Econ 203 Wintersession

Based on the quantity equation, if M = 8,000, P = 3, and Y = 12,000, then V =

4.5.

Suppose today's CPI is 134.85, and suppose one must spend $580 today to purchase the same basket of goods and services that could be bought for $400 in 1989. Then the CPI in 1989 was

93.00.

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is

96.1 so prices are lower than in the base year.

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

The government's tax revenue is equal to its expenditures.

Which of the following scenarios is consistent with this statement? "The cost of living increased by 25 percent between 2009 and 2011."

The price of a hot dog was $4.07 rather than $3.63 in 2011, with other prices in the table remaining fixed..

Which of the following does purchasing-power parity imply?

The purchasing power of the dollar is the same in the U.S. as in foreign countries.

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card

True

The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,

U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected

Refer to Figure 34-7. Which of the following is correct?

Unemployment rises as the economy moves from point a to point b. Either fiscal or monetary policy could be used to move the economy from point b to point a. If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther.

Other things the same, which bond would you expect to pay the lowest interest rate?

a bond issued by a state with a very good credit rating

Which of the following shifts short-run aggregate supply right?

an increase in immigration from abroad

In which case(s) does(do) a country's supply of loanable funds shift left?

an increase in the budget deficit, but not capital flight

Which of the following would increase productivity?

an increase in the physical capital stock per worker. an increase in human capital per worker. an increase in natural resources per worker

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

an increase in the supply of or a decrease in the demand for loanable funds

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP.

Paper dollars

are fiat money and gold coins are commodity money

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

b. False

The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.

b. False

The Federal Funds rate is the interest rate

banks charge each other for short-term loans.

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

borrower or as a demander of funds.

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

both the multiplier effect and the crowding-out effect

If the government cuts the tax rate, workers get to keep

c. more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

The Fed can influence the money supply by

changing how much it lends to banks. changing the interest rate it pays banks on the reserves they are holding. using open-market operations.

The Fed's primary tool to change the money supply is

conducting open market operations.

An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions

decrease U.S. net capital outflow because Germans obtain U.S. assets.

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

decreased interest rates and increased investment.

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

does not change the real interest rate but reduces the after-tax real rate of interest.

The long-run aggregate supply curve shifts right if

either immigration from abroad increases or technology improves.

For the economy as a whole,

expenditure must equal income.

If net exports are positive, then

exports are greater than imports.

An increase in household saving causes consumption to

fall and aggregate demand to decrease.

If people decide to hold more currency relative to deposits, the money supply

falls. The Fed could lessen the impact of this by buying Treasury bonds.

A company that produces baseball gloves is considering buying some new equipment that it expects will increase future profits. If the interest rate rises, then the present value of these future profits

falls. The company is less likely to buy the equipment

Other things equal, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

Which of the following will not help to prevent bank runs?

fractional reserve banking

The invention of the telegraph led to the loss of jobs for those who had delivered mail by horse but created jobs for telegraph operators and delivery persons. This is an example of

frictional unemployment created by sectoral shifts.

If all workers and all jobs were the same such that all workers were equally well suited for all jobs, then there would be no

frictional unemployment.

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called

frictional unemployment.

According to liquidity preference theory, the money-supply curve would shift rightward

if the Federal Reserve chose to increase the money supply.

Open-market purchases by the Fed make the money supply

increase, which makes the value of money decrease.

Which of the following would shift long-run aggregate supply to the right?

increased immigration from abroad a decrease in the price of an imported natural resource opening the economy to international trade

When inflation rises, people tend to go to the bank

more often, giving rise to shoeleather costs.

In the open-economy macroeconomic model, the supply of loanable funds comes from

national saving.

The slope of the demand for loanable funds curve represents the

negative relation between the real interest rate and investment

According to purchasing-power parity, if prices in the United States increase by a larger percentage than prices in the United Kingdom, then the

nominal exchange rate falls.

As the price level rises

people are less willing to lend, so interest rates rise.

In the equation for the production function Y/L represents

productivity.

National defense and knowledge are generally considered to be

public goods.

The investment component of GDP measures spending on

residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

sell bonds.

If the Federal Open Market Committee decides to decrease the money supply, it will

sell government bonds.

Suppose that the MPC is 0.7, there is no investment accelerator, and there are no crowding-out effects. If government expenditures increase by $30 billion, then aggregate demand

shifts rightward by $100 billion.

Liquidity preference theory is most relevant to the

short run and supposes that the interest rate adjusts to bring money supply and money demand into balance

Menu costs help explain

sticky-price theory.

Which of the following would both shift aggregate demand right?

taxes decrease and government expenditures increase.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers.

If the money multiplier decreased from 20 to 12.5, then

the Fed increased the reserve ratio from 5 percent to 8 percent.

The president of each regional Federal Reserve Bank is appointed by

the board of directors of that regional Federal Reserve Bank.

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

the dollar depreciates.

Liquidity refers to

the ease with which an asset is converted into a medium of exchange.

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

the inflation rate and nominal interest rates.

Consider the money market drawn with the value of money on the vertical axis. If money demand is unchanged and the price level rises, then

the money supply must have increased, perhaps because the Fed bought bonds.

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?

the supply of loanable funds shifted right.

Net capital outflow equals

the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners.

Economists use the word "money" to refer to

those assets regularly used to buy goods and services.

Unemployment data are collected

through a regular survey of about 60,000 households.

The sale of stocks

to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.

An increase in the budget deficit causes domestic interest rates

to rise and investment to fall.

If the real interest rate is 5% and the inflation rate is 3%, then the nominal interest rate is 8%.

true

Many economists believe that the theory of purchasing-power parity describes the forces that determine exchange rates in the long run

true

The demand for labor by a certain firm fluctuates as the demand for that firm's product fluctuates.

true

In the graph of the money market, the money supply curve is

vertical. It shifts rightward if the Fed buys bonds

If the best educated and most skilled persons leave a country, then in the short term this country's human capital per worker

will decrease but physical capital per worker will increase

If output is above its natural rate, then according to sticky-wage theory

workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.

yuh

yeet

The Federal Open Market Committee is ​

​the group at the Federal Reserve that sets monetary policy.

If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?

$2,591.85

Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year?

$22,000

Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. Refer to Scenario 26-3. For this economy, government purchases amount to

$305

If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP?

$40 billion.

An American soldier stationed in North Carolina receives a paycheck from the federal government for $300, which she uses to purchase a $100 MP3 player made in China by a Chinese firm and $200 for fruit and vegetables from a local farmers market. As a result, U.S. GDP increases by

. $200.

Marion collected Social Security payments of $250 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then her Social Security payments for 1986 should have been

. $300.

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

. $37.50 purchases today.

In the economy of Talikastan in 2015, consumption was $3000, exports were $400, GDP was $5000, imports were $500, and investment was $1400. What were Talikastan's government purchases in 2015?

. $700

Fourteen years ago William put money in his account at First National Bank. William decides to cash in his account and is told that his money has quadrupled. According to the rule of 70, what rate of interest did Alfred earn?

. 10 percent

Refer to Table 24-7. Between 2010 and 2011, the cost of living increased by

. 6.36 percent.

Risk-averse individuals like good things more than they dislike comparable bad things.

. False

The Bureau of Labor Statistics produces data on unemployment by using data on claims filed for unemployment insurance.

. False

Which of the following does the Federal Reserve not do?

. It makes loans to any qualified business that requests one.

Refer to Figure 27-4. If most people's utility functions look like Alex's utility function, then it is easy to explain why

. None of the above are correct.

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

. None of the above are correct.

Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 2 percent during the year the money was deposited, then Bob's purchasing power has increased by 3 percent.

. True

Three possible reasons for an above-equilibrium wage are minimum-wage laws, unions, and efficiency wages

. True

Which of the following is a financial intermediary?

. a mutual fund

If the government of Canada increased its budget deficit, then domestic investment

. and net exports would fall.

Which of the following does the Federal Reserve not do?

. convert Federal Reserve Notes into gold

Refer to Figure 32-6. If the economy were initially in equilibrium at r1 and e3 and the government removes import quotas, the exchange rate moves to

. e1

Other things the same, an increase in the interest rate makes the quantity of loanable funds demanded

. fall, and investment spending fall.

Diminishing marginal utility of wealth implies that the utility function

. has decreasing slope and a person is risk averse

If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real interest rate

. increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.

If Congress instituted an investment tax credit

. it would make buying capital goods more desirable, so the demand for loanable funds would shift.

According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in the United Kingdom, then the

. nominal exchange rate rises.

Other things the same, the aggregate quantity of goods demanded in the U.S. increases if

. real wealth rises.

The present value of a payment to be made in the future falls as

. the interest rate rises and the time until the payment is made increases.

In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million. Based on these numbers the labor-force participation rate was

154/234.9.

The Bureau of Labor Statistics counts a member of a surveyed household as an adult if that person is at least

16 years old.

Refer to Table 28-8. If the state government imposed a minimum wage of $9, how many people would be unemployed?

20,000

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

3 percent

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

A change in the price of Korean televisions is reflected in the U.S. consumer price index but not in the U.S. GDP deflator.

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

False

Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?

It falls by $12 billion

Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?

It increased, but it less than doubled.

Which of the following is NOT correct?

Many economist oppose increases in how much people save.

Meredith is looking for work as a computer programmer. Although her prospects are good, she has not yet taken a job. Julie is looking for work in a steel mill. Every time she shows up for an interview, there are more people looking for work than there are openings. Someone waiting in line with her tells her it has been that way for a long time.

Meredith is frictionally unemployed, and Julie is structurally unemployed.

Which of the following is correct?

NCO = NX

What is the present value of a payment of $150 one year from today if the interest rate is 6 percent?

None of the above are correct to the nearest cent.

A firm has three different investment options. Option A will give the firm $10 million at the end of one year, $10 million at the end of two years, and $10 million at the end of three years. Option B will give the firm $15 million at the end of one year, $10 million at the end of two years, and $5 million at the end of three years. Option C will give the firm $30 million at the end of one year, and nothing thereafter. Which of these options has the highest present value?

Option C

In the open-economy macroeconomic model, the market for loanable funds identity can be written as

S = I + NCO

If U.S. residents purchase $450 billion of foreign assets and foreigners purchase $575 billion of U.S. assets, then the U.S. has net capital outflows of -$125 billion and a trade deficit of $125 billion.

TRUE

If there are diminishing returns to capital, then

increases in the capital stock increase output by ever smaller amounts.

An open-market purchase

increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

When the overall level of prices in the economy is increasing, economists say that the economy is experiencing

inflation.

The nominal interest rate is the

interest rate as usually reported by banks

a mutual fund

is a financial institution that stands between savers and borrowers. is a financial intermediary. allows people with small amounts of money to diversify their holdings.

The bond market

is a financial market, as is the stock market.

The natural rate of unemployment

is the amount of unemployment that does not go away on its own.

Which of the following is an example of human capital?

knowing how to repair cars

Other things the same, as the price level falls, which of the following increases?

lending and investment spending

Other things the same, a decrease in the price level motivates people to hold

less money, so they lend more, and the interest rate falls.

A pair of running shoes costs $70 in the U.S. If the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar, than the real exchange rate is

less than 1, so a profit could be made by buying these shoes in the U.S. and selling them in India.

The primary economic function of the financial system is to

match one person's saving with another person's investment.