FInal Exam 3, Econ 1040 final exam Ohio University

A monetary stimulus is designed to shift the

AD curve to the right

Higher unemployment and higher inflation rates will most likely occur with

a rightward shift of the phillips curve

Refer to Figure 4-4. The movement from point A to point B on the graph is called

an increase in the quantity supplied.

fiscal policy includes all of the following except

interest rate increases

Refer to Table 23-1. Gross national product for Mindalion in 2019 is

$202.

Refer to Figure 4-7. Equilibrium price and quantity are, respectively,

$25 and 500 units

If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then the real interest rate is

4 percent.

monetarists believe that an increase in the money supply shifts the aggregate

Demand curve to the right

Which of the following is not correct?

The unemployment rate occasionally falls to zero.

Which of the following statements is correct?

When a corporation sells bonds to raise funds, it is engaging in debt finance.

When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as

a unit of account.

Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are

an inferior good.

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.

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, the price level increases if money demand shifts

left and decreases if money supply shifts left.

which of the following represents the lending capacity of an individual bank

total reserves-required reserves

The consumer price index is used to

turn dollar figures into meaningful measures of purchasing power.

Kamila is on temporary layoff. The Bureau of Labor Statistics counts Kamila as

unemployed and in the labor force.

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

$10,000 of money.

Ella Holloway was an accountant in 1943 and earned $18,000 that year. Her son is an accountant too and he earned $290,000 this year. Suppose the price index was 18.7 in 1943 and 21.1 in the current year. Refer to Scenario 24-1. Ella's son current year income in 1944 dollars is

$257,014.

Nate collected Social Security payments of $220 a month in Year 1. If the price index rose from 90 to 108 between Year 1 and Year 2, then his Social Security payments for Year 2 should have been

$264.

Refer to Table 26-1. The quantity of loanable funds demanded is

$3.5 trillion.

The Monetary Policy of Jaune is controlled by the country's central bank known as the Bank of Jaune. The local unit of currency is the Jaunian dollar. Aggregate banking statistics show that collectively the banks of Jaune hold $220 million of required reserves, $55 million of excess reserves, have issued $5,500 million of deposits, and hold $440 million of Jaunian Treasury bonds. Jaunians prefer to use only demand deposits and so all money is on deposit at the bank. Refer to Scenario 29-1. Assuming the only other thing Jaunian banks have on their balance sheets is loans, what is the value of existing loans made by Jaunian banks?

$5,225 million

Refer to Table 24-1. If Year 1 is the base year, then the inflation rate in Year 2 was

-8.67 percent.

Refer to Table 28-2. Suppose that the natural rate of unemployment is 5% for those under 55 and 3% for those 55 and older. The cyclical unemployment rate for those under 55 is

0.88%, which is less than the cyclical unemployment rate for those 55 and older.

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

1 and banks do not create money.

Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS 1 ; also suppose the economy's real GDP is 30,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately

12.0.

Refer to Table 29-4. Assume there is a reserve requirement and the Bank of Smileville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier?

12.5

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

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

Refer to Figure 4-5. If these are the only two sellers in the market, then the market quantity supplied at a price of $6 is

21 units

If the consumer price index was 100 in the base year and 103 in the following year, then the inflation rate was

3 percent.

Refer to Table 28-3. What is the U-4 measure of labor underutilization?

6.9%

Refer to Table 28-3. What is the U-5 measure of labor underutilization?

7.9%

Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save less?

A movement from Point F to Point C

tariffs and quotas on imported goods shift the

AS curve to the left

Violett quit her job because she was unhappy at work. Alexandra was laid off from her landscaping job because her company was downsizing. Who is eligible for unemployment insurance benefits?

Alexandra but not Violett

Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed"?

Anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off

Which of the following demonstrates human capital and physical capital in that order?

For a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen

Which of the following countries has had the greatest growth rate of real GDP per person within the last 10 years?

Germany

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

Gross domestic product

Refer to Figure 26-1. Which of the following events would shift the supply curve from S 1 to S 2?

In response to tax reform, households are encouraged to save more than they previously saved.

which if the following is true about stagflation

It can be correct by polices that increase aggregate supply

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

It has $40,000 in deposits.

the equation of exchange can be stated as

MV=PQ

an aggregate supply curve that is always vertical is most consistent with which of the following views of the economy

Monetarist

Which of the following is included in M2?

Money market mutual funds

if a lender desires to earn a real return of 3 percent on a loan and the anticipated rate of inflation is 2 percent, the lender should charge a

Nominal interest rate

Octavia is a stay-at-home parent who has not searched for work in recent years. Michael does not currently have a job, but has applied for several jobs in the previous week. Who does the Bureau of Labor Statistics count as "not in the labor force"?

Octavia but not Michael

Joe and Bob purchase avocados at a grocery store, but Bob also grows avocados in his backyard. Regarding these two practices, which of the following statements is correct?

Only Joe's and Bob's grocery store purchases are included in GDP.

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?

Public saving

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages?

Quantity will fall, and the effect on price is ambiguous.

Which of the following is included in M2 but not in M1?

Small time deposits

On a given morning, Franco sold 40 pairs of shoes for a total of $800 at his shoe store.

The $800 is a nominal variable. The quantity of shoes is a real variable.

Which of the following statements is correct?

The CPI can be used to compare dollar figures from different points in time.

Suppose private saving in a closed economy is $21b and investment is $8b.

The government budget deficit must equal $13b.

Out of the following economic statistics, which is the best measure of economic prosperity?

The level of real GDP

Which headline is more closely related to a microeconomics study than to a macroeconomics one?

The price of gasoline rises due to rising oil prices.

Which of the following is not held constant in a supply schedule?

The price of the good

Which of the following is included in the calculation of GDP?

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation.

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

The supply of loanable funds shifted rightward.

Refer to Table 4-5. If the four suppliers listed are the only suppliers in this market and the market quantity demanded is 390 cases when the price is $2.00, which of the following statements is correct?

There is a shortage of 90 cases at a price of $2.00.

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.

Which of the following is the correct formula for calculating the consumer price index?

[(price of basket of goods and services in current year/price of basket in base year)]× 100

which of the is a monetary policy action to eliminate a recession

a decrease in the discount

if the data collected by policy makers overstate inflation, this is an example of

a measurement problem

an increase in the misery index would definitely result from

a movement along the phillips curve toward greater unemployment

According to Keynesians, fiscal policy affects

aggregate spending, real output, and real interest rates, with possible effects on prices and nominal interest rates

a rightward shift in aggregate demand will cause an increase in output and price level if aggregate supply is Upward-shifting to the right

aggregate supply is upward shifting to the right

When we move along a given supply curve,

all nonprice determinants of supply are held constant.

which of the following shifts, ceteris paribus, will cause lower rates of both unemployment an inflation

an increase in aggregate demand

which of the following characterizes stagflation

an increase in both unemployment and inflation

when the money market is in equilibrium in the liquidity trap

an increase in the money supply does in affect interest rates

If an unemployed person quits looking for work, then, eventually the unemployment rate

and the labor-force participation rate both decrease.

GDP per person tells us the income and expenditure of the

average person in the economy.

If the Apple corporation sells a bond it is

borrowing directly from the public.

If a seller in a competitive market chooses to charge more than the going price, then

buyers will make purchases from other sellers.

When the consumer price index falls, the typical family

can spend fewer dollars to maintain the same standard of living.

A likely example of complementary goods for most people would be

coffee and sugar.

Real GDP is the yearly production of final goods and services valued at

constant prices.

The line that relates the price of a good and the quantity supplied of that good is called the supply

curve, and it usually slopes upward.

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

decrease by $20 million and the money supply eventually decreases by $400 million.

the idea that no one knows for certain the shape of the aggregate supply curve contributes to

design problems

If total spending rises from one year to the next, then

either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy

exactly equals the quantity that sellers are willing and able to sell.

A statistical discrepancy

exists because data sources are not perfect, so measures of expenditures and income are not equal.

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

fall and remain lower for a long time.

which of the following concepts does not represent basic trade-offs faced

fine-tuning

Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has

gradually decreased.

In the early 1900s, Henry Ford introduced a

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

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.

Index funds typically have a

higher rate of return and lower costs than managed mutual funds.

Shoeleather costs arise when higher inflation rates induce people to

hold less money.

Disposable personal income is the income that

households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

In the simple circular-flow diagram, with households and firms, GDP can be computed as the

income received by households, in the form of wages, rent and profit.

if the fed buys 25 billion of US bonds in the open market and the reserve requirement is 20 percent, M1 will eventually

increase by 125 billion

which of the following is a Keynesian approach for dealing with a recession

increase government expenditure

which of the following is a supply-side policy action to eliminate a recession

increased investment in infrastructure

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

increases by $220.

All else equal, if there are diminishing returns, then

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

An increase in the minimum wage above the equilibrium wage

increases structural unemployment.

when the fed buys bonds from the public, it

increases the flow of reserves to the banking system

Other things the same, if reserve requirements are increased, the reserve ratio

increases, the money multiplier decreases, and the money supply decreases.

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

introduction of new goods.

Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank

is in a position to make new loans equal to a maximum of $18,000.

When the fed raises the discount rate, all of the following results except

it expands the lending capacity of the banking

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

lend support to the invisible hand by maintaining property rights and political stability.

if the fed wished to increase the money supply, it could

lower the discount rate

in order to increase the money supply the fed can

lower the reserve requirement, increase the discount rate, or buy bonds.

Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the

market supply curve

the speculative transactions and precautionary demands for money added together give the

market supply curve for money

which of the following groups believes monetary policy to be effective for fighting inflation but not for changing real output

monetarists

currency held by the public, balances in transaction accounts, plus balances in most savings accounts and money market mutual funds are the

money supply (M1)

When the government's budget deficit increases the government is borrowing

more and public savings falls.

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

more reserves, so the reserve ratio will rise.

The labor force equals the

number of people employed plus the number of people unemployed.

Inflation can be measured by the

percentage change in the consumer price index.

suppose the banks in the federal reserve system have 200 billion in transactions accounts, the required reserve ratio is 0.15, and there are no excess reserves in the systems. if the required reserve ratio is changed to 0.10, the amount of excess reserves would be

positive 10 billion

according to supply-side theorists, a decrease in marginal tax rates will provide incentive to

produce more

If real GDP doubles and the GDP deflator doubles, then nominal GDP

quadruples.

which of the following is the appropriate order of policy responses

recognition, response design, implementation

the fed can change the equilibrium rate of interest by changing

reserve requirements or the discount rate, or through open market operations

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then the price level would

rise, so the value of money would fall.

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

selling bonds. This selling would reduce the money supply.

At a price of $15, there would be a

shortage of 400 units

money held to take advantage of future financial opportunities is the

speculative demand for money

Refer to Figure 30-1. If the money supply is MS 2 and the value of money is 5, then the quantity of money

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

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

supply of money increases, the value of money falls, and prices rise.

Other things being constant, when a firm sells new shares of stock, the

supply of the stock increases and the price decreases.

If the price were $4, a

surplus of 25 units would exist, and price would tend to fall.

Minimum wages create unemployment in markets where they create a

surplus of labor. Unemployment of this type is called structural.

which of the following is both a supply-side and a fiscal policy tool during a recession

tax cuts

Which of the following is an example of supply-side policy

tax incentives for business investment

all of the following are tools available to the fed for controlling the money supply except

taxes

The economy's two most important financial markets are

the bond market and the stock market.

Suppose that in 2018, 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 something happens to alter the quantity demanded at any given price, then

the demand curve shifts.

according to the hybrid, or consensus, view of aggregate supply, the chance for an aggregate demand increase to cause inflation accelerates as

the economy moves towards capacity

assume the aggregate supply curve is horizontal and the economy is experiencing a recession. Which of the following is most likely to occur if the fed pursues expansionary monetary policy

the equilibrium output will increase but the price level will stay the same until full employment is reached

assuming the aggregate supply curve is upward sloping, which of the following is most likely to occur i the fed pursues restrictive monetary policy

the equilibrium price level and output will both decrease

Which of the following provides evidence that the federal reserve system is actually politically insulated

the fed governors are appointed for 14-year term and cannot be reappointed

Refer to Table 24-4. Suppose Will's Year 1 food expenditures in Year 3 dollars amounted to $7,140. Suppose also that the real interest rate in Year 3 was 8 percent. Then, in Year 3,

the inflation rate was 37 percent and the nominal interest rate was 45 percent.

if the fed's objective is to stimulate the economy, which of the following gives the correct sequence of events?

the money supply increases, interest rates decrease, investments increase, and AD increases

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing.

Which of the following will help to prevent bank runs?

100% reserve banking

Which of the following best represents fiat money?

The euro

Refer to Figure 4-9. All else equal, an increase in the use of laptop computers for note-taking would cause a move from

y to x

Refer to Table 23-3. What was the growth rate of real GDP for 1930?

−8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.

If velocity = 8, the quantity of money = 2,300, and the price level = 2.25, then the real value of output is approximately

$8,178.

Refer to Table 29-2. What is the M2 money supply in Florencial?

$880 billion

if the annual interest rate printed on the face of a bond is 12 percent, the face value of the bond is 1,000, and the current market price of the bond is 1200, what is the current yield on the bond

10%

if the annual interest rate printed on the face of a bond is 12%, the face value of the bond is 1,000, and the current market price of the bond is 1,200, what is the current yield on the bond?

10%

Suppose all of the banks in the federal reserve system have 100 billion in transactions accounts, the required reserve ratio is 0.25, and there are no excess reserves in the system . if the required reserve ratio is changed to 0.20 the total lending capacity of the system is increased by

25 billion

If the law of demand applies to this good, then Q1 could be

40

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

An above-equilibrium wage paid by a firm to reduce turnover costs

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Atlas' sound finances but not the long term of the bond.

Which of the following counts as part of the supply of loanable funds?

Bank deposits and purchases of bonds

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.

A tax cut can be characterized as

Both fiscal and supply-side policy

Which of the following provide benefits to society at large and not just to the person(s) who pursues it?

Both technological knowledge that is a public good and education

Country K had a population of 1,400, of whom 350 worked an average of 8 hours a day and had a productivity of 44. Country L had a population of 2,500, of whom 1,250 worked 6 hours a day and had productivity of 41.

Country L had the higher level of real GDP and real GDP per person.

Refer to Figure 26-1. What is measured along the vertical axis of the graph?

The interest rate

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

an inward-oriented, which most economists believe has adverse effects on the economy.

If an economy's GDP rises, then it must be the case that the economy's

income and the market value of all production both rise.

infinite number of spending cycles is the

multiplier

If the reserve requirement is 7 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $200, it

must increase required reserves by $14.

Refer to Table 24-2. The inflation rate was

negative in Year 2 and negative in Year 3.

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

which of the following is the principal mechanism used by the federal reserve to directly alter the reserves of the banking system?

open market operations

Given a vertical aggregate supply curve, which of the following is most likely to occur if the fed pursues restrictive monetary policy?

the equilibrium price level will decrease but output will stay the same

Refer to Figure 30-1. When the money supply curve shifts from MS 1 to MS 2,

the equilibrium value of money decreases.