MACRO 3
Which of the following plays a role in new growth theory?
many people can use discoveries at the same time, and physical activities can be replicated
The central bank of the United States is ______.
the bank that provides services to commercial banks and governments and that regulates the banking system
One of the Fed's policy tools is ______.
the discount rate, which is the interest rate at which the Fed stands ready to lend reserves to commercial banks
The central novel proposition of new growth theory is that ______ experience diminishing returns.
the economy does not
Diminishing returns do not limit growth in new growth theory because ______.
many people can use discoveries at the same time
The money multiplier can also be calculated as ______, where C/D is the currency drain ratio and R/D is the desired reserve ratio.
(1 + C/D)divided by÷(R/D+ C/D)
Sally has a credit card balance of $2 comma 0002,000. The credit card company charges a nominal interest rate of 1919 percent a year on unpaid balances. The inflation rate is 88 percent a year. Calculate the real interest rate that Sally pays the credit card company.
11 percent
Sally has a credit card balance of $500. The credit card company charges a nominal interest rate of 18 percent a year on unpaid balances. The inflation rate is 8 percent a year. If the inflation rate falls to 7 percent a year and the nominal interest rate remains the same, calculate the real interest rate that Sally pays.
11 percent a year
In 2000, the United Kingdom economy was at full employment. Nominal GDP was pound £825 billion, the nominal interest rate was 8 percent a year, the price level was 110, and the velocity of circulation was constant at 5. The quantity of money in the United Kingdom in 2000 is ______.
165 billion
Peter Howitt of Brown University has estimated that if inflation is lowered from 3 percent a year to zero, then after 30 years, real GDP would be ______ percent higher.
2.3
The central bank of Canada is the Bank of Canada. Suppose that in Canada, Bank of Canada notes Bank of Canada notes were $7070 billion, the quantity of coins the quantity of coins was $55 billion, and the monetary base in Canada the monetary base in Canada was $7979 billion. What were banks' reserves at the Bank of Canada banks' reserves at the Bank of Canada?
4 billion
The economy is at full employment. The quantity of money grows at a rate of 13 percent a year, real GDP grows at 66 percent a year in the long run, and the velocity of circulation is constant. What is the inflation rate in the long run?
7 percent
The quantity of money ______.
Decreases
Think about the definition of money, and then choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
Sara withdraws $2 comma 5002,500 from her checking account at Bank of America, keeps $200200 in cash, and deposits the balance in her small time deposit small time deposit account at Citibank. What is the immediate change in M1 and M2?
M1 decreases by $2 comma 3002,300 and there is no change in M2.
1. Human capital expands because of choices and discoveries result from choices.Human capital expands because of choices and discoveries result from choices. 2. Discoveries bring profit comma and competition destroys profit.Discoveries bring profit, and competition destroys profit. 3. Taxes influence incentives and discourage investment.Taxes influence incentives and discourage investment. 4. Stock markets sometimes crash and sometimes are gripped by irrational optimism.Stock markets sometimes crash and sometimes are gripped by irrational optimism.
Fact 1 is emphasized by new growth theory and Fact 2 is emphasized by new growth theory.
______ is an example of a place where there is economic freedom and rapid economic growth but not democracy.
Hong Kong
In November2016 in Vespugia: Currency held by individuals and businesses, $698698 billion Money market funds and other deposits, $714714 billion. Savings deposits, $3 comma 5043,504 billion Small time deposits, $811811 billion Checkable deposits owned by individuals and businesses, $669669 billion Traveler's checks held by individuals and businesses, $88 billion Calculate M1 and M2 in November 2016 in Vespugia
M1 in NovemberNovember 2016 was $1,3751,375 billion. M2 in NovemberNovember 2016 was $6,4046,404 billion.
Suppose that potential GDP and the velocity of circulation are constant. What is the change in the price level in the long run if the quantity of money increases by 3 percent a year?
If the quantity of money increases by 3 percent a year, the change in the price level is 3 percent a year in the long run.
Choose the correct statement.
Inflation is a tax on holding money.
Is economic freedom the same as democracy?
No. Economic freedom does not have to occur in a democracy.
The sign of the money multiplier is ______.
Positive
A central bank is ______. The ______ is the central bank of the United States.
a public authority that provides banking services to banks and governments and regulates financial institutions and markets; Federal Reserve System
_______ results in slow or absent economic growth.
The absence of property rights
Choose the statement that is correct.
The income tax on interest income drives a wedge between the before-tax interest rate paid by borrowers and the after-tax interest rate received by lenders.
Choose the correct statement.
The increased uncertainty of inflation misallocates resources.
The real GDP growth ratereal GDP growth rate is 2 percent a year, the rate of increase in velocityrate of increase in velocity is 0 percent a year, and the money growth ratemoney growth rate is 12 percent a year. What is the inflation rate inflation rate?
The inflation rate is 10 percent a year.
In 1999 the United Kingdom economy was at full employment. Nominal GDP was £770 billion, the real interest rate was 4 percent per year, the inflation rate was 3 percent a year, and the price level was 110. Calculate the nominal interest rate.
The nominal interest rate is 7 percent a year. In the long run, if the real interest rate remains the same but the inflation rate increases to 9 percent a year, then the nominal interest rate increases to 13 percent a year.
Money serves the function of being ______.
a medium of exchange, which means that it is generally accepted in return for goods and services
A savings and loan association has $750750 in checkable deposits $2,0602,060 in home loans $1,0001,000 in savings deposits $550550 in government securities $900900 in time deposits $4040 in currency No deposit at the Fed. Calculate the S&L's loans and reserves.
The S&L's loans are $2,0602,060. The S&L's reserves are $4040.
A savings and loan association has $750750 in checkable deposits $1 comma 8901,890 in home loans $1 comma 1501,150 in savings deposits $650650 in government securities $700700 in small time deposits $6060 in currency No reserve deposit at the Fed. Calculate the S&L's total deposits, deposits that are part of M1, and deposits that are part of M2.
The S&L's total deposits are $2,6002,600. Deposits that are part of M1 are $750750. Deposits that are part of M2 are $2,6002,600.
Think about the banking system and then choose the correct statement.
Upper A bank balances security for the depositors against profit for its stockholders.
Your bank manager tells you that she does not create money; she just lends what is deposited. Explain why she is wrong and how she creates money. The banking system creates money because ______.
a bank that has excess reserves can make loans. When a bank creates a loan, the bank increases the balance of the borrower's account and that increase in deposits is new money
The fraction of a bank's total deposits that it holds in reserve is the ______, and the ratio of reserves to deposits that a bank wants to hold is its ______.
actual reserve ratio; desired reserve ratio
A savings and loan association (S&L) has $550 in interest-bearing checkable deposits $1,600 in home loans $900 in savings deposits $600 in government securities $800 in time deposits $50 in currency No deposit at the Fed. The S&L pays interest on ______ and receives interest on ______.
all deposits (checkable, savings, and small time), although it may be zero percent on checking deposits; government securities and home loans
The "shoe-leather costs" of inflation are costs that arise from ______.
an increase in the velocity of circulation of money
The money multiplier is equal to ______.
change in the quantity of money divided by÷change in monetary base
If the Fed makes an open market salesale of $1 million of securities, the quantity of money _____ by $1 million multiplied by _____.
decreases;the money multiplier
If the price level falls, the _______.
demand for money decreases and the nominal interest rate falls
When the inflation rate falls and the nominal interest rate remains unchanged, Sally's opportunity cost of holding money _______.
does not change
According to classical growth theory, when real GDP per person ______, the population grows.
exceeds the subsistence level
Other things remaining the same, a country or region that adopts free international trade (for example, Hong Kong) has a faster economic growth rate than a country that restricts international trade (for example, Myanmar) because free international trade ______.
extracts all the available gains from specialization and trade
According to Malthusians, _______.
if today's global population reaches 11 billion by 2200, we will return to a primitive standard of living
Economic growth _______.
is a sustained expansion of production possibilities
A bank maximizes its stockholders' wealth by ______.
lending for long terms at high interest rates and borrowing from depositors and others
The ______ determines the equilibrium real interest rate. The real interest is ______ the inflation rate in the long run.
loanable funds market; independent of
Markets are a necessary precondition for economic growth because ______.
market prices send signals to buyers and sellers that create incentivesmarket prices send signals to buyers and sellers that create incentives
The demand for money is the relationship between the quantity of money demanded and the _______ when all other influences on the amount of money that people wish to hold remain the same.
nominal interest rate
Real GDP growth depends on _______
the quantity of labor growth and labor productivity growth
In the United States today, money includes ______.
the quarters inside public phones and an American Express traveler's check
The greater the desired reserve ratio, _______.
the smaller the money multiplier
Desired reserve ratio = R/D; Currency drain ratio = C/D; Monetary base = MB; Quantity of money = M. If the Fed makes an open market salesale of $1 million of securities, the magnitude of the money multiplier is _____.
(1 +C/D)/(R/D+C/D)
If the Fed makes an open market sale of $1 million of securities to a bank, the bank's reserves ______. Excess reserves ______.
decrease; decrease
Bank deposits ______ and the quantity of money ______.
decrease; decreases
An increase in real GDP ______ the demand for money and changes in financial technology ______.
increases; can increase the demand for money or decrease the demand for money
After the banks introduce the described changes, at an interest rate of 2 percent a year, people want to hold _____ money so they _____ bonds.
less; buy
The equilibrium interest rate before real GDP decreases is 8 percent a year. After real GDP decreases, at an interest rate of 8 percent a year, people want to hold _____ money so they _____ bonds.
less; buy
When the nominal interest rate rises, the opportunity cost of holding money ______ and the quantity of money demanded ______.
rises; decreases
The price of a bond _____ and the interest rate _____.
rises; falls
The price of a bond _____ and the interest rate ______.
rises; falls
The price of a bond ______, and the interest rate ______.
rises; falls