Econ 2020 midterm studyguide

If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is 0.65. 0.75. 0.80. 0.95.

0.75.

Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is 0.9. 0.8. 0.5. 0.1.

0.9

If the MPS is 0.05, the MPC is -0.05. 0.95. 1.05. 2.25.

0.95.

Refer to Table 9.3. Suppose the economy is in equilibrium and the government increases spending by $50 million, the new equilibrium output is $________ million 1,350 1,450 1,650 1,750

1,650

Assuming no government or foreign sector, the formula for the multiplier is 1/(1 + MPC). 1/MPS. 1 - MPC. 1/MPC.

1/MPS.

If 20 million workers are unemployed and 180 million workers are employed, then the unemployment rate is 10%. 11.1%. 18%. 80%.

10%

The GDP deflator in year 2 is 110 using year 1 as a base year. This means that, on average, the price of goods and services is 110% higher in year 2 than in year 1. 110% higher in year 1 than in year 2. 5% higher in year 1 than in year 2. 10% higher in year 2 than in year 1.

10% higher in year 2 than in year 1.

Refer to Table 9.3. Assuming constant MPC, at income of $1,200 million, saving is $________ million, at income of $1,600 million, saving is $________ million. 160; 240 170; 250 150; 230 180; 260

160; 240

If the MPC is 0.75, the government spending multiplier is 4. 3. 2.5. 1.75.

4.

The discount rate is the interest rate commercial banks charge their most creditworthy customers. the interest rate commercial banks charge each other for borrowing funds. the interest rate the Fed charges commercial banks for borrowing funds. the interest rate commercial banks charge their new customers.

the interest rate the Fed charges commercial banks for borrowing funds.

The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________. GNP; GNP GNP; GDP GDP; GNP GDP; GDP

GNP; GDP

Saving account balances are included in M1. M2. both M1 and M2. neither M1 nor M2.

M2.

Refer to Table 10.1. The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its loans equal $1,800. $1,000. $900. $600.

$1,000.

A company produced 8 dishwasher machines in 2010. The company sold 6 in 2010 and added 2 to its inventories. The market value of the dishwasher machines in 2010 was $200 per unit. What is the value of this company's output that will be included in the 2010 GDP? $400. $1,400. $1,600. $2,000.

$1,600.

Refer to Table 9.4. The economy is at the equilibrium level of output. If government spending decreases by $100 billion, the new equilibrium level of output is $3,100 billion. $2,400 billion. $1,550 billion. $1,450 billion.

$2,400 billion.

Refer to Table 10.1. The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its reserves equal $100. $200. $300. $600.

$200.

Refer to Table 9.4. The equilibrium level of income is $3,800 billion. $3,600 billion. $3,400 billion. $2,000 billion.

$3,400 billion.

Napoli National Bank has liabilities of $3 million and net worth of $200,000. Napoli National Bank's assets are $200,000. $2.8 million $3.0 million. $3.2 million.

$3.2 million.

Refer to Table 8.4. At an aggregate output level of $400 billion, planned expenditure equals $450 billion. $500 billion. $550 billion. $850 billion.

$550 billion.

Neon Bank has $300 million in deposits. The required reserve ratio is 25%. Neon Bank must keep ________ in reserves. $275 million $145 million $120 million $75 million

$75 million

Suppose the required reserve ratio is 10%. A $75 million cash deposit will allow commercial banks to create at most $750,000. $7.5 million. $75 million. $750 million.

$750 million.

If gross investment in 2010 is $750 billion and depreciation in 2010 is $850 billion, net investment in 2010 is -$50 billion. -$100 billion. -$800 billion. -$1,600 billion.

-$100 billion.

Assume that in Scandia, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is -$20 billion. -$10 billion. $70 billion. $140 billion.

-$20 billion.

Refer to Table 8.4. At an aggregate output level of $200 billion, the unplanned inventory change is -$200 billion. -$150 billion. -$50 billion. $100 billion.

-$200 billion.

The Jackson Tool Company manufactures only tools. In 2012 Jackson Tools manufactured 20,000 tools, but sold 21,000 tools. In 2012 Jackson Tools' change in inventory was -2,000 tools. -1,000 tools. 1,000 tools. 3,000 tools.

-1,000 tools.

If the MPS is 0.4, the tax multiplier is -2.5. -2.33. -1.67. -1.5.

-1.5.

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 25%. If the Fed sells $5 million worth of government securities to the public, the change in the money supply will be $100 million. $25 million. -$5 million. -$20 million.

-20 million.

Refer to Figure 8.1. The MPS for this household is ________ and the MPC is ________. 0.3; 0.7 0.2; 0.8 0.5; 0.5 0.4; 0.6

0.5; 0.5

Refer to Figure 8.1. This household's consumption function is C = 500 + 0.5Y. C = 1,000 + 0.2Y. C = 200 + 0.2Y. C = 300 + 0.75Y.

C = 500 + 0.5Y.

The money supply has increased from $1.4 trillion to $1.45 trillion. Which of the following could have caused this increase? The Fed sold government securities to the public. Commercial banks began to hold excess reserves. Consumers who were holding money outside the banking system deposit this money. The Fed increased the discount rate.

Consumers who were holding money outside the banking system deposit this money.

You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend? Decrease both government spending and taxes by $300 billion. Increase both government spending and taxes by $300 billion. Reduce government spending by $300 billion and increase taxes by $300 billion. Increase government spending by $300 billion and reduce taxes by $300 billion.

Increase both government spending and taxes by $300 billion.

Transaction money is M1. M2. M3. M4.

M1.

Assume that the saving function is S = - 100 + .1Y and planned investment is 40. Calculate the equilibrium level of output using the leakages/injections or S=I approach

To solve for the equilibrium output I can use S = - 100 + .1Y in the equilibrium relation S=I. Knowing that I=40 we can solve for equilibrium output from -100+.1Y=40 => .1Y=140, dividing the equations by .1 we get Y=1,400.

The Fed acts as a lender of last resort for the banking system. True False

True

Saving equals Y - actual I. Y - C. inventory changes. Y - planned I.

Y - C

Refer to Figure 10.1. A movement from Point D to Point A can be caused by an increase in nominal income. an increase in the interest rate. a decrease in nominal income. a decrease in the interest rate.

a decrease in nominal income.

The GDP of the U.S. in 2010 was around $14.7 trillion. This means that the value of output in the U.S. in 2010 was around $14.7 trillion. that total spending on final goods and services in the U.S. in 2010 was around $14.7 trillion. that total income in the U.S. in 2010 was around $14.7 trillion. all of the above

all of the above

Refer to Figure 10.1. A movement from Point A to Point C can be caused by a decrease in the interest rate. a decrease in nominal income. an increase in nominal income. an increase in the interest rate.

an increase in the interest rate.

If the Fed buys government securities, then there is a decrease in the discount rate. a decrease in the supply of money. an increase in the supply of money. an increase in the required reserve ratio.

an increase in the supply of money.

Money is the value of all coins and currency in circulation at any time. the same as income. anything that is generally accepted as a medium of exchange. backed by gold in Fort Knox.

anything that is generally accepted as a medium of exchange.

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? an increase in the discount rate a decrease in federal spending buying government securities in the open market an increase in the required reserve ratio

buying government securities in the open market

Serena transfers $8,000 from her home safe to her savings account. This transaction will not change M1 and decrease M2. increase both M1 and M2. decrease both M1 and M2. decrease M1 and not change M2.

decrease M1 and not change M2.

If the government spending multiplier is 5 and government spending decreases by $200 billion, output will ________ by $________ billion. decrease; 1,000 decrease; 40 decrease; 200 increase; 200

decrease; 1,000

Refer to Table 9.3. Suppose the economy is in equilibrium and the government raises taxes from $200 million to $220 million, equilibrium output will ________ by $________ million. increase; 80 decrease; 20 decrease; 80 increase; 20

decrease; 80

A commercial bank lists loans as liabilities. required reserves as liabilities. excess reserves as liabilities. deposits as liabilities.

deposits as liabilities.

If the change in business inventories is zero, then final sales are less than GDP. equal to GDP. greater than GDP. zero.

equal to GDP.

The total market value of all final goods and services produced within a given period by factors of production located within a country is gross national product. gross domestic product. net national product. net national income.

gross domestic product.

Real GDP is gross domestic product measured in current dollars. as the difference between the current year's GDP and last year's GDP. at a constant output level but at current prices. in the prices of a base year.

in the prices of a base year.

Inflation is a(n) increase in the overall level of economic activity. decrease in the overall price level. increase in the overall price level. decrease in the overall level of economic activity.

increase in the overall price level.

If the tax multiplier is -9 and taxes are reduced by $100 billion, output increases by $900 billion. increases by $100 billion. falls by $100 billion. falls by $900 billion.

increases by $900 billion.

Refer to Table 10.2. The required reserve ratio is 5%. is 10%. is 20%. cannot be determined from the given information.

is 10%.

Refer to Table 10.4. If the required reserve ratio is 15%, First Charter Bank is loaned up. is meeting its required reserve ratio and has $200,000 in excess reserves. has too few reserves on hand. has excess reserves of $100,000.

is loaned up.

When banks hold a large amount of excess reserves, which of the following tools would the Fed most likely use to encourage banks to lend more of these excess reserves? lowering the interest rate it pays to banks on their reserves making an open market sale lowering the discount rate lowering the reserve requirement

lowering the interest rate it pays to banks on their reserves.

Commercial banks create money through facilitating borrowing from the Federal Reserve to the public. printing treasury notes. reducing risk in the economy. making loans.

making loans.

If interest rates increase to a very high level, people will most likely hold more money in savings accounts and more cash. less money in savings accounts and less cash. more money in savings accounts and less cash. less money in savings accounts and more cash.

more money in savings accounts and less cash.

The price of bonds and the interest rate are sometimes positively related and other times negatively related, depending on the bond payments. negatively related. not related. positively related.

negatively related.

A decrease in planned investment causes output to decrease, but by a larger amount than the decrease in investment. output to decrease by an amount equal to the decrease in investment. output to increase. output to decrease, but by a smaller amount than the decrease in investment.

output to decrease, but by a larger amount than the decrease in investment.

When the interest rate falls, bond values fall. rise. are unchanged because the interest rate paid on a bond is fixed. will either increase or decrease depending on the type of bond.

rise.

Unemployment generally ________ during recessions and ________ during expansions. falls; falls. rises; rises. falls; rises. rises; falls.

rises; falls.

The term business cycle refers to the short-term ups and downs in the price level., short-term ups and downs in the level of economic activity., long-term trends in the price level., long-term trends in the level of economic activity.

short-term ups and downs in the level of economic activity.

When you keep your savings in a saving account, you are using money as a(n) medium of exchange. investment good. unit of account. store of value.

store of value.

Which of the following is an example of an intermediate good? the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to lumber you buy to build a house for your dog the dough you buy to fix yourself a pizza for dinner the chocolate you buy to make yourself some cookies

the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to

Which of the following is NOT a topic studied in Macroeconomics? gross domestic product, the inflation rate, the price of IBM computers, the unemployment rate

the price of IBM computers

Which of the following is NOT included in 2011's GDP? the profit earned in 2011 from selling a stock that you purchased in 2008 the value of a motorcycle produced in the United States and exported to Japan the value of a motor that is used in the production of a lawn mower the commission earned by a headhunter when she locates a job for a client

the value of a motor that is used in the production of a lawn mower

Refer to Figure 8.10. At aggregate output levels below $1,000 million, there are unplanned decreases in inventories and output decreases. unplanned increases in inventories and output decreases. unplanned increases in inventories and output increases. unplanned decreases in inventories and output increases.

unplanned decreases in inventories and output increases.