, implying that prices have increased 16-fold. d. 3.6 percent, implying that prices increased about 17-fold.

D 3.6 percent, implying that prices increased about 17-fold.

Which of the following headlines is more closely related to what microeconomists study than to what macroeconomists study?

D) The price of gasoline rises due to rising oil prices.

The inflation rate is calculated

D) by determining the percentage increase in the price index from the preceding period.

Daniel owns a coffee kiosk. All of his employees work 8 hours per day. In 2011, he employed 6 people who produced a total of 912 cups of coffee each day. In 2012, he hired a seventh employee and production increased to 1008 cups of coffee each day. In Daniel's kiosk, productivity

D) decreased by about 5.3 percent

If a country increases its saving rate, which of the following permanently grow at a higher rate?

D) neither real GDP per person nor productivity

Productivity is the amount of goods and services

D) produced for each hour of a worker's time. It is linked to a nation's economic policies.

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

D. $250 to GDP.

The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be: A) 50/255 B) 40/255 C) 50/300 D) 40/300

D. 40/300

The nominal exchange rate is 4 Saudi Arabian riyals, 8 Moroccan dirham, 45 Indian rupee, or .6 British pounds per U.S. dollar. A double latte espresso and a cinnamon biscotti costs $6 in the U.S., 24 riyals in Saudi Arabia, 40 Moroccan dirham in Morocco, 250 Indian rupees in India, and 5 British pounds in Britain. According to these numbers, where is the real exchange rate between American and foreign goods the lowest? A) Saudi Arabia. B) Morocco. C) India. D) Britain.

D. Britain

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures A. investment in human capital. B. business consumption expenditures. C. personal saving. D. capital investment.

D. Capital investment

Suppose consumers decide to spend significantly less because of increase in internet scams. What would happen to the supply curve? A. Leftward movement along the curve B. Rightward movement along the curve C. Entire supply curve shifts left D. Entire supply curve shifts right

D. Entire supply curve shifts right

People who buy newly issued stock in a corporation such as Crate and Barrel provide A. equity finance and so become creditors of Crate and Barrel. B. debt finance and so become part owners of Crate and Barrel. C. debt finance and so become creditors of Crate and Barrel. D. equity finance and so become part owners of Crate and Barrel.

D. Equity finance and so become part owners of Crate and Barrel.

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. A) His real and nominal salary have risen. B) His real and nominal salary have fallen. C) His real salary has risen and his nominal salary has fallen. D) His real salary has fallen and his nominal salary has risen.

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

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics? A. only Jim's B. Jim's and ABC Corporation's C. neither Jim's nor ABC Corporation's D. only ABC Corporation's

D. Only ABC Corporations

A bond that never matures is known as a A. an indexed bond. B. an intermediary bond. C. a junk bond. D. perpetuity.

D. Perpetuity

The payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments.

D. The dollar amount you pay is a nominal value. The number of goods you give up is a real value.

Refer to figure 3. If the relevant money-demand curve is the one labeled MD1, then A) when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. B) when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. C) there is an excess demand for money if the value of money in terms of goods and services is 0.375. D) All of the above are correct.

D. all of the above are correct

Refer to figure 5. Suppose the economy starts in a situation of equilibrium at point A and that Obama and Boehner do not reach an agreement about the fiscal cliff (hence, taxes increase and government expenditure falls). Therefore, A) economic agents' expectations deteriorate, shifting the SRAS curve to the left and the short-run equilibrium is given by point B. B) economic agents' expectations deteriorate, shifting the SRAS curve to the right and the short-run equilibrium is given by point D. C) consumption and investment fall, reducing aggregate demand and the short-run equilibrium is given by point B. D) consumption and investment fall, reducing aggregate demand and the short-run equilibrium is given by point D.

D. consumption and investment fall, reducing aggregate demand and the short-run equilibrium is given by point D

f the economy unexpectedly went from inflation to deflation, A) both debtors and creditors would have reduced real wealth. B) both debtors and creditors would have increased real wealth. C) debtors would gain at the expense of creditors. D) creditors would gain at the expense of debtors.

D. creditors would gain at the expense of debtors

For a given real interest rate, an increase in inflation makes the after-tax real interest rate

D. decrease, which discourages savings.

If the Fed conducts open-market sales, the money supply A) increases and aggregate demand shifts right. B) increases and aggregate demand shifts left. C) decreases and aggregate demand shifts right. D) decreases and aggregate demand shifts left.

D. decreases and aggregate demand shifts left

Deflation A) increases incomes and enhances the ability of debtors to pay off their debts. B) increases incomes and reduces the ability of debtors to pay off their debts. C) decreases incomes and enhances the ability of debtors to pay off their debts. D) decreases incomes and reduces the ability of debtors to pay off their debts.

D. decreases incomes and reduces the ability of debtors to pay off their debts

Country A experienced a growth rate of real GDP per person of 2.5 percent per year throughout the 1900's. In view of other countries' experiences during this time country A's growth was A. exceptionally low. B. moderately low. C. moderately high. D. exceptionally high.

D. exceptionally high.

The principle of monetary neutrality implies that an increase in the money supply will

D. increase the price level, but not real GDP.

When inflation falls, people

D. make less frequent trips to the bank and firms make less frequent price changes.

Refer to figure 4. Point B represents A) a short-run equilibrium and a long-run equilibrium. B) a short-run equilibrium but not a long-run equilibrium. C) a long-run equilibrium but not a short-run equilibrium. D) neither a short-run equilibrium nor a long-run equilibrium.

D. neither a short-run equilibrium nor a long-run equilibrium

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

D. nominal GDP would rise by 5 percent; real GDP would be unchanged.

Refer to figure 3. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2? A) an increase in the value of money. B) a decrease in the price level. C) an open-market purchase of bonds by the Federal Reserve. D) None of the above is correct.

D. none of the above are correct

Refer to figure 2. When the money supply curve shifts from MS1 to MS2 A) the demand for goods and services decreases. B) the economy's ability to produce goods and services increases. C) the equilibrium price level decreases. D) None of the above is correct.

D. none of the above is correct

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, A) production is more profitable and employment rises. B) production is more profitable and employment falls. C) production is less profitable and employment rises. D) production is less profitable and employment falls.

D. production is less profitable and employment falls

A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 120 in 2009. Between 2009 and 2010,

D. real output and the price level both rose.

When conducting an open-market sale, the Fed A) buys government bonds, and in so doing increases the money supply. B) buys government bonds, and in so doing decreases the money supply. C) sells government bonds, and in so doing increases the money supply. D) sells government bonds, and in so doing decreases the money supply.

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

If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then

D. the expected real interest rate is 1 percent.

In which case below is the real interest rate the highest? A) the nominal interest rate = 4% and inflation = 3%. B) the nominal interest rate = 3% and inflation = 1%. C) the nominal interest rate = 2% and inflation = -2%. D) the nominal interest rate = 1% and inflation = -4%.

D. the nominal interest rate= 1% and inflation= -4%

Which of the following is not implied by the quantity equation? A) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. B) If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. C) With constant money supply and output, an increase in velocity creates an increase in the price level. D) With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

D. with constant money supply and velocity, an increase in output creates a proportional increase in the price level

Sales of bonds=

Debt Finance

If the fed sells government bonds to the public, then reserves

Decrease and the money silly decreases leading to higher interest rates

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action

Decreases the money multiplier and decreases the money supply

Suppose GDP equals $10 trillion, consumption equals $6.5 trillion, the government spends $2 trillion with no transfer payments, and has a budget deficit of $300 billion. Find public saving, taxes, private saving, national saving, and investment.

Given: Y = 10.0, C = 6.5, G = 2.0, G - T = 0.3 Public saving: -0.3 trillion 300 billion T-G= 1.7 - 2.0 Taxes: 1.7 trillion G- Ps= 2.0 - .3= 1.7 Private saving: Y-C-T= 10-6.5-1.7= 1.8 trillion National saving : 1.8 -0.3= 1.5 trillion Investment: 1.5 trillion Investment= National Saving

Productivity is defined as the quantity of

Goods and services produced from each unit of labor input

Productivity is defines as the quantity of

Goods and services produced from each unit of labor input

Which of the following helps to reduce frictional unemployment?

Gov. Run employment agencies, public training programs, the Internet

The existence of money leads to

Greater specialization and to a higher standard of living

Financial System

Group of institutions in the economy that help match one person's saving with another. Moves the economy's scarce resources from savers to borrowers

Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages?

Henry Ford

Megan is a landscaper. Which of the following are included in her human capital?

Her knowledge of landscaping learned in college, but not her landscaping equipment.

The supply of loanable funds comes from saving:

Households with extra income can loan it out and earn interest. Public saving, if positive, adds to national saving and the supply of loanable funds. If negative, it reduces national saving and the supply of loanable funds. Interest rate is the return on saving

Which of the following is a determinant of productivity?

Human capital per worker Physical capital per worker Natural resources per worker Technological Something ALL OF THE ABOVE IS CORRECT

Ethan purchases a new house for $170,000, which fits into what part of Y=C+I+G?

I

Saving

If income exceeds consumption, source of supply for loanable funds

In a simple circular-flow diagram, firms use the money they get from a sale to

In a simple circular-flow diagram, firms use the money they get from a sale to, pay rent to landlords, pay profit to the firms' owners.

If an economy's GDP rises, then it must be the case that the economy's

Income and Expenditure both rise

For an economy as a whole,

Income must equal expenditure

Crowding out effect:

Increase in budget deficit (government borrowing) causes fall in investment

Efficiency wages

Increase productivity but increase unemployment

In 1991, the federal reserve lowered the reserve requirement from 12 percent to 10 percent. Other things the same this should have

Increased both the money multiplier and the money supply

Studies have found which of the following economic terms mentioned most often in U.S. newspapers?

Inflation

Which of the following is correct?

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

Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Inflation is 2 percent; the tax rate is 30 percent.

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

Inflation is 3 percent; the tax rate is 25 percent.

Which of the following statements about inflation is not true?

Inflation reduces people's real purchasing power because it raises the cost of the things people buy.

The relationship between the price lee and the value of the dollar is

Inverse

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.

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

It has $250 in reserves and $4,750 in loans.

Buzz is a full time college student who is not working or looking for a job. The bureau of labor statistics bouts Buzz as

Neither in the labor force not unemployed

If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise?

Nominal GDP but not real GDP

Suppose a country repealed its investment tax credit The effects of this are represented by shifting the

None of the above

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. (MS at 5000, MD1 curve intersects at .5, MD2 curve at .875) Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

None of the above is correct.

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income? a. The supply of and demand for loanable funds would shift right. b. The supply of and demand for loanable funds would shift left. c. The supply of loanable funds would shift right and the demand for loanable funds would shift left. d. None of the above is correct.

None of the above is correct.

Which of the following is an example of a nonrenewable resource?

OIL

The slope of the supply of loanable funds is based on an increase in

ONLY national saving when the interest rate rises.

Budget Deficits, Crowding Out, and Long-Run Growth

Our analysis: Increase in budget deficit causes fall in investment. The govt borrows to finance its deficit, leaving less funds available for investment. This is called crowding out Recall from the preceding chapter: Investment is important for long-run economic growth. Hence, budget deficits reduce the economy's growth rate and future standard of living.

Currency includes

Paper bills and coins, demand deposits

A high demand for a company's stock is an indication that a. the company is in need of funds. b. the company has recently sold a large quantity of bonds. c. people are optimistic about the company's future. d. people are pessimistic about the company's future.

People are optimistic about the company's future.

Inflation can be measured by the

Percentage change in the consumer price index

National Saving Formula

Private Saving + Public Saving= Investment

All else equal, if there are diminishing returns and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?

Productivity will definitely rise.

If Japan goes from a small budget deficit to a large budget deficit, it will reduce

Public saving and so shift the supply of loanable funds left

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Quantity Theory of Money

In some countries it is time consuming and costly to establish ownership of property. Reforms to reduce these costs would likely...

RAISE real GDP and productivity.

A firm may pay efficiency wages in an attempt to

Reduce incentives to shirk reduce turnover attract a well-qualified pool of applicants ALL OF THE ABOVE

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

Relative Prices

If Congress institutes an investment tax credit, the interest rate would

Rise and saving would rise

Suppose that in a closed economy GDP is equal to 11000, taxes are equal to 1500, consumption equals 7500, and government purchases equal 2000, What is national Savings?

S=(Y-T-C)+(T-G) (11000-1500-7500)+(1500-2000) 20000-500

Other things the same, a higher interest rate induces people to

Save more, so the supply of loanable funds slopes upward

Where does the supply of loanable funds come from?

Saving

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was lower between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption?

The CPI was 100 in 2003, 120 in 2004, and 135 in 2005.

Which group within the federal reserve system meets to discuss changes in the economy and determine monetary policy?

The FOMC

Which of the following is correct?

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

Nominal GDP is $15 trillion and real GDP is $10 trillion. What is the GDP deflator? Show your work.

The GDP Deflator = Nominal GDP/Real GDP = 100 x $15 trillion/$10 trillion = 150.

Which of the following is consistent with the catch up effect

The US had a higher growth rate before 1900 than after After World War II the US had lower growth rates than war-ravages European countries Although the US has relatively high of output per person, its growth rate is rather modest compares to some countries ALL OF THE ABOVE ARE CORRECT

Which movie is an allegory about late 19th century monetary policy?

The Wizard of Oz

Sally purchases a classic 1964 car she saw for sale on someone's lawn. She then purchases some new parts and spends 120 hours refurbishing the car which she keeps. What is included in GDP?

The amount she paid to buy new parts.

Which is the most accurate statement about the GDP deflator and the consumer price index?

The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

Suppose that Congress were to REPEAL n investment tax credit. What would happen in the market for loanable funds?

The demand for loanable funds would shift left

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

The demand for loanable funds would shift right

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

The demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate

The interest rate the Fed charges on loans it makes to banks is called

The discount rate

Liquidity refers to

The ease with which an asset is converted to the medium of exchange

In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

The economy experienced a rising price level between 2012 and 2013.

Saving and Investment

The economy is closed in this chapter. AKA no NX in equation: Y=C+I+G To solve for investment: I = Y-C-G Saving= Investment in a closed economy For the economy as a whole: One person's savings can finance another person's investment

The discount rate is the interest rate that

The fed charges banks for loans

Which of the following items is counted as part of government purchases?

The federal government pays the salary of a Navy officer. b. The state of Nevada pays a private firm to repair a Nevada state highway. c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city. Correct **** All of the above are correct.

The agency responsible for regulating the money supply in the US is

The federal reserve

The U.S. Government Debt

The government finances deficits by borrowing (selling government bonds). Persistent deficits lead to a rising govt debt. The ratio of govt debt to GDP is a useful measure of the government's indebtedness relative to its ability to raise tax revenue. Historically, the debt-GDP ratio usually rises during wartime and falls during peacetime—until the early 1980s.

Equilibrium

The interest rate adjusts to equate supply and demand. The eq'm quantity of L.F. equals eq'm investment and eq'm saving.

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

The interest rate and investment would rise.

The Market for Loanable Funds

The market in which those who want to save supply funds and those who want to borrow to invest demand funds. One interest rate Return to saving Cost of borrowing

Darla puts her money into a bank account that earns interest. One year later she sees that the account has 6 percent more dollars and that her money will buy 7.5 percent more goods.

The nominal interest rate was 6 percent and the inflation rate was -1.5 percent.

Some poor countries appear to be failing behind rather than catching up with rich countries. Which of the following could explain the failure of a poor country to catch up?

The poor country has poorly developed property rights

Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up?

The poor country has poorly developed property rights.

Private saving

The portion of households' income that is not used for consumption or paying taxes Equation: Y - C-T

When looking at a graph of aggregate demand, which of the following is correct?

The variable on the vertical axis is nominal; the variable on the horizontal axis is real.

To maintain their standard of living, most people rely on

Their labor earnings

If the price level last year was 180 and this year is is 176, then

There was deflation of 2.2 percent

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

There would be an increase in the amount of loanable funds borrowed

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower.

The labor force participation rate measures the percentage of the

Total adult population that is in the labor force

M1 Equals currency plus demand deposits plus

Traveler's checks plus other checkable deposits

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries. a. True b. False

True

An increase in the price level is the same as a decrease in the value of money.

True

An inflation tax is "paid" by those that hold money because inflation reduces the value of their money holdings.

True

Changes in monetary policy will have disruptive effects on production and employment in the short run.

True

Countries that spend more money than they can collect from taxing or borrowing tend to print too much money, which causes inflation.

True

Hyperinflation is generally defined as inflation that exceeds 50 percent per month.

True

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10. a. True b. False

True

If the money supply is $500, real output is 2,500 units, and the average price of a unit of real output is $2, the velocity of money is 1.

True

If the price level were to double, the quantity of money demanded would double because people would need twice as much money to cover the same transactions.

True

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500. a. True b. False

True

In United States history there were long periods when most prices fell.

True

Inflation reduces the relative price of goods whose prices have been temporarily held constant to avoid the costs associated with changing prices.

True

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future. a. True b. False

True

Persistent increases in the overall level of prices have been the norm

True

Price indexes allow comparisons of dollar figures over time and provide us a sense of how the economy is changing.

True

Public saving is T - G, while private saving is Y - T - C. a. True b. False

True

In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 10 hot dogs and 6 hamburgers. A hot dog cost $3 in 2006 and $5.40 in 2007. A hamburger cost $5 in 2006 and $6 in 2007. Which of the following statements is correct?

When 2007 is chosen as the base year, the inflation rate is 50 percent in 2007.

Private Saving Formula

Y-T-C

If there are constant returns to scale, the production function can be written as

Y/L = A F( 1, K/L, H/L, N/L).

Which of the following equations represents GDP for a closed economy?

Y=C+I+G

A decrease in the US interest rates leads to ... a. a depreciation of the dollar that leads to greater net exports b. a depreciation of the dollar that leads to smaller net exports c. an appreciation of the dollar that leads to greater net exports d. an appreciation of the dollar that leads to smaller net exports

a

After adjusting for inflation, over time the prices of most natural resources have been a. steady or falling, meaning that our ability to conserve them is growing more rapidly than their supplies are dwindling. b. steady or falling, meaning that their supplies are dwindling more rapidly than our ability to conserve them is growing. c. rising, meaning that our ability to conserve them is growing more rapidly than their supplies are dwindling. d. rising, meaning that their supplies are dwindling more rapidly than our ability to conserve them is growing.

a

Among the following countries, which one has the highest level of real GDP per person but the lowest growth rate of real GDP per person over a very long period of time? a. the United Kingdom b. Mexico c. Argentina d. China

a

An organization that tries to encourage the flow of investment to poor countries is the a. World Bank. b. Organization of Less Developed Countries. c. Alliance of Developing Countries. d. International Development Alliance.

a

As the price level falls, which of the following increases? a. lending and investment spending b. lending, but not investment spending c. investment spending but not lending d. neither investment spending nor lending

a

Country A has real GDP per person of 250,000 while Country B has real GDP per person of 500,000. All else constant, Country A will eventually have a higher standard of living than Country B if a. the level of saving per person is 5.000 in Country A and 7,500 in Country B. b. the level of saving per person is 3,000 in Country A and 6,000 in Country B. c. Both of the above are correct. d. None of the above are correct

a

During recessions investment ... a. falls by a larger percentage than GDP b. falls by about the same percentage as GDP c. falls by a smaller percentage than GDP d. falls but the percentage change is sometimes much larger and sometimes much smaller

a

Historically, the change in real GDP during recessions has been ... a. mostly a change in investment spending b. mostly a change in consumption spending c. about equally divided between consumption and investment spending d. sometimes mostly a change in consumption and sometimes mostly a change in investment

a

Human capital is the a. knowledge and skills that workers acquire through education, training, and experience. b. stock of equipment and structures that is used to produce goods and services. c. total number of hours worked in an economy. d. same thing as technological knowledge.

a

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in a. foreign portfolio investment. b. indirect domestic investment. c. foreign direct investment. d. foreign indirect investment.

a

In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have a. increased productivity and real GDP per person. b. increased productivity but decreased real GDP per person. c. increased real GDP per person, but decreased productivity. d. decreased productivity and real GDP per person.

a

Other things the same, a decrease in the price level makes the dollars people hold worth ... a. more, so they are willing to spend more b. more, so they are willing to spend less c. less, so they are willing to spend more d. less, so they are willing to spend less

a

Other things the same, if the price level falls, households ... a. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases b. increase foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange decreases c. decrease foreign bond purchases, so the supply of dollars in the market for foreign-currency exchange increases d. decrease foreign bond purchases, so the supply of dollars in the market for foreign- currency exchange decreases

a

Over the period 1900-2014, which of the following countries experienced the highest average annual growth rate of real GDP per person? a. Brazil b. China c. India d. Pakistan

a

The model of short-run economic fluctuations focuses on the price level and ... a. real GDP b. economic growth c. the neutrality of money d. none of the above is correct

a

28. Assume that the banking system has total reserves of $100B. Assume also that required reserves are 10% of checking deposits and that banks hold no excess reserves and households hold no currency. a) What is the money multiplier? What is the money supply? b) If the Fed now raises required reserves to 20% of deposits, what are the changes in reserves and in money supply?

a) MM 1/R = 1/(1/10) = (10) Money supply 10 x $100Bill. = ($1Trill.) b) R^1 = 20% = 1/5 = 1/R = 1/(1/5) = 5 = ($500Bill)

The traditional view of the production process is that capital is subject to a. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries. b. diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries. c. increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries. d. increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.

a

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are ... a. the price level, real output b. real output, employment c. employment, the inflation rate d. the value of money, the price level

a

Which of the following adjusts to bring aggregate demand and supply into balance ... a. the price level and real output b. the real rate of interest and the money supply c. government expenditures and taxes d. the saving rate and net exports

a

Which of the following are NOT included in aggregate demand? a. purchases of stock and bonds b. purchases of services such as visits to the doctor c. purchases of capital goods such as equipment in a factory d. purchases by foreigners of consumer goods produced in the United States

a

Which of the following lists contains, in this order, natural resources, physical capital, and human capital? a. For a shoe factory: leather, hand tools, the managers' knowledge of shoe making. b. For a steel mill: the blast furnaces, iron ore, the workers. c. For an airline: oil used to make jet fuel, the pilots' knowledge of flying, jets. d. None of the above is correct.

a

Which of the following statements about inputs is correct? a. A forest is an example of a natural resource; it is also an example of a renewable resource. b. There is no distinction between human capital and technological knowledge. c. Human capital is a non-produced factor of production. d. Physical capital is a non-produced factor of production.

a

Which of these countries' growth rates of real GDP per person have exceeded the United States' growth rate of real GDP per person over the last century? a. Canada and China b. China and India c. Germany and India d. Germany and Pakistan

a

If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of

a 15 percent decrease in the price

If the price elasticity of demand for a good is 2, then a 10 percent decrease in the quantity demanded must be the result of

a 5 percent increase in the price.

Crowding out occurs when investment declines because

a budget deficit makes interest rates rise

If money is neutral,

a change in the money supply only affects nominal variables such as prices and dollar wages.

Which of the following is an example of the "brain drain?"

a country's most highly educated workers emigrate to rich countries

Which of the following both increase the money supply

a decrease in the discount rate and a decrease in the interest rate on reserves

Industrial machinery is an example of

a factor of production that in the past was an output from the production process.

A transfer payment is

a form of government spending that is not made in exchange for a currently produced good or service

On which of these bonds is the prospect of default most likely?

a junk bond

A price floor is

a legal minimum on the price at which a good can be sold, often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor, and a source of inefficiency in a market

A checking deposit functions as

a medium of exchange and as a store of value.

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.

The quantity theory of money concludes that an increase in the money supply causes

a proportional increase in prices.

Budget Deficit

a shortfall of tax revenue from govt spending T-G<0 = G - T = - (public saving)

After a binding price floor becomes effective,

a smaller quantity of the good is bought and sold

An inflation tax is

a tax on people who hold money.

The CPI is a measure of the overall cost of the goods and services bought by

a typical consumer

27. Suppose the reserve requirement for checking deposits is 10 percent and the banks do not hold any excess reserves. a) If the Fed sells $1M of government bonds, what is the effect on the economy's reserves and money supply? b) Now suppose the Fed lowers the reserve requirement to 5%, but banks chose to hold another % of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?

a) R= 10% => 1/10 Sell bonds => Decrease M supply = Decrease Reserves MM 1/R = 1/(1/10) = (10) x $1Mill = Decrease $10Mill. (i.) Decrease M^S by $10Mill (ii.) Decrease Reserves by $1Mill. b) R^1 = 5% = (1/20) + 5% = (10%) (NO CHANGE) Increase M^S => 10 x $1Mill = Increase M^S by $10Mill Sell bonds =) $1Mill. Decrease M^S = MM = 10 => 10 x $1Mill = Decrease $$10Mill.

12. An associate professor of physics gets $200 a month raise. She figures that with her new monthly salary she can buy more goods and services that she could buy last year. a) Her real and nominal salary has risen. b) Her real and nominal salary has fallen. c) Her real salary has risen and her nominal salary has fallen. d) Her real salary has fallen and her nominal salary has risen.

a) Her real and nominal salary has risen.

9. To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the a) Quantity theory of money. b) Price-index theory of money. c) Theory of hyperinflation. d) Disequilibrium theory of money and inflation.

a) Quantity theory of money.

10. The value of money falls as the price level a) Rises, because the number of dollars needed to buy a representative basket of goods rises. b) Rises, because the number of dollars needed to buy a representative basket of goods falls. c) Falls, because the number of dollars needed to buy a representative basket of goods rises. d) Falls, because the number of dollars needed to buy a representative basket of goods falls.

a) Rises, because the number of dollars needed to buy a representative basket of goods rises.

11. Money demand depends on a) The price level and interest rate. b) The price level but not the interest rate. c) The interest level but not he price level. d) Neither the price level not the interest rate.

a) The price level and interest rate.

Which of these changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124?

a. 106 to 112

For an imaginary economy, the consumer price index was 115.00 in 2004, 126.50 in 2005, and 136.62 in 2006. Which of the following statements is correct?

a. For this economy, the base year must be 2004. b. If the basket of goods that is used to calculate the CPI cost $75.00 in the base year, then that basket of goods cost $115.00 in 2004. c. This economy's rate of inflation for 2006 is 10.12 percent. Correctd. ****None of the above is correct.***

The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,

a. U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP and GNP are unaffected.

The short-run effects of an increase in the saving rate include

a. a higher level of productivity. b. a higher growth rate of productivity. c. a higher growth rate of income. All of the above are correct.

Which of the following is a financial intermediary?

a. a mutual fund

Members of the Board of Governors

a. are appointed by the U.S. president, while presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors.

Statistics that are of particular interest to macroeconomists

a. are widely reported by the media.

A recession is always associated with

a. declining real GDP.

Which of the following is a determinant of productivity?

a. human capital per worker b. physical capital per worker c. natural resources per worker ***Correct**** All of the above are correct.

The source of the supply of loanable funds

a. is saving and the source of demand for loanable funds is investment.

Samantha, the CEO of a corporation operating in a comparatively poor country where wages are low, decides to raise the wages of her workers even though she faces an excess supply of labor. Her decision

a. might increase profits if it means that the wage is high enough for her workers to eat a nutritious diet that makes them more productive.

Suppose banks desire to hold no excess reserves. If the reserve ratio is 10 percent and a bank receives a new deposit of $10. Then this bank

a. must increase required reserves by $1.

Accumulating capital

a. requires that society sacrifice consumption goods in the present.

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?

a. substitution bias

Country A has real GDP per person of 100,000 while country B has real GDP per person of 200,000. All else constant, country A will eventually have a higher standard of living than country B if

a. the level of saving per person is 10,000 in country A and 10,000 in country B. b. the level of saving per person is 12,000 in country A and 15,000 in country B both are correct

GDP does not reflect

a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. Correctd. ***All of the above are correct.

A closed economy does not

a. trade with other economies.

14. If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be interpreted as the inflation rate. c. the supply of money influences the value of P, but the demand for money does not. d. All of the above are correct.

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

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

a. 1/P represents the value of money measured in terms of goods and services. b. P can be regarded as the "overall price level." c. an increase in the value of money is associated with a decrease in P.

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is a. 2 b. 0.50 c. 1 d. 1.5

a. 2

31. Which of the following is not correct? a. Countries that have had higher output growth per person have typically done so without higher productivity growth. b. A country's standard of living and its productivity are closely related. c. Productivity refers to output produced per hour of work. d. Increases in productivity can be used to increase output or leisure.

a. Countries that have had higher output growth per person have typically done so without higher productivity growth.

61. Which of the following is correct? a. If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. b. If the Fed sells bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve. c. If the Fed purchases bonds, then the money supply curve shifts right. An increase in the price level shifts the money supply curve right. d. If the Fed sells bonds, then the money supply curve shifts right. A decrease in the price level shifts the money supply curve right.

a. If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve.

40. Dilbert's Incorporated produced 6,000,000 units of software in 2005. At the start of 2006 the pointy-haired boss raised employment from 10,000 total annual hours to 14,000 annual hours and production was 7,000,000 units. Based on these numbers what happened to productivity? a. It fell by about 16.7%. b. It stayed the same. c. It rose by about 16.7%. d. It rose by about 40%.

a. It fell by about 16.7%.

17. Which of the following statements about U.S. inflation is not correct? a. Low inflation was viewed as a triumph of President Carter's economic policy. b. There were long periods in the nineteenth century during which prices fell. c. The U.S. public has viewed inflation rates of even 7 percent as a major economic problem. d. The U.S. inflation rate has varied over time, but international data show even more variation.

a. Low inflation was viewed as a triumph of President Carter's economic policy.

Suppose that velocity rises while the money supply stays the same. It follows that

a. P x Y must rise

35. In 8 hours, Sonja produces 8 units of goods and services. In 10 hours, Emma produces 9 units of goods and services. It follows that a. Sonja's productivity is higher than Emma's. b. Emma's productivity is higher than Sonja's. c. Emma's income per hour will be higher than Sonja's. d. Sonja's income per day will be higher than Emma's.

a. Sonja's productivity is higher than Emma's.

Which of the following is correct?

a. The classical dichotomy separates real and nominal variables. b. Monetary neutrality is the proposition that changes in the money supply do not change real variables. c. When studying long-run changes in the economy, the neutrality of money offers a good description of how the world works

in the equation Y=C+I+G+NX, a. Y represents the economy's total expenditure b. C represents household expenditure c. all of the variables are always positive numbers d. all of the above are correct

a. Y represents the economy's total expenditure

69. The value of money falls. This might be because the Federal Reserve a. bought bonds, which increased the money supply. b. bought bonds, which decreased the money supply. c. sold bonds, which increased the money supply. d. sold bonds, which decreased the money supply.

a. bought bonds, which increased the money supply.

A high demand for a company's stock is an indication that

people are optimistic about the company's future.

29. As the Consumer Price Index increases, the value of money a. falls, so people hold more money to buy the goods and services they want. b. falls, so people hold less money to buy the goods and services they want. c. rises, so people hold more money to buy the goods and services they want. d. rises, so people hold less money to buy the goods and services they want.

a. falls, so people hold more money to buy the goods and services they want.

55. If the Fed increases the money supply, then 1/P a. falls, so the value of money falls. b. falls, so the value of money rises. c. rises, so the value of money falls. d. rises, so the value of money rises.

a. falls, so the value of money falls.

14. Between 1880 and 1896 the average level of prices in the U.S. economy a. fell 23 percent. b. fell 4 percent. c. rose 23 percent. d. rose 50 percent.

a. fell 23 percent.

58. Which of the following would be human capital and physical capital, respectively? a. for an accounting firm, the accountants' knowledge of tax laws and computer software b. for a grocery store, grocery carts and shelving c. for a school, chalkboard and desks d. for a library, the building and the reference librarians' knowledge of the Internet

a. for an accounting firm, the accountants' knowledge of tax laws and computer software

25. As the price level decreases, the value of money a. increases, so people must hold less money to purchase goods and services. b. increases, so people must hold more money to purchase goods and services. c. decreases, so people must hold more money to purchase goods and services. d. decreases, so people must hold less money to purchase goods and services.

a. increases, so people must hold less money to purchase goods and services.

32. Productivity is the a. key determinant of living standards, and growth in productivity is the key determinant of growth in living standards. b. key determinant of living standards, but growth in productivity is not the key determinant of growth in living standards. c. not the key determinant of living standards, but growth in productivity is the key determinant of growth in living standards. d. not the key determinant of living standards, and growth in productivity is not the key determinant of growth in living standards.

a. key determinant of living standards, and growth in productivity is the key determinant of growth in living standards.

27. When the Consumer Price Index increases from 100 to 120 a. more money is needed to buy the same amount of goods, so the value of money falls. b. more money is needed to buy the same amount of goods, so the value of money rises. c. less money is needed to buy the same amount of goods, so the value of money falls. d. less money is needed to buy the same amount of goods, so the value of money rises.

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

Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at $3 per dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs sold at $1.50 per dozen and ham sold at $5 per pound. For 2009,

a. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.

45. The equipment and structures available to produce goods and services are called a. physical capital. b. human capital. c. the production function. d. technology.

a. physical capital.

3. To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the a. quantity theory of money. b. price-index theory of money. c. theory of hyperinflation. d. disequilibrium theory of money and inflation.

a. quantity theory of money.

8. The value of money falls as the price level a. rises, because the number of dollars needed to buy a representative basket of goods rises. b. rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of dollars needed to buy a representative basket of goods rises. d. falls, because the number of dollars needed to buy a representative basket of goods falls.

a. rises, because the number of dollars needed to buy a representative basket of goods rises.

32. If the value of a dollar falls, then the quantity of money demanded a. rises, meaning people want to hold more of their wealth in a liquid form. b. rises, meaning people desire to work more so their income rises. c. falls, meaning people want to hold less of their wealth in a liquid form. d. falls, meaning people want to work less so their income falls.

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

52. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply creates an excess a. supply of money, causing people to spend more. b. supply of money, causing people to spend less. c. demand for money, causing people to spend more. d. demand for money, causing people to spend less.

a. supply of money, causing people to spend more.

41. The key determinant of a the standard of living in a country is a. the amount of goods and services produced from each hour of a worker's time. b. the total amount of goods and services produced within the country. c. the total amount of its physical capital. d. its growth rate of real GDP.

a. the amount of goods and services produced from each hour of a worker's time.

67. Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then a. the money supply must have increased, perhaps because the Fed bought bonds. b. the money supply must have increased, perhaps because the Fed sold bonds. c. the money supply must have decreased, perhaps because the Fed bought bonds. d. the money supply must have decreased, perhaps because the Fed sold bonds.

a. the money supply must have increased, perhaps because the Fed bought bonds.

24. Money demand depends on a. the price level and the interest rate. b. the price level but not the interest rate. c. the interest rate but not the price level. d. neither the price level nor the interest rate.

a. the price level and the interest rate.

45. 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, a. the price level will rise. b. the value of money will rise. c. money demand will shift leftward. d. money demand will shift rightward.

a. the price level will rise.

The data on hyperinflation show a clear link between the quantity of money and

a. the price level.

49. Which of the following would be considered physical capital? a. the refrigerators at Uncle Bob's restaurant b. rivers on which goods are transported c. the skills and knowledge of a lawyer d. All of the above are correct.

a. the refrigerators at Uncle Bob's restaurant

56. Which of the following is a part of your economics professor's human capital? a. the things she learned at some prestigious university b. her copy of Mankiw's text c. her chalk holder d. All of the above are correct.

a. the things she learned at some prestigious university

40. 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 a. the value of money. b. real interest rates. c. nominal interest rates. d. the money supply.

a. the value of money.

51. Human capital is the a. knowledge and skills that workers acquire through education, training, and experience. b. stock of equipment and structures that is used to produce goods and services. c. total number of hours worked in an economy. d. same thing as technological knowledge.

a.knowledge and skills that workers acquire through education, training, and experience.

A basic principle of economics is that a country's standard of living depends on its

ability to produce goods and services.

Job search is not associated with a wage rate __________ the equilibrium market.

above

A price floor is binding when it is set

above the equilibrium price, causing a surplus.

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods BLS attempts to account for this change in the market basket by

adjusting the price of the good to account for the quality change

A 2009 Chevrolet model has more horsepower than the 2008 version and is included in the BLS basket of goods. BLS attempts to account for this change in the market basket by

adjusting the price of the good to account for the quality change.

When deciding how much to save, people care most about

after-tax real interest rates.

If a production function has constant returns to scale, output can be doubled if

all of the inputs double.

An economy's natural rate of unemployment is the

amount of unemployment that the economy normally experiences

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

an above equilibrium wage paid by a firm to reduce turnover costs

A stock index is

an average of a group of stock prices

Other things the same, which of the following would increase productivity?

an increase in either human or physical capital

All else equal, which of the following would tend to cause real GDP per person to rise?

an increase in investment in human capital

When Chile experiences investment from abroad, it experiences, as a result,

an increase in productivity.

Which of the following will not result in a leftward shift of the market demand curve for labor?

an increase in the wage rate

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP

If the demand for loanable funds shifts to the left, then the equilibrium interest rate

and quantity of loanable funds falls

If the demand for loanable funds shifts to the right, then the equilibrium interest rate...

and quantity of loanable funds rise.

If Congress increased the tax rate on interest income, investment a. would increase and saving would decrease. b. would decrease and saving would increase. c. and saving would increase. d. and saving would decrease.

and saving would decrease.

The level of real GDP person

and the growth rate of real GDP per person vary widely across countries.

If an unemployed person quits looking for work, then, eventually the unemployment rate

and the labor force participation rate both decrease

Which of the following costs of inflation doesnot occur when inflation is constant and predictable?

arbitrary redistributions of wealth

Technological knowledge refers to

available information on how to produce things.

A decrease in the price level induces people to hold ... a. less money, so they lend less and the interest rate rises b. less money, so they lend more and the interest rate falls c. more money, so they lend more and the interest rate rises d. more money, so they lend less and the interest rate falls

b

A short period of falling incomes and rising unemployment is called a ... a. depression b. recession c. expansion d. business cycle

b

According to the classical macroeconomic theory, changes in the money supply affect ... a. nominal and real variables b. nominal variables but not real variables c. real variables, but not nominal variables d. neither normal nor real variables

b

An increase in the price level causes the interest rate to ... a. increase, the dollar to depreciate, and net exports to increase b. increase, the dollar to appreciate, and net exports to decrease c. decrease, the dollar to depreciate, and net exports to increase d. decrease, the dollar to appreciate, and net exports to decrease

b

In 2009, the imaginary nation of Mainland had a population of 7,000 and real GDP of 210,000. In 2010 the population was 7,300 and real GDP of 223,380. Over the year in question, real GDP per person in Mainland grew by a. 2 percent, which is high compared to average U.S. growth over the last one-hundred years. b. 2 percent, which is about the same as average U.S. growth over the last one-hundred years. c. 4 percent, which is high compared to average U.S. growth over the last one-hundred years. d. 4 percent, which is about the same as average U.S. growth over the last one-hundred years.

b

Investment is a ... a. small part of real GDP, so it accounts for a small share of the fluctuation in real GDP b. small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP c. large part of real GDP, so it accounts for a large share of the fluctuation in real GDP d. large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP

b

On a production function, as capital per worker increases, output per worker a. increases. This increase is larger at larger values of capital per worker. b. increases. This increase is smaller at larger values of capital per worker. c. decreases. This decrease is larger at larger value of capital per worker. d. decreases. This decrease is smaller at larger value of capital per worker

b

On average over the past 50 years, the US economy has grown at the rate of about ... a. 1% per year b. 3% per year c. 4% per year d. 6% per year

b

Other things the same, a fall in the economy's overall level of prices tends to ... a. raise both the quantity demanded and supplied of goods and services b. raise the quantity demanded of goods and services, but lower the quantity supplied c. lower the quantity demanded and the quantity supplies of goods and services d. lower both the quantity demanded and the quantity supplied of goods and services

b

Other things the same, as the price level falls, a country's exchange rate ... a. and interest rates rise b. and interest rates fall c. falls and interest rates rise d. rises and interest rates fall

b

36. Mary looks over reports on four of her workers. Jack made 25 baskets in 5 hours. Walter made 36 baskets in 6 hours. Rudy made 40 baskets in 10 hours. Sam made 22 baskets in four hours. Who has the greatest productivity? a. Jack b. Walter c. Rudy d. Sam

b. Walter

27. Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final goods. Laborland has a population of 5,000, of whom 4,000 work 12 hours a day to produce a total of 120,000 final goods. a. Workland has higher productivity and higher real GDP per person than Laborland. b. Workland has higher productivity but lower real GDP per person than Laborland. c. Workland has lower productivity but higher real GDP per person than Laborland. d. Workland has lower productivity and lower real GDP per person than Laborland.

b. Workland has higher productivity but lower real GDP per person than Laborland.

2. The quantity theory of money a. is a fairly recent addition to economic theory. b. can explain both moderate inflation and hyperinflation. c. argues that inflation is caused by too little money in the economy. d. All of the above are correct.

b. can explain both moderate inflation and hyperinflation.

28. Country A has a population of 1,000, of whom 700 worked an average of 8 hours a day and had a productivity of 2.5. Country B has a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. The country with the higher real GDP was a. country A, and the country with higher real GDP per person was country A. b. country A, and the country with higher real GDP per person was country B. c. country B, and the country with higher real GDP per person was country A. d. country B, and the country with higher real GDP per person was country B.

b. country A, and the country with higher real GDP per person was country B.

12. When prices are falling, economists say that there is a. disinflation. b. deflation. c. a contraction. d. an inverted inflation.

b. deflation.

31. When the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money a. demanded increases. b. demanded decreases. c. supplied increases. d. supplied decreases.

b. demanded decreases.

36. When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes a. upward, because at higher prices people want to hold more money. b. downward, because at higher prices people want to hold more money. c. downward, because at higher price people want to hold less money. d. upward, because at higher prices people want to hold less money.

b. downward, because at higher prices people want to hold more money.

42. When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a. excess demand for money, so the price level will rise. b. excess demand for money, so the price level will fall. c. excess supply of money, so the price level will rise. d. excess supply of money, so the price level will fall.

b. excess demand for money, so the price level will fall.

44. When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a. excess demand for money, so the price level will rise. b. excess demand for money, so the price level will fall. c. excess supply of money, so the price level will rise. d. excess supply of money, so the price level will fall.

b. excess demand for money, so the price level will fall.

Social Security payments are

b. excluded from GDP because they do not reflect the economy's production.

10. If the number of dollars needed to buy a representative basket of goods falls, the price level a. falls, so the value of money falls. b. falls, so the value of money rises. c. rises, so the value of money falls. d. rises, so the value of money rises.

b. falls, so the value of money rises.

Grapes are considered intermediate goods

b. if the purchaser uses them to make wine to sell others but not if the purchaser eats them.

59. Open-market purchases by the Fed make the money supply a. increase, which makes the value of money increase. b. increase, which makes the value of money decrease. c. decrease, which makes the value of money decrease. d. decrease, which makes the value of money increase.

b. increase, which makes the value of money decrease.

50. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply a. increases the price level and increases the value of money. b. increases the price level and decreases the value of money. c. decreases the price level and increases the value of money. d. decreases the price level and decreases the value of money.

b. increases the price level and decreases the value of money.

When the Fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public. The money supply increases.

5. When the price level rises, the number of dollars needed to buy a representative basket of goods a. increases, and so the value of money rises. b. increases, and so the value of money falls. c. decreases, and so the value of money rises. d. decreases, and so the value of money falls

b. increases, and so the value of money falls.

6. If the CPI rises, the number of dollars needed to buy a representative basket of goods a. increases, and so the value of money rises. b. increases, and so the value of money falls. c. decreases, and so the value of money rises. d. decreases, and so the value of money falls

b. increases, and so the value of money falls.

7. When there is inflation, the number of dollars needed to buy a representative basket of goods a. increases, and so the value of money rises. b. increases, and so the value of money falls. c. decreases, and so the value of money rises. d. decreases, and so the value of money falls

b. increases, and so the value of money falls.

35. When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded decreases. d. decreases, so the quantity of money demanded increases.

b. increases, so the quantity of money demanded decreases.

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

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

If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same, a. its output would stay the same and so would its productivity. b. its output and productivity would increase, but less than double. c. its output and productivity would increase by more than double. d. None of the above is correct.

b. its output and productivity would increase, but less than double.

60. Open-market purchases by the Fed a. make the price level and value of money fall. b. make the price level rise, and make the value of money fall. c. make the price level and make the value of money rise. d. make the price level fall, and make the value of money rise.

b. make the price level rise, and make the value of money fall.

When inflation rises, people tend to go to the bank

b. more often, giving rise to shoeleather costs

37. When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a a. movement to the right along the money demand curve. b. movement to the left along the money demand curve. c. shift to the right of the money supply curve. d. shift to the left of the money supply curve.

b. movement to the left along the money demand curve.

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

b. nominal GDP would rise by 5 percent; real GDP would be unchanged

Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change in the price of a specific commodity.

b. percentage change in the consumer price index.

46. The saws, lathes, and drill presses that woodworkers at Cedar Valley Furniture use to produce furniture are called a. human capital. b. physical capital. c. natural resources. d. technological knowledge.

b. physical capital.

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

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

57. 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 a. raised both the price level and the value of gold in Cairo. b. raised the price level, but decreased the value of gold in Cairo. c. lowered the price level, but increased the value of gold in Cairo. d. lowered both the price level and the value of gold in Cairo.

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

48. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the a. right, lowering the price level. b. right, raising the price level. c. left, raising the price level. d. left, lowering the price level.

b. right, raising the price level.

If the apple corporation sells a bond it is

borrowing directly from the public

Adam is looking for a job in marketing. He has had some offers and his prospects are promising, but he has not yet accepted a job. Amanda lost her job working for Mercury Bicycles because many customers decided they prefer bicycles manufactured by Ultimate Bicycles instead. Who is frictionally unemployed?

both Adam and Amanda

63. When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve a. shifts rightward, causing the value of money measured in terms of goods and services to rise. b. shifts rightward, causing the value of money measured in terms of goods and services to fall. c. shifts leftward, causing the value of money measured in terms of goods and services to rise. d. shifts leftward, causing the value of money measured in terms of goods and services to fall.

b. shifts rightward, causing the value of money measured in terms of goods and services to fall.

64. When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then a. the money supply and the price level increase. b. the money supply and the price level decrease. c. the money supply increases and the price level decreases. d. the money supply increases and the price level increases.

b. the money supply and the price level decrease.

21. In the long run, money demand and money supply determine a. the price level and the real interest rate. b. the price level but not the real interest rate. c. the real interest rate but not the price level. d. neither the price level nor the real interest rate.

b. the price level but not the real interest rate.

49. When the money market is drawn with the value of money on the vertical axis, if the money supply rises a. the price level and the value of money rise. b. the price level rises and the value of money falls. c. the price level falls and the value of money rises. d. the price level and the value of money fall.

b. the price level rises and the value of money falls.

33. When the money market is drawn with the value of money on the vertical axis, as the price level increases which of the following increases? a. the quantity of money demanded and the quantity of money supplied b. the quantity of money demanded but not the quantity of money supplied c. the quantity of money supplied but not the quantity of money demanded d. neither the quantity of money supplied nor the quantity of money demanded

b. the quantity of money demanded but not the quantity of money supplied

56. The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land a. the supply of money decreases and the value of money rises. b. the supply of money increases and the value of money falls. c. the demand for money increases and the value of money rises. d. the demand for money decreases and the value of money falls.

b. the supply of money increases and the value of money falls

If net exports is a negative number for a particular year, then

b. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.

20. In the long run, money demand and money supply determine a. the value of money and the real interest rate. b. the value of money but not the real interest rate. c. the real interest rate but not the value of money. d. neither the value of money nor the real interest rate.

b. the value of money but not the real interest rate.

46. When the money market is drawn with the value of money on the vertical axis, if there is a shortage of money then a. the value of money rises which will make people desire to hold more money. b. the value of money rises which will make people desire to hold less money. c. the value of money falls which will make people desire to hold more money. d. the value of money falls which will make people desire to hold less money.

b. the value of money rises which will make people desire to hold less money.

28. When the Consumer Price Index falls from 110 to 100 a. there is inflation of 9.1% and the value of money decreases. b. there is deflation of 9.1% and the value of money increases. c. there is deflation of 10% and the value of money increases. d. there is inflation of 10% and the value of money decreases.

b. there is deflation of 9.1% and the value of money increases.

23. The primary reason people hold money is a. to keep wealth in a less liquid form. b. to use it as a medium of exchange. c. to use it for investment. d. to earn interest.

b. to use it as a medium of exchange.

53. Which of the following is human capital? a. a student loan b. understanding how to use a company's accounting software c. training videos for new corporate employees d. All of the above are correct.

b. understanding how to use a company's accounting software

38. In 2007, Angel Foods produced 300,000 bags of tortilla chips, employing 12,000 hours of labor. In 2008, Angel Foods produced 325,000 bags of tortilla chips, employing 13,000 hours of labor. Relative to their productivity in 2007, their productivity in 2008 a. decreased by 2.1 percent. b. was unchanged. c. increased by 1.3 percent. d. increased by 2.3 percent.

b. was unchanged.

During the Great Depression in the early 1930s, a. bank runs closed many banks. b. the money supply rose sharply. c. the Fed decreased reserve requirements. d. both a and b are correct.

bank runs closed many banks.

Two of the economy's most important intermediaries are

banks and mutual funds

The federal funds rate is the interest rate

banks charge each other for short-term loans of reserves

If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria, then a. Austrian GNP increases by more than Austrian GDP, because GDP includes income earned by foreigners working in Austria. b. Austrian GNP increases by more than Austrian GDP, because GDP excludes income earned by foreigners working in Austria. c. Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners working in Austria. d. Austrian GNP increases by less than Austrian GDP, because GDP excludes income earned by foreigners working in Austria.

c

If there are constant returns to scale, the production function can be written as a. xY = 2xAF(L, K, H, N). b. Y/L = A F(xL, xK, xH, xN). c. Y/L = A F( 1, K/L, H/L, N/L). d. L = AF(Y, K, H, N).

c

In the U.S., each additional year of schooling has historically raised a person's wage on average by about a. 2 percent. b. 5 percent. c. 10 percent. d. 15 percent

c

In the long run, a higher saving rate a. cannot increase the capital stock. b. means that people must consume less in the future. c. increases the level of productivity. d. None of the above is correct.

c

Matt is going to college to become a pharmacist. What he learns about existing information increases a. both technological knowledge and human capital. b. technological knowledge but not human capital. c. human capital but not technological knowledge. d. neither technological knowledge nor human capital.

c

Other things the same, as the price level falls ... a. the money supply falls b. interest rates rise c. a dollar buys more domestic goods d. the aggregate demand curve shifts right

c

Other things the same, as the price level rises, the real value of a dollar ... a. rises, and interest rates rise b. rises, and the interest rates fall c. falls, and interest rates rise d. falls, and interest rates fall

c

Other things the same, the aggregate quantity of goods demanded in the US increases if ... a. real wealth falls b. the interest rate rises c. the dollar depreciates d. none of the above is correct

c

Real GDP ... a. moves in the same direction as unemployment b. is not adjusted for inflation c. also measures real income d. all of the above are correct

c

The aggregate demand curve ... a. has a slope that is explained in the same way as the slope of the demand curve for a particular product b. is vertical in the long run c. shows an inverse relationship between the price level and the quantity of all goods and services demanded d. all of the above are correct

c

The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will a. fall temporarily, but will return to where it was when the new owners learn how to farm. b. increase because the total amount of human capital in the country will increase as the new owners learn how to farm. c. fall and remain lower for a long time. d. not be affected unless widespread civil disorder or civil war results.

c

The effect of an increase in the price level on aggregate demand is represented by a ... a. shift to the right of the aggregate demand curve b. shift to the left of the aggregate demand curve c. movement to the left along a given aggregate demand curve d. movement to the right along a given aggregate demand curve

c

The logic behind the catch-up effect is that a. workers in countries with low incomes will work more hours than workers in countries with high incomes. b. the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital. c. new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital. d. None of the above is correct.

c

The wealth effect, interest rate effect and exchange rate effect are all explanations for ... a. the slope of short-run aggregate supply b. the slope of long-run aggregate supply c. the slope of the aggregate demand curve d. everything that makes the aggregate demand curve shift

c

When a society decides to increase its quantity of physical capital, the society a. can avoid the usual need to face trade-offs. b. is apparently not very concerned about its rate of economic growth in the future. c. is in effect deciding to consume fewer goods and services in the present. d. is in effect deciding to save less of its current income in the present.

c

Which of the following is correct? a. over the business cycle, consumption fluctuates more than investment b. economic fluctuations are easy to predict c. during recessions, sales and profits tend to fall d. because of government policy, the US has suffered no recessions in the last 25 years

c

Which part of real GDP fluctuates most over the course of the business cycle? a. consumption expenditures b. government expenditures c. investment expenditures d. net exports

c

​There are large differences in the standard of living a. across countries, but not within countries. b. within countries ​over time, but not across countries. c. across countries and within countries over time. d. across countries, but not in technology or healthcare.

c

15. If M = 3,000, P = 2, and Y = 6,000, what is velocity? a) ½ b) 1 c) 4 d) None of the above is correct

c) 4

25. As the reserve ratio increases, the money multiplier. a) Increases. b) Does not change. c) Decreases. d) Could do any of the above.

c) Decreases.

8. If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold a) Fewer reserves, so the money multiplier will fall. b) Fewer reserves, so the money multiplier will rise. c) More reserves, so the money multiplier will fall. d) More reserves, so the money multiplier will rise.

c) More reserves, so the money multiplier will fall.

13. According to the classical dichotomy, which of the following is influenced by monetary factors? a) Real GDP b) Unemployment c) Nominal interest rates d) All of the above are correct

c) Nominal interest rates

3. Which of the following best illustrates the concept of a store of value? a) You are a precious-metals dealer, and you are always aware of how many ounces of platinum trade for an ounce of gold. b) You sell items on eBay, and your prices are stared in terms of dollars. c) You keep 6 ounces of gold in your safe-deposit box at the bank for emergencies. d) None of the above is correct.

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

20. In a fractional-reserve banking system, a bank a) does not make loans. b) does not accept deposits. c) keeps only a fraction of its deposits in reserve. d) None of the above is correct.

c) keeps only a fraction of its deposits in reserve.

22. If a bank has a reserve ratio of percent, then a) government regulation requires the bank to use at least 8 percent of its deposits to make loans. b) the bank's ratio of loans to deposits is 8 percent. c) the bank keeps percent of its deposits as reserves and loans out the rest. d) he bank keeps 8 percent of its assets as reserves and loans out the rest.

c) the bank keeps percent of its deposits as reserves and loans out the rest.

17. Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate, rises, then a) both the nominal nor the real interest rate rise. b) neither the nominal nor the real interest rate rise. c) the nominal interest rate rises, but the nominal interest rate does not. d) the real interest rate rises, but the nominal interest rate does not.

c) the nominal interest rate rises, but the nominal interest rate does not.

Suppose that in a closed economy GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

c. $1 trillion and $2 trillion

If the nominal interest rate is 6 percent and the rate of inflation is 9 percent, then the real interest rate is

c. -3 percent.

Senator Smith says that in order to help poor countries develop, the United States should: 1. Prevent U.S. corporations from investing in poor countries because they take profits that the poor countries should have; 2. Not import goods from poor countries that use child labor; 3. Work to promote political stability in poor countries; and 4. Reduce poor countries' reliance on market forces in their economies. How many of these ideas are likely to help poor countries grow?

c. 1

Refer to Table 24-2. Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the consumer price index for 2006 if the base year is 2005?

c. 136.11

Refer to Labor Stats. What is the adult female labor-force participation rate in Meditor?

c. 66.67%

The steps involved in calculating the consumer price index, in order, are as follows:

c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index.

Which of the following statements about GDP is correct?

c. GDP is to a nation's economy as household income is to a household.

Which of the following is not a nonsensical headline?

c. Government bonds currently pay less interest than corporate bonds.

Some people who are employed or who are not making serious effort to find employment will report themselves as unemployed. Some people who want to find work will be counted as out of the labor for

c. The first fact tends to make the reported unemployment rate higher than the actual unemployment rate. The second fact tends to make the reported unemployment rate lower than the actual rate.

During the third quarter of 2006, a firm produces consumer goods and adds some of those goods to its inventory. During the fourth quarter of that year, the firm sells the goods at a retail outlet, with the result that the value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of the third quarter. These actions affect which component(s) of fourth-quarter GDP?

c. These actions affect consumption positively and investment negatively.

A German citizen buys an automobile produced in the United States by a Japanese company. As a result,

c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GDP and GNP are unaffected.

Which of the following best illustrates the medium of exchange function of money?

c. You pay for your double latte using currency.

The Federal Reserve does all except which of the following?

c. make loans to individuals

Suppose GDP consists of wheat and rice. In 2005, 20 bushels of wheat are sold at $4 per bushel, and 10 bushels of rice are sold at $2 per bushel. In 2004, the price of wheat was $2 per bushel and the price of rice was $1 per bushel. Using 2004 as the base year, it follows that, for 2005,

c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

Greater scarcity of a natural resource is indicated

c. only by any increase in the price which is greater than the rate of inflation.

Patents turn new ideas into

c. private goods, and increase the incentive to engage in research.

Your company discovers a better way to produce mousetraps, but your better methods are not apparent from the mousetraps themselves. Your knowledge of how to more efficiently produce mousetraps is

c. proprietary technological knowledge.

Historically, the market prices of most natural resources (adjusted for inflation) have

c. remained stable or decreased.

Which of the following is not included in M1?

c. savings deposits

50. Which of the following terms do we use to mean the same thing as physical capital? a. assembly line b. manual labor c. capital d. factor of production

c. capital

If there is a surplus of loanable funds, then a. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. b. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. c. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. d. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.

c. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.

For some racquet sports there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI are these facts most relevant?

c. unmeasured quality change

9. If the price level increased from 120 to 144, then what was the inflation rate? a. 24 percent. b. 25 percent. c. 20 percent. d. 17 percent.

c. 20 percent.

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that a. the credit risk associated with Bond A is lower than the credit risk associated with Bond B. b. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation. c. Bond A has a term of 20 years and Bond B has a term of 2 years. d. All of the above are correct.

c. Bond A has a term of 20 years and Bond B has a term of 2 years.

34. Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units of goods per hour. a. Waldo's productivity and output are greater than Emerson's. b. Waldo's productivity is greater than Emerson's but his output is less. c. Emerson's productivity and output are greater than Waldo's. d. Emerson's productivity is greater than Waldo's but his output is less.

c. Emerson's productivity and output are greater than Waldo's.

19. Which of the following is correct? a. A period of hyperinflation is a period of extraordinarily low inflation. b. A period of deflation is any period during which the inflation rate is decreasing. c. From 2002 to 2012, U.S. inflation averaged about 2.5 percent per year. d. All of the above are correct.

c. From 2002 to 2012, U.S. inflation averaged about 2.5 percent per year.

18. Which of the following statements concerning the history of U.S. inflation is not correct? a. Prices rose at an average annual rate of about 3.6 percent over the last 80 years. b. There was about a 17-fold increase in the price level over the last 80 years. c. Inflation in the 1970s was below the average over the last 80 years. d. The United States has experienced periods of deflation.

c. Inflation in the 1970s was below the average over the last 80 years.

In which of the following cases was the inflation rate 12 percent over the last year? a. One year ago the price index had a value of 110 and now it has a value of 120. b. One year ago the price index had a value of 120 and now it has a value of 132. c. One year ago the price index had a value of 134 and now it has a value of 150. d. One year ago the price index had a value of 145 and now it has a value of 163.

c. One year ago the price index had a value of 134 and now it has a value of 150.

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy? a. Private saving is equal to government expenditures. b. Public saving is equal to investment. c. The government's tax revenue is equal to its expenditures. d. After paying their taxes and paying for their consumption, households have nothing left.

c. The government's tax revenue is equal to its expenditures.

You bought some shares of stock and, over the next year, the price per share increased by 5 percent and the price level increased by 8 percent. Before taxes, you experienced

c. a nominal gain and a real loss, and you paid taxes on the nominal gain.

16. The term hyperinflation refers to a. the spread of inflation from one country to others. b. a decrease in the inflation rate. c. a period of very high inflation. d. inflation accompanied by a recession.

c. a period of very high inflation.

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

c. caused measured GDP to rise.

You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs, and all your other inputs, and bake twice as many cookies. Your cookie production function has a. decreasing returns to scale. b. zero returns to scale. c. constant returns to scale. d. increasing returns to scale.

c. constant returns to scale.

26. As the price level rises, the value of money a. increases, so people must hold less money to purchase goods and services. b. increases, so people must hold more money to purchase goods and services. c. decreases, so people must hold more money to purchase goods and services. d. decreases, so people must hold less money to purchase goods and services.

c. decreases, so people must hold more money to purchase goods and services.

As the price level rises, the value of money

c. decreases, so people want to hold more of it.

4. When the price level falls, the number of dollars needed to buy a representative basket of goods a. increases, so the value of money rises. b. increases, so the value of money falls. c. decreases, so the value of money rises. d. decreases, so the value of money falls.

c. decreases, so the value of money rises.

11. When inflation rises people will a. demand more money so the price level rises. b. demand more money so the price level falls. c. demand less money so the price level rises. d. demand less money so the price level falls.

c. demand less money so the price level rises.

20. There was hyperinflation during the a. period 1880-1896 in the United States. b. 1970s in the United States. c. early part of the current century in Zimbabwe. d. All of the above are correct.

c. early part of the current century in Zimbabwe.

47. Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an a. excess demand for money that will result in an increase in spending. b. excess demand for money that will result in a decrease in spending. c. excess supply of money that will result in an increase in spending. d. excess supply of money that will result in a decrease in spending.

c. excess supply of money that will result in an increase in spending.

70. When the money market is drawn with the value of money on the vertical axis, if money demand shifts leftward, then initially there is an a. excess demand for money which causes the price level to rise. b. excess demand for money which causes the price level to fall. c. excess supply of money which causes the price level to rise. d. excess supply of money which causes the price level to fall.

c. excess supply of money which causes the price level to rise

43. When the money market is drawn with the value of money on the vertical axis, if the price level is below the equilibrium level, there is an a. excess demand for money, so the price level will rise. b. excess demand for money, so the price level will fall. c. excess supply of money, so the price level will rise. d. excess supply of money, so the price level will fall.

c. excess supply of money, so the price level will rise.

23. Economists agree that a. neither high inflation nor moderate inflation is very costly. b. both high and moderate inflation are quite costly. c. high inflation is costly, but they disagree about the costs of moderate inflation. d. moderate inflation is as costly as high inflation.

c. high inflation is costly, but they disagree about the costs of moderate inflation.

Money demand refers to

c. how much wealth people want to hold in liquid form

22. Money demand refers to a. the total quantity of financial assets that people want to hold. b. how much income people want to earn per year. c. how much wealth people want to hold in liquid form. d. how much currency the Federal Reserve decides to print.

c. how much wealth people want to hold in liquid form.

29. Last year a country had 800 workers who worked an average of 8 hours and produced 12,800 units. This year the country had 1000 workers who worked an average of 8 hours and produced 14,000 units. This country's productivity was a. higher this year than last year. A possible source of this change in productivity is a change in the size of the capital stock. b. higher this year than last year. A change in the size of the capital stock does not affect productivity. c. lower this year than last year. A possible source of this change in productivity is a change in the size of the capital stock. d. lower this year than last year. A change in the size of the capital stock does not affect productivity.

c. lower this year than last year. A possible source of this change in productivity is a change in the size of the capital stock.

74. The price level rises if either a. money demand or money supply shifts rightward. b. money demand shifts rightward or money supply shifts leftward. c. money demand shifts leftward or money supply shifts rightward. d. money demand or money supply shifts leftward.

c. money demand shifts leftward or money supply shifts rightward

75. When the money market is drawn with the value of money on the vertical axis, the price level decreases if a. either money demand or money supply shifts right. b. either money demand or money supply shifts left. c. money demand shifts right or money supply shifts left. d. money demand shifts left or money supply shifts right.

c. money demand shifts right or money supply shifts lef

47. Which of the following would not be considered physical capital? a. a new factory building b. a computer used to help Mercury Delivery Service keep track of its orders c. on-the-job training d. a desk used in an accountant's office

c. on-the-job training

Inflation can be measured by the a. change in the consumer price index. Inflation in the U.S. has averaged about 2.5% over the last 80 years. b. change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years. c. percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years. d. percentage change in the consumer price index. Inflation in the U.S. has averaged about 4% over the last 80 years

c. percentage change in the consumer price index. Inflation in the U.S. has averaged about 3.6% over the last 80 years.

65. When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to a. spend more so the value of a dollar rises. b. spend more so the value of a dollar falls. c. spend less so the value of a dollar rises. d. spend less so the value of a dollar falls.

c. spend less so the value of a dollar rises.

19. The supply of money increases when a. the price level falls. b. the interest rate increases. c. the Fed makes open-market purchases. d. money demand increases.

c. the Fed makes open-market purchases.

The supply of money increases when

c. the Fed makes open-market purchases.

15. The supply of money is determined by a. the price level. b. the Treasury and Congressional Budget Office. c. the Federal Reserve System. d. the demand for money.

c. the Federal Reserve System.

54. The supply of money increases when a. the value of money increases. b. the interest rate increases. c. the Federal Reserve purchases bonds. d. velocity increases.

c. the Federal Reserve purchases bonds.

66. When the money market is drawn with the value of money on the vertical axis, if money supply and money demand both shift to the right a. the price level must have risen b. the price level must have fallen. c. the price level rises if money supply shifts farther than money demand. d. the price level falls if money supply shifts farther than money demand

c. the price level rises if money supply shifts farther than money demand.

41. 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 a. nominal interest rates. b. real interest rates. c. the price level. d. the money supply.

c. the price level.

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then

c. the quantity of money supplied is greater than the quantity demanded; the price level will rise.

44. The Peapod Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital? a. the owner's knowledge of how to prepare vegetarian entrees b. the money in the owner's account at the bank from which she borrowed money c. the tables and chairs in the restaurant d. the land the restaurant was built on

c. the tables and chairs in the restaurant

Which of the following is considered human capital? a. the comfortable chair in your dorm room where you read economics texts b. the amount you get paid each week to work at the library c. the things you have learned this semester d. any capital goods that require a human to be present to operate

c. the things you have learned this semester

Refer to Figure 30-3. What quantity is measured along the vertical axis?

c. the value of money

11. If the price level last year was 180 and this year it is 176, then a. there was inflation of 2.3 percent. b. there was inflation of 4.0 percent. c. there was deflation of 2.2 percent. d. there was deflation of 4.0 percent.

c. there was deflation of 2.2 percent.

57. Which of the following is human capital? a. textbooks b. hand held power tools c. understanding how to repair cars d. All of the above are correct.

c. understanding how to repair cars

According to the principle of monetary neutrality, a decrease in the money supply will not change

c. unemployment.

When the consumer price index falls, the typical family

can spend fewer dollars to maintain the same standard of living

Over time, people have come to rely more on market-produced goods and services and less on goods and and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

caused measured GDP to rise

A binding price floor

causes a surplus and is set at a price above the equilibrium price

According to the quantity theory of money, a 3 percent increase in the money supply

causes the price level to rise by 3 percent.

The Fed can influence the money supply by

changing the interest rate it pays banks on the reserves they are holding, using open-market operation, or changing how much it lends to banks

The primary difference between commodity money and fiat money is that

commodity money has intrinsic value but fiat money does not.

Real GDP is the yearly production of final goods and services valued at

constant prices

You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs, and all your other inputs, and bake twice as many cookies. Your cookie production function has

constant returns to scale.

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude

consumer prices were always rising in the time frame represented on the graph.

In the calculation of the CPI, books are given greater weight than magazines if

consumers buy more books than magazines.

In an economy where net exports are zero, if saving rises in some period, then in that period

consumption falls and investment rises.

The ease with which an asset can be

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

Changes in the price of oil

created both inflation and recession in the United States in the 1970s.

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

credit risk

If inflation is higher than what was expected,

creditors receive a lower real interest rate than they had anticipated.

the GDP deflator reflects the

current level of prices relative to the level prices in the base year

how to calculate the inflation rate using CPI

current year- last year/last year x 100

If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is

cyclical unemployment amounting to 0.5 percent of the labor force.

A decrease in the price level causes real wealth to ... a. fall, interest rates to fall, and the dollar to appreciate b. fall, interest rates to rise, and the dollar to depreciate c. rise, interest rates to rise, and the dollar to appreciate d. rise, interest rates to fall, and the dollar to depreciate

d

As the price level rises ... a. people will want to buy more bonds, so the interest rate rises b. people will want to buy fewer bonds, so the interest rate falls c. people will want to buy more bonds, so the interest rate falls d. people will want to buyer fewer bonds, so the interest rate rises

d

Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is a. richer than Country B. If Country A adds another unit of capital, output will increase by more than 10 units. b. richer than Country B. If Country A adds another unit of capital, output will increase by less than 10 units. c. poorer than Country B. If Country A adds another unit of capital, output will increase by more than 10 units. d. poorer than Country B. If Country A adds another unit of capital, output will increase by less than 10 units.

d

During a recession the economy experiences ... a. rising employable and income b. rising employment and falling income c. rising income and falling employment d. falling employment and income

d

During recessions ... a. workers are laid off b. factories are idle c. firms may find they are unable to sell all they produce d. all of the above are correct

d

During recessions, declines in investment account for about ... a. 1/6 of the decline in real GDP b. 1/3 of the decline in real GDP c. 1/2 of the decline in real GDP d. 2/3 of the decline in real GDP

d

Educated people may generate ideas that increase production. These ideas a. produce a return to society from education that is greater than the return to the individual. b. could justify government subsides for education. c. are external benefits of education. d. All of the above are correct.

d

If a country increases its saving rate, which of the following permanently grow at a higher rate? a. productivity and real GDP per person b. productivity but not real GDP per person c. real GDP per person but not productivity d. neither real GDP per person nor productivity

d

In the U.S., each additional year of schooling has historically raised a person's wage on average by about a. 5 percent. In less developed countries the gap between the wages of educated and uneducated workers is smaller. b. 10 percent. In less developed countries the gap between the wages of educated and uneducated workers is smaller. c. 5 percent. In less developed countries the gap between the wages of educated and uneducated workers is larger. d. 10 percent. In less developed countries the gap between the wages of educated and uneducated workers is larger.

d

Other things the same, as the price level rises, the real value of money ... a. and the exchange rate rise b. and the exchange rate fall c. rises and the exchange rate falls d. falls and the exchange rate rises

d

Outward-oriented policies a. allow countries to take advantage of gains from trade. b. have generally led to high growth for the countries that pursued them. c. receive widespread support from economists. d. All of the above are correct.

d

Popeye produces 20 cans of spinach in 8 hours. Wimpy produces 15 hamburgers in 10 hours. If each hamburger trades for 1.5 cans of spinach, then a. Popeye's production and productivity are greater than Wimpy's. b. Popeye's production is greater than Wimpy's, but his productivity is less. c. Wimpy's production and productivity are greater than Popeye's. d. Wimpy's production is greater than Popeye's, but his productivity is less.

d

Proprietary technology is knowledge that is a. known but no longer used much. b. known, but only recently discovered. c. known mostly by only those in a certain profession. d. known only by the company that discovered it.

d

The average price level is measured by ... a. any real variable b. the rate of inflation c. the level of the money supply d. the CPI or the GDP deflator

d

The classical dichotomy refers to the separate of .. a. variables that move with the business cycle and variables that do not b. changes in money and changes in government expenditures c. decisions made by the public and decisions made by the government d. real and nominal variables

d

The model of aggregate demand and aggregate supply explains the relationship between ... a. the price and quantity of a particular good b. unemployment and output c. wages and unemployment d. real GDP and the price level

d

Which of the following best illustrates the human capital of a survivor stranded on an island? a. the fishing poles she has produced b. the invention of a better fishing lure c. the fresh fruit and fish on and around the island d. her previous training in a survival course

d

Which of the following is correct? a. economic fluctuations are easily predicted by competent economists. b. recessions have never occurred very close together c. other measures of spending, income, and production do not fluctuate closely with real GDP d. none of the above are correct

d

Which of the following is included in the aggregate demand for goods and services? a. consumption demand b. investment demand c. net exports d. all of the above are correct

d

which of the following explains why production rises in most years? a. increases in the labor force b. increases in the capital stock c. advances in technological knowledge d. all of the above are correct

d

​In order to promote growth in living standards, policymakers must a. protect property rights. b. maintain political stability. c. ​encourage the accumulation of factors of production. d. ​All of the above

d

14. Most economists believe that monetary neutrality provides a) A good description of both the long run and the short run. b) A good description of neither long run nor the short run. c) A good description of the short run, but not the long run. d) A good description of the long run, but not the short run.

d) A good description of the long run, but not the short run.

19. The costs of changing price tags and price listing are known as a) inflation-induced tax distortions. b) relative-price variability costs. c) shoeleather costs. d) menu costs.

d) menu costs.

Refer to Scenario 24-1. Grant Smith's 1944 income in 2005 dollars is about

d. $125,455.

Thomas Publishing has a share price of $30, retained earnings of $1 per share, and a dividend yield of 5%. What is its PE ratio?

d. 12

Refer to Table 24-2. Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What is the inflation rate for 2006 if the base year is 2005?

d. 36.11 percent

Being able to measure the behavior of the economy with statistics such as GDP

d. is a crucial step toward developing the science of macroeconomics.

Proprietary technology is technology that is

d. not widely used because it is known or controlled only by the company that discovered it.

Suppose that government expenditures on goods and services and net taxes both decrease, but that expenditures fall by more than net taxes. The effects of these changes on the budget deficit make

d. the interest rate fall and the equilibrium quantity of loanable funds rise.

It is claimed that a secondary advantage of mutual funds is that

d. they give ordinary people access to the skills of professional money managers.

The traditional view of the production process is that capital is subject to

diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

In 2009, Corny Company grows and sells $2 million worth of corn to Tasty Cereal Company, which makes corn flakes. Tasty Cereal Company produces $6 million worth of corn flakes in 2009, with sales to households during the year of $4.5 million. The unsold $1.5 million worth of corn flakes remains in Tasty Cereal Company's inventory at the end of 2009. The transactions just described contribute how much to GDP for 2009?

d. $6 million

37. Real Foods produced 400,000 cans of diced tomatoes in 2007 and 460,000 cans of diced tomatoes in 2008. They employed the same number of labor hours each year. Relative to their productivity in 2007, their productivity in 2008 was a. 6 percent lower. b. unchanged. c. 6 percent higher. d. 15 percent higher.

d. 15 percent higher.

22. In early 2008, the central bank of Zimbabwe announced the inflation rate in that country had reached a. 60 percent. b. 80 percent. c. 220 percent. d. 24,000 percent.

d. 24,000 percent.

8. If the price level increased from 120 to 130, then what was the inflation rate? a. 1.1 percent. b. 7.7 percent. c. 10.0 percent. d. 8.3 percent.

d. 8.3 percent.

21. Which country is correctly matched with its 2009 inflation rate? a. 9 percent inflation in the United States. b. 3.6 percent inflation in Russia. c. 59 percent inflation in Venezuela. d. 9.3 percent inflation in India

d. 9.3 percent inflation in India

1. The classical theory of inflation a. is also known as the quantity theory of money. b. was developed by some of the earliest economic thinkers. c. is used by most modern economists to explain the long-run determinants of the inflation rate. d. All of the above are correct.

d. All of the above are correct.

13. If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be regarded as the "overall price level." c. an increase in the value of money is associated with a decrease in P. d. All of the above are correct.

d. All of the above are correct.

33. Both Tom and Jerry work 10 hours a day. Tom can produce six baskets of goods per hour while Jerry can produce four baskets of the same goods per hour. It follows that Tom's a. productivity is greater than Jerry's. b. output is greater than Jerry's. c. standard of living is higher than Jerry's. d. All of the above are correct.

d. All of the above are correct.

42. Which of the following is a determinant of productivity? a. human capital per worker b. physical capital per worker c. natural resources per worker d. All of the above are correct.

d. All of the above are correct.

Which of the following is considered human capital? a. knowledge acquired from early childhood education programs b. knowledge acquired from grade school c. knowledge acquired from on-the-job training d. All of the above are correct.

d. All of the above are correct.

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

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

After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports. These purchases of goods and services are

d. Included in GDP since government expenditures on goods and services are included in GDP.

An American company operates a fast food restaurant in Paris, France. Which of the following statements is accurate?

d. The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP.

Natural Resources a. Are inputs provided by nature b. include land, rivers, and mineral deposits c. take two forms: renewable and nonrenewable d. all of the above are correct.

d. all of the above are correct.

16. When we assume that the supply of money is a variable that the central bank controls, we a. must then assume as well that the demand for money is not influenced by the value of money. b. must then assume as well that the price level is unrelated to the value of money. c. are ignoring the fact that, in the real world, households are also suppliers of money. d. are ignoring the complications introduced by the role of the banking system.

d. are ignoring the complications introduced by the role of the banking system.

13. Deflation a. increases incomes and enhances the ability of debtors to pay off their debts. b. increases incomes and reduces the ability of debtors to pay off their debts. c. decreases incomes and enhances the ability of debtors to pay off their debts. d. decreases incomes and reduces the ability of debtors to pay off their debts.

d. decreases incomes and reduces the ability of debtors to pay off their debts.

34. When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded decreases. d. decreases, so the quantity of money demanded increases.

d. decreases, so the quantity of money demanded increases.

53. A decrease in the money supply creates an excess a. supply of money that is eliminated by rising prices. b. supply of money that is eliminated by falling prices. c. demand for money that is eliminated by rising prices. d. demand for money that is eliminated by falling prices.

d. demand for money that is eliminated by falling prices.

Suppose that quantity demanded falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is: a. inelastic and equal to 0.17 b. inelastic and equal to 6 c. elastic and equal to 0.17 d. elastic and equal to 6

d. elastic and equal to 6

43. The inputs used to produce goods and services are also called a. productivity indicators. b. capitalization producers. c. production functions. d. factors of production.

d. factors of production.

12. Suppose an economy produces only ice cream cones. If the price level rises, the value of currency a. rises, because one unit of currency buys more ice cream cones. b. rises, because one unit of currency buys fewer ice cream cones. c. falls, because one unit of currency buys more ice cream cones. d. falls, because one unit of currency buys fewer ice cream cones.

d. falls, because one unit of currency buys fewer ice cream cones.

9. The value of money rises as the price level a. rises, because the number of dollars needed to buy a representative basket of goods rises. b. rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of dollars needed to buy a representative basket of goods rises. d. falls, because the number of dollars needed to buy a representative basket of goods falls.

d. falls, because the number of dollars needed to buy a representative basket of goods falls.

55. Which of the following best illustrates the human capital of a survivor stranded on an island? a. the fishing poles she has produced b. the invention of a better fishing lure c. the fresh fruit and fish on and around the island d. her previous training in a survival course

d. her previous training in a survival course

Consumer goods that are produced, go into inventory, and are not sold during the current period are

d. included in current period GDP as inventory investment.

When inflation rises, people

d. make more frequent trips to the bank and firms make more frequent price changes

73. When the money market is drawn with the value of money on the vertical axis, the price level increases if a. money demand shifts right and decreases if money supply shifts right. b. money demand shifts right and decreases if money supply shifts left. c. money demand shifts left and decreases if money supply shifts right. d. money demand shifts left and decreases if money supply shifts left.

d. money demand shifts left and decreases if money supply shifts left.

72. When the money market is drawn with the value of money on the vertical axis, the price level increases if a. either money demand or money supply shifts right. b. either money demand or money supply shifts left. c. money demand shifts right or money supply shifts left. d. money demand shifts left or money supply shifts right.

d. money demand shifts left or money supply shifts right.

76. When the money market is drawn with the value of money on the vertical axis, the value of money decreases if a. either money demand or money supply shifts right. b. either money demand or money supply shifts left. c. money demand shifts right or money supply shifts left. d. money demand shifts left or money supply shifts right.

d. money demand shifts left or money supply shifts right.

71. The price level rises if either a. money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a rise in the value of money. b. money demand shifts rightward or money supply shifts leftward; this rise in the price level is associated with a fall in the value of money. c. money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a rise in the value of money. d. money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

d. money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

39. When the money market is drawn with the value of money on the vertical axis, a. money demand slopes upward and money supply is horizontal. b. money demand slopes downward and money supply is horizontal. c. money demand slopes upward and money supply is vertical. d. money demand slopes downward and money supply is vertical.

d. money demand slopes downward and money supply is vertical.

Suppose that a country increased its saving rate. In the long run it would have

higher productivity, but another unit of capital would increase output by less than before

38. When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a a. shift to the right of the money demand curve. b. shift to the left of the money demand curve. c. movement to the left along the money demand curve. d. movement to the right along the money demand curve.

d. movement to the right along the money demand curve.

When the money market is drawn with the value of money on the vertical axis, an increase in the price level causes a

d. movement to the right along the money demand curve.

Consumption consists of spending by households on goods and services, with the exception of

d. purchases of new houses.

39. Dilbert's Incorporated produced 5,000,000 units of accounting software in 2004. At the start of 2005 the pointy-haired boss reduced total annual hours of employment from 10,000 to 8,000 and production was 4,800,000. These numbers indicate that productivity a. fell by 4%. b. fell by 20%. c. rose by 12%. d. rose by 20%.

d. rose by 20%.

62. When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve sells bonds, then the money supply curve a. shifts right, causing the price level to rise. b. shifts right, causing the price level to fall. c. shifts left, causing the price level to rise. d. shifts left, causing the price level to fall.

d. shifts left, causing the price level to fall.

If the government institutes policies that diminish incentives to save, then in the loanable funds market a. the supply of loanable funds shifts rightward. b. the demand for loanable funds shifts leftward. c. the demand for loanable funds shifts rightward. d. the supply of loanable funds shifts leftward.

d. the supply of loanable funds shifts leftward.

51. 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 a. and equilibrium quantity of money to increase. b. and equilibrium quantity of money to decrease. c. to increase, while the equilibrium quantity of money decreases. d. to decrease, while the equilibrium quantity of money increases.

d. to decrease, while the equilibrium quantity of money increases.

18. With the value of money on the vertical axis, the money supply curve is a. upward sloping because people supply a larger quantity of money when the value of money increases. b. downward sloping because people supply a larger quantity of money when the value of money decreases. c. horizontal because we assume the central bank controls the money supply d. vertical because we assume the central bank controls the money supply.

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

17. With the value of money on the vertical axis, the money supply curve is a. upward-sloping. b. downward-sloping. c. horizontal. d. vertical.

d. vertical.

Bolicia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

decreased interest rates and increased investment

Bolivia had a smaller budget deficit in 2003 than in 2002. Other Things the same, we could expect this reduction in the budget deficit to have

decreased interest rates and increased investment

Which of the following is included in both M1 and M2?

demand deposits, other checkable deposits, and currency

All else equal, when people become more optimistic about a company's future, the

demand for the stock and the price will both rise

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

demand the required funds by selling bonds

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.

Which of the following is a liability of a bank and an asset of its customers?

deposits of its customers but not loans to its customers

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

did not change if the inflation rate was 20 percent.

The traditional view of the production process is that capital is subject to

diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries

In the past there have been violent protests against the World Bank and the World Trade Organization. The protestors argued that these institutions promote free trade and also encourage corporations in rich countries to invest in poor countries. The protestors contended that these practices make rich countries richer and poor countries poorer. An economist would

disagree with the protestors because these practices will help make both rich and poor countries richer.

In the actual economy, households

divide their income among spending, taxes, and saving

A closed economy

does not engage in international trade of goods and services and does not engage in international borrowing or lending

The designation "natural" implies that the natural rate of unemployment

does not go away on its own even in the long run

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes

downward, because at higher prices people want to hold more money.

The consumption component of GDP includes spending on

durable goods, nondurable goods, and services.

If a firm sells a total of 100 shares of stoke, then...

each share represents ownership of 1% in the firm.

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's a. earnings. b. retained earnings. c. economic, or real, profit. d. dividend.

earnings.

If national saving in a closed economy is greater than zero, then

either public saving or private saving must be greater than zero, investment is positive, and Y-C-G>0

Because every transaction has a buyer and a seller,

every transaction contributes equally to an economy's income and to its expenditure.

If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

exactly one-third as much to GDP as does a dress.

Social Security payments are...

excluded from GDP because they do not reflect the economy's production.

Productivity

explains most of the differences in the standard of living across countries.

If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would

fall from 20 to 10

Other things the same, when the price level falls, interest rates

fall, so firms increase investment.

Other things the same, when the price level falls, interest rates

fall, which means consumers will want to spend more on home-building.

If people decide to hold more currency relative to deposits, the money supply a. falls. The Fed could lessen the impact of this by buying Treasury bonds. b. falls. The Fed could lessen the impact of this by selling Treasury bonds. c. rises. The Fed could lessen the impact of this by buying Treasury bonds. d. rises. The Fed could lessen the impact of the by selling Treasury bonds.

falls. The Fed could lessen the impact of this by buying Treasury bonds.

If it could increase its growth rates slightly, a country with low income would catch up with rich countries in about ten years.

false

International data on the history of real GDP growth rates shows that over the last 120 years or so, rich countries got richer and poor countries got poorer.

false

Productivity can be computed as the number of hours worked divided by output.

false

The inflation rate reported in the news is usually calculated from the GDP deflator rather than the consumer price index.

false

Other things equal, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

Between 1880 and 1896 the average level of prices in the U.S. economy.

fell 23 percent.

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

higher than he had expected, and the real value of the loan is higher than he had expected.

Which of the following items is counted in U.S. GDP?

final goods and services that are purchased by the U.S. federal government intermediate goods that are produced in the U.S. but which are unsold at the end of the GDP accounting period goods and services produced by foreign citizens working in the U.S. d. All of the above are included in U.S. GDP.

Institutions that help to match one person's saving with another person's investment are collectively called the

financial system

At any given time, the voting members of the Federal Open Market Committee include

five of the presidents of the regional Federal Reserve banks. the president of the Federal Reserve Bank of New York. the seven members of the Board of Governors

Suppose that an American opens and operates a candy factory in Finland. This is an example of

foreign direct investment. American saving is used to finance Finish investment

If a Japanese company opens a new factory in South Korea, it makes

foreign direct investment. The factory will make a bigger impact on South Korea's GDP than on its GNP

In recent decades Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in

foreign portfolio investment.

Government run employment agencies, public training programs, and the Internet help reduce _____ unemployment.

frictional

Minimum wage laws are not a cause of _______ unemployment.

frictional

Unemployment insurance does not help reduce ______ unemployment.

frictional

People who are unemployed because they are in search of a job that suits their skills are included within

frictional unemployment

Suppose that consumers decide to walk to work more frequently and drive cars less. Companies that make walking shoes hire workers, while automobile companies lay off workers. This is an example of

frictional unemployment created by sectoral shifts

People who are unemployed because of job search are best classified as

frictionally unemployed

Under a fractional-reserve banking system, banks

generally lend out a majority of the funds deposited

For any given year, the CPI is the price of the basket of goods and services in the

given year divided by the price of the basket in the base year, then multiplied by 100.

Productivity is defined as the quantity of

goods and services produced from each unit of labor input.

In the demand for loanable funds, investment but not _______ is included.

government borrowing

Countries that employ an inflation tax do so because

government expenditures are high and the government has inadequate tax collections and difficulty borrowing.

In the long run, inflation is caused by

governments that print too much money.

Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has

gradually decreased

During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4-year term in office. You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person

grew, but by less than 12 percent.

Which of the following measures how the level of well-being in a country has changed over time?

growth rate of real GDP per person.

The Board of governors

has 7 members

Cyclical unemployment

has a different explanation than does the natural rate of unemployment, refers to the year-to-year fluctuation in unemployment around an economy's natural rate of unemployment, and is closely associated with short-run ups and downs of economic activity.

Despite its status as one of the richest countries in the world, Japan

has few natural resources.

Despite its status as one of the richest countries in the world, Japan...

has few natural resources.

Which of the following best illustrates the human capital of a survivor stranded on an island

her previous training in a survival course

Other things the same, a country that increases its savings rate will have

higher future capital and higher future real GDP per person

Other things the same, a country that increases its savings rate will have...

higher future capital and higher future real GDP per person.

suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

higher interest rates and lower investment rates

Susan is a plant manager in charge of a factory in a relatively poor country. Even though market wages are low, she decides to raise the wages of her workers. Her decision

might increase profits if it means that the wage is high enough for her workers to eat a nutritious diet that makes them more productive.

A corporation's earnings are the amount of revenue it receives for the sale of its products

minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation.

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because

monetary neutrality would mean the prices should have risen, but production should not have changed.

The price level rises if either

money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the

money supply to fall. To reduce the impact of this the Fed could lower the discount rate.

Suppose banks decide to hold fewer excess reserves relative to deposits. Other things the same, this action will cause the a. money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. c. money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. d. money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.

money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds.

The quantity equation states that

money x velocity = price level x real output

The consumer price index is used to

monitor changes in the cost of living over time

The consumer price index is used to a. monitor changes in the level of wholesale prices in the economy. b. monitor changes in the cost of living over time. c. monitor changes in the level of real GDP over time. d. monitor changes in the stock market.

monitor changes in the cost of living over time.

The CPI is calculated

monthly

When a country saves a larger portion of its GDP than it did before, it will have

more capital and higher productivity

If the discount rate is lowered, banks borrow

more from the Fed so reserves increase

An increase in capital will increase real GNP per person

more in a poor country than in a rich one. The increase in real GNP per person will be larger if the addition to capital is from domestic rather than foreign investment.

Compared to short-term bonds, other things the same, long-term bonds generally have

more risk and so they pay higher interest rates

When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by

more than $1000.

Real GDP

moves in the opposite direction as unemployment.

People who buy stock in a corporation such as General Electric become

part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits

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.

the inputs into production of goods and services that are provided by nature, such as land, rivers, and minerals deposits are called

natural resources

The First Bank of Roswell Assets: Reserves $30,000, Loans 170,000 Liabilities: Deposits $200,000 If the bank faces a reserve requirement of 20 percent, then it

needs $10,000 more reserves to meet its reserve requirements.

The slope of the demand for loanable funds curve represents the

negative relation between the real interest rate and investment

A country with a relatively low level of real GDP per person is considering adopting two policies to promote economic growth. The first is to decrease barriers to trade. The second is to restrict foreign portfolio investment. Which of these policies do most economists say promote growth?

neither the first nor the second

If a price floor is not binding, then there will be ___________ on the market price or quantity sold.

no effect

Suppose an economy's production consists only of corn and soybeans. In 2010, 20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base year, it follows that, for 2010, nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

The GDP deflator is the ratio of

nominal GDP to real GDP multiplied by 100.

According to the assumptions of the quantity theory of money, if the money supply decreases by 7 percent, then

nominal GDP would fall by 7 percent; real GDP would be unchanged.

If your firm's production function has constant returns to scale, and if you double all your inputs, then your firm's productivity will

not change.

Those waiting to be recalled to a job from which they had been laid off are ____ the employed category.

not in

The basket of goods in the consumer price index changes

occasionally, whereas the group of goods used to compute the GDP deflator changes automatically

Baseball players in 1931 earned 80,000, now they earn about 400 times that, we can conclude that

once cannot determine whether baseball stars today enjoy a higher standard of living than baseball players back then due to the lack of info on increase price

Changes in the GDP deflator reflect

only changes in prices.

Changes in real GDP reflect

only changes in the amounts being produced.

Changes in real GDP reflect...

only changes in the amounts being produced.

The BLS counts discouraged workers as

out of the labor force. If they were counted as unemployed the unemployment rate would be higher.

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

output in country A increases by less than in country B.

By not taking into account the possibility of consumer substitution, the CPI

overstates the cost of living.

A high price-earnings ratio for a stock indicates that either the stock is...

overvalued or people are relatively optimistic about the corporation's prospects.

58. In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by a. selling bonds on the open market, which would have raised the value of money. b. purchasing bonds on the open market, which would have raised the value of money. c. selling bonds on the open market, which would have raised the value of money. d. purchasing bonds on the open market, which would have lowered the value of money

purchasing bonds on the open market, which would have lowered the value of money

More generous unemployment insurance would

raise frictional unemployment

A rapid increase in the number of workers, other things the same, is likely in the short term to

raise real GDP, but decrease real GDP per person.

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

raise the demand for existing shares of the stock, causing the price to rise.

Labor unions

raise wages in unionized industries

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

raises GDP.

A larger budget deficit

raises the interest rate and reduces investment

In the long run, an increase in the saving rate

raises the levels of both productivity and income.

The model of aggregate demand and aggregate supply explains the relationship between

real GDP and price level.

A recession has traditionally been defined as a period during which

real GDP declines for two consecutive quarters.

A nation's standard of living is best measured by its

real GDP per person.

Suppose the economy is in long-run equilibrium. If there is an increase in the supply of labor as well as an increase in the money supply, then we would expect that in the short-run,

real GDP will rise and the price level might rise, fall, or stay the same.

Refer to Figure 33-1. Line A is

real GDP.

Which of the following is most commonly used to monitor short-run changes in economic activity?

real GDP.

A country reported a nominal GDP of $85 billion in 2010 and $100 billion in 2009. It also reported a GDP deflator of 100 in 2010 and 105 in 2009. Between 2009 and 2010,

real output and the price level both fell.

A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 105 in 2009. Between 2009 and 2010,

real output fell and the price level rose.

According to the classical dichotomy, which of the following is not influenced by monetary factors?

real wages and real GDP

If Congress increases taxes to balance the federal budget, then to prevent unemployment and a recession the Fed will

reduce interest rates by increasing the money supply.

Other things the same, a government budget deficit

reduces both public and national saving

Other things the same, higher population growth

reduces the amount of physical capital per worker, but there is some evidence that it raises the pace of technological progress.

A larger budget surplus

reduces the interest rate and raises investment

A larger budget surplus...

reduces the interest rate and raises investment.

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

relative prices

Accumulating capital

requires that society sacrifice consumption goods in the present.

In a fractional-reserve banking system with no excess reserves and no currency holdings, if the central bank buys $100 million worth of bonds, a. reserves and the money supply increase by less than $100 million. b. reserves increase by $100 million and the money supply increases by $100 million. c. reserves increase by $100 million and the money supply increases by more than $100 million. d. both reserves and the money supply increase by more than $100 million.

reserves increase by $100 million and the money supply increases by more than $100 million.

When the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

right, raising the price level.

If Congress instituted an investment tax credit, the interest rate would

rise and saving would rise

Other things the same, an increase in taxes with no change in government purchases makes national saving

rise. The supply of loanable funds shifts right

If the quality of a good improves while its price remains the same, then the value of a dollar

rises and the cost of living decreases

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises.

If people decide to hold less currency relative to deposits, the money supply

rises. The Fed could lessen the impact of this by selling Treasury bonds.

A bond buyer is a

saver. Long term bonds have more risk than short term bonds.

The source of the supply of loanable funds is

saving, and the source of the demand for loanable funds is investment

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

sell bonds

When a large, well known corporation wishes to borrow directly from the public, it can

sell bonds

To decrease the money supply, the Fed can

sell government bonds or increase the discount rate.

Suppose that, because of inflation, people in Brazil economize on currency and go to the bank each day to withdraw their daily currency needs. This is an example of

shoeleather costs.

Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Refer to Pessimism. In the long run, the change in price expectations created by pessimism shifts

short-run aggregate supply right.

A decrease in the money supply might indicate that the Fed had

sold bonds in an attempt to increase the federal funds rate.

Job search is not an explanation for the existence of _____ unemployment.

sructural

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

store of value

A U.S. Treasury bond is a a. store of value and common medium of exchange. b. store of value, but not a common medium of exchange. c. a common medium of exchange, but not a store of value. d. neither a store of value nor a common medium of exchange.

store of value, but not a common medium of exchange.

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______.

store of value, unit of account, medium of exchange

Unions contribute to

structural unemployment

one problem with CPI is that people tend to buy larger quantities of less expensive items and smaller quantities of more expensive items, this is called the

substitution bias

Price changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

substitution bias.

The substitution bias in the consumer price index refers to the

substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.

Other things being constant, when a firm sells new shares of stock, the

supply of the stock increases and the price decreases.

Other things the same, when a firm sells new shares of stock, the...

supply of the stock increases and the price decreases.

When a minimum wage law forces the wage to remain above the level that balances supply and demand the result is

surplus of labor and a shortage of jobs

Minimum wages create unemployment in markets where they create a

surplus of labor. Minimum wage laws are not the predominant reason for unemployment in the US

In calculating the CPI a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

surveying consumers

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by

surveying consumers.

In a closed economy, public saving is the amount of

tax revenue that the government has left after paying for its spending

An understanding of the best ways to produce goods and services is called

technology.

The ratio of debt to GDP in the US

tends to rise during wars, rose during the decade that began in 2001, and fell during the late 1990s

Net exports must equal zero for any economy

that is closed, for which Y=C+I+G, and for which S=Y-C-G

Debt finance is associated with...

the BOND market, equity finance is associated with the STOCK market.

The CPI is more commonly used as a gauge of inflation than GDP deflator because,

the CPI better reflects the goods and services bought by consumers

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers

Social Security payments are indexed for inflation using

the CPI.

The supply of money is determined by

the Federal Reserve System.

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index.

a decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not the consumer price index

One of the differences between the GDP deflator and the consumer price index is

the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.

A professor at a university finds a way to reduce the costs of producing automobile glass. The method is very easy for anyone to copy. A company develops a substance which prevents eyeglasses from smudging. It receives a patent on the formula. Which of these are common technological knowledge?

the method to reduce costs of producing automobile glass, but not the formula for the substance that prevents smudging

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.

When the Fed buys government bonds,

the money supply increases and the federal funds rate decreases.

Money is

the most liquid asset but an imperfect store of value.

The Fisher effect is crucial for understanding changes over time in

the nominal interest rate.

National saving

the portion of national income that is not used for consumption or purchases. Equation: S = Y- C - G

Money demand depends on

the price level and the interest rate.

The aggregate demand and aggregate supply graph has

the price level on the vertical axis. The price level can be measured by the GDP deflator.

The data on hyperinflation show a clear link between the quantity of money and

the price level.

A nation's standard of living is determined by

the productivity of its workers.

In macro language, investment refers to...

the purchase of new capital.

In the language of macroeconomics, investment refers to a. saving. b. the purchase of new capital. c. the purchase of stocks, bonds, or mutual funds. d. All of the above are correct.

the purchase of new capital.

When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________.

the quantity demanded of financial capital at any given interest rate will shift to the right.

A decrease in government spending and the enactment of an investment tax credit would definitely cause

the quantity of loanable funds traded to increase.

If there is a surplus of loanable funds, then

the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Other things the same, a decrease in velocity means that

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

An example of a real variable is

the ratio of the value of wages to the price of soda.

The inflation tax refers to

the revenue a government creates by printing money.

A policy that induces people to save more shifts

the supply of loanable funds and reduces interest rates.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living

If the best educated and most skilled persons leave a country, then in the short term this country's human capital per worker

will decrease but physical capital per worker will increase

Other things the same, an increase in the interest rate

would decrease the quantity of loanable funds demanded.

On average, over the last 50 years, real GDP has grown by about ​

​3 percent per year.