ECON FINAL EXAM homework

which best describes technological knowledge?

knowledge used to produce goods and services

In what way(s) does GDP per capita not provide an accurate representation of living standards?

- GDP per capita does not account for how people distribute their time between work and leisure - GDP per capita does not measure production that occurs outside of the market economy - GDP per capita does not account for changes in environmental quality

which scenario describes the operation of a tariff? Which is NOT an effect of a tariff?

- Ireland taxes the import of potatoes in order to keep domestic farmers in business - increased demand

does not create incentives for growth

- a command (non-market) economy - civil conflict

Canada is considering imposing a tax on imports of Chinese solar panels. This action would be best described as a In general, which of the statements is most likely to occur as a result of the proposed tax on imported solar panels?

- tariff - consumers in Canada will face higher prices for solar panels

which of the factors would decrease the rate of frictional unemployment? when the economy is doing well, a significant share of unemployment is frictional

- the advent of the Internet, which makes finding available jobs easier - true

Fiscal policy is conducted by ______ and involves _______

- the federal government - government spending and taxes

The U.S. GDP in 2009 was $13,939 billion, and the previous year the GDP was $14,291.5 billion. What was the rate of growth in GDP in 2009?

-2.47%

what moral hazard problem results from action by the Federal Reserve (the Fed)

large banks make risky decisions, understanding that the Fed will insulate them from bad choices

according to the Solow model, a higher investment rate leads to

more capital and more output

How do mutual funds reduce risk for the average individual investor?

mutual funds reduce risk through portfolio diversification

What is the difference between real and nominal gross domestic product (GDP)?

nominal GDP for a given year is measured in dollars of that year, whereas real GDP is measured in dollars of some base year

what is the name of the monetary policy rule that changes interest rates based on a target for the nominal GDP growth rate?

nominal GDP targeting

the shadow banking system refers to

non-bank financial firms that acted as banks by borrowing and lending in an effort to make a profit.

which of the choices is most directly related to cyclical unemployment?

recessions

which of the situations describes a bandwagon effect caused by a lack of confidence in the markets?

rick notices that his brother Steve and many other investors have reduced the amount they invest, and Rick decides to do the same

The government of Balearic is concerned about a recession, so it decides to implement expansionary fiscal policy. How would this policy be depicted in an AD-AS model? Expansionary fiscal policy would

shift the AD curve to the right

which statement best describes the Federal Reserve timeframe for monetary policy implementation and observable policy effect?

short implementation time with a long lag before observation of effectiveness

what does the investment component of GDP measure?

spending on goods to be used in future production

The source of the ____ for loanable funds is saving The source of the ___ for loanable funds is investment The ____ represents the price of a loan

supply demand interest rate

The Fisher Effect equation can be used to determine the real interest rate. Use this equation to determine the answer to the question. If the nominal interest rate is 0.070, and the inflation rate is 0.025, what is the real interest rate?

0.045

After a financial crisis hits the country of Arcadia, 10 million people become unemployed. If 75 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Unemployment rate:

11.76%

The U.S. GDP in 2003 was $11,142.2 billion, and the previous year the GDP was $10,642.3 billion. What was the rate of growth in GDP in 2003?

4.70%

The overall population for Region A is 124 million people. The labor force contains 51 million people, 26 million people are employed, and 25 million are unemployed. What is the unemployment rate?

49.02%

which of the statements best describes the monetary rule, as proposed by the economist Milton Friedman?

Inflation is kept in check in the long run by keeping the growth of M1 and M2 on a steady path

growth miracles

Japan and South Korea

what is a real price?

a real price refers to a price that has been adjusted to account for inflation

which statement regarding economic growth is supported by the histories of the listed countries?

growth is not guaranteed, even when a country has experienced it in the past

which statement is true?

higher fees charged by mutual funds do not usually result in higher returns for the investor

assume an economy is currently engaged in free trade but considering implementing a tariff on its main import, athletic shoes. with a tariff, price _____, domestic production ______, imports _______, and domestic producer surplus _______

increase, increase, decrease, and increase

a good produced in the current time period but put into a firm's inventory instead of being sold

is considered unsold inventory and counted as a part of investment in current GDP

although both tariffs and quotas are tools used to restrict or reduce trade, which of the statements best describes their differences?

tariffs are a tax on imported goods, and quotas are limits on the number of imported goods

which of the people or institutions listed exercises the most power over the quantity of money in the United States economy?

the United States Federal Reserve

many economists think that effective institutions are essential for economic growth. In this context, what are institutions?

the laws, social norms, and conventions of a culture

Real GDP per capita is NOT an adequate measure of

the well-being of each person in an economy

which most strongly supports Duncan's thinking that patents are necessary?

Patents give firms an incentive to spend money on research and development

suppose you are looking at two investment portfolios. Portfolio A has an expected annual return of 10%, and Portfolio B has an expected annual return of 5% which portfolio do you expected to be riskier?

Portfolio A

growth disaster

nigeria and argentina

in a macroeconomic context, choose the best definition for the term velocity

the rate at which money circulates through an economy

Which best describes why the multiplier exists?

when people spend money, that money ends up in the pockets or bank accounts of the other people or organizations, who then use that money in some way

suppose the Federal Reserve (Fed) decides the current money supply of $2.1 trillion is too low, and that an increase of $500 billion is necessary. What tool can the Fed use to accomplish this increase? Assume the current reserve ratio is 0.2 Calculate the change in reserves necessary to achieve the $500 billion increase

- buy government securities - $100 billion

you are considering purchasing a car, and you are offered a loan with a nominal interest rate of 6%. Assume inflation is expected to average 2% over the life of the loan. What is the real interest rate?

4%

creates incentives for growth

-private property ownership - a market economy - legally protected investments

the natural rate of unemployment equals

frictional unemployment plus structural unemployment

which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics?

jack wants to borrow money to create a cowboy-themed inflatable bounce house for kids called " Wild Wild West." However, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success? Which source of productivity growth does the best proposal directly influence?

- to increase the general level of skills in the labor force, develop higher levels of quantitative skills through free classes at community colleges - human capital

which of the statements best describes a situation represented by point A? Given the market conditions, what will be the prevailing interest rate? Given the market conditions, how much will be available in loanable funds?

- Wayne projects that if he takes out a loan to open another gym franchise, he will earn a lower return than the interest rate he would have to pay, so he decides against it - 10% - $50 billion

what is crowding out? ____ are a mechanism by which crowding out occurs

- a reduction in consumption and investment spending that results from government borrowing - increases in interest rates

what is inflation? which of the examples provides the best evidence that inflation has occurred?

- an increase in the overall price level - a person whose salary has increased is. able to purchase fewer goods and services

what does the term money neutrality mean? If money is neutral, what does this imply about the use of monetary policy?

- changes in the money supply have no real effects on the economy in the long run - monetary policy is more effective in the short-term than the long term

what are the three main tools the federal reserve (fed) has at its disposal to carry out monetary policy? During the financial crisis of 2007-2008, the Fed engaged in lending to certain large non-bank financial firms in the private sector. Which of the statements describes the reasoning behind the Fed's decision to engage in this type of nontraditional lending? The limiting of systemic risk in the economy by the Fed, creates ______ in the banking profession

- conducting open market operations, setting the discount rate, and paying interest on reserves - the Fed wanted to limit the systemic risk inherent among financial institutions - moral hazard

The interest rate that the Federal Reserve Bank (the Fed) charges member banks for loans is known as the ______ The Fed can ______ the money supply by lowering this rate

- discount rate - increase

which of the choices is the best example of create destruction? The typewriter industry goes bankrupt and lays off all its workers. In sharp contrast, the burgeoning electronic word processing industry hires 10,000 workers that same year. This type of unemployment resulting from the shift in industries would best be categorized under

- in the past month, there were 20,000 layoffs but 22,000 new hires - structural unemployment

which is the best characterization of the theory of Ricardian equivalence? Which is the best example of behavior predicted by the theory of Ricardian equivalence?

- people change their consumption and saving decisions in response to budget deficits or surpluses - an individual that increases saving in response to a tax cut in anticipation of future tax increases

please answer the given four questions related to the market for loanable funds. What effect will an increase in interest rates have on the quantity of loanable funds supplied? As interest rate decreases, what happens to the quantity of loanable funds demanded? Which of the terms acts as the "price" in the market for loanable funds? if the projected rate to return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?

- quantity supplied will increase - quantity demanded will increase - interest rate - the business will not take out the loan

Not included in the GDP of the U.S.

- sales of wheat to Mrs. Baird's Bakery - Resale of used textbooks to college students - GM's assembly and sale of cars in Mexico - Ocean Spray purchases plastic to make bottles

in the context of budget deficits, what is crowding out? Which of the following is an example of crowding out?

- when government borrowing leads to higher interest rates and corresponding decreases in private investment - a firm that chooses not to borrow money to invest in new machinery because government borrowing has contributed to high interest rates

in the context of budget deficits, what is crowding out? Which of the following is an example of crowding out?

- when government borrowing leads to higher interest rates and corresponding decreases in private investment - a firm that chooses not to borrow money to invest in new machinery because government borrowing high interest rates

what is a liquidity trap? which of these statements about liquidity traps is false?

- when nominal interest rates cannot be lowered any further - firms are unlikely to undertake investment during liquidity traps because interest rates are prohibitively high

Included in the GDP of the U.S.

- Honda's assembly and sale of cars in the U.S. - old Navy purchases mannequins to display clothes

suppose that the central bank has increased the money supply such that there is an additional $145879 in excess reserves. If the reserve ratio is 9.0 percent, what is the maximum increase in money supply?

$ 1620878

what is the value of the monetary base, given that the value of deposits at all depository institutions equals $2265.83 billion, currency is $1144.60 billion, and bank deposits held at the Fed are $1422.30 billion?

$2566.9 billion

all else equal, which scenario would exhibit a country with the most economic growth?

Froland, a country known to be able to resolve most trials and legal issues within a year

Please select the choice that best describes the short-run effects of this industrial change on Spectacula's GDP and its standard of living

GDP decreases and standard of living increases

which statement accurately characterizes the distribution of real GDP per capita internationally?

Real GDP per capita varies greatly across countries

which of the following best defines a financial intermediary?

a financial institution that transforms investor funds into financial assets

select the correct definition of inflation

a general and ongoing rise in the average level of prices in an economy

select the definition of consumption smoothing Identify an example of consumption smoothing

borrowing in periods of low income and saving in periods of high income to make consumption less variable than income all of these are examples of consumption smoothing

which of the institutions has influence over the United States Federal Reserve (the Fed)?

all of the above - the United States Senate - the President of the United States - the Federal Reserve Board of Governors

what is the neutrality of money with respect to the quantity theory of money?

all of the above - the money supply can affect the growth rate of prices (inflation) in the long run - the money supply cannot affect the growth rate of real GDP in the long run - the money supply can affect the growth rate of the real GDP in the short run

Which of the statements is the best description of a business cycle?

alternating periods of increasing and decreasing economic output

there are many causes that contributed to the financial crisis of 2007-2008. Which of the choices most accurately describes the role of securitization in contributing to the crisis?

banks bundled mortgages together and then sold them on the market as a financial asset. However, the risk level of these securitized assets was often much higher than the purchaser thought

which of the statements is TRUE?

fiscal policy is less effective when a recession is caused by a real shock

suppose that a baby boom occurs between the years 2025- 2030, similar to the. baby boom following World War II. what do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant? The labor force participation rate will

decrease since the baby boomers will opt for more leisure

What is the catch-up effect concerning developed and developing countries?

developing countries may grow faster then developed countries because they lack the most basic tools and capital investment leads to higher productivity growth

in the stock market, there are buyers and sellers. One stock market hypothesis relates to how an investor cannot earn returns that outperform the overall stock market if they only have public stock market information. which of these options best represents this concept?

efficient market hypothesis

which of the methods is not used by the Federal Reserve to maintain market confidence?

undergoing congressional review to ensure that the Fed is using monetary policy properly

the dynamic aggregate demand (AD) curve is modeled as a downward-sloping line Which of the statements is the best explanation for why the dynamic AD has this shape?

a proportional increase in inflation for every decrease in the growth rate is required to keep the growth in spending constant

which describes the role of automatic stabilizers in the economy?

automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions