Econ Test 2
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?
$1.5 trillion and $2.5 trillion, respectively
A double coincidence of wants
. is required when there is no item in an economy that is widely accepted in exchange for goods and services. b. is required in an economy that relies on barter. c. is a hindrance to the allocation of resources when it is required for trade.
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?
100
If the reserve ratio is 5 percent, then $600 of additional reserves can create up to
12,000 of new monwy
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. Refer to Scenario 26-1. For this economy, investment amounts
15,000
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. Refer to Scenario 26-1. For this economy, private saving amounts to
18,000
Based on the quantity equation, if M = 100, V = 3, and Y = 150, then P =
2
Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =
2,250
Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =
4.5
In 2016 the Bureau of Labor Statistics reported that there were 23.5 million people over age 25 who had no high school degree or its equivalent. Of these 9.7 million were employed and .75 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group?
44.5% and 7.2 %
If the reserve ratio is 4 percent, then the money multiplier is
25
The existence of money
makes trade easier
not a cause of frictional unemployment?
minimum-way laws
Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by
borrowing money from a friend. selling shares of future profits. using his own savings.
Bob is looking for work after school, but everywhere he fills out an application, the managers say they always have a lot more applications than open positions. Tom has a law degree. Several firms have made him offers, but he thinks he might be able to find a firm where his talents could be put to better use.
Bob is structurally unemployed, and Tom is frictionally unemployed
Measuring unemployment is the job of the
Bureau of Labor Statistics
a Closed Economy
Des not trade with other economies
Which of the following events would shift the supply curve from S1 to S2?
In response to tax reform, households are encouraged to save more than they previously saved
A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.
It has $800 in reserves and $9,200 in loans
Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?
The tax code is reformed to encourage greater investment.
All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?
U.S. paper money is fiat money
The "yardstick" people use to post prices and record debts is called
a unit of account
Which of the following is a function of money?
a unit of account b. a store of value c. medium of exchange
The natural rate of unemployment is the
amount of unemployment that the economy normally experiences
Bank runs
are a problem because banks only hold a fraction of deposits as reserves
The federal funds rate is the interest rate that
banks charge one another for loans
The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money
being a medium of exchange
The natural unemployment rate includes
both frictional and structural unemployment
would likely make the interest rate on a bond higher than otherwise?
both high credit risk and a long term
The value of money falls. This might be because the Federal Reserve
bought bonds, which increased the money supply
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. Refer to Scenario 26-1. This economy's government is running a
budget deficit of 3,000
As real interest rates fall, firms desire to
buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase the money supply
Public Policy
can reduce both frictional unemployment and the natural rate of unemployment.
Stock represents
claim to a share of the profits of a firm. ownership in a firm. equity finance
The ease with which an asset can be
converted into the economy's medium of exchange determines the liquidity of that asset.
If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve
creates dollars and uses them to purchase government bonds from the public
The deviation of unemployment from its natural rate is called
cyclical unemplyment
An open-market sale
decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.
The classical dichotomy refers to the idea that the supply of money
determines nominal variables, but not real variables.
The interest rate that the Fed charges banks that borrow reserves from it is the
discount rate
According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also
either a rise in output or a fall in velocity
Financial Intermediaries
financial institutions through which savers can indirectly provide funds to borrowers.
Institutions that help to match one person's saving with another person's investment are collectively called the
financial system
Relative-price variability is "automatic" when
firms change prices only once in a while.
Wages set above the equilibrium wage by
firms to increase productivity are called efficiency wages
Most economists believe that monetary neutrality provides
good description of the long run, but not the short run.
Efficiency-wage theory suggests that paying
high wages might be profitable because they raise the efficiency of a firm's workers
The money supply decreases if
households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans
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
Efficiency wages
increase productivity but increase unemployment
An open-market purchase
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public
INflation tax
is an alternative to income taxes and government borrowing. b. taxes most those who hold the most money. c. is the revenue created when the government prints money.
Money is the most liquid asset available because
it is a medium of exchange
Wealth is redistributed from creditors to debtors when inflation was expected to be
low and it turns out to be high
A central bank's setting (or altering) of the money supply is known as
monetary policy
Commodity money is
money with intrinsic value
Anna recently graduated from college with a degree in electrical engineering, but she has not yet started working. To be counted as "unemployed" she
must have looked for work no more than four weeks ago
Amy is working part-time. Tavaris is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category
only Amy
The most common method employed by the Fed to increase the money supply is the
ourchase of us government bonds
The Bureau of Labor Statistics counts discouraged workers as
out of the labor force. If they were counted as unemployed the unemployment rate would be higher
A larger budgetsurplus
reduces the interest rate and investment
Relative-price variability
rises with inflation, leading to a misallocation of resources
Bond buyer
saver. Long term bonds have more risk than short term bonds
If the Federal Open Market Committee decides to decrease the money supply, it will
sell government bonds
People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as
shoeleather cost
Given U.S. tax laws, persistently high inflation may result in
slower economic growth because the after-tax real interest rate is lower.
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
Hyperinflation can be explained by
the quantity theory of money
Economists use the term "money" to refer to
those types of wealth that are regularly accepted by sellers in exchange for goods and services
Derrick loses his job, but does not look for work. Which of the following are consequences of this change in Derrick's status?
unemployment is unchanged and the labor force falls
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 associate professor of physics gets a $200 a month raise. She figures that with her new monthly salary she can buy more goods and services than she could buy last year.
Her real and nominal salary have risen
In a closed economy, what does (T - G) represent
Public Saving