ECON 202 Ball State Curott Exam 2

Federal Deposit Insurance Corporation insures deposits for up to _____ for each depositor named on the account.

$250,000

If the Fed credits Alex's checking account with $8,000 and Alex's bank decides to keep the entire $8,000 in the form of reserves instead of lending it out, how much does the money supply increase?

$8,000

Suppose real GDP and velocity of money remain constant. If money supply doubles, then the inflation rate will be:

100%.

Bank A has $100 million in deposits, $15 million in required reserves, and $85 million in loans. Bank A's reserve ratio is:

15%.

If nominal spending growth equals 6% and the real growth rate equals 4%, what is the inflation rate?

2%

From 2003 to 2013, the United States experienced average annual inflation of about:

2.4%.

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. How many people in this country are in the labor force?

20 million

What is the unemployment rate for a nation with 6 million employed and 2 million unemployed?

25%

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. How many discouraged workers does this country have?

5 million

Monetary policy by the Fed is estimated to take _____ to have an impact on the economy.

6 to 18 months

Monetary policy is used to stabilize the economy by changing factors that shift the:

AD curve.

Why are debit cards not listed as money?

Debit cards draw on checkable deposits, which are already counted as money.

Which BEST describes U.S. economic conditions in the 1980s?

Disinflation occurred because of the deliberate actions of the Fed.

Which of the following is the best example of frictional unemployment?

Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.

Which of the following is NOT true of structural unemployment?

It results from scarcity of information.

Which definition of money has the greatest value in the money pyramid?

M2

Which is a limitation of monetary policy in stabilizing the economy?

Monetary policy is subject to uncertain lags.

What strict rule did Milton Friedman believe would provide for greater price stability?

Money supply should grow by 3% annually.

Which answer best explains why prices of some popular goods have fallen over time?

Technological advances have reduced production costs

Which answer best explains why prices of some popular goods have fallen over time?

Technological advances have reduced production costs.

What effect did reducing U.S. inflation from 13.5% in 1980 to 3% in 1983 have?

The country experienced a recession.

What happens to workers who contract for cost of living allowances of 10% a year when the inflation rate falls to 4%?

They become more costly to employ and may lose their jobs.

According to the Fisher effect, a 5% decrease in the expected inflation rate results in:

a 5% decrease in the nominal interest rate.

An increase in uncertainty will lead to:

a decrease in both M and v.

Deflation is:

a decrease in the average level of prices.

A significant real shock in an economy can result in:

a leftward shift of the LRAS, SRAS, and AD curves.

Which of the following individuals can be counted as unemployed?

a man who was laid off from an auto manufacturing plant in Detroit

Which of the following is part of the labor force?

a person who was laid off and is now looking for work

A real price is:

a price that has been corrected for inflation.

If Alan Greenspan had reduced the money supply to limit the housing bubble, the result would have been a:

a slowdown in both the rise of housing values and overall economic growth.

The first major event of the Great Depression was:

a stock market crash.

If the reserve ratio is 10%, then a $100 increase in bank deposits can potentially lead to:

an increase of $90 in the money supply.

Productivity in an agricultural economy could be significantly affected by:

an oil shock

When the Fed conducts open market purchases, it:

buys government securities.

If the money supply and the velocity of money are fixed, then increases in real GDP:

cause decreases in the price level.

Which type of unemployment is likely to be higher when real GDP growth is lower?

cyclical unemployment

If, in an economic panic, people decide to hold their money rather than spend it, the velocity of money will:

decrease

If the growth rate of the money supply slows, there will be a(n):

decrease in aggregate demand.

In the short run, a negative AD shock will cause the growth rate of output to:

decrease.

In times of financial panic, we expect the velocity of money to:

decrease.

In a fractional reserve banking system, banks hold only a fraction of their:

deposits as reserves.

The major tools that the Fed uses to control the money supply include:

discount rate lending and open market operations.

What is the term for workers who have given up looking for a job but would still like one?

discouraged workers

Suppose the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:

disinflation

The long-run aggregate supply curve shows that long-run economic growth:

does not depend on the rate of inflation.

Which of the following elements increases structural unemployment?

employment protection laws

What allows an employee to quit at any time and an employer to fire at any time for any reason?

employment-at-will

In 2006, house prices started to _____, making homeowners feel _____.

fall; poorer

If spending grows by 2%, real GDP growth is 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

falling; 3%

In a nonrecession year, the majority of U.S. unemployment is

frictional.

Discouraged workers are workers who have:

given up looking for work but would still like a job.

Economists who believe that the Federal Reserve is likely to make lots of mistakes in the implementation of monetary policy believe:

in monetary policy rules.

The Fisher effect indicates that an increase in the expected inflation rate will cause the nominal rate of interest to:

increase by the same amount.

Sticky wages and prices:

increase the impact of positive shocks.

To restore growth and reduce unemployment in response to a negative real shock, the Federal Reserve would:

increase the money growth rate, which will increase both the inflation rate and economic growth rate.

Higher unemployment benefits tend to:

increase the unemployment rate

The invention of birth control in pill form substantially _____ labor force participation.

increased female

The slope of the long-run aggregate supply curve is:

infinity.

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:

inflation.

The Federal Reserve acquires its unique powers through its ability to:

issue money

When banks borrow from the Fed:

it increases the money supply

A major problem with inflation is that after it starts:

it is difficult to stop without experiencing high unemployment.

During a recession:

land, labor, and capital are not fully utilized.

If the Federal Reserve reduces the growth rate of the money supply to combat a negative real shock, the inflation rate will be:

lower, but the growth rate will be even lower.

After the first oil shock in 1973, the U.S. auto industry had a difficult time adjusting because:

much of the physical capital in an auto factory is specialized.

The relationship between bond prices and interest rates is:

negative.

An increase in inflation will cause the long-run aggregate supply curve to:

not shift at all.

A decrease in oil prices is an example of a _____ productivity shock.

positive

According to the quantity theory of money, an increase in money supply causes an increase in:

prices

If the Fed was concerned about the economy falling into recession, it might try to stimulate the economy by:

purchasing additional government securities.

During the 1980s, a reduction in the marginal tax rate (the tax on additional income) was found to:

raise the female labor force participation rate.

Deflation:

raises the real value of debts.

The reserve ratio (RR) is the:

ratio of reserves to deposits.

If spending growth is 6% and inflation is also 6%, this means that:

real GDP did not increase.

In the graph of the AD-AS model, what is measured on the horizontal axis?

real GDP growth

A recession is defined as a widespread decline in:

real income (GDP).

The goal of an open market sale by the Federal Reserve is to:

reduce bank reserves and reduce the money supply

Disinflation occurs when the Fed:

reduces the growth rate of the money supply.

The Federal Reserve:

regulates the banking system.

Compared to other countries, inflation in the United States has been:

relatively low.

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:

remained the same.

The Fisher effect predicts that the nominal interest rate:

rises as the expected inflation rate rises.

A negative real shock is often amplified, creating short-run aggregate supply and aggregate demand shocks due to:

sticky wages and prices.

The persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy is called:

structural unemployment.

If the growth rate of spending increases from 3% to 5%, then:

the aggregate demand curve will shift to the right.

Economist Milton Friedman called for a policy rule that keeps the growth rate of the money supply at 3% because:

the economy's long-run potential growth rate is 3%.

The narrowest measure of the U.S. money supply is:

the monetary base

As the reserve ratio rises:

the money multiplier will decrease.

When inflation rises unexpectedly:

the real interest rate will fall short of the equilibrium rate, which will benefit borrowers and harm lenders.

The causes of frictional unemployment include:

the scarcity of information.

What population categories go into the formula for the unemployment rate?

unemployed and employed

The economy's SRAS curve is:

upward sloping.

In the AD-AS model, money is not neutral in the short run if:

wages and prices are sticky.

When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock, the growth rate of real GDP:

will increase less than the inflation rate.

Nominal wage confusion occurs when:

workers respond to their nominal wage instead of to their real wage.

Which of the following correctly represents deflation?

π < 0