Econ test 3 answers
44. According to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases
a. inflation and nominal interest rates, but does not change real interest rates.
31. The Fed's policy decisions have an important influence on
a. inflation in the long run and employment and production in the short run.
56. You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same
a. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
3. If the interest rate is 7.5 percent, then what is the present value of $4,000 to be received in 6 years?
b) $2,591.85
The rate at which the Fed lends money to banks is
d. the discount rate.
If the nominal interest rate is 5 percent and there is a deflation rate of 3 percent, what is the real interest rate
a. 8 percent
15. Who among the following would be counted as "unemployed"?
a. Shasta, who is waiting to be recalled to a job from which she has been laid off.
14. Which of the following is correct?
a. The amount of unemployment that a country typically experiences is a determinant of that country's standard of living, and some degree of unemployment is inevitable in a complex economy.
24. Paying efficiency wages means that wages are
a. above equilibrium, and profits are higher than otherwise.
You bought some shares of stock and sell them one year later. At the end of the year, the price per share was 5 percent higher and the price level was 3 percent higher. Before taxes, you experienced
a. both a nominal gain and a real gain, and you paid taxes on the nominal gain.
Public policy
a. can reduce both frictional unemployment and the natural rate of unemployment.
The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?
b. $19.5 million
Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
b. $4,937.5 billion
5. Markovich Corporation is considering building a new plant. It will cost $1 million today to build it and it will generate revenues of $1.121 million three years from today. Of the interest rates below, which is the highest interest rate at which Markovich still would be willing to build the plant?
b. 3.5 percent
35. If the reserve ratio is 12 percent, then the money multiplier is
b. 8.3.
60. Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which country (ies)?
b. Germany and Saudi Arabia
34. A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.
b. It has $10,000 in deposits.
Which, if any, pairs of traders has a double coincidence of wants?
b. Tim with Amy
7. The problem of moral hazard arises because
b. after people buy insurance, they have less incentive to be careful about their risky behavior
Paper dollars
b. are fiat money and gold coins are commodity money.
54. Net capital outflow measures the imbalance between the amount of
b. foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.
22. Refer to Figure 28-5. If the minimum wage is set at $125, then
b. the quantity of labor supplied will equal 35.
Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is
c. $653.48 after 5 years and $854.07 after 10 years.
17. All else equal, which of the following would increase the unemployment rate?
c. (ii) and (iii) only
You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate?
c. 43.75 percent
21. Refer to Table 28-7. If the local government imposed a minimum wage of $7 in Productionville, how many people would be unemployed?
c. 5,000
59. Refer to Table 31-2. For which country (ies) in the table does purchasing-power parity with the U.S. hold?
c. Britain and Venezuela
32. In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then
c. M1 would not change.
55. Carl and Carly are American residents. Carl buys stock of a corporation in Austria. Carly opens a coffee shop in Austria. Whose purchase, by itself, decreases Austria's net capital outflow?
c. both Carl's and Carly's
29. Which of the following does the Federal Reserve not do?
c. convert Federal Reserve Notes into gold
51. If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be
d. $60 billion.
19. Unemployment insurance
d. All of the above are correct.
30. The New York Federal Reserve Bank
d. All of the above are correct.
38. The classical theory of inflation
d. All of the above are correct.
6. Refer to Figure 27-2. From the appearance of the utility function, we know that
d. All of the above are correct.
Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then
d. All of the above are correct.
The inflation tax
d. All of the above are correct.
Which of the following equations is always correct in an open economy?
d. All of the above are correct.
46. Which of the following is an example of menu costs
d. All of the above are examples of menu costs.
10. Which of the following is not correct?
d. Diversification can eliminate market risk but not firm-specific risk.
53. If a country has a trade deficit then
d. S < I and Y < C + I + G.
The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?
d. The price level is 4 and velocity is 8.
23. Which of the following is correct?
d. There is no consensus among economists about whether unions are good or bad for the economy.
27. Most financial assets other than money function as
d. a store of value, but not a unit of account nor a medium of exchange
25. Efficiency wages, minimum-wage laws, and unions all keep wages
d. above the equilibrium level, causing a surplus of labor.
13. According to the efficient market hypothesis
d. changes in the prices of stocks are not predictable. Evidence shows that indexed funds typically do better than managed funds.
57. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as
d. e(P/P*),
Purchasing-power parity describes the forces that determine
d. exchange rates in the long run.
8. A measure of the volatility of a variable is its
d. standard deviation
16. Which of the following is the correct formula for calculating the labor force participation rate?
labor force/ adult population x 100
In the U.S., taxes on capital gains are computed using
nominal gains. This is one way by which higher inflation discourages saving.
When inflation falls, people
a. make less frequent trips to the bank and firms make less frequent price changes.
The value of money falls as the price level
a. rises, because the number of dollars needed to buy a representative basket of goods rises.
4. The present value of a payment to be made in the future falls as
a. the interest rate rises and the time until the payment is made increases.
50. Which of the following both reduce net exports?
c. exports fall, imports rise
9. A risk-averse person
c. has a utility curve where the slope decreases with wealth, and might take a bet with an 80 percent chance of winning $300 and a 20 per chance of losing $300.
20. If the minimum wage is currently above the equilibrium wage, then a decrease in the minimum wage
c. increases the quantity of labor demanded but decreases the quantity of labor supplied.
12. According to the efficient markets hypothesis, worse-than-expected news about a corporation will
c. lower the price of the stock
11. Fundamental analysis is
c. the study of a company's accounting statements and future prospects to determine its value.
1. Most financial decisions involve two related elements:
c. time and risk.
