ECON 200 Midterm 1 (Canvas Quizzes)

What does US GDP per capita measure?

the total output of the US's economy, divided by the country's population

Resources include all of the following except

Money

Which of the following statements is true?

There is no concrete backing to the money supply in the United States

Economic growth and economic fluctuations can occur simultaneously.

True

If aggregated demand is growing faster than potential output, then the Federal Reserve is likely to

raise interest rates because the rate of inflation is rising or is likely to rise

The production function shows the relationship between

real GDP and the combination of labor, capital, and technological inputs

When people specialize in the activity in which they have a comparative advantage,

there will likely be a division of labor as well as an increase in output

In a fractional reserve system, deposit insurance

guarantees that depositors will always get their money, avoiding bank runs

Suppose a country's real GDP increased 3 percent between 2016 and 2017, while its population increased 2 percent. Between 2016 and 2017, real GDP per capita of this country

increased by 1 percent

The unemployment rate

increases as real GDP decreases

An increase in the overall price level is called

inflation

The purchasing power of money is

inversely related to the price level

A country trades with another country because it can gain in production and consumption.

it can gain in production and consumption.

Studies indicate that married men on average earn more income than unmarried men of the same age and education level. From this statement, we can conclude that

there is a correlation, but marriage is not necessarily the cause of higher income for married men

Reserves are an asset to commercial banks but a liability to the Federal Reserve Banks because

these funds are cash belonging to commercial banks, but they are a claim the commercial banks have against the Federal Reserve Bank

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals

The adjective real, in the term real GDP, is used to indicate that

this measure of output is adjusted for the general increase in prices over time

The purpose of a ratio scale is

to make equal percentage changes in a variable have the same vertical distance

The opportunity cost is the value of the next best activity not chosen

value of the next best activity not chosen

The recession phase

varies in duration and depth with each business cycle

The Federal Open Market Committee (FOMC)

votes on the Fed's monetary policy and directs the purchase or sale of government securities

In class we discussed the fourth basic function which is that money serves as

a standard of deferred payments. Money is inherently a symbol of debt

What are the three basic functions of money?

A medium of exchange, a unit of account, and store of value

According to the textbook, which of the following is one of the most important developments of the 1980-2006 period?

A period called the Great Moderation

The unemployment rate is defined as

the percentage of the labor force not working

Suppose that Third National Bank has reserves of $17,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. The bank now sells $10,000 in securities to the Federal Reserve Bank in its district, receiving a $10,000 increase in reserves in return. What level of excess reserves does the bank now have?

$17,000

Suppose you owe $1,000 on your credit card and you are charged a 2 percent monthly interest rate on the balance. How much in interest will be generated on that balance after the first month?

$20

Suppose that Serendipity Bank has excess reserves of $14,000 and checkable deposits of $267,000. If the reserve ratio is 10 percent, what is the size of the bank's actual reserves?

$40,700

Suppose the assets of the Silver Lode Bank are $120,000 higher than on the previous day and its net worth is up $40,000. By how much and in what direction must its liabilities have changed from the day before? Liabilities changed by how much?

$80,000

Suppose at the beginning of 2017, I loaned out $100 and at the end of the year was paid back $108. The inflation rate during the year was 3 percent. (A) What was the stated interest rate? (B) What was the real interest rate?

(A) 8% (The stated rate of interest was 8 percent ((108-100)/100) * 100 = 8%) (B) 5% (The real rate of interest was 8 percent - 3 percent = 5 percent)

The GDP per capita of Greece was $22,494 in 2012 and $21,966 in 2013. Based on these figures, the growth rate of GDP between 2012 and 2013 (to two decimal places) was:

-2.35% (The GDP per capita changed by $21,966 − $22,494 = −$528. The growth rate of GDP per capita is given by this change as a percentage of the 2012 figure: −$528/$22,494 = −2.35%)

Capitalism is an economic system in which, private property, markets, and firms play an important role. Which of the following statements related to the terms in this definition are correct?

-An economic system is a way of organizing the production and distribution of goods and services in an entire economy. -Employee-owned cooperatives are not firms.

Suppose that you invest $100 today in a risk-free investment and let the 9 percent annual interest rate compound. Rounded to full dollars, what will be the value of your investment 4 years from now?

141

The average inflation rate in the United States in the 1990s was in the range of:

2 to 3 percent

Suppose that at a given point in time the rate of inflation in the economy is equal to 2 percent and the nominal interest rate is 5 percent. What is the real interest rate consistent with this situation?

3 percent

The average annual growth rate of the U.S. economy over the past 50 years has been about?

3%

How long will it take a $100 deposit to increase to $200 if the rate of interest is 2 percent?

36 years

What is the largest component of M1?

Checkable deposits

Which of the components of M1 is legal tender?

Currency

What are the components of the M1 money supply?

Currency in circulation and checkable deposits

The opportunity cost for a student to attend college is zero if the student receives a scholarship.

False

Consider the following statement: "Whenever currency is deposited into a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced." Is this statement true or false?

False because the M1 money supply consists of currency outside of the banks and checking account deposits of the public in the commercial banks

Which of the following statements are correct?

Net income is the maximum amount that you can consume and leave your wealth unchanged

What near-monies are included in M2 money supply?

Noncheckable savings deposits, money market deposit accounts, small time deposits, and money market mutual fund balances

Which of the following statements about potential GDP is true?

Potential GDP is not equal to the maximum level of real GDP

The chairperson of the Federal Reserve Board is selected by

U.S. president and confirmed by the Senate

Assume that Jimmy Cash has $4167 in his checking account at Folsom Bank and uses his checking account card to withdraw $1101 of cash from the bank's ATM machine. By what dollar amount did the M1 money supply change as a result of this single, isolated transaction?

The answer is zero. Jimmy withdrew $200 from his checking account, so his checkable deposits are now $1800. This results in a decrease in M1 by an equal amount. However Jimmy now has $200 in cash, which increases M1 by $200

Consider the following statement: "When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed."

This statement is correct because lending increases the money supply, and the repayment reduces checkable deposits, lowering the money supply.

Stephanie has only one hour to study for an exam in math or to complete an assignment in economics. For Stephanie, the opportunity cost of spending the hour completing the economics assignment is

a higher grade in the math exam

Excess reserves are equal to

actual reserves minus required reserves

Monetary policy

affects growth by keeping inflation low and stable

The sum of the demands from the four groups that contribute to demand in the whole economy is called

aggregate demand

Trends and fluctuations in nominal interest rates

are closely connected with real GDP and the rate of inflation

Net worth is equal to

assets minus liabilities

The banking system in the United States is referred to as a fractional reserve bank system because

banks hold a fraction of deposits on reserve

Suppose that Mountain Star Bank discovers that its reserves will temporarily fall slightly below those legally required. It can temporarily remedy this situation by

borrowing funds from other banks in the Federal funds market

The primary lever that the Federal Reserve uses to influence private spending are

changes in interest rates

The Federal Reserve Board of Governors

coordinates policies for the 12 Federal Reserve Banks

Compound interest

describes the interest an investment earns when interest is paid on the original amount invested plus all interest payments that have been previously made

A newspaper editorial explaining what should be done to reduce the national debt is an example of

normative economics

The face value of a coin is greater than its intrinsic value because

otherwise people would sell it for its intrinsic value

An asset on a bank's balance sheet is something

owned by the bank, whereas a liability is something owed by the bank

The value of money is determined by

people's willingness to accept it in exchange for goods and services

Assume Mountain Star Bank finds that its reserves will be substantially and permanently deficient. To remedy this situation, Mountain Star Bank can

reduce the amount of loans outstanding, which could be done by selling some securities

The labor force is

that part of the population that is working or looking for a job

The Federal Open Market Committee (FOMC) includes

the Board of Governors members and 5 of the 12 presidents of the Federal Reserve Banks, of which, the president of the New York Fed has a permanent voting seat