Macro exam 2

A bank loans Danuta's Ice Cream $190,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Danuta's Ice Cream. The loan increases the money supply.

If the Fed buys bonds in the open market, the money supply decreases.

False

Inflation distorts savings when real interest income, rather than nominal interest income, is taxed.

False

Jimmy Carter, Ronald Reagan, and Gerald Ford are all U.S. presidents whose political careers were helped by inflation.

False

The Bureau of Labor Statistics produces data on unemployment by using data on claims filed for unemployment insurance.

False

​In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.

False

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

$4,937.5 billion

Frictional unemployment is often thought to explain relatively long spells of unemployment.

False

If a bank with a required reserve ratio of 15 percent receives a deposit of $600, it now has a

$510 increase in excess reserves and a $90 increase in required reserves.

A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. Its reserves amount to

$70

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

$8178

Suppose that some country had an adult population of about 47 million, a labor-force participation rate of 123.4 percent, and an unemployment rate of 31.0 percent. How many people were unemployed?

18 million

If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate?

3/5 or 0.6 pounds per dollar

In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered ended within one week and therefore was short term, and what percentage of the unemployment you encountered in a given week was long term?

86.7% was short term; 88.9% was long term

Which of the following is an example of U.S. foreign direct investment?

A U.S. based restaurant chain opens new restaurants in India.

Which of the following is an example of barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

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

A rational investor will always purchase the bond that pays the highest real interest rate.

False

As banks create money, they create wealth.

False

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

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

Which of the following lists is included in what economists call "money"?

Cash

Maria is looking for work as a electrical engineer. Her prospects are good but so far she has not taken a job. Julie is looking for work in a paper mill. Every time Julie shows up for an interview, there are more people looking for work than there are openings. She realizes that it has been that way for a long time.

Maria is frictionally unemployed, and Julie is structurally unemployed.

Maria and Michael are both U.S. citizens. Maria opens a café in Spain. Michael builds a U.S.-based factory using equipment from Japan. Whose action is an example of U.S. foreign direct investment?

Maria's but not Michael's

Which of the following is not included in M1?

Savings deposits

Suppose a Starbucks tall latte costs $4.00 in the United States and 2.50 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $4.50 in the United States and 3.60 euros in the Euro area. If the nominal exchange rate is 0.80 euros per dollar, which goods have prices that are consistent with purchasing-power parity?

The Big Mac but not the tall latte

Which of the following best represents fiat money?

The euro

According to the classical dichotomy, which of the following increases when the money supply increases?

The nominal wage

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

An excess supply of money is eliminated by a decrease in the value of money

True

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

True

If a U.S. firm buys Chinese toys using previously obtained Chinese currency, then both U.S. net exports and U.S. net capital outflow decrease.

True

If a country's saving rises, then either its investment or its net capital outflow rises (or both).

True

If people who report being unemployed are not, in fact, trying hard to find a job, then the reported unemployment rate will be biased upward.

True

It is only among the least skilled and least experienced members of the labor force that minimum-wage laws cause unemployment.

True

M2 is both larger and less liquid than M1.

True

One plausible explanation for the large amount of U.S. currency outstanding is that many dollars are held abroad.

True

Reduced barriers to trade help explain an increase in U.S. exports and imports relative to GDP since 1950.

True

The increase in the trade deficit in the 1980's reflected a decrease in national saving that is associated with an increase in the government budget deficit.

True

The unemployment rate never falls to zero.

True

When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

True

When a minimum-wage law forces the wage to remain above the equilibrium level, the result is

a surplus of labor and a shortage of jobs.

The set of items that serve as media of exchange includes

demand deposits.

According to purchasing-power parity, inflation in the United States causes the dollar to

depreciate relative to currencies of countries that have lower inflation rates.

If the price levels in the United States and in the United Kingdom are unchanged, but the nominal exchange rate (Pound sterling per U.S. dollar) falls, then the U.S. dollar

depreciates and so U.S. net exports rises.

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

does not change U.S. net capital outflow.

Purchasing-power parity describes the forces that determine

exchange rates in the long run.

The labor force equals the

number of people employed plus the number of people unemployed.

If you are vacationing in Spain and the dollar depreciates relative to the euro, then the dollar buys

fewer euros. It will take more dollars to buy a good that costs 50 euros.

Money demand refers to

how much wealth people want to hold in liquid form.

If the Fed raised the reserve requirement, the demand for reserves would

increase, so the federal funds rate would rise.

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

menu costs.

Most economists believe the principle of monetary neutrality is

mostly relevant to the long run.

According to the assumptions of the quantity theory of money, if the money supply increases by 7 percent, then

nominal GDP would rise by 7 percent; real GDP would be unchanged.

The price level is a

nominal variable.

Marginally attached workers are people who are

not working and are not looking for work, but would work if asked.

If the value of goods and services that Mexico purchases from the United States is greater than the value of goods and services that the United States purchases from Mexico, then the United States has

positive net exports and a trade surplus with Mexico.

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

purchasing bonds on the open market, which would have lowered the value of money.

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.

The natural rate of unemployment

varies less than the measured unemployment rate.