Econ Fin 212

If the quantity of real money balances is kY, where k is a constant, then velocity is:

1/k

Assume that velocity in the quantity equation is constant. Suppose M=100, V=3, P=6 and Y=50. Velocity and real GDP are constant. If the money supply rises to 200 then average price becomes

12

Suppose the rate of job separation is 0.02 per month and the rate of job finding is 0.10 per month. The natural rate of unemployment is

17

Assume that a country's production function is Y = K ^1/2 L^1/2. According to the production function's specific form, increasing both capital and labor inputs by a factor of 2 will cause output to increase by a factor of:

2

All of the following transactions that took place in 2009 would be included in GDP for 2009 except the purchase of a: -2001 Jeep Cherokee. -book printed in 2009, entitled The Year 3000. -year 2010 calendar printed in 2009. -ticket to see the movie 2001.

2001 Jeep Cherokee.

Suppose all money is held as demand deposits (cr=0). Banks hold 20 percent of deposits as reserves (rr=.2). If cr were to rise to .2 then the multiplier would become;

3

Assume that velocity in the quantity equation is constant. Suppose M=100, V=3, P=6 and Y=50. Nominal GDP is

300

Assume that velocity in the quantity equation is constant. Suppose nominal GDP = $400B and M = $100B. The velocity of money is

4

Assume that velocity in the quantity equation is constant. Suppose nominal GDP = $400B and M = $100B. If you raise the money supply by $10B then nominal GDP rises by

40 billion dollars

Suppose the nominal exchange rate = ¥80 per $1. Based on the exchange rate, a laptop priced at $500 in the U.S. would cost ¥ __________in Japan

40,000

Suppose all money is held as demand deposits (cr=0). Banks hold 20 percent of deposits as reserves (rr=.2). The money multiplier is:

5

The short run refers to a period:

during which prices are sticky and unemployment may occur.

The number of effective workers takes into account the number of workers and the

efficiency of each worker.

Theories of real-wage rigidity and unemployment according to which firms raise labor productivity and profits by keeping real wages above the equilibrium level.

efficiency-wage theory

The variables which a model tries to explain are called __________ variables.

endogenous

A production function is a technological relationship between:

factors of production and the quantity of output produced.

The Solow growth model describes:

how saving, population growth, and technological change affect output over time.

The efficiency of labor

includes the knowledge, health, and skills of labor

According to Franco Modigliani's life-cycle hypothesis, the principal determinant(s) of consumption is (are):

income and wealth.

Assets of banks include:

loans to customers

The production function y = f(k) means:

output per worker is a function of capital per worker.

All of the following are types of macroeconomics data except the: -price of an IBM computer. -growth rate of real GDP. -unemployment rate. -inflation rate.

price of an IBM computer.

The supply and demand for loanable funds determines the:

real interest rate.

According to purchasing-power parity, if the dollar price of oil is higher in New York than in London, arbitrageurs will ___ oil in New York and _____ oil in London to drive _____ the price of oil in New York.

sell; buy; down

To reduce the money supply, the Federal Reserve:

sells government bonds.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoeleather costs

When f(k) is drawn on a graph with increases in k noted along the horizontal axis, the:

slope of the line eventually gets flatter and flatter.

According to the sticky-price model

some firms announce their prices in advance, and some firms set their prices in accord with observed prices and output.

Public policy aimed at reducing the severity of short-run economic fluctuations.

stabilization policy

A condition in which key variables are not changing.

steady state

An increase in the price of imported goods will show up in:

the CPI but not in the GDP deflator.

In the classical model with fixed prices and output, the supply and demand for goods and services are balanced by:

the interest rate.

In a simple model of the supply and demand for pizza, the endogenous variables are: -aggregate income and the quantity of pizza sold. -the price of pizza and the quantity of pizza sold. -aggregate income and the price of cheese. -the price of pizza and the price of cheese.

the price of pizza and the quantity of pizza sold.

If net capital outflow is positive, then:

the trade balance must be positive.

Milton Friedman argued that, over long periods of time, the average propensity to consume is constant because, over these long periods of time:

the variation in income is dominated by the permanent component

Compared to a closed economy, an open economy is one that:

trades with other countries.

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

unit of account.

The quantity theory of money assumes that:

velocity is constant.

According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer

does not change production.

When firms experience unplanned inventory accumulation, they typically:

lay off workers and reduce production

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______.

prices; output

The rate at which one country's goods trade for another country's goods.

real exchange rate

Frictional unemployment is unemployment caused by:

the time it takes workers to search for a job.

__________ is the concept that as one input is increased (holding other inputs constant), its marginal product falls.

Diminishing marginal product

The __________ effect is the idea that there is a one-for-one influence of expected inflation on the nominal interest rate.

Fisher

Suppose all money is held as demand deposits (cr=0). Banks hold 20 percent of deposits as reserves (rr=.2). The currency-deposit ratio is determined by (type in the letter corresponding to the correct answer): a. the Federal Reserve. b. business policies of banks and the laws regulating banks. c. preferences of households about the form of money they wish to hold. d. the Federal Deposit Insurance Corporation (FDIC).

c. preferences of households about the form of money they wish to hold.

The consumption function in the Solow model assumes that society saves a:

constant proportion of income

The value of all goods and services bought by households is called

consumption

Under a floating system, the exchange rate:

fluctuates in response to changing economic conditions.

Suppose the nominal exchange rate = ¥80 per $1. If the exchange rate were to change to 100 ¥ per $1 then imports from Japan would (increase/decrease).

increase

In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income:

increases by more than 250.

Currency + reserves controlled by the central bank equals the

monetary base

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. -fewer; decrease -more; increase -more; decrease -fewer; increase

more; decrease

The steady-state rate of unemployment.

natural rate

Okun's law is the ______ relationship between real GDP and the ______.

negative; unemployment rate

The nominal exchange rate between the U.S. dollar and the Japanese yen is the:

number of yen you can get for one dollar.

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:

output and employment will increase in the short run

The natural rate of unemployment is:

the average rate of unemployment around which the economy fluctuates.

In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals:

-$10 billion.

Suppose the nominal exchange rate = ¥80 per $1. Suppose a typical car in the U.S. is priced at $25,000 and a similar car in Japan is priced at ¥4,000,000. The nominal exchange rate is ¥80 per US dollar. The real exchange rate is

0.5

Suppose the natural rate of unemployment is 5% and the actual rate of unemployment is 7%. Okun's Law implies the ratio of the change in unemployment rate to the percent change in GDP is 2. Also assume an equation of exchange with constant velocity and sticky prices but GDP can vary. The growth in the money supply to reduce the unemployment rate to the natural rate should be

1

Assume that velocity in the quantity equation is constant. If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in_____ (type in the letter corresponding to the correct answer). a. inflation of 1 percent and the nominal interest rate of less than 1 percent. b. inflation of 1 percent and the nominal interest rate of 1 percent. c. inflation of 1 percent and the nominal interest rate of more than 1 percent. d. both inflation and the nominal interest rate of less than 1 percent. MV=PY

B

Assume that a country's production function is Y = K ^1/2 L^1/2. This production function exhibits (increasing/constant/decreasing) returns to scale.

Constant

Which of the following is the best example of structural unemployment? Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has 2 months of unemployment insurance benefits left. Tim is looking for a job with flexible hours but has not been offered one yet. Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation.

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available

A supply shock does not occur when:

The Fed increases the money supply

In the long run, the level of output is determined by the:

amounts of capital and labor and the available technology.

if the number of dollars per yen rises, this is called a(n):

appreciation of the yen.

Suppose all money is held as demand deposits (cr=0). Banks hold 20 percent of deposits as reserves (rr=.2). The reserve-deposit ratio is determined by (type in the letter corresponding to the correct answer): a. the Federal Reserve. b. business policies of banks and the laws regulating banks. c. preferences of households about the form of money they wish to hold. d. the Federal Deposit Insurance Corporation (FDIC).

b. business policies of banks and the laws regulating banks.

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift:

downward and to the left

Checking account balances are included in:

both M1 and M2

Suppose the nominal exchange rate = ¥80 per $1. If the exchange rate were to change to 100 ¥ per $1 then exports from the U.S. to Japan would (increase/decrease).

decrease

The income velocity of money increases and the money demand parameter k______ when people want to hold ______ money. - increases; less - decreases; less - decreases; more - increases; more

decreases; less

Bank reserves equal:

deposits that banks have received but have not lent out

Suppose the nominal exchange rate = ¥80 per $1. If the exchange rate were to change to 100 ¥ per $1 the yen would (appreciate/depreciate)

depreciate

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____, the amount of investment spending depends on _____, and the amount of government spending is determined _____. -labor's share of output; capital's share of output; by the interest rate -the interest rate; disposable income; by tax revenue -disposable income; the interest rate; exogenously -the real wage; the real rental price of capital; by factor prices

disposable income; the interest rate; exogenously

Suppose the natural rate of unemployment is 5% and the actual rate of unemployment is 7%. Okun's Law implies the ratio of the change in unemployment rate to the percent change in GDP is 2. Also assume an equation of exchange with constant velocity and sticky prices but GDP can vary. Suppose we have an economy where the Fed wants to increase the money supply in order to increase real GDP. Assume that both GDP and prices are flexible. Furthermore, people in the economy forecast with rational expectations. In such a situation if the Fed increases the money supply by 5% then prices rise by % and GDP rises by %.

5:0

Assume that a country's production function is Y = K ^1/2 L^1/2. Assume that the country possesses 4 units of capital and has 9 workers. Y is

6

Assume that a country's production function is Y = K ^1/2 L^1/2. Suppose a more liberal immigration policy increases the number of workers to 16. Capital is unchanged at 4. Output would become

8

Assume that a country's production function is Y = K ^1/2 L^1/2. Suppose a capital investment tax break increases the capital stock to 9 units. The labor force is unchanged at 9. Output would become

9

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent).

9

Suppose the natural rate of unemployment is 5% and the actual rate of unemployment is 7%. Okun's Law implies the ratio of the change in unemployment rate to the percent change in GDP is 2. Also assume an equation of exchange with constant velocity and sticky prices but GDP can vary. Shifting to the assumption that prices and GDP can change, suppose the Phillips curve has a slope of -2. The central bank wishes to reduce inflation from 7 percent to 5 percent, this will cost the economy % in rising unemployment.

1

Suppose the natural rate of unemployment is 5% and the actual rate of unemployment is 7%. Okun's Law implies the ratio of the change in unemployment rate to the percent change in GDP is 2. Also assume an equation of exchange with constant velocity and sticky prices but GDP can vary. If we want GDP to rise by 3% then the money supply should grow by

3

Suppose all money is held as demand deposits (cr=0). Banks hold 20 percent of deposits as reserves (rr=.2). If the monetary base is $1,000 then the money supply is:

5000