Practice midterm 2

A country has a total population of 100 million, an adult population of 80 million, a labor force participation rate of 60%, a monthly separation rate of 3% and a monthly finding rate of 30%. The number of people employed in this country is A.) 43.6 million B.) 33.3 million C.) 26.7 million D.) 56.7 million None of the above

A

According to the loanable funds model, in the long run, which of the following events would result in lower interest rates and lower national saving, other things equal? A. Firms become pessimistic about the future and cut back on plans to buy new equipment and build new factories. B. The government goes from running a budget surplus to running a budget deficit. C. Congress passes a reform of the tax laws that encourages greater private saving. D. Congress passes a reform of the tax laws that encourages greater investment. E. None of the above

A

Which list ranks assets from most to least liquid? A. money, bonds, cars, houses B. money, cars, houses, bonds C. bonds, money, cars, houses D. bonds, cars, money, houses

A

A discouraged worker A. is in the labor force as defined by the BLS. B. wants and is available for a job but does not have one, and has looked for work in the past 12 months but is not currently looking. C. is unemployed as defined by the BLS. D. All of the above are correct. E. None of the above is correct

B

A finding that would provide evidence against the efficient market hypothesis is, A. Above normal returns cannot be made using technical trading rules. B. People can make sustained above normal returns using public information. C. Changes in stock prices are random and unpredictable. D. About 50% of actively managed mutual funds outperform the market this year. E. None of the above

B

A person deposits $100 of currency into her savings account at a commercial bank. A. M1 falls and M2 rises B. M1 falls and M2 is constant C. M1 is constant and M2 is constant D. M1 is constant and M2 rises E. We don't know what happens to M1 but M2 rises

B

If output per worker grows 2% per year, the number of workers grows 3% per year, velocity is constant, and money growth is 8% per year, inflation is A. 2% per year B. 3% per year C. 4% per year D. 5% per year E. None of the above

B

If people decide to hold more currency relative to deposits, the money supply A. falls. The larger the reserve ratio is, the more the money supply falls. B. falls. The larger the reserve ratio is, the less the money supply falls. C. rises. The larger the reserve ratio is, the more the money supply rises. D. rises. The larger the reserve ratio is, the less the money supply rises. E. None of the above

B

Politician A says the unemployment rate is lower than when she took office. Politician B says more people are unemployed now compared to when Politician A took office. You conclude that A. one of them must be lying. B. both of them could be telling the truth if the labor force grew faster than the number of workers unemployed. C. both of them could be telling the truth if the labor force and the number of workers unemployed grew at the exact same rate. D. both of them could be telling the truth if the labor force grew slower than the number of workers employed. E. More than one of the may be correct

B

The JOLTS data tell us that in January 2014 the total number of job findings was 4.6 million, the total number of separations was 4.4 million, civilian labor force was 155 million and the total number unemployed was 10 million. Given this data the finding rate and separation rate were A. 2.96% and 3.03%, respectively. B. 46% and 3.03%, respectively. C. 2.96% and 2.84%, respectively. D. 50% and 6%, respectively.

B

The efficient market hypothesis implies that investors should: A. adopt an active investment strategy. B. adopt a passive investment strategy. C. use anomalies as the basis for investment decisions. D. use analysis of prior stock returns as the basis for investment decisions. E. None of the above

B

When inflation rises, people will desire to hold A. less money and will go to the bank less frequently. B. less money and will go to the bank more frequently. C. more money and will go to the bank less frequently. D. more money and will go to the bank more frequently.

B

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest? A. 1.5 percent. B. 2.5 percent. C. 5.0 percent. D. 4.5 percent. E. None of the above

B

If there is shortage of loanable funds, then A. the supply for loanable funds shifts right and the demand shifts left. B. the supply for loanable funds shifts left and the demand shifts right. C. neither curve shifts, but private savings increases and investment falls as the interest rate rises to equilibrium. D. neither curve shifts, but private savings decreases and investment increases as the interest rate falls to equilibrium. E. None of the above

C

1. In the long run if the government increases investment tax credits and raises taxes elsewhere in the economy so the government budget deficit is unchanged then, other things equal, A. consumption and the interest rate rise now, and output falls now. B. consumption and the interest rate rise now, and output rises later C. consumption falls now, interest rates rise now, and output rises later. D. consumption falls now, interest rates rise now, and output falls later. E. None of the above

C

A person in the labor force A. has a job. B. is at least 16 years old and either has a job or does not have a job. C. is at least 16 years old and either has a job, or does not have a job but has recently looked for work, or is on temporary layoff, or expects to start a job in a month. D. None of the above is correct.

C

In 2002 interest rates on mortgage fell and mortgage lending increased. Which of the following could explain both of these changes? A. The demand for loanable funds shifted rightward B. The demand for loanable funds shifted leftward. C. The supply of loanable funds shifted rightward. D. The supply of loanable funds shifted leftward. E. None of the above.

C

In a closed economy, GDP is $15 trillion, consumption is $11 trillion, net taxes are $3 trillion and the government runs a surplus of $1 trillion. In this economy private saving and national saving are A. $4 trillion and $2 trillion, respectively B. $4 trillion and $0 trillion, respectively C. $1 trillion and $2 trillion, respectively D. $1 trillion and $0 trillion, respectively E. None of the above

C

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory, A. inflation averaged 8% per year and the real interest rate was 9%. B. inflation averaged 11% per year and the real interest rate was 17%. C. inflation averaged 5% per year and the real interest rate was 4%. D. inflation averaged 1% per year and the real interest rate was 6%. E. None of the above

C

The new administration has proposed increased government spending of $1 trillion. In the long run, other things equal, this policy implies, A. Private savings must fall, investment must fall by more than $1 trillion, and interest rates will rise. B. National saving must fall by $1 trillion and investment must fall by $1 trillion, and interest rates will rise. C. National saving must fall, consumption must fall, investment must fall but none will fall by as much as $1 trillion and interest rates will rise. D. National saving must fall by $1 trillion, the sum of consumption and investment must fall by $1 trillion and interest rates will rise.

C

You own 1-year and 2-year zero coupon bonds of the same face value issued by Greece. If you believe Greece is riskier than you previously thought, then other things equal, you will A. reduce the lowest price you will accept for only the one-year bond. B. reduce the lowest price you will accept for only the two-year bond. C. reduce the lowest price you will accept for both bonds but the price for the two-year bond will be lower than the price of the one-year bond. D. reduce the lowest price you will accept for both bonds but the price for the one-year bond will be lower than the price of the two-year bond. E. not reduce the lowest price you will accept for either bond.

C

A friend informs you she made above average returns last year in the US stock market. She claims this is evidence that the efficient market hypothesis (EMH) does not hold. Your correct response would be, A. The EMH may still hold as she took on higher risk stocks B. The EMH may still hold as she has not sustained these above average returns. C. The EMH may still hold if she used inside information. D. All of the above. E. None of the above, your friend's experience is evidence against the EMH

D

Other things equal, which of the following would decrease the unemployment rate? (i) an increase in the number of women who return to work after being stay-at-home mothers (ii) a preference among older men to retire early (iii) an increase in the maximum number of weeks for which someone can receive government unemployment benefits (iv) an increase in the number of previously unemployed women who stop looking for work A,) (i) only B.) (i) only (ii) only C.) (ii) and (iii) only D.) (i) and (iv) only E.) None of the above

D

Suppose a one-year zero coupon bond with face value of $1000 sells for $900 today. Anne and Bob each own this bond. Anne requires 10% to hold this bond. Bob requires 5% to hold this bond. The information given implies A. Anne will sell the bond to Bob B. Bob will sell the bond to Anne C. Both Anne and Bob will sell this bond in the bond market D. Both Anne and Bob will buy this bond in the bond market E. None of the above

D

Suppose the reserve ratio is 10 percent, banks are all loaned up, and people hold only deposits and no currency. When the Fed sells $20 million worth of bonds to the public, bank reserves A. increase by $20 million and the money supply eventually increases by $20 million. B. increase by $20 million and the money supply eventually increases by $200 million. C. decrease by $2 million and the money supply eventually increases by $20 million. D. decrease by $20 million and the money supply eventually decreases by $200 million. E. None of the above

D

The manager of your bank tells you that the bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be A. 10/400. B. 25/400. C. 35/400. D. 15/400. E. None of the above.

D

Who of the following would necessarily be included in the Bureau of Labor Statistics' "unemployed" category? A. Huey, who did not work during the previous four weeks B. Dewey, a worker who tried to find new employment during the previous four weeks C. Louie, who was an unpaid worker during the previous four weeks D. None of the above is correct. E. Huey, Dewey and Louie would all necessarily be included in the unemployed

D

You are considering the purchase of a machine today. The machine is made in a foreign country and takes one year to arrive in the US. You know that one year from now the machine will make you $1000 profit, then it breaks and you can sell it for scrap value for $500. Ignoring tariffs and transportation costs, what is the most you should pay for the machine today if your alternative rate of interest is 5%? A. $1000.00 B. $2000.00 C. $1904.86 D. $1500.00 E. $1428.57

E