Macro quiz 4 (Ch. 20-21)

The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. The cost of the basket in 2012 was

$210.

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been

$264.

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

Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. Will's 2009 food expenditures in 2010 dollars amount to

$5,250.

If the marginal propensity to consume is 0.80, and there is no investment accelerator or crowding out, a $10 billion decrease in taxes would shift the aggregate demand curve to the right by

$50 billion

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has

$50 more in his account, and his purchasing power has increased by $33.

The natural rate of unemployment

. None of the above is correct.

If the multiplier is 5, then the MPC is

0.8

Suppose that the Bureau of Labor Statistics reports that the entire adult population of Mankiwland can be categorized as follows: 25 million people employed, 3 million people unemployed, 1 million discouraged workers, and 1 million people who are either students, homemakers, retirees, or other people not seeking employment. Refer to Scenario 28-1. What is the unemployment rate?

10.7%

2009 Labor Data for Baltivia How many people were employed in Baltivia in 2009?

11,000

Refer to Scenario 29-1 . Suppose the Central Bank of Namdia purchases 25 million dias of Namdian Treasury Bonds from banks. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Namdia change?

200 million dias

Labor Data for Aridia The number of adults not in the labor force of Aridia in 2010 was

400.

During the last half of 2012, the U.S. unemployment rate was above the natural rate and real GDP growth was low. Which of the following is the most likely unemployment rate for this time period?

8 percent

Suppose that the adult population is 6 million, the number of employed is 3.8 million, and the labor-force participation rate is 70%. What is the unemployment rate?

9.5%

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was

All of the above are correct.

Which of the following is NOT correct?

As the interest rate falls, the quantity of money demanded falls.

Suppose Jason believes that the government should follow an active stabilization policy when the economy is experiencing severe unemployment. Which of the following policies would he recommend in this case?

Decrease taxes.

A reduction in personal income taxes increases aggregate demand through an increase in private savings.

False

According to liquidity preference theory, the opportunity cost of holding money is the inflation rate.

False

Although wages, incomes, and interest rates are most often discussed in real terms, what matters most are their nominal values.

False

Core CPI is a price index that only looks at the prices of food and energy and ignores the prices of all other goods and services.

False

Every adult who was not employed during the previous four weeks is included in the Bureau of Labor Statistics' "unemployed" category.

False

Most economists believe unions are bad for the economy as a whole.

False

Refer to the Figure. You can explain a decrease in Y from Y1 to Y2 in the following way: A decrease in P in P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.

False

The introduction of a union into a firm benefits all of that firm's workers.

False

The natural rate of unemployment is the desirable rate of unemployment for an economy.

False

Unemployment insurance is designed to offer workers full protection against job loss.

False

When the interest rate increases, the opportunity cost of holding money decreases, so the quantity of money demanded decreases.

False

Which of the following is NOT true according to classical macroeconomics theory?

For any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.

For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in 2016. Which of the following statements is correct?

If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016.

Which of the following is true about the interest-rate effect?

It is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

Jenna is searching for a job that suits her tastes about where to live. Mary is looking for a job that makes best use of her skills.

Jenna and Mary are both frictionally unemployed.

Refer to the figure. Real GDP is represented by

Line A only

Given the following information, what are the values of M1 and M2?

M1 = $2,110 billion, M2 = $8,485 billion.

Which of the following Fed actions would decrease the money supply?

Raising the reserve requirement

According to the theory of liquidity preference, which of the following is NOT true?

The supply of money depends on the interest rate.

Data from the Bureau of Labor Statistics show that the largest category of consumer spending is housing.

True

Every month, the Bureau of Labor Statistics surveys 160,000 business establishments to help determine the number of jobs the economy has gained or lost.

True

If the Fed decreases reserve requirements, the money supply will increase.

True

If the interest rate is below the Fed's target, the Fed should sell bonds to decrease the money supply.

True

In an economy that relies on barter, trade requires a double-coincidence of wants.

True

In an ideal labor market, wages would adjust to balance the quantity of labor supplied and the quantity of labor demanded, ensuring that all workers are always fully employed.

True

Most spells of unemployment are short, and most unemployment observed at any given time is long-term.

True

People who report being unemployed but who, in fact, are working for "under the table" pay to avoid taxes on their earnings are really employed and therefore cause the reported unemployment rate to be higher than it would otherwise be.

True

Some degree of unemployment is inevitable in a complex economy.

True

Stagflation results from continued decreases in aggregate supply.

True

The Bureau of Labor Statistics defines marginally attached workers as persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.

True

The Bureau of Labor Statistics determines which prices are most important to the typical consumer by surveying consumers.

True

The amount of unemployment that a country typically experiences is a determinant of its standard of living.

True

The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.

True

The labor-force participation rate tells us the fraction of the population that has chosen to participate in the labor market.

True

The multiplier effect amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effect.

True

When unions raise wages in one part of the economy, the supply of labor increases in other parts of the economy, which reduces wages in industries that are not unionized.

True

When the relative price of a good decreases, consumers respond by buying

a larger quantity of that good and a smaller quantity of substitutes for that good.

Which of the following is NOT an automatic stabilizer?

an increase in money supply

Which of the following events would cause the Fed to stabilize output through decreasing the money supply?

an increase in net exports

Which of the following shifts the short-run but not the long-run aggregate-supply curve left?

an increase in the expected price level

Changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into a recession are called

automatic stabilizers.

For the Bureau of Labor Statistics to place someone in the "unemployed" category, that person must

be available for work

An increase in the capital stock shifts

both short-run and long-run aggregate-supply curve to the right

Refer to the figure. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

causes the economy to experience a decrease in the unemployment rate.

In the calculation of the CPI, tea is given greater weight than beer if

consumers buy more tea than beer.

Which of the following does the Federal Reserve not do?

convert Federal Reserve Notes into gold

Which of the following increase when the Fed makes open market purchases?

currency and reserves

People can write checks against

demand deposits and money market mutual funds

When the price level rises

firms will spend less on new business buildings and business equipment and households will want to spend less building new homes.

The labor-force participation rate tells us the fraction of the population that

has chosen to participate in the labor market

Check My Work The efficiency-wage theory of worker turnover suggests that firms with higher turnover will have

higher production costs and lower profits.

Categories of U.S. consumer spending, ranked from largest to smallest, are

housing, transportation, food & beverages, and medical care.

An increase in natural resources would ____

increase long-run aggregate supply.

As the reserve ratio decreases, the money multiplier

increases

Recessions occur at ________ intervals and are ________ to predict with much accuracy.

irregular; almost impossible

If the economy is initially at long-run equilibrium and aggregate demand expands, then in the long run the price level

is higher and output is the same as the original long-run equilibrium.

Which of the following causes of unemployment is not associated with a wage rate above the market equilibrium level? job search

job search

If there is a natural disaster, the long-run aggregate-supply curve shifts

left.

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

money market mutual funds

According to classical macroeconomic theory, the price level, but not real GDP, are affected by changes in the

money supply.

In the short run a decrease in the costs of production makes

output rise and prices fall.

The sticky-wage theory of the short-run aggregate-supply curve says that when the price level is higher than expected,

relative to prices wages are lower and employment rises.

Assume the MPC is 0.6. Assume there is a multiplier effect and that the crowding-out effect is $10 billion. An increase in government purchases of $20 billion will shift aggregate demand to the

right by $40 billion

Real wealth falls, interest rates rise, and the dollar appreciates as the price level

rises.

To stabilize interest rates, the Federal Reserve will respond to a decrease in money demand by

selling government bonds, which decreases the supply of money.

When conducting an open-market sale, the Fed

sells government bonds, and in so doing decreases the money supply.

When prices and unemployment rise, such an event is sometimes called

stagflation.

Efficiency wages create a labor

surplus and so increase unemployment.

Social Security payments are indexed for inflation using

the CPI.

Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?

the FOMC

The agency responsible for regulating the money supply in the United States is

the Federal Reserve.

Two alternative measures of the overall level of prices are

the GDP deflator and the consumer price index.

According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes

the interest rate to rise, so aggregate demand shifts left.

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

the nominal interest rate was 14 percent.

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing

Imagine two economies that are identical except that, for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $1,500 billion. It follows that

the price level, but not real GDP is higher in country B.

The GDP Deflator reflects

the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.

The decline in investment spending accounts for how much of the decline in output during a recession?

two-thirds

Which of the following does not help reduce frictional unemployment?

unemployment insurance

The idea that nominal wages are slow to adjust to changing economic conditions can explain the ________ slope of the short-run aggregate-supply curve.

upward

he following table shows the prices of good X and good Y for 2013-2015. In addition, assume the basket of goods used to compute the Consumer Price Index consists of 3 units of good X and 4 units of good Y. The inflation rate in 2015 was approximately

​41%.

From 2002 to 2014, employment​

​increased in health care and food services.

When prices rise,

​real estate is a better store of value than money.