macro 3

If the required reserve ratio is 10 percent, a new deposit of $1,000 can generate _____ of money.

$10,000

Suppose private saving in a closed economy is $12b and investment is $10b.

The government budget deficit must equal $2b.

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.

The ease with which an asset can be ...

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

Which of the following is not part of the money supply?

credit card balances.

Currently, U.S. currency is ...

fiat money with no intrinsic value

When a country saves a larger portion of its GDP than it did before, it will have ...

more capital and higher productivity.

If an economy is closed and it has no government, then ...

national saving = private saving.

When the government goes from running a balanced budget to running a budget surplus,

national saving increases, the interest rate falls, and the economy's longrun growth rate is likely to increase.

International trade ...

raises the standard of living in all trading countries.

The best measure of a country's standard of living is

real GDP per person.

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 units while output in country B increases by 15 units. Other things the same, diminishing returns implies that country A is ...

richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.

Long-run economic growth has been mostly dependent on

rising productivity.

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 million merits, and investment of $100 million merits. What were its consumption and government expenditures on goods and services?

$390 million merits and $110 million merits

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is ...

1 and banks do not create money.

The president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many of these measures will have a positive effect on growth?

2

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

If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita?

4.7%

To raise productivity, policymakers could ...

All of the above are correct.

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is ...

B) $1,800.

According to the loanable funds model, which of the following events would result in lower interest rates and lower saving?

Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories.

Which of the following is one of the most important benefits of money in an economy?

Money makes exchange easier, leading to more specialization and higher productivity.

Which of the following is not correct?

Purchases of capital goods are excluded from GDP.

Which of the following statements is correct?

Technological knowledge is a determinant of productivity.

If real GDP is growing at 3% a year while the population is growing at 2% a year, what is true about this economy?

The standard of living is rising.

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money ...

being a medium of exchange.

According to the quantity theory of money, holding everything else constant, a 3 percent increase in the money supply ...

causes the price level to rise by 3 percent.

Monetary neutrality means that a change in the money supply ...

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

If there are diminishing returns to capital, then ...

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

Crowding out occurs when ...

investment declines because a budget deficit makes interest rates rise.

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, ...

investment is $6 billion and consumption is $6 billion.

The source of the demand for loanable funds is ...

investment, and the source of the supply of loanable funds is saving.

When a society decides to increase its capital stock, the society ...

is in effect deciding to consume fewer goods and services in the present.

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 slope of the demand of loanable funds is based on the logic that an increase in interest rates ...

makes investment less attractive.

The ________ the reserve ratio, the ________ the money multiplier.

smaller; larger

The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals ...

the growth rate of real GDP.

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently, ...

the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of ...

the real interest rate.

A person's wealth is ...

the value of all assets minus all liabilities.

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.

Economists use the term "money" to refer to ...

those types of assets that people regularly use to buy goods and services