Econ 102 - Iowa State - Amani - Midterm 3
Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is CORRECT?
The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent.
In the above figure, the economy is at the equilibrium point on the supply of loanable funds curve SLF and demand for loanable funds curve DLF. What happens if disposable income decreases?
The supply of loanable funds curve would shift leftward.
In the above figure, the economy is at the equilibrium point on the supply of loanable funds curve SLF and demand for loanable funds curve DLF. What happens if real wealth decreases?
The supply of loanable funds curve would shift rightward.
As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?
There was a leftward shift in the supply of loanable funds curve.
Over the past four decades
U.S. real GDP per person has increased
Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the
United States must borrow an amount equal to imports minus exports.
Which of the following will shift the supply of loanable funds curve leftward?
a decrease in disposable income
Which of the following shifts the demand for loanable funds curve leftward?
a decrease in the expected profit
An increase in a nation's population results in
a movement along the nation's production function.
When the Fed is ________ it is ________.
adjusting the amount of money in circulation; conducting monetary policy
Saving and investment that increase a nation's capital lead to
an increase in labor productivity
When the Fed lowers the federal funds rate, it can lead to
an increase in lending by banks
The sale of $1 billion of securities to a bank or some other business by the Fed is an example of
an open market operation
Checks are NOT money because they
are merely instructions to transfer money
Which of the following is TRUE regarding the real interest rate?
both I and II
Economis growth is measured by
changes in real GDP
Countries or regions in which real GDP per person has not grown as fast as in the United States since 1960 include
countires in Africa
Depository institutions do all the following EXCEPT
create recquired reserve ratios
A rise in the real interest rate
creates a movement upward along the demand for loanable funds curve.
The monetary base is the sum of
currency and reserves of depository institutions.
A decrease in the demand for loanable funds and a leftward shift of the demand for loanable funds curve results from
decreases in the expected profit
Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is
decreasing
The gaps between the United States and the Asian countries of Honk Kong, Singapore, Korea and China have been
decreasing
An increase in labor productivity shifts the labor ________ curve ________.
demand; rightward
The relationship between education and economic growth can best be summarized by saying that
education has benefits beyond those who receive the education, which encourages economic growth.
Suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond
falls from $2,500 to $2,000
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond
falls from 10 percent ot 8 percent
The funds used to buy and operate physical capital are
financial capital
If foreigners spend more on U.S.-made goods and services than we spend on theirs
foreigners must borrow from the United States or sell U.S. assets to make up the difference.
The Ricardo-Barro effect says that
government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government.
The crowding-out effect refers to
government investment crowding out private investment.
The historical record for the United States for the past 100 years shows
growth in real GDP per person during most years
When a government has a budget surplus, the surplus
helps finance investment.
We are interested in long-term growth primarily because it brings
higher standards of living
In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a ________ real interest rate and a ________ equilibrium quantity of investment.
higher; lower
According to the Ricardo-Barro effect
households increase their personal saving when governments run budget deficits.
A worker's stock of knowledge is known as
human capital
In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to 2012, Armenia's standard of living ________.
increased
An increase in saving that leads to more capital accumulation ________ labor productivity.
increases
Labor productivity increases with
increases in capital
Technological change
increases potential GDP
In the absence of a Ricardo-Barro effect, a government budget deficit ________ the demand for loanable funds and ________ investment.
increases; decreases
If the saving rate increases, a country's growth rate of real GDP per hour of labor ________ and capital per hour of labor ________.
increases; increases
The gap between real GDP per person in Africa and real GDP per person in the United States has been
increasing
The demand in the labor curve
is downward sloping because productivity of labor diminishes as more workers are employed.
The required reserve ratio
is the fraction of a bank's total deposits that is required to be held in reserves.
Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a ________ shift in the ________ loanable funds curve.
leftward; demand for
The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a
medium of exchange
Aside from being a means of payment, the other functions of money are
medium of exchange, unit of account, and store of value
Controlling the quantity of money and interest rates to influence aggregate economic activity is called
monetary policy
The country of Kemper is on its aggregate production function at point W in the above figure. If the population increases with no change in capital or technology, the economy will
move to point such as X
A nation's investment must be financed by
national saving plus borrowing from the rest of the world.
If the economy's capital stock increases over time
net investment is positive
The capital stock increases whenever
net investment is positive
Credit cards are
not part of money because they represent a loan of money to the user.
Which of the following is TRUE regarding the real wage rate? The real wage rate
only II
In the above figure, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. An increase in the expected profit would
only shift the demand for loanable funds curve rightward to a curve such as DLF1.
The term "crowding out" relates to the decrease in
private investment from a government budget deficit.
U.S. investment is financed from
private saving, government budget surpluses, and borrowing from the rest of the world.
If the price level rises by 3 percent and workers' money wages increase by 3 percent, then the
quantity of labor demanded does not change because there is no change in the real wage rate.
An increase in physical capital or a technological advance
raises the real wage rate
By measuring ________ we can see that the economies of Hong Kong and Singapore are catching up to the economies of North America but that the economies of Central and South America are not.
real GDP per person
Which of the following is used to calculate the standard of living?
real GDP/population
In the loanable funds market, the supply comes from
saving, the government budget surplus and international borrowing.
In the above figure, new expectations of booming business conditions and a higher expected profit will
shift the demand for loanable funds curve rightward
In the above figure, technological progress that increases the expected profit will
shift the demand for loanable funds curve rightward.
In the above figure, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. An economic expansion that raises disposable income and the expected profit would
shift the supply of loanable funds curve rightward to a curve such as SLF1, and shift the demand for loanable funds curve rightward to a curve such as DLF1.
Greater optimism about the expected profits from investment projects
shifts the demand for loanable funds curve rightward.
Human capital is the
skill and knowledge accumulated by human
If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is _
surplus; positive
Most _________ is embodied in physical capital
technological change
The Industrial Revolution in England in large was the result of
technological innovations encouraged by the patent system.
According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Based on this story, it is most likely that the slowdown reflects a
temporary business cycle slowdown
Classical growth theory proposes that real GDP growth is ________ and that real GDP per person will ________ the subsistence level.
temporary; temporarily be above
For a commercial bank, the term "reserves" refers to
the cash in its vaults and its deposits at the Federal Reserve.
The notion that technological change is not random but instead is driven by the pursuit of profits is an essential element of
the new growth theory
If the real wage rate is such that the quantity of labor supplied by workers is less than the quantity of labor demanded by firms
there is a shortage of labor
If the real interest rate increases from 3 percent to 5 percent
there will be a movement up along the demand for loanable funds curve.
Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a
unit of account
If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent
you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan.
This year Pizza Hut makes a total investment of $1.3 billion in new stores. Its depreciation in this year is $300 million. Pizza Hut's gross investment is ________ and its net investment is ________.
$1.3 billion; $1.0 billion
During 2014, the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2013, real GDP was 105 billion and the population was 0.85 billion. In 2014, real GDP per person was
$128
In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's gross investment totaled
$200,000
Use the information in the table above to calculate the value of private saving.
$25 million
The tables above show the labor market and the production function schedule for the country of Pickett. Potential GDP is ________.
$25 trillion
Use the information in the table above to calculate the value of government saving.
$5 million
The table above shows the balance sheet for Ralph's Bank. If the desired reserve ratio is 15 percent, Ralph's Bank has excess reserves of ________.
$50
The above table gives the initial balance sheet for Mini Bank. If the bank's desired reserve ratio is 10 percent, how much does this bank have in excess reserves?
$60
According to the table above, the value of M1 is ________ and the value of M2 is ________.
$813 billion; $3303 billion
According to the table above, the value of M1 is ________ and the value of M2 is ________.
$910 billion; $3,660 billion
In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled
-$100,000
At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's net investment for the year totaled
1 machine
If real GDP per person is growing at 4 percent per year, approximately how many years will it take to double?
17.5
Over the past 100 years, real GDP per person in the United States has grown at an average of ________ percent a year
2
The above table presents the balance sheet of the TBK commercial bank. What is this bank's actual reserve ratio?
20 percent
The above table gives the initial balance sheet for Mini Bank. Mini Bank's actual reserve ratio equals ________.
25 percent
At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled
3 machines
If the nominal interest rate is 7 percent and the inflation rate is 1 percent, the real interest rate is approximately
6 percent
If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately
6 percent
Using the Rule of 70, if the country of Huttodom's current growth rate of real GDP per person was 10 percent a year, how long would it take the country's real GDP per person to double?
7 years
In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012?
9.0 percent
Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?
A lower real interest rate makes more investment projects profitable.
Labor productivity, real GDP per labor hour, increases if
All of the above answers are correct.
In 2010, of the following which nations had the highest level of real GDP per person?
Canada
Between which pair of countries or continents listed below has real GDP per person converged the most since 1960?
Canada and Japan
If this quote is TRUE, what would the neoclassical growth theory predict?
Economic growth stops because most technological advances have already been made.
Which of the following statements regarding human capital is INCORRECT?
Education is the only vehicle for the creation of human capital because training simply reinforces what has already been learned
Which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy?
Federal Open Market Committee
Convergence of the income gap has been most dramatic between
Hong Kong and the United States
________ is the knowledge and skill that people have obtained from education and on-the-job training.
Human capital
If the price level increases, but workers' money wage rates remain constant,which of the following is TRUE?
I and II
Which of the following statements are TRUE regarding the demand for labor?
I and II
Which of the following are major influences on the expected profit from an investment?
I only
Which of the following is TRUE?
I only
Which of the following are included in the supply of loanable funds?
I, II, and III
Which of the following items are considered physical capital?
II and III
Investment is financed by which of the following?
II and III only
Which of the following is associated with classical growth theory?
III
According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE?
Indias PPF has been shifting rightward since 1997
During the 1990s, which of the following experienced the slowest rate of growth in real GDP per person?
Japan
The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?
Securities decrease by $100 million and reserves increase by $100 million.
The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?
Securities increase by $100 million and reserves of Bank A increase by $100 million.
