Econ Final - ( Midterm 2)

38) Based on the table above, equilibrium real GDP is A) $8 trillion. B) $10 trillion. C) $7 trillion. D) $9 trillion. E) $6 trillion.

C) $7 trillion.

Item Qty Price 2015 Price2016 Dinner 2 $25 $50 Movie ticket 1 $10 $20 7) Families in a country consume only dinners and movies tickets. The reference base period is 2015. The CPI in 2016 is A) 150 B) 35 C) 100 D) 60 E) 200

E) 200

9) Suppose higher prices lead consumers to switch from shopping at Abercrombie & Fitch to shopping at Wal-Mart. If the CPI does not reflect this change, it is referred to as A) a quality change bias. B) a new goods bias. C) store bias. D) a new price bias. E) an outlet substitution bias.

E) an outlet substitution bias.

23) The relationship between bond prices and interest rates is: A) bond prices and interest rates are positively related. B) they are sometimes positively and at other times inversely related. C) they are not related. D) how they are related depends on the Fed. E) bond prices and interest rates are inversely related.

E) bond prices and interest rates are inversely related.

25) During an economic expansion when real GDP increases, the A) supply of money decreases. B) real interest rate is constant. C) nominal interest rate is constant. D) demand for money decreases. E) demand for money increases.

E) demand for money increases.

30) Inflation at a rate that exceeds 50 percent per month is called A) megainflation. B) skyflation. C) super inflation. D) extreme inflation. E) hyperinflation.

E) hyperinflation.

35) In the figure above, the shift in the aggregate demand curve from AD1 to AD2 could be result of A) an increase in government expenditures on goods and services. B) a fall in the price level. C) an increase in taxes. D) a rise in the price level. E) a decrease in the quantity of money.

A) an increase in government expenditures on goods and services.

22) In the above figure, a movement from point B to point C represents A) an increase in the demand for money that might be the result of an increase in the price level. B) an increase in the demand for money that might be the result of a decrease in real GDP. C) a decrease in the quantity of money demanded. D) a decrease in the demand for money that might be the result of an increase in real GDP. E) an increase in the quantity of money demanded.

A) an increase in the demand for money that might be the result of an increase in the price level.

39) In the figure above, the economy is at an equilibrium with real GDP of $10 trillion and a price level of 110. At this point there is A) an inflationary gap. B) price stability. C) a recessionary gap. D) a full-employment equilibrium.

A) an inflationary gap.

15) A public authority that provides banking services to commercial banks and regulates financial institutions and markets is called a A) central bank. B) mint. C) thrift institution. D) commercial bank. E) money market fund.

A) central bank.

37) Refer to the table above. If the price level is 90, then the aggregate quantity demanded is ________ than the aggregate quantity supplied and the price level ________. A) greater; rises B) less; rises C) less; falls D) greater; falls E) less; might fall, rise or not change depending on whether real GDP is more than, less than, or equal to potential GDP.

A) greater; rises

28) When real GDP equals potential GDP, the quantity theory of money says that all else equal an increase in the quantity of money brings an equal percentage A) increase in the price level. B) increase in real GDP. C) decrease in velocity. D) decrease in real GDP. E) decrease in the price level.

A) increase in the price level.

4) The unemployment rate generally ________ during recessions and generally ________ during expansions. A) increases; decreases B) decreases; increases C) increases; increases D) increases; does not change E) decreases; decreases

A) increases; decreases

11) The difference between the nominal interest rate and the real interest rate is the A) inflation rate. B) price level. C) money growth rate minues the inflation rate. D) unemployment rate. E) GDP growth rate.

A) inflation rate.

1) The unemployment rate measures the percentage of A) people in the labor force who can't find a job. B) the working-age population who can't find a job. C) the working-age population that can't find a full-time job. D) people who want full-time jobs, but can't find them. E) employed people who can't find a job.

A) people in the labor force who can't find a job.

26) In the money market, in the short run in order to decrease the nominal interest rate, the Fed must A) decrease the quantity of money. B) increase the quantity of money. C) directly lower the interest rate and not change either the demand for money or the supply of money. D) decrease the demand for money. E) increase the discount rate.

B) increase the quantity of money.

19) To increase the quantity of money in the economy, the Federal Reserve can A) sell government bonds in an open market operation. B) reduce the reserve requirement ratio. C) print more money and give it to the banks. D) cut taxes. E) reduce government spending.

B) reduce the reserve requirement ratio.

21) In response to the 2007-2008 financial crisis, the Fed implemented all of these unconventional policy tools EXCEPT A) Allowing banks to borrow against their holdings of mortgage-backed securities. B) Buying long-term US government Treasury securities (bonds). C) Direct lending to troubled homeowners. D) Extending its emergency lending operations to investment banks. E) Making direct investments in banks.

C) Direct lending to troubled homeowners.

10) In the 1970s, a period of high inflation, a news magazine article listed people who were losing from inflation because their real purchasing power was falling. Those who lost the most were university professors. What might have explained this? A) The marginal benefit of their work was falling. B) Their wage rates increased more rapidly than the CPI. C) Their wage rates did not increase as much as the CPI. D) The professors' productivity was rising rapidly. E) The professors suffered from CPI bias.

C) Their wage rates did not increase as much as the CPI.

33) A rise in foreign demand for our exports leads to ________ in aggregate demand and ________ in real GDP. A) no change; a decrease B) an increase; a decrease C) an increase; an increase D) a decrease; an increase E) a decrease; a decrease

C) an increase; an increase

18) When the Fed buys or sells securities, it is conducting ________ operation. A) a deposit B) a government debt C) an open market D) a currency E) a money multiplier

C) an open market

13) If you deposit $1,000 in cash in your checkable deposit at your bank, the quantity of M1 immediately A) increases by $1,000. B) decreases by $1,000. C) does not change in size. D) increases by $2,000. E) changes, but more information about the required reserve ratio is necessary to determine the amount of the change.

C) does not change in size.

2) People who are working but not getting as many hours as they would like because of a recession are called A) unhappy workers. B) unemployed workers. C) involuntary part-time workers. D) involuntarily unemployed. E) discouraged workers.

C) involuntary part-time workers.

29) Uncertainty costs arise from inflation because inflation makes long-term planning ________ so people respond by ________ investment. A) less difficult; not changing B) more difficult; not changing C) more difficult; decreasing D) less difficult; increasing E) more difficult; increasing

C) more difficult; decreasing

8) The inflation rate is the A) percentage change in the composition of the CPI market basket from the base year to the next year. B) difference between the current period CPI and the base period CPI. C) percentage change in the CPI from one year to the next year. D) difference in the price level from one year to the next multiplied by 100. E) difference between the base period CPI and the current period CPI.

C) percentage change in the CPI from one year to the next year.

16) Required reserve ratios are the minimum amount of A) deposits any one bank is allowed to accept as percentage of its capital. B) deposits any one bank must hold as a percentage of its reserves. C) reserves any one bank must hold as a percentage of its deposits. D) reserves any one bank must hold as a percentage of its loans. E) reserves any one bank must hold as a percentage of its total assets.

C) reserves any one bank must hold as a percentage of its deposits.

31) A reason why an increase in the price level decreases the quantity of real GDP demanded is that A) the price of domestic goods and services falls relative to foreign goods and services. B) the inflation rate decreases. C) the buying power of money decreases. D) the real interest rate falls.

C) the buying power of money decreases.

5) All of the following characterize labor markets in the current expansion EXCEPT A) There have been more long-term unemployed than normal. B) It has taken a long time to get many discouraged workers back into the labor force. C) College graduates have had trouble finding jobs that need a BA degree. D) The unemployment rate has failed to improve.

D) The unemployment rate has failed to improve.

34) One effect of the global financial crisis was to create A) an inflatioary gap in the long run. B) a recessionary gap in the long run. C) an inflationary gap in the short run. D) a recessionary gap in the short run.

D) a recessionary gap in the short run.

36) The change reflected in the above figure might be a result of A) an increase in the quantity of labor. B) a decrease in the quantity of capital. C) a decrease in the money prices of resources other than labor. D) a rise in the price of oil. E) a fall in the price level.

D) a rise in the price of oil.

40) Cost-push inflation can be started by A) a decrease in the money wage rate. B) a decrease in government expenditure on goods and services. C) an increase in government expenditure on goods and services. D) an increase in the money prices of raw materials. E) an increase in the quantity of money.

D) an increase in the money prices of raw materials.

17) Which of the following is NOT one of the Fed's monetary policy tools? A) changing the required reserve ratio B) undertaking an extraordinary crisis measure C) buying government securities D) changing the income tax rate E) changing the discount rate

D) changing the income tax rate

27) At its September meeting, the Federal Open Market Committee announced that it was going to A) keep interest rates unchanged until information about the economy becomes available this month. B) continue to raise interest rates because inflation has been accelerating rapidly. C) keep interest rates fixed for the foreseeable future. D) cut interest rates because investment and exports have weakened, while inflation is relatively low.

D) cut interest rates because investment and exports have weakened, while inflation is relatively low.

24) In the above figure, if the interest rate is 6 percent per year, the quantity of money demanded is A) greater than the quantity of money supplied, and the interest rate will change. B) less than the quantity of money supplied, and the demand for money curve will shift. C) greater than the quantity of money supplied, and the demand for money curve will shift. D) less than the quantity of money supplied, and the interest rate will change. E) greater than the quantity of money supplied, and the supply of money curve will shift.

D) less than the quantity of money supplied, and the interest rate will change.

14) Banks earn a profit by A) not paying interest on their reserves. B) keeping as many reserves on hand as possible. C) making loans at a lower interest rate than the rate that they offer on their deposits. D) making loans at a higher interest rate than the rates that they offer on their deposits. E) charging an interest rate on their depositors' accounts.

D) making loans at a higher interest rate than the rates that they offer on their deposits

20) The magnitude of the money multiplier falls if A) the Fed conducts open market operations. B) Banks make more loans. C) Congress raises income taxes. D) people decide to hold less of their money in the banking system. E) Banks become less concerned about their own financial health.

D) people decide to hold less of their money in the banking system.

3) Structural unemployment includes people who become unemployed from A) normal changes in the labor force. B) changes in the seasons. C) going back to school. D) technological changes. E) changes in the business cycle.

D) technological changes.

12) Which of the following is NOT among the primary functions of money? A) an object that is generally accepted in return for goods and services B) medium of exchange C) store of value D) unit of account E) indicator of supply

E) indicator of supply

32) Macroeconomic equilibrium occurs when A) the price level equals the potential price level. B) there is no inflation. C) real GDP is equal to potential GDP. D) the economy is fully employed. E) the aggregate quantity demanded is equal to the aggregate quantity supplied.

E) the aggregate quantity demanded is equal to the aggregate quantity supplied.

6) The Consumer Price Index market basket contains A) the U.S.-produced goods and services purchased by an average urban household. B) the goods and services that the economists working for the BLS believes consumers should buy. C) the ideal calorie intake of each member of an average urban household. D) the minimal dietary requirements of an average urban household. E) the goods and services purchased by an average urban household.

E) the goods and services purchased by an average urban household.