ECON 2105 Final Exam Questions

The consumer price index measures private goods as well as public goods. True/False

False

Thomas Malthus believed that the geometric growth of the population and the arithmetic growth of the food supply would never be altered. True/False

True

Total factor productivity captures the factors that influence the overall effectiveness of inputs. True/False

True

If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause. True/False

True

If foreign countries abandoned the use of the dollar as their only form of legal currency, the U.S. money multiplier would likely increase. True/False

True

Knowing the marginal propensity to consume makes it possible to calculate the marginal propensity to save. True/False

True

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession. True/False

True

The catch-up effect is the idea that up to a certain point, developing countries can achieve greater productivity for each unit of capital invested because they have the advantage of using technologies already developed by other countries. True/False

True

Which of these would NOT shift the investment demand schedule? A. a change in interest rates B. a change in technology C. a change in expectations D. a change in operating costs

A. a change in interest rates

Which of these is NOT a financial intermediary in the market for loanable funds? A. a school B. an insurance company C. mutual funds D. credit unions

A. a school

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is A. directly increased by $4 million and has the potential to be increased by another $12 million. B. directly increased by $4 million and has the potential to be increased by another $8 million. C. directly reduced by $4 million and has the potential to be reduced by another $12 million. D. not directly affected but has the potential to be increased by a total of $12 million.

A. directly increased by $4 million and has the potential to be increased by another $12 million.

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. A. disposable income; smaller B. disposable income; larger C. aggregate spending; larger D. aggregate spending; smaller

A. disposable income; smaller

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to A. fall by $600. B. remain the same. C. rise by $800. D. by $800.

A. fall by $600.

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? A. if a lack of confidence in the financial system causes savers to withdraw money from banks B. when record amounts of student loans are paid back before interest rates rise C. when throngs of borrowers apply for loans as the housing market picks up D. when a stock market crash causes people to sell their stocks and purchase bank CDs instead

A. if a lack of confidence in the financial system causes savers to withdraw money from banks

The _____ is the change in consumption associated with a change in income. A. marginal propensity to consume B. average propensity to save C. average propensity to consume D. marginal propensity to save

A. marginal propensity to consume

A production function says output per worker equals A × f(L/L, K/L, H/L, N/L) and tells us all of these EXCEPT _____ will lead to a better standard of living. A. more people B. more natural resources C. more human capital D. increases in capital

A. more people

A bond's price and yield A. move in opposite directions. B. must sum up to 1,000. C. move in the same direction. D. are usually equal in value.

A. move in opposite directions.

Bond prices and their yields are _____ because the bond's face value and _____are fixed, forcing its _____ to change in response to changing market conditions. A. negatively related; coupon payment; sales price B. positively related; sales price; coupon payment C. negatively related; sales price; coupon payment D. positively related; coupon payment; sales price

A. negatively related; coupon payment; sales price

Assume that the MPC is 0.75, full employment is considered to be at a GDP level of $500 billion, and the GDP is $600 billion. What should the government do to achieve full employment? A. reduce spending by $25 billion B. increase spending by $10 billion C. increase spending by $25 billion D. reduce spending by $100 billion

A. reduce spending by $25 billion

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. A. right; increase B. left; decrease C. left; increase D. right; decrease

A. right; increase

Suppose the town of Treeville has a population of 200, of which 120 are in the labor force. Of those in the labor force, 100 are employed and 20 are unemployed. The unemployment rate in Treeville is A. 60%. B. 17%. C. 20%. D. 10%.

B. 17%.

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.) A. a beginning deposit of $1,010, earning 3% per year B. a beginning deposit of $930, earning 8% per year C. a beginning deposit of $1,000, earning 4% per year D. a beginning deposit of $950, earning 5% per year

B. a beginning deposit of $930, earning 8% per year

Which event would NOT be included in total factor productivity measurements? A. a severe military conflict that restricts daily movements of labor and capital B. a large investment in physical capital that makes labor more productive C. an unexpected breakthrough in GPS technology that enhances transportation D. an earthquake that disrupts a country's production for several weeks

B. a large investment in physical capital that makes labor more productive

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing A. deflation. B. disinflation. C. hyperinflation. D. a drop in its price level.

B. disinflation.

Unanticipated _____ is detrimental to economic growth. A. Neither inflation nor deflation is detrimental to economic growth. B. inflation or deflation C. inflation D. deflation

B. inflation or deflation

If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. recessionary; increase; $100 B. inflationary; decrease; $100 C. inflationary; decrease; $250 D. recessionary; increase; $250

B. inflationary; decrease; $100

Assume the economy is currently experiencing aggregate expenditures greater than aggregate income. The economy will move toward equilibrium as businesses begin to produce _____, leading to _____ employment and _____ income. A. less; more; more B. more; more; more C. less; less; less D. more; less; less

B. more; more; more

When Main Street Bank buys new automatic teller machines, the quantity of _____ in the economy increases. A. entrepreneurial ability, technology, and ideas B. physical capital C. labor D. land and natural resources

B. physical capital

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. recessionary; increase; $250 B. recessionary; increase; $100 C. inflationary; decrease; $100 D. inflationary; decrease; $250

B. recessionary; increase; $100

What are the determinants of short-run aggregate supply? A. changes in input prices, taxes, and technology B. changes in education, taxes, and business and inflationary expectations C. changes in input prices, taxes, and business and inflationary expectations D. changes in government spending, taxes, and business and inflationary expectations

C. changes in input prices, taxes, and business and inflationary expectations

A passive job search A. means participating in productive activities, like sending out résumés. B. includes contacting a private employment agency. C. entails merely talking to friends about jobs. D. entails the scheduling of job interviews.

C. entails merely talking to friends about jobs.

Bonds are considered to be _____ than stocks because _____. A. riskier; stockholders are less affected by a firm's bankruptcy B. riskier; stockholders earn dividends and bondholders do not C. less risky; bondholders are less affected by a firm's bankruptcy D. less risky; bondholders earn dividends and stockholders do not

C. less risky; bondholders are less affected by a firm's bankruptcy

Which statement is NOT correct? A. Discouraged workers have stopped actively seeking work. B. Discouraged workers are considered part of the leisure class and not part of the labor force. C. Discouraged workers are not classified as unemployed. D. Discouraged workers are considered underemployed.

D. Discouraged workers are considered underemployed.

Which country will have the lowest real GDP per capita in 23.67 years? Country: Real GDP per capita, current year; Growth rate real GDP per capita Ecoland: $10,000; 12% Macia: $22,000; 6% Nomia: $28,000; 3% Coland: $30,000; 3% A. Macia B. Ecoland C. Coland D. Nomia

D. Nomia

Which situation indicates that total output in a country has grown the most when the starting output is the same in all situations? A. Output per worker grows by 4% while the labor force grows by 12%. B. Output per worker remains constant while the labor force grows by 11%. C. Output per worker grows by 11% while the labor force remains constant. D. Output per worker grows by 10% while the labor force grows by 10%.

D. Output per worker grows by 10% while the labor force grows by 10%.

Which list represents monetary policy actions that are consistent with one another? A. buy government bonds, raise reserve requirements, raise the discount rate B. sell government bonds, raise reserve requirements, lower the discount rate C. sell government bonds, lower reserve requirements, raise the discount rate D. buy government bonds, lower reserve requirements, lower the discount rate

D. buy government bonds, lower reserve requirements, lower the discount rate

Which event will shift the aggregate demand curve to the right? A. decrease in military spending B. increase in household debt C. catastrophic hurricane hits the northeastern United States D. decrease in taxes

D. decrease in taxes

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag. A. implementation B. recognition C. decision D. information

D. information

Cost-push inflation occurs because of a shift to the A. right of the short-run aggregate supply curve. B. left of the aggregate demand curve. C. right of the aggregate demand curve. D. left of the short-run aggregate supply curve.

D. left of the short-run aggregate supply curve.

If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. recessionary; increase; $250 B. inflationary; decrease; $100 C. inflationary; decrease; $250 D. recessionary; increase; $100

D. recessionary; increase; $100

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100. True/False

True

If a one-year bond with a face value of $1,000 is sold for $950, what is the bond's approximate yield? A. 5.26% B. 1.05% C. 95% D. 9.5%

A. 5.26%

Which statement is NOT correct? A. Discouraged workers are considered underemployed. B. Discouraged workers have stopped actively seeking work. C. Discouraged workers are considered part of the leisure class and not part of the labor force. D. Discouraged workers are not classified as unemployed.

A. Discouraged workers are considered underemployed.

What is a difference between the typical structure of a retirement savings account (401(k)) and an individual retirement arrangement (IRA)? A. Employers often match 401(k) contributions, but they do not match IRA contributions. B. IRA contributions are typically made with pretax income while 401(k) contributions are made with post tax income. C. IRAs typically earn interest, but 401(k) accounts typically earn dividends. D. Taxes are due on withdrawals from an IRA but not on withdrawals from a 401(k) account.

A. Employers often match 401(k) contributions, but they do not match IRA contributions.

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? A. Esteban's average propensity to consume increased. B. Esteban's average propensity to consume decreased. C. Esteban's average propensity to consume cannot be calculated. D. Esteban's average propensity to consume stayed the same.

A. Esteban's average propensity to consume increased.

In the TED talk that we watched today in the class, what was the name of the Nobel prize winner economist? A. Esther Duflo B. Abhijeet Banerjee C. John Keynes D. David Card

A. Esther Duflo

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. A. Increasing; increasing; lowering B. Increasing; reducing; raising C. Reducing; increasing; raising D. Reducing; increasing; lowering

A. Increasing; increasing; lowering

Which statement regarding discretionary and mandatory spending is correct? A. Mandatory spending may act as an automatic stabilizing force in the macro economy. B. Mandatory spending programs include national defense, income security, and education. C. Discretionary spending has steadily grown as a percentage of the federal budget since the 1960s. D. Discretionary spending is authorized by permanent laws.

A. Mandatory spending may act as an automatic stabilizing force in the macro economy.

In which situation is a country LEAST likely to be producing on its production possibilities curve? A. There are legal disputes over the ownership of 15% of the factory buildings in the country. B. The land is dry and has low productivity in farming. C. There are large legal penalties for breaking a contract. D. The average education level is of the fourth grade.

A. There are legal disputes over the ownership of 15% of the factory buildings in the country.

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? A. an increase in demand and a decrease in supply B. increases in both demand and supply C. decreases in both demand and supply D. a decrease in demand and an increase in supply

A. an increase in demand and a decrease in supply

The U.S. economy is currently experiencing high unemployment and low inflation. To lessen the unemployment problem, the Federal Reserve could A. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. B. sell bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. C. lower the discount rate, thereby enabling banks to increase liquidity, lend more money, decrease the money supply, stimulate spending, and create jobs. D. raise the reserve requirement, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

A. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____. A. $25,000; $3,000 B. $12,000; $2,000 C. $15,000; $4,000 D. $30,000; $5,000

B. $12,000; $2,000

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000? A. 7 years B. 14 years C. 21 years D. 28 years

B. 14 years

A bond has a face value of $1,000 and an annual interest payment of $44. What is its coupon rate, and what is its yield if it is sold for $1,100 in the secondary market? A. 4.0% and 4.4%, respectively B. 4.4% and 4.0%, respectively C. 44% and 4.4%, respectively D. 4.4% and 10%, respectively

B. 4.4% and 4.0%, respectively

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____. A. 250; greater than 250 B. 4; equal to or less than 4 C. 25; greater than 25 D. 25; less than 25

B. 4; equal to or less than 4

Last year, the consumer price index was 115 while the consumer price index for this year is 125. The rate of inflation is A. 9.2%. B. 8.7%. C. 8%. D. 10.8%.

B. 8.7%.

Which statement(s) is/are TRUE regarding the paradox of thrift?I. People intend to save less but their actions actually lead to an increase in savings.II. For the paradox of thrift to occur, investment must be positively related to income.III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. A. I and II only B. II only C. II and III only D. I, II, and III

B. II only

Suppose a government finances its expansionary fiscal policy by borrowing from the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the _____ effect. A. boomerang B. crowding-out C. ricochet D. opposite expansionary

B. crowding-out

What is the labor force of this economy? Population: 500, Number Employed: 300, Number Unemployed: 50 A. 50 B. 500 C. 350 D. 300

C. 350

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement. A. 0.002%; is not B. 186%; is not C. 53.76%; is D. 20%; is

C. 53.76%; is

_____ unemployment is the result of changes in the business cycle. A. Frictional B. Seasonal C. Cyclical D. Structural

C. Cyclical

Which assumption is NOT a problem related to using the consumer price index (CPI) to accurately state the rate of inflation? A. The CPI does not account for quality changes. B. The CPI does not include new products. C. The CPI does not deal with producer prices. D. The CPI assumes that people do not substitute goods.

C. The CPI does not deal with producer prices.

Which change is likely to increase wages the MOST in a country? A. Drainage of swampy land allows 2% more land to be farmed. B. The labor force grows by 2%. C. The capital-to-labor ratio rises by 2%. D. Since the growth rate is 2% in all listed situations, wages would increase equally in all of them.

C. The capital-to-labor ratio rises by 2%.

Which of these provides an accurate description regarding the slope of the short-run aggregate supply curve? A. The negative slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are. B. The negative slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. C. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are. D. The positive slope of the short-run aggregate supply curve is flatter the more flexible prices are or steeper the more rigid prices are.

C. The positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or flatter the more rigid prices are.

The demand for loanable funds is downward sloping because A. higher interest rates are equivalent to higher returns on business projects. B. as interest rates fall, the value of the money supply drops. C. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more. D. higher interest rates encourage firms to borrow more.

C. as interest rates fall, businesses find more projects to be profitable and thus want to borrow more.

One argument against using taxation to pay off the public debt is that it will redistribute wealth from A. richer bondholders to richer people who do not own bonds. B. richer bondholders to poorer people who do not own bonds. C. poorer people who do not own bonds to richer bondholders. D. poorer bondholders to richer people who do not own bonds.

C. poorer people who do not own bonds to richer bondholders.

A breakthrough in solar energy research that halves the cost of electricity will A. shift the aggregate supply curve to the left. B. cause the aggregate supply curve to become vertical. C. shift the aggregate supply curve to the right. D. have no effect on the aggregate supply curve.

C. shift the aggregate supply curve to the right.

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____. A. $30; rise; $750 B. $3; rise; $750 C. $3; fall; $75 D. $30; fall; $750

D. $30; fall; $750

If the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be? A. $275 million B. $11 million C. $50 million D. 60 million

D. 60 million

Assume that Macroland starts in long-run equilibrium and then faces a reduction in government spending. What chain of events will lead to a new long-run equilibrium? A. Short-run aggregate supply falls; then aggregate demand falls, leading to a new long-run equilibrium with lower prices and lower output. B. Short-run aggregate supply falls causing unemployment; with less output, investment falls, leading to a reduction in long-run aggregate supply and a new long-run equilibrium with lower output and higher prices. C. Aggregate demand falls causing prices to fall; at lower prices, aggregate demand then rises back to its original level, leading to a return to the original price and output levels. D. Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output.

D. Aggregate demand falls causing unemployment; unemployed workers eventually accept lower wages, increasing short-run aggregate supply and leading to a new long-run equilibrium with lower prices and the original output.

Which of these is NOT a reason the aggregate demand curve is negatively sloped? A. wealth effect B. export effect C. interest rate effect D. income effect

D. income effect

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run. True/False

False

Goals of monetary policy vs. Not goals of monetary policy price stability high inflation improving banks' profits maximum employment financial market stability economic growth increasing the size of the financial sector

Goals of monetary policy: price stability maximum employment financial market stability economic growth Not goals of monetary policy: high inflation improving banks' profits increasing the size of the financial sector

Most liquid to Least Liquid: cash in your pocket, savings account, a house, corporate bond, checking account

Most liquid cash in your pocket checking account savings account corporate bond a house Least liquid

A rise in real GDP is associated with increased employment. True/False

True

Each regional Federal Reserve branch helps to compile information about the economic conditions in its home region. True/False

True

If Kelly transfers $500 from her savings account to her checking account, M1 will ______ and M2 will __________

increase; remain the same