ECON exam 3

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Which of the following would NOT cause a shift in the aggregate demand curve?

a change in the price level

The large U.S. government budget deficits in the early 1980s were caused by

a recession, expanded military spending, and income tax cuts

The Federal Reserve banks and their branches do all of the following except:

accept deposits from U.S. citizens.

Suppose that the economy is at the full-employment level of output of $6 trillion when a demand shock increases real GDP to $6.5 trillion. In the long run, we would expect the

aggregate supply curve to shift upward until the economy returns to full employment, but at a higher price level

Choose the best answer: Considering "unemployment",

all of these statements are true, except the answer beginning with the word "none".

Considering "unemployment",

all of these statements are true, except the answer beginning with the word "none". b. an

Choose the most complete answer. Which of the following statements having to do with inflation are true?

all the other answers except C.

Suppose that just as the U.S. economy is heading into a recession, two major U.S. banks fail. Many citizens lose access to their checking accounts for several weeks. Also assume the Fed stupidly does nothing. Evaluate each of the following statements and select the best answer. (Refer to the money supply equation given just above if this helps you.) 1) Reserve requirements on demand deposits and time deposits do not change, since we have been told the Fed does nothing. 2) xd and xt in the equation will increase because many bankers now will want to hold more reserves. 3) the public's desired ratios of currency to demand deposits, and currency to time deposits, will increase.

all three statements are correct.

Earlier in the semester we "learned" that if government spending is increased, or taxes are cut, there will be no change in total economic activity but interest rates will rise. But more recently we remembered that when interest rates rise this causes a decline in the demand for money, also this rise in interest rates may cause the supply of money to change because it may reduce the ratio of currency to demand deposits and currency to time deposits, and both ratios appear in the money supply equation we recently learned. But suppose this change in the supply of money is very small, so we only have to think about the impact of the decline in the demand for money. So now the increase in government spending (or tax cut) results in an excess supply of money. Taking these additional ideas into account your instructor probably believes:

an increase in government spending or a tax cut will increase economic activity.

Choose the most complete answer: An example of "derived demand" is,

an increase in the demand for nails because of an increase in the demand for new houses.

According to the Taylor rule, the two most important factors influencing the Federal Reserve's changing the federal funds rate are:

an inflation rate different from the Fed's target and output different from potential GDP.

Improvements in the quality of consumer goods and services over time

are insignificant and thus would not affect the CPI even if accounted for

Transfer payments

automatically decline when positive spending shocks occur.

The Fed sometimes acts as a lender of last resort. This means that

banks can always go to the Fed for reserves to meet their obligations to depositors

Choose the best answer. When the government spends more than its tax proceeds the result is a deficit, and government borrowing. Your instructor believes:

borrowing is desirable if the proceeds will be spent on an important annual activity, such as the annual fireworks display.

Choose the best answer. When the govern- ment spends more than its tax proceeds the result is a deficit, and government borrowing. Your in- structor believes:

borrowing is perhaps appropriate if the government will spend the money on something yielding benefits for a long time, for example winning an important war

Choose the best answer. When the government spends more than its tax proceeds the result is a deficit, and government borrowing. Your instructor believes:

borrowing is perhaps appropriate if the government will spend the money on something yielding benefits for a long time, for example winning an important war or creating a na- tional park.

Choose the best answer. When the government spends more than its tax proceeds the result is a deficit, and government borrowing. Your instructor believes:

borrowing is perhaps appropriate if the government will spend the money on something yielding benefits for a long time, for example winning an important war or creating a na- tional park.

Choose the most complete answer. If actual inflation turns out to be larger than was expected, then over that period

both A and C are correct.contract

Choose the most complete answer. Unlike an increase in the "quantity demanded" of a good, an increase in demand for a good

both c. and d.

Unlike an increase in the "quantity demanded" of a good, an increase in demand for a good

both c. and d.

Suppose that two major U.S. banks unexpectedly fail. Many citizens lose access to their checking accounts for several weeks. Also assume the Fed stupidly does nothing--does not buy or sell Government securities, does not lend at the discount window, does not change reserve requirements. Evaluate each of the following statements and select the best answer. (Refer to the money supply equation given just above if this helps you.) 1) xd and xt in the equation will increase because many bankers will fear a banking panic. 2) the public's desired ratios of currency to demand deposits, and currency to time deposits, will increase.

both statements are correct.

Consider the following statements and choose the best an- swer. 1. If the Fed Funds interest rate begins at 5% per year, and then the Fed begins to increase the money supply at 10% per year, eventually the the Fed Funds rate will need to rise to at least 15% per year to prevent the money supply from growing even faster. 2. nominal interest rates = real interest rates + the expected rate of inflation

both statements are true

Consider the following statements and then choose the best answer: 1. Based on recent lectures about the US monetary system, since the recession of 2007-2008 the banks now have far more Fed Funds than they used to 2. Based on recent lectures about the US monetary system, since the recession of 2007-2008 the Fed has pur- chased many assets which are not US Treasury securites, far more so than ever before.

both statements are true

If the unemployment rate is 10% and the inflation rate is 2%, the Fed will most likely:

buy bonds.

The Fed typically increases the money supply by

buying government bonds.

The Fed responds to money demand shocks by

changing the money supply

(You may refer to the equation above.) In the Keynesian multiplier model, if the marginal propensity to consume falls, the economy will

contract

(You may refer to the equation above.) In the Keynesian multiplier model, if the marginal propensity to consume falls, the economy will

contract

If "the multiplier" is 2, and "autonomous expenditures" decline by $100 billion, and assumptions of the Keynesian multiplier model are valid, then economic activity (GDP) will:

decrease by $200 billion.

If "the multiplier" is 2, and "autonomous expenditures" decline by $100 billion, and assumptions of the Keynesian multiplier model are valid, then economic activity (GDP) will:

decrease by $200 billion.

In February 2010, the Central Bank of Brazil raised reserve requirements. By raising reserve requirements, Brazil was attempting to:

decrease its money supply.

If the Fed sells bonds, we should expect to see the money supply

decrease, the interest rate increase, autonomous consumption decrease, business investment decrease, and real GDP decrease

Pork and beef are substitutes in demand, and farmers can produce either pork or beef. If the price of pork rises, the supply of beef will _______, the demand for beef will _______, the market price of beef will ______ and the market quantity of beef will _________.

decrease; increase; rise; either rise or fall

Based on the circular flow model as presented in recent lectures, and beginning in a unemployment equilibrium, an increase in the money supply:

definitely will stimulate the economy, and definitely will increase prices less than the money supply increase.

Referring to the above diagram of an initial market equilibrium, if equilibrium moved to somewhere in area E, we could be sure that:

demand decreased more than supply decreased.

Suppose an economist observes a market with normally shaped supply and demand curves. Now she notices the market price has risen at the same time that the market quantity has risen. She can be sure that:

demand has definitely increased but supply may not have changed.

Congress created the Federal Deposit Insurance Corporation to

develop a better working relationship between bank managers and government officials

The recession of 1974 was triggered by ________________, and the recession of 1980 was triggered by ______________

dramatic increase in oil prices; dramatic increase in oil prices.

Assume that the Fed is successful in keeping the money supply constant, and suppose the economy is in an unemployment equilibrium. Earlier in the semester we "learned" that if government spending is increased, or taxes are cut, there will be no change in total economic activity, only interest rates will rise. But in that reasoning we left out an important fact, namely: when interest rates rise, this might cause the demand for money to decline. Now my question to you is this: If you take this additional possibility into account, so an increase in government spending (or a tax cut) increases interest rates resulting in an excess supply of money, we might need to modify the results of our circular flow model experiments. Which answer comes closest to what your instructor probably believes under this more complete model:

either an increase in government spending or a tax cut would raise interest rates re- sulting in an excess supply of money, therefor spending larger than income, caus- ing the economy to grow.

(You may refer to the equation above.) In the Keynesian multiplier model, if the marginal propensity to import falls, the economy will

expand

(You may refer to the equation above.) In the Keynesian multiplier model, if the multiplier is 1.5, exports rise by $90 billion per year, and govern- ment spending declines by $50 billion per year the economy will

expand by $60 billion per year

(You may refer to the equation above.) In the Keynesian multiplier model, if the multiplier is 1.5, exports rise by $90 billion per year, and government spending declines by $50 billion per year the economy will

expand by $60 billion per year

Kara is a construction worker. Because of adverse weather during the winter, she has been laid off from her job. She is available for work and has even sought work with other construction companies. Kara is

experiencing seasonal unemployment

If supply and demand both shift to the left, equilibrium quantity:

falls, but the equilibrium price may rise, fall, or stay the same.

The _____ rate is the rate at which banks charge each other for overnight loans, while the _____ rate is the rate at which regional Federal Reserve banks charge depository institutions for short-term loans.

federal funds; discount

If a piece of currency must be accepted for payment because the government says so, the currency is called

fiat money

Which of the following is not a major responsibility of the Fed?

fincancing government debt

According to the text, in the Keynesian model, the price level is ___________; in the aggregate demand and supply model, the price level is _______________.

fixed; flexible

Even though households do not actually purchase certain items, the government estimates and adds to the consumption component what the household would pay for these items in the marketplace. An example of this type of item is

food that a farm family grows for themselves

Rapid economic growth, stable prices and __________ are the three important macroeconomic goals about which most economists agree.

full employment

Transfer payments are

funds given to people or organizations when no good or service is received in exchange

The money we pay for a good or service

generally is only part of its opportunity cost.

Double-digit inflation

has occurred throughout most of United States history

In the "circular flow model" of a macroeconomy a "macroeconomic equilibrium" exists

if each major group in the economy (for example households and firms) receive the same amounts each time period and also spend the same amounts each time period.

In the money supply equation just above, if the "money multiplier" is .50, then if the Fed buys $4 billion of Treasury bonds, the money supply will:

increase by $2 billion.

Using the Keynesian model as developed in recent lec- tures, if "the multiplier" = 2, gross investment, I g , increases by $15 billion, exports, X, increase by $5 billion, and government spending, G, drops by $10 billion, then economic activity, Y, will a. remain unchanged.

increase by $20 billion.

In the money supply equation just above, if the "money multi- plier" is .60, then if the Fed sells $5 billion of Treasury bonds and at the same time puts $5 billion of new cur- rency into circulation and loans an extra $5 billion at the discount window, then the money supply will:

increase by $3 billion.

(Repeat your answer on Scantron lines xx, yy and zz.) In the money supply equation just above, assume the "money multiplier" is .60. Now what will be the change in the money supply if three things happen at once: 1--the Fed lends $10 billion to banks at the discount win- dow; 2--the Fed sells $10 billion of Treasury bonds, and; 3--the Fed executes $10 billion of repurchase agree- ments. Then the money supply will:

increase by $6 billion

In the money supply equation just above, as- sume the "money multiplier" is .60. Now what will be the change in the money supply if three things happen at once: 1--the Fed lends $10 billion to banks at the discount window; 2--the Fed sells $10 billion of Treasury bonds, and; 3--the Fed executes $10 billion of repurchase agreements. Then the money supply will:

increase by $6 billion

In the money supply equation just above, assume the "money multi- plier" is .60. Now what will be the change in the money supply if three things happen at once: 1--the Fed lends $10 billion to banks at the discount window; 2--the Fed sells $10 billion of Treasury bonds, and; 3--the Fed executes $10 billion of repurchase agreements. Then the money supply will:

increase by $6 billion

In the money supply equation just above, assume the "money multiplier" is .60. Now what will be the change in the money supply if three things happen at once: 1--the Fed lends $10 billion to banks at the discount window; 2--the Fed sells $10 billion of Treasury bonds, and; 3--the Fed exe- cutes $10 billion of repurchase agreements. Then the money supply will:

increase by $6 billion

If the Fed buys Treasury bills (which increases reserves available to the banking system),

interest rates will tend to decline, the supply of money will tend to rise on balance, and the resulting excess supply of money will cause inventories to drop, therefore increasing ei- ther economic activity and/or prices.

In the short-run macro model, if GDP = $5 trillion and aggregate expenditure = $4.6 trillion, we would expect

inventories to rise by $0.4 trillion

The factor payments measure of GDP

is found by summing all interest, rent, profit, and wages and salaries generated during the year

Choose the best answer. According to lecture, inflation, even if fully anticipated by everyone,

is harmful because it is more difficult for people to make rational economic decisions when prices are changing over time

Gross Domestic Product

is the money value of all final goods and services produced in a country during a year's period of time.

Gross Domestic Product

is the money value of all final goods and services produced in a country during a year's pe- riod of time.

Based on the circular flow model as presented in re- cent lectures, and beginning in a unemployment equilibrium with 4% cyclical unemployment, if the money supply is increased by 10%:

it may take a year or two, but employment will increase by about 4% and prices will increase by about 6%.

Susie grows corn in her backyard garden to feed her family. The corn she grows is not counted in GDP be- cause

it was not produced for the marketplace

Which recession was triggered by rising oil prices, a collapse of real estate prices and also a financial crisis. The recession which started in:late 2007 or early 2008

late 2007 or early 2008

By the definition given in lecture, a model is

logical structure and collection of ideas for thinking about a problem or answering a question

Some analysts blame the last economic crisis on Fed policy. They argue that:

low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.

If the Fed wanted to use all three of its primary tools to increase the money supply, it should:

lower the reserve requirement, lower the discount rate, and conduct an open market purchase.

Since 1960, the two worst years of inflation have seen prices rise

more than 10% in both years.

In the money supply equation just above, if the "money multiplier" is .60, then if the Fed sells $5 billion of Treasury bonds and at the same time the U.S. Treasury puts $5 billion of new currency into circulation, then the money supply will:

neither increase nor decrease.

Bill can cook dinner in 45 minutes and mow the lawn in 1.5 hours. Eileen can cook dinner in 1.5 hours and mow the lawn in 2 hours. Which of the following statements is correct?

neither person should specialize.

In the late 1990s, the U.S. budget went into surplus and there was a lengthy debate about what should be done with the surplus. Suppose the government used the surplus to create a tax cut. If the U.S. economy was at potential output (full employment equilibrium) before the tax cut, based on the Circular Flow Model as discussed in lecture the long-run effect of the tax cut would most likely be:

no change in output or prices, and higher interest rates.

I wonder if recessions began in some of the following years. Decide which ones and choose the most complete answer. 1) 1957 2) 1983 3) 1975 4) 1999 5) 1960 6) 2007

no other answer is correct.

If people used to expect prices to rise at 2% per year, but expected inflation now has risen to 5% per year,

nominal interest rates will increase by exactly 3 percentage points, but real interest rates will not be affected very much in the long run.

Based on information presented in the text, since 1922 the annual in- flation rate in the US

none of the other answers are right.

In the above equation for the Kenynesian multiplier model, ____________ is the marginal propensity to consume, ___________ is the tax rate, ___________ is exports and _____________ is the multiplier.

none of the other answers is correct.

(You may refer to the equation above.) In the Keynesian multi- plier model, if the marginal propensity to consume falls, the economy will

not change

The recession of 1982 was largely caused

on purpose by the Federal Reserve's decision to raise interest rates to combat inflation.

The federal funds rate is the rate at which

one bank loans money to another.

Suppose that just as the U.S. economy is heading into a recession, two major U.S. banks fail. Many citizens lose access to their checking accounts for several weeks. Also assume the Fed stupidly does nothing. Evaluate each of the following statements and select the best answer. (Refer to the money supply equation given just above if this helps you.) 1) Reserve requirements on demand deposits and time deposits will increase because many citizens now will be afraid their bank might fail. 2) xd and xt in the equation probably will increase because many bankers now are afraid citizens will withdraw cash from the banks.. 3) the public's desired ratios of currency to demand deposits, and currency to time deposits, will decline.

only statement 2 is correct.

Question on economic growth. Evaluate the following statements, then select the best answer. 1. The US 100-year growth rate (of real GDP per capita) has averaged about 2% per year according to the text. 2. Today's poorer countries grow faster than the US in their good years, but decline much farther in their bad years. 3. Today's poorer countries tend to have shorter periods of decline than today's advanced countries, but they don't grow fast enough in the good years to make up for it.

only statements 1 and 2 are correct.

Question on economic growth. Evaluate the following statements, then select the best answer. 1. The US 200-year growth rate (of income per capita) has averaged only somewhere between one and two percent per year. 2. Today's poorer countries are poor not so much because they grow slower than the US in their good years, but because they experience large declines during periods of violence. 3. Today's poorer countries tend to have shorter periods of decline than today's advanced countries, but they don't grow fast enough in the good years to make up for it.

only statements 1 and 2 are correct.

Question on economic growth. Evaluate the following statements, then select the best answer. 1. The US 200-year growth rate (of income per capita) has averaged only somewhere between one and two percent per year. 2. Today's poorer countries grow faster than the US in their good years, but decline much farther in their bad years. 3. Today's poorer countries tend to have shorter periods of decline than today's advanced countries, but they don't grow fast enough in the good years to make up for it.

only statements 1 and 2 are correct.

Under a capitalist economic system,

people are forced to work for a living

If a bank is subject to a reserve requirement of 15%, then it is required to:

place 15% of its deposits in the account with its regional Federal Reserve bank or the vault.

Choose the best answer. Based on what your professor has said in lecture, if the economy is in a full employment equilibrium in the circular flow model and the money supply increases by a small amount, like 3%,

prices may take a long time to rise, and will not rise more than about 3%.

If the economy is in full employment equilibrium, and the money supply is increased 12%, then we expect:

prices to rise 12%

If money did not exist in a modern economy,

production would be much lower and the average person would be extremely poor.

Examples of Fed actions that could decrease money supply are making open market

purchases, decreasing the required reserve ratio, and decreasing the discount rate

The consumption function shows the relationship between real consumption spending and

real disposable income

I wonder if recessions began in some of the following years. Decide which ones and choose the most complete answer. 1) 1957 2) 1983 3) 1975 4) 1999 5) 1960 6) 2007 or 2008

recessions began in 1957, 1960 and 2007 or 2008

The pattern of international trade among nations, and the pattern of specialization and the division of labor among people and among firms, are best ex- plained by

recognizing that differences in opportunity cost create the opportunity of mutual gain through specialization and exchange whether you are talking about a person, a region or a nation.

Automatic stabilizers reduce fluctuations in GDP by

reducing the additional spending that occurs in each round of the multiplier

If the price of oil rises 9% while the cost of living (the price index) falls 7% then real oil prices have

risen by about 16%.

Based on handouts or materials in the text, the 1960-1961 recession was triggered by __________; and the lowpoint was reached after _______ months.

rising interest rates; 10 months

When a mall Santa Claus loses his job at the end of the Christmas season, this is an example of

seasonal unemployment

Which of the following would be the appropriate policy response on the part of the Federal Reserve System if it were concerned with reducing the rate of inflation?

sell bonds

Which of the following would be the appropriate policy response on the part of the Federal Reserve System if it were concerned with reducing the rate of inflation?

sell bonds

If the Fed wants to increase the interest rate, it will

sell bonds and decrease the money supply.

If the Fed wants to raise the federal funds rate, it will ______ bonds, which ________ bond prices.

sell; lowers

When explaining expansions and recessions, the classical model is

seriously flawed

Suppose you are a Keynesian and the economy initially is at a price level of 120 and real GDP is $6.5 trillion. Then an increase in government purchases will

shift the aggregate demand curve rightward, increasing both the price level and real GDP

According to your text the 2001 recession was triggered by__________, which led to initial declines in____________

slowdown in tech spending // declines in capital spending

Choose the best answer. According to your text and handouts, the 2001 recession was triggered by__________, which led to initial declines in____________

slowdown in tech spending.....;.....declines in capital spending.

Unemployment rates in many continental European countries have been consistently higher compared to the United States. The difference is mostly

structural unemployment

A shift in the production possibilities frontier from DC to EC in Figure 2-6 could be due to a

technological improvement in the production of ice cream

In the money supply equation just above, assume that CT = 50; Tf = 130, Lf = 20; rd = .4 and rt = .1 , sd = .3 and st = .6; rcd = 1 and rct = 1. Then

the "money multiplier" is 1.34

In the money supply equation just above, assume that CT = 50; Tf = 130, Lf = 20; rd = .4 and rt = .1 , sd = .3 and st = .6; rcd = 1 and rct = 1. Then

the 'money multiplier" is 1.00

In the money supply equation just above, assume that CT = 50; Tf = 130, Lf = 20; rd = .4 and rt = .1 , sd = .3 and st = .6; rcd = 1 and rct = 1. Then

the 'money multiplier" is 1.00

In the money supply equation just above, assume that CT = 50; Tf = 130, Lf = 20; rd = .4 and rt = .1 , sd = .3 and st = .6; rcd = 1 and rct = 1. Then

the 'money multiplier" is 1.00

The federal funds rate is the rate at which

the Fed loans money to banks

The central bank of the United States is:

the Federal Reserve System.

When we add the up value of all capital goods, we determine

the capital stock

The most powerful person at the Fed is

the chairman of the Board of Governors

Assume an economy has a natural rate of unemployment of about 5%, which means that unemployment cannot be lower than 5% without cre- ating inflation. Assume the economy is in macroeconomic equilibrium with 15% total unemploy- ment. Now the Federal Reserve increases the money supply by 15% then roughly the following will happen:

the economy will grow by about 10% and then prices will rise by 5%.

Assume an economy has a natural rate of unemployment of about 5%, which means that unemployment can- not be lower than 5% without creating inflation. Assume the economy is in macroeconomic equilibrium with 15% total unemployment. Now the Federal Reserve increases the money supply by 15% then roughly the fol- lowing will happen:

the economy will grow by about 10% and then prices will rise by 5%.

The three methods for computing GDP include

the expenditure approach, the value-added approach, and the factor payments approach

When considering the challenge of achieving eco- nomic development and growth in a country or region, your instructor believes a significant factor is not even mentioned in the textbook. That factor probably is:

the problem of violence and the destruction it causes

When considering the challenge of achieving economic devel- opment and growth in a country or region, your instructor believes a significant factor is not even mentioned in the textbook. The most important factor not mentioned in the text probably

the problem of violence and the destruction it causes

Economists maintain that the wage rate that workers should really care about is

the real wage rate

In the language of economists, "full employment" means

the situation in which cyclical unemployement is zero.

In the language of economists, "full employment" means

the situation in which cyclical unemployment is zero.

A key tool of countercyclical fiscal policy is

the tax code

Gross domestic product (GDP) is

the total value of all final goods and services produced for the marketplace during a given period, within a nation's borders

Which of the following is NOT included in GDP?

the value of childcare services rendered to their own children by housewives.

Based on the circular flow model as presented in lecture, if the economy is at full employment equilibrium and then the money supply increases by 14%

then prices will increase by 14%.

Most nations do not push the rate of economic growth to the maximum because

there is an opportunity cost associated with economic growth

Suppose the Fed does $50 million of 3 day reverse repur- chase agreements (RRPs). Choose the best answer:

this will remove reserves (Fed Funds) from the banking system and cause the Fed Funds interest rate to rise.

Federal Reserve regulations apply

to all banks in the United States

Suppose the nominal price of oil in 1984 was $30 per barrel when the con- sumer price index was 100 and today's price of oil is $100 per barrel while the price index is 200. What has been the percentage change in the real price of oil?

up 66.67%

Suppose the money multiplier is 1.5 and the Fed sells $50 million of Treasury securities. Then if nothing else changes the money supply

will decrease by $75 million

In Keynesian multiplier equation just above, if c = .8, t = .25 and w = .1, then if "autonomous spending" increases by $100 billion, nominal GDP:

will increase by $200 billion

Refer to the above equation for the money supply. Assume the following: 1) that changes in interest rates do not significantly alter the public's desired ratios of currency to demand deposits and currency to time deposits; 2) the Fed does not change any of the variables over which it exercises control; 3) the demand for money is inversely related to interest rates (interest rates up causes demand for money to fall). Then, an increase in government spending or a reduction in taxes

will result in both an increase in interest rates and also an increase in prices and/or economic activity (the latter because of an excess supply of money).

Based on the models and discussion of economic growth and development given in lecture during this semester, which of the following statements creates the highest confidence that this country will continue to experience rising standards of living into the future.

worker productivity per hour has been increasing at the average rate of 2% per year for the past 15 years, with no years in which it grew faster than 3% or less than 1%.

Suppose each of the following news items appears on the evening news. Which one would most likely cause consumption spending to increase?

"Government to issue tax rebates at the end of next month"

A midwestern farmer grows wheat and sells it to a miller for $500. After processing, the miller sells the flour to a baker for $800, who then sells it to a grocery store for $1,000. The grocery store sells it to customers for $1,200. In these transactions, how much has been added to GDP?

$1,200

Using the table below, calculate GDP for a particular year. Consumption spending $1,000 Wages and salaries $ 800 Rent $ 100 Government purchases $ 200 Profit $ 300 Exports $ 400 Interest $ 250 Private investment spending $ 400 Imports $ 550

$1,450

What is the amount of this bank's reserves?

$10,000

In class we developed a formula which can be used to help cal- culate the average rate of worker productivity per hour in a country. Without telling you what the symbols stand for, the formula is: G = Newab (The final symbol is actually the Greek letter beta). Here is some data for a country: The country's population is 100 million. GDP of the country is $10,000 billion per year. GDP per capita is $100,000. 50% of the population is working. The typi- cal worker works 40 hours per week when working and 50 weeks per year.

$100 per hour

In class we developed a formula which can be used to help calculate the average rate of worker productivity per hour in a country. Without telling you what the symbols stand for, the formula is: G = Newab (The final symbol is actually the Greek letter beta). Here is some data for a country: GDP per capita is $20,000 per year. 60% of the population is working. The typical worker works 60 hours per week when working and works 50 weeks per year.

$11.11 per hour

Between 1960 and 1983 the price index rises from 80 to 120. Over the same period your nominal wage rises from $10/hour to $12/ hour. Assume your real wage was $20 in 1960. Then in 1983 your real wage becomes:

$16

Given the balance sheet below and assuming a required re- serve ratio of 20 percent, how much (in dollar terms) must the bank hold in required reserves?

$16 million

A Texas oil company extracts petroleum and sells it to a refinery for $1,000. After processing, the refinery sells the gasoline to a wholesaler for $1,500, who then sells it to a gas station for $1,700. The gas station sells it to customers for $2,500. In these transactions, how much has been added to GDP?

$2,500

Between 1960 and 1983 the price index rises from 80 to 120. Over the same period your nominal wage rises from $10/hour to $18/ hour. Assume your real wage was $20 in 1960. Then in 1983 your real wage becomes:

$24

For some country, the price index rises from 90 to 120 over the twenty years from 1993 to 2013. Over the same period, Susie's nominal wage has risen from $21 to $42/ hour. Assume your real wage was $20 in 1993, what is it in 2013?:

$30/hour

Using the table below, calculate GDP for a particular year. Wages and salaries $2,000 Government purchases of goods and services $ 500 Exports $ 800 Rental income $ 300 Consumption spending $3,000 Transfer payments $ 300 Private investment spending $ 600 Profit $1,200 Imports $ 600 Interest income $ 800 Purchases of corporate stock $ 500 Based on the above information, GDP in this year was

$4,300

A consultant who earns $100 per hour takes four hours off work to go to the movies. The out-of-pocket cost for the cab and the movie ticket are $12. The total cost of the movie to the consultant is

$412

If this bank is subject to a reserve requirement of 5%, what is the amount of its excess reserves?

$5,000

Suppose both the nominal and real prices of oil were $30 per barrel in 1984 and the consumer price index was 100. If today's price index is 200, and today's nominal price of oil is $100 per barrel, what is the real price of oil today?

$50 per barrel.

Suppose the nominal price of oil in 1984 was $30 per barrel when the consumer price index was 100, and today's nominal price of oil is $100 per barrel and today's price index is 200. Also assume the real price of oil was $30 per barrel in 1984. What is the real price of oil today?

$50 per barrel.

In class we developed a formula which can be used to help calculate the average rate of worker productivity per hour in a country. Without telling you what the symbols stand for, the formula is: b =G / Newa (The symbol "b" is actually the Greek let- ter beta). Here is some data for a country: GDP per capita is $12,000 per year. 60% of the popula- tion is working. The typical worker works 60 hours per week when working and works 50 weeks per year.

$6.67 per hour

Suppose you only buy Cheese, Artichokes and "Other goods", and the prices of "Other goods" do not change. Also suppose it costs $5000 to buy the base year basket of goods at base year prices, as you can see from the table below. Suppose further that you know the following details about base year prices and the base year basket: Good Total Spent Base year Units of the good on the good price in the base year basket Cheese $500 $10 per pound 50 pounds Artichokes $1000 $5 per can 200 cans Other goods in the basket $3500 unknown unknown

+10%

If the Fed wants to increase interest rates, it will a. buy bonds and increase the money supply.

. buy bonds and increase the money supply.

In the money supply equation just above, assume that CT = 50; Tf = 130, Lf = 20; rd , rt , sd and st = 1; rct = .5 and rcd = .5. Then the "money multiplier" is:

This bank's reserve ratio is:

0.10.

Use the table below to find the marginal propensity to con- sume. Real Real Disposable Consumption Income Spending ($Billions) ($Billions) $1,000 $ 800 1,100 875 1,200 950 1,300 1,025

0.75

To be considered employed, a person must have worked at least __________ hour(s) during the previous week

Your instructor probably believes the following: 1) As a general rule, the government should not borrow money to pay for current consumption expenditures, and instead should pay for them with taxes. 2) As a general rule it is acceptable for the government to borrow money to help pay for the creation of a na- tional park.

1 and 2 are both true.

In class we developed a formula which can be used to help calculate the average rate of worker productivity per hour in a country. Without telling you what the symbols stand for, the formula is: G = Newab (The final symbol is actually the Greek letter beta). Here is some data for a country: The country's population is 50 million. GDP of the country is $62,500 billion per year. 50% of the population is working. The typical worker works 50 hours per week when working and 50 weeks per year.

1 dollar per hour

Which of the following annual real GDP growth rates would be needed just to maintain output per capita in the United States?

1.0 percent

You may refer to the nearby money supply equation. What is the multiplier if the ratio of currency to demand deposits = 1 ratio of currency to time deposits = .5 desired ratio of bank reserves for demand deposits = .1 desired ratio of bank reserves for time deposits = .025

1.73913

According to the information in Figure 2-11, Jill's opportunity cost of sawing a board is

1/2 of a pail of water

Based on the following values (in $ billions per year), estimate GDP and select the most accurate answer. Consumption spending 500 Gross Investment spending 300 Government Spending 200 Transfers 100 Exports 400 Imports 300 Wages and salaries earned 800 Interest plus rent received by households 200 Profit earned by all enterprises 100

1100

The Federal Reserve System includes _____ regional banks.

Based on the following values (in $ billions per year), estimate GDP and select the most accurate answer. Consumption spending 750 Gross Investment spending 400 Government Spending 200 Transfers 200 Exports 500 Imports 650 Wages and salaries earned 900 Profit earned by all enterprises 150

1200

What fraction of the labor force is cyclically unemployed when structural unemployment is 2 percent, frictional unemployment is 2.5 percent, seasonal unemployment is 1 percent, and the overall unemployment rate is 8 percent?

13.5 percent

The Federal Reserve System was created in

1913

If you are a Keynesian, suppose the marginal propensity to consume is 0.8, the marginal tax rate is .3 and the marginal propensity to import is .06. Then the multiplier will be _____ and if $1,000 of ad- ditional autonomous spending occurs (from investment, say), the economy will grow by ______.

2 ; $2000

If a lender wants a real return of 6 percent and she expects in- flation to be 4 percent, which of the following is the correct nominal interest rate to charge?

2 percent

Assume that the firefighters have gone without a pay in- crease for 4 years during a tough time in their city's finances. Suppose that things start to look up and the Mayor wants to make up for lost time. If the CPI in 2002 was 125 and 150 in 2006, how much will salaries have to increase to bring the firefighters back up to their real income from 2002?

20%

Which recession was triggered by rising oil prices, a collapse of real estate prices and also a financial crisis. The recession which started in:

2008

Which recession was triggered by rising oil prices, a collapse of real estate prices and also a financial crisis. The recession which started in:

2008

From 1929 to 1993, the first four years of the Great Depres- sion, U.S. output dropped by more than

25%

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

25%

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

25%

Comparing the average duration of unemployment in the US, in June 2007 before the recession compared to August 2011 after the recession had ended and the recovery had begun, the largest increase in percentage of unemployed in a category has occurred among those unemployed...

27 weeks and over

Which of the following annual real GDP growth rates would be needed to prevent the U.S. unemployment rate from rising?

3.3 percent

At present, what is the approximate natural rate of unemployment in the United States?

4.5 percent

If the base year for an index is 2005 and the value of the index in 2008 is 165.1, by what percent has the mea- sure grown over those 3 years?

65.1 percent

At present, what is the approximate natural rate of unemployment in the United States?

7 percent

In mid-2009, the unemployment rate stood at

9.5 percent

Which of the following is considered to be the major cause of the recession of 2001?

A spike in oil prices and the collapse of the housing bubble

Since the Federal Reserve Banking Act of 1978, what has been the Fed's chief responsibility?

Achieving a low and stable rate of inflation

Based on the diagram above, evaluate the following statements and then choose the best answer. 1) the housing stock increases by 3 million units during this time period. 2) 8 million housing units are built then sold during this time period. 3) 5 million housing units disappear during this time period. 4) at the end of the time period there are 98 million housing units.

All four of these statements are definitely true.

Based on lecture, consider the following statements about what normally might happen in the present when there is an increase in expected future prices, i.e., beliefs about the future have changed. Then select the best answer. 1) If the expected future price of a good rises, demand will rise. 2) If the expected future price of a good rises, then production will rise. 3) If the expected future price of a good rises, then supply will fall. 4) If the expected future price of a good rises, then inventories will rise. 5) Today's price is expected to rise also. 6) Today's market quantity may rise, fall, or remain unchanged.

All six of the statements are correct.

Which of the following statements about measuring prices are true?1) If my "base year basket" costs $1,000 to purchase this year, and one year from now it costs $1,200 to purchase the same base year basket, then the price index based on this basket tells you that prices have risen by 20%. 2) If dingbats are one of the goods in the base year basket, and 30% of the base year budget was spent on dingbats, and in some future year all prices are unchanged except the price of dingbats has increased by 30%, then the price index will have risen by 9%. 3) Suppose people are now purchasing more computers and fewer typewriters than in the base year, however we are still using the base year basket to calculate inflation. Suppose also that typewriter prices have been rising and computer prices have been falling. Then the computed price index will show more inflation than actually exists.

All the above statements are correct.

Which of the following statements about measuring prices are true? 1) If my "base year basket" costs $1,000 to purchase this year, and one year from now it costs $1,200 to purchase the same base year basket, then the price index based on this basket tells you that prices have risen by 20%. 2) If dingbats are one of the goods in the base year basket, and 30% of the base year budget was spent on dingbats, and in some future year all prices are unchanged except the price of dingbats has increased by 30%, then the price index will have risen by 9%. 3) Suppose people are now purchasing more computers and fewer typewriters than in the base year, however we are still using the base year basket to calculate inflation. Suppose also that type- writer prices have been rising and computer prices have been falling. Then the computed price index will show more inflation than actually exists.

All the above statements are correct.

Based on the Keynesian model as presented in recent lectures, and starting from an "unemployment equilibrium", decide whether each of the following statements is True or False, then choose the best answer from among a. through e. below. 1) If the government cuts taxes, this will stimulate the economy to grow. 2) If the government increases government spending, this will stimulate the economy to grow. 3) If the government increases total tax revenue and also increases total government spending, by the same amount, this will stimulate the economy to grow.

All three of the statements 1), 2) and 3) are true.

Assuming the Keynesian model is correct, in the simplest Keynesian model as given in the text, evaluate each of the following statements and select the best answer: 1) If mpc = .5 the multiplier will be 2 2) There is no government in the model, or else government has constant spending and tax revenue 3) There is no international trade in that model.

All three statements are true.

Which of the following will shift the aggregate supply curve upward?

Bad weather, which increases farmers' costs per unit of output

(You may refer to the equation above.) Choose the most complete answer. Assume the Keynesian model gives correct answers. Suppose a recession abroad reduces exports by $100 billion per year, also gross investment spending in the U.S. declines by $100 billion per year, and also an increase in unemployment insurance payments increases autonomous consumption spending ("a" in the equation) by $50 billion, then

Both c and d are true. The economy will experience a recession. d. The economy will experience no recession if government spending is increased by $150

If, in the Aggregate Demand/Aggregate Supply model (as presented in the text and/or lecture) the two curves intersect to the left of Full Employment Output, 1) There is a "deflationary gap". 2) Prices and wages will begin to fall, shifting the AS curve downward.

Both statements 1 and 2 are correct.

If, in the Aggregate Demand/Aggregate Supply model (as presented in lecture) the two curves intersect to the right of Full Employment Output, 1) There is an "inflationary gap". 2) Prices and wages will begin to rise, shifting the AS curve upward.

Both statements 1 and 2 are correct.

(You may refer to the equation above.) Choose the most complete answer. Assume the Keynesian model as presented in lecture gives correct answers. Suppose a recession abroad reduces exports by $100 billion per year, also gross investment spending in the U.S. declines by $100 billion per year, and also autonomous consumption spending increases by $50 billion. Now decide if each of the following statements is true or false, and then choose the best answer below: 1) The economy will grow. 2) If, also, the Government increases government spending by $150 billion, then the economy will grow.

Both statements 1 and 2 are false.

Use the Circular Flow Model we developed in lecture, with zero pop- ulation growth, no technical change and so on. However, the moneatary system is similar to the US monetary system, with the Fed in charge. Suppose that we begin in a full employment equilibrium with real interest rates, r, = 6% and money supply not growing. Now consider whether each of the following statements is true or false and then select the best answer from below. 1) Initially the expected rate of inflation is probably zero and nominal interest rates are therefore equal to 6%. 2) If the Federal Reserve now begins a slow and steady increase of the money supply at the rate of 10% per year, then gradually people will come to expect inflation of 10% per year. It may take a few years, but even- tually interest rates will rise to 16% and then remain at 16% as long as the money supply continues to grow at 10% per year.

Both statements are correct.

Use the Circular Flow Model we developed in lecture, with zero population growth, no technical change and so on. However, the moneatary system is similar to the US monetary system, with the Fed in charge. Sup- pose that we begin in a full employment equilibrium with real interest rates, r, = 6% and money supply not growing. Now consider whether each of the following statements is true or false and then select the best an- swer from below. 1) Initially the expected rate of inflation is probably zero and nominal interest rates are therefore equal to 6%. 2) If the Federal Reserve now begins a slow and steady increase of the money supply at the rate of 10% per year, then gradually people will come to expect inflation of 10% per year. It may take a few years, but even- tually interest rates will rise to 16% and then remain at 16% as long as the money supply continues to grow at 10% per year.

Both statements are correct.

Question on economic growth and development. Evaluate the following statements, then select the best answer. 1. As discussed in both the text and lecture, investment leading to increases in physical capital per worker, by giving workers more tools and equipment to work with, is a central engine of economic growth, especially of the advanced countries. 2. The invention of new and better methods of production, never used anywhere before, has been crucial to the economic growth of the fastest growing countries such as China, India and Japan over the past 30 years.

Both statements are misleading or wrong.

Based on lecture, decide which of the following statements are true, then select the best answer. The economic history of nations over the past 60 years suggest that if each nation's history is divided into years of growth and years of decline: 1) The poorest countries grow faster than the richest countries in their years of growth. 2) The poorest countries experience more years of decline, and higher rates of decline, in their years of de- cline.

Both statements are true.

Based on lecture, decide which of the following statements are true, then select the best answer. The eco- nomic history of nations over the past 60 years suggest that if each nation's history is divided into years of growth and years of decline: 1) The poorest countries grow faster than the richest countries in their years of growth. 2) The poorest countries experience more years of decline, and higher rates of decline, in their years of de- cline.

Both statements are true.

Evaluate the following statements, then select the best an- swer. 1) In the US, even in good times, the unemployment rate among teenagers is more than 3 times the unem- ployment rate of those aged 55 and over. 2) In the US, even in good times, the unemployment rate among those with less than a high school degree is more than 3 times the unemployment rate of those with at least a college degree.

Both statements are true.

Question on economic growth and development. Evaluate the following statements, then select the bast answer. 1. As discussed in both the text and lecture, investment leading to increases in capital per worker, by giving workers more tools and equipment to work with, is a central engine of economic growth, especially of the ad- vanced countries. 2. The invention of new and better methods of production, never used anywhere before, has been crucial to the economic growth of the fastest growing countries such as China, India and Japan over the past 30 years.

Both statements are wrong.

Refer to the graph above. The arrow that would best illustrate the impact of an increase in the price of a substitute good is:

Which of the following describes the relationship among income, disposable income, taxes, and transfer payments?

Disposable income equals income minus taxes plus transfers

The main policymaking arm of the Fed is the:

Federal Open Market Committee.

In which of the following situations would the average standard of living rise?

GDP grows faster than population

In a recent lecture we discussed the principles for responsible government finance. Specifically how should a government divide the financing of a new program between a tax increase for the program and borrowing. Select the best answer.

Government borrowing can be used to pay for those parts of new programs which will create benefits for FUTURE taxpayers, but this is not a requirement, however borrowing should NOT be used to pay for current expenditures, since this reduces the well being of future taxpayers.

In lecture we discussed the principles for responsible government finance. Specifically how should a government divide the financing of a new program between a tax increase for the program and borrowing. Select the best answer.

Which of the following is not among the factors that lead to economic growth?

Government transfer programs

Which of the following statements are true about "the mul- tiplier" and/or "autonomous spending"?

If the Keynesian model is correct, if the multiplier gets larger GDP will get larger.

Which of the following statements are true about "the multiplier" and/or "autonomous spending"?

If the Keynesian model is correct, if the multiplier gets larger GDP will get larger.

Under what condition can the U.S. government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?

If the national debt grows at the same rate as nominal GDP

What is a good historical example of when the Fed created a recession to reduce inflation expecta- tions?

In the early 1980s

What is a good historical example of when the Fed cre- ated a recession to reduce inflation expectations?

In the late 1920s

When the U.S. government runs a deficit, it usually does the following:

It sells new government bonds to the public

If the inflation rate is 3 percent and the nominal wage is frozen for one year, by how much will the real wage change?

It will decrease by about 3 percent.

How would an increase in the required reserve ratio affect banks' ability to create money?

It will reduce the banks' ability to create money by increasing excess reserves.

A professional basketball players' union negotiates a contract that dramatically increases all players' salaries. How would this influence the opportunity cost for a player who was considering giving up basketball to pur- sue a career in broadcasting?

It would increase the opportunity cost of becoming a broadcaster.

Who was the economist that began modern macroeconomics?

John Maynard Keynes

When the Federal Reserve System was first established, which of the following was its chief responsibility?

Keeping the inflation rate low and stable

Which of the following individuals can be counted as part of the labor force?

Meredith, who is collecting unemployment benefits

Which of the following would be included in the consumption component of GDP?

Movie ticket sales4.5 percent

When a recession begins and ends is determined by a committee within

National Bureau of Economic Research

The president of the Federal Reserve Bank of which district has a permanent vote in the Federal Open Market Committee?.

New York.

Your instructor believes there are some important new ideas about economic development based on the book about violence and the social order by Douglas North et al, as interpreted in lecture by your instructor. None, one or more of them may be contained in the nearby list of Ideas For Economic Development. Which ideas are based on that book as discussed in lecture?

Only one of these ideas is based on that book, and it is statement 3.

If, in the Aggregate Demand/Aggregate Supply model (as presented in lecture), those two curves in- tersect to the left of Full-employment, 1) There is a "deflationary gap". 2) Wages will begin to rise, shifting the AS curve upward. 3) Prices will begin to rise, shifting the AD curve downward.

Only statement 1 is correct.

Evaluate the following statements about annual Real GDP growth rates from 1970 through 2011: 1) In the majority of years, Real GDP grew more than 2% 2) There are several years when Real GDP grew by 7% or more. 3) Real GDP has declined in at least 15 of those 47 years, always during the recessions.

Only statement 1 is true.

Your instructor probably believes the following: 1) As a general rule, the government not borrow money to pay for current consumption expenditures, and in- stead should pay for them with taxes. 2) As a general rule the government should not borrow money to fight a war, and instead should pay for them with taxes.

Only statement 1 is true.

Your instructor probably believes the following: 1) As a general rule, the government should not borrow money to pay for current consumption expenditures, and instead should pay for them with taxes. 2) As a general rule the government should not borrow money to fight a war, and instead should pay for them with taxes.

Only statement 1 is true.

If, in the Aggregate Demand/Aggregate Supply model (as presented in the text and lecture) the two curves intersect to the right of Potential Output, 1) There is a "deflationary gap". 2) Prices and wages will begin to rise, shifting the AS curve upward.

Only statement 2 is correct.

If, in the Aggregate Demand/Aggregate Supply model (as presented in recent lecture) the two curves intersect to the right of Full Employment Output, 1) There is a "deflationary gap". 2) Wages will begin to rise, shifting the AS curve upward.

Only statement 2 is correct.

If, in the Aggregate Demand/Aggregate Supply model (as presented in the text and lecture) the two curves intersect to the right of Full Employment Output, 1) There is a "deflationary gap". 2) Prices and wages will begin to rise, shifting the AS curve upward.

Only statement 2 is correct.

Based on the simple circular flow model as presented in recent lectures, suppose the economy is in an unemployment equilibrium (wages and prices are "downward sticky"). The money supply is not permitted to change, however the government now increases government spending. Evaluate each of the following statements and select the best answer from A) through E) below. 1) Inflation definitely will occur because the increase in government spending will stimulate business activity, putting more income in the hands of the public, permitting them to increase spending. Inflation will be the result. 2) The economy will definitely be stimulated and begin to recover from the recession, but we don't know if interest rates will rise or fall. 3) Interest rates will decline and the economy will begin to recover. 4) Interest rates will rise and the economy will begin to recover. 5) Interest rates will rise but the economy will not be stimulated by the increase in government spending.

Only statement 5 is correct.

Evaluate the following statements, then choose the best answer. 1) The 1981-82 recession was triggered by a change in Federal Reserve policy leading to a decline in spending on new homes, auto and net investment. 2) The 2001 recession was triggered by large increases in oil prices leading to reduced spending on energy using products. 3) The 1974 recession was triggered by a sharp rise in oil prices leading to a reduced spending on cars and energy using products.

Only statements 1 and 3 are correct.

In lecture we discussed the production possibility frontier model (also called production possibility curve model). Consider the following statements having to do with that model and then select the best answer. 1) If the ppf is convex, this may be because of increasing returns to scale in one or both industries. 2) If the ppf is concave, this may be because of gains from specialization and the division of labor. 3) If Oysters are on the horizontal axis, and Coconuts are on the vertical axis, and then somebody figures out a more efficient way to grow coconuts, then every point on the ppf will shift upward except the point where it intersects the horizontal axis.

Only statements 1 and 3 are correct.

Consider the following statements about inflation, expected inflation and interest rates. 1) If actual inflation turned out lower than was expected at the time the loan was made, the lender loses and the borrower benefits. 2) If the expected inflation rate for the coming year rises from 3 percent to 6 percent, but the Fed prevents nominal interest rates from rising, then the real interest rate must have fallen by 3%. 3) If the real interest rate is 10% for a 4 year auto loan, and expected inflation for the next four years is 5% per year, then the auto loan will have a nominal interest rate of 15%. 4) The real interest rate plus the nominal interest rate equals the expected rate of inflation.

Only statements 2 and 3 are correct.

Think about an "experiment" in which the economy begins in a macroeconomic equilibrium, except that the money supply is growing for many years at the rate of 5% per year more than is needed, so prices have been rising at the rate of 5% per year. The economy is at full employment. The "real" interest rate, r, is about 4%. Now the experiment begins. Telling nobody, the Fed begins buying government securities more slowly than before, permanently reducing the rate of excessive money growth from 5% per year down to 2% per year. Evaluate the following statements, and then choose the best answer. 1) Even if it was not discussed in lecture, there is no reason to believe a recession would be caused by this experiment, since the money supply is still growing, just at a slower rate. 2) Just before the experiment begins, nominal interest rates would be about 9%. 3) After the experiment begins, there would probably be a period of time during which actual inflation was less than expected inflation, and of course in such times lenders become better off while borrowers become worse off.

Only statements 2 and 3 are correct.

Think about an "experiment" in which the economy begins in a macroeconomic equilibrium, except that the money supply is growing for many years at the rate of 5% per year more than is needed, so prices have been rising at the rate of 5% per year. The economy is at full em- ployment. The "real" interest rate, r, is about 4%. Now the experiment begins. Telling nobody, the Fed be- gins buying government securities more slowly than before, permanently reducing the rate of excessive money growth from 5% per year down to 2% per year. Evaluate the following statements, and then choose the best answer. 1) Even if it was not discussed in lecture, there is no reason to believe a recession would be caused by this experiment, since the money supply is still growing, just at a slower rate. 2) Just before the experiment begins, nominal interest rates would be about 9%. 3) After the experiment begins, there would probably be a period of time during which actual inflation was less than expected inflation, and of course in such times lenders become better off while borrowers become worse off.

Only statements 2 and 3 are correct.

Evaluate each of the following statements, then select the best answer. 1) If real GDP grew 2% last year, that was an unusually good year of growth. 2) If prices rose 5% last year, based on the record since 1930 that was a large inflation rate. 3) Since 1960 there have been at least two years when prices rose by 10% or more.

Only statements 2 and 3 are true

Refer to the graph above. Evaluate statements 1 through 4 and then select the answer from A) through E): 1) Moving from point E to point F is accompanied by an increase in demand. 2) Moving from point E to point F is accompanied by a decrease in demand. 3) Moving from point E to point C is accompanied by no change in demand. 4) Moving from point E to point C is accompanied by an increase in demand.

Only statements 2 and 3 are true.

Which of the following is not a responsibility of the Federal Reserve?

Printing paper currency

Which of the following would not be included in the consumption component of GDP?

Purchase of a new home

Calculate the answers to these two questions, then choose the best answer from below. 1. What has happened to your real wage if your boss gives you a 8% wage hike and prices rise by 6%. 2. What has happened to your real wage if your boss doubles your salary (up 100%) and prices rise by 50%.

Question 1 up 2%; Question 2 up 33%

What is the difference between nominal and real GDP?

Real GDP is adjusted for changes in the price level; nominal GDP is not.

An example of a frictionally unemployed individual is

Samantha, who quits her job to look for better one

Based on the circular flow model as presented in recent lectures, and starting from an "unemployment equilibrium", decide whether each of the following statements is True or False, then choose the best answer from among a. through e. below. 1) If the government cuts taxes, this will stimulate the economy to grow. 2) If the government increases government spending, this will stimulate the economy to grow. 3) If the government increases the money supply, this will stimulate the economy to grow.

Statements 1) and 2) are false but 3) is true.

Based on the circular flow model as presented in lecture, and starting from an "unemployment equilibrium", decide whether each of the following statements is True or False, then choose the best answer from among a. through e. below. 1) If the government cuts taxes, this will stimulate the economy to grow. 2) If the government increases government spending, this will stimulate the economy to grow. 3) If the government increases the money supply, this will stimulate the economy to grow.

Statements 1) and 2) are false but 3) is true.

During the last financial crisis, the Fed was criticized for overstepping its authority and exercising powers it had not been granted. Which of the following was NOT one of the causes of this criticism of the Fed?

The Fed did not explain why it was taking certain actions.

Fed Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves in trouble by taking on too much risk. Why did the Fed do it?

The Fed feared that failures of very large institutions threatened the stability of the entire financial system.

Which of the following is an example of Monetary Policy?

The Federal Reserve buys bonds in the open market.

What would be the appropriate Monetary Policy to fight inflation?

The Federal Reserve could decrease the discount rate.

Using the US money supply model given in the last few lec- tures, if the non-bank public increases its desired ratio of currency to demand deposits decide which of the following statements is the most accurate:

The US money supply definitely will decrease.

If there is a large increase in the price of oil, which of the following would most likely occur in the short run?

The aggregate supply curve shifts upward, the price level rises, and output falls.

In the 1970s and 1980s policies that required retirement of people over age 65 were repealed. Which variable would this directly affect?

The employment-population ratio

What would happen if the Fed tried to keep employment above the full-employment level?

The price level would increase.

In lecture you were given a model to account for the difference in prices of the different goods. Which of the following most accurately describes it?

The price of a good must be sufficient to attract all resources needed for its production plus additional amounts to cover the costs of taxes or possible monopolistic behavior at various stages of production.

In lecture you were given a model to account for the differences in prices of the different goods. Which of the following most accurately describes it?If the economy is in full employment equilibrium, and the money supply is increased 12%, then we expect:

Suppose that a market is initially in equilibrium. Then the government imposes a price floor above the equi- librium price. Which of the following will occur in the absence of a black market?

The quantity sold will drop.

Which of the following is not a function of the Fed?

To print currency.

Refer to the Keynesian equation just above if it helps you. Also, please assume that changes in interest rates do not change any of the variables. Also assume that the marginal propensity to import equals zero, and also "t" in the equation = 0. Now the government increases both government spending and taxes by $100 billion. Then choose the best answer.

Under these assumptions, interest rates will rise but the economy will not be stimulated.

Using the US money supply model given in the last two lectures, if the non-bank public increases its desired ratio of currency to demand deposits decide which of the following statements is the most accurate:

We cannot know whether the US money supply will increase, decrease or remain unchanged, but this ratio definitely can affect the US money supply.

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