Macroeconomics Exam 2

When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is

the U.S. import and an Irish export.

the velocity of money is

the average number of times per year a dollar is spent.

The principle of monetary neutrality implies that an increase in the money supply will increase

the price level, but not real GDP.

The inflation tax refers to

the revenue the government creates by printing money

If the price level increased from 120 to 144, then what was the inflation rate?

20 percent

If the reserve ratio is 4 percent, then the money multiplier is

25

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year.

Her real and nominal salary have risen

If the price levels in the United States and in Canada are unchanged, but the nominal exchange rate (Canadian dollars per U.S. dollar) rises, then the U.S. dollar

appreciates and so U.S. net exports fall.

The leverage ratio is calculated as

assets divided by bank capital.

Which of the following is an example of U.S. foreign direct investment? a. A U.S. bank buys bonds issued by an Australian corporation. b. A U.S. company opens an auto parts factory in Canada. c. A Chinese company opens a restaurant in the U.S. d. An Australian bank buys stocks issued by a U.S. corporation.

b. A U.S. company opens an auto parts factory in Canada.

When conducting an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

If the public decides to hold more currency and fewer deposits in banks, bank reserves

decrease and the money supply eventually decreases.

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

decreased. Other things the same, a decrease in velocity decreases the price level.

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade

deficit and negative net exports

To be counted as "employed" in the U.S. labor force statistics, a person

does not have to be working for pay if they are working for a family business and does not have to be working full time.

If the exchange rate is expressed as euros/dollar, t he dollar is said to depreciate against the euro if the exchange rate

falls. Other things the same, it will cost fewer euros to buy U.S. goods.

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy

fewer goods in that country and buy fewer dollars.

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called

frictional employment

Sandy has graduated from college and is devoting her time to searching for a job. She has seen plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is

frictionally unemployed. Frictional unemployment can exist even in the long run

Net exports of a country are the value of

goods and services exported minus the value of goods and services imported.

A country's trade balance

is greater than zero only if exports are greater than imports.

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy

more domestic goods and fewer foreign goods.

When inflation rises, people make

more frequent trips to the bank and firms make more frequent price changes.

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys

more pesos. Your hotel room in Mexico will require fewer dollars.

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

nominal GDP would rise by 5 percent; real GDP would be unchanged.

the price level is a

nominal variable

Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as

not in the labor force

Marginally attached workers are people who are

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

If a country has Y > C + I + G, then it has

positive net capital outflow and positive net exports

Which of the following is not a function of money?

protection against inflation

The nominal exchange rate is the

rate at which a person can trade the currency of one country for another

The dollar is said to appreciate against the euro if the exchange rate

rises. Other things the same, it will cost more euros to buy U.S. goods.

The amount of unemployment varies

substantially over time and across countries.

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 5, then the quantity of money

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

If saving is greater than domestic investment, then there is a trade

surplus and Y > C + I + G.

The supply of money increases when

the Fed makes open-market purchases.

the Federal Reserve

the central bank of the United States

Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is In the graph, MS represents the money supply and MD represents money demand. The vertical axis is the value of money measured as 1/P and the horizontal axis is the quantity of money.

0.5 and the equilibrium price level is 2.

The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?

3.5 percent

If M = 2,000, P = 2.25, and Y = 6,000, what is velocity?

6.75

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.

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

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

Arnold but not Wanda

Esmerelda worked part-time for her mother's business without pay. Tabitha was absent from work because she had strep throat. Who is counted as "employed" by the Bureau of Labor Statistics?

Both Esmerelda and Tabitha

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement.

It has $800 in reserves and $9,200 in loans.

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Its trade deficit rose

Tatiana is waiting to be recalled to a job from which she was laid off. Ivan was fired but has not looked for work during the last two months. Who does the Bureau of Labor Statistics count as "unemployed"?

Tatiana but not ivan

Which of the following groups meets to discuss changes in the economy and determine monetary policy?

The Federal Open Market Committee

Which of the following is NOT an example of monetary policy?

The Federal Reserve facilitates bank transactions by clearing checks.

Which of the following is not correct? a. Most people who become unemployed will soon find jobs. b. The unemployment rate occasionally falls to zero. c. There are always some workers without jobs, even when the overall economy is doing well. d. In an ideal labor market, wages would adjust to ensure that all workers are always fully employed.

b. the unemployment rate occasionally falls to zero

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

cash

Which of the following functions as both a store of value and a medium of exchange?

cash but not stocks

Which of the following does the Federal Reserve not do?

conduct fiscal policy

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

currency and reserves

Which list ranks assets from most to least liquid?

currency, stock, and fine art

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

gradually decreased

The existence of money leads to

greater specialization and to a higher standard of living.

Economists generally argue that

high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

medium of exchange

Inflation can be measured by the

percentage change in the consumer price index.

If the Mexican nominal exchange rate (foreign currency per peso) does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate

rises

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

savings deposit

Frictional unemployment is inevitable because

sectoral shifts are always happening.

Clynical unemployment refers to

short-run fluctuations around the natural rate of unemployment.

money is

the most liquid asset but an imperfect store of value.

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

the nominal wage

Frictional unemployment is thought to explain relatively

. short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment.

Of the following groups, who is eligible for unemployment insurance benefits?

The unemployed who were laid off because their previous employers no longer needed their skills

When the Consumer Price Index increases from 100 to 120

more money is needed to buy the same amount of goods, so the value of money falls.

Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

Those waiting to be recalled to a job from which they had been laid off

Which of the following is correct? Since 1950

U.S. exports and U.S. imports each have increased significantly

Which of the following is not a cause of the decline in the U.S. men's labor-force participation rate over the past several decades?

With more women employed, there are fewer jobs now available to men.

An open economy's GDP can be expressed by

Y = C + I + G + NX

The "law of one price" states that

a good must sell at the same price at all locations

The money supply increases when the Fed

buys bonds. The increase will be larger, the smaller is the reserve ratio

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 , long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

the value of money

Sheila is on a temporary layoff from her automobile factory job but has not looked for work in the last four weeks. The Bureau of Labor Statistics counts Sheila as

unemployed and in the labor force

The natural rate of unemployment

varies less than the measured unemployment rate.