Economics 1160 quiz 2
10.The average price of a car in 1970 was $3,500. The consumer price index (CPI) was 38.8 in 1970 and 251.1 in 2018. The 2018 price of the 1970 car is computed as ________. a. $3,500 × (251.1 ÷ 38.8) = $22,650.77 b. $3,500 × (38.8 ÷ 251.1) = $540.82 c. $3,500 ÷ (251.1 - 38.8) = $16.49 d. ($3,500 ÷ 38.8) × 100 = $9,020.62 e. ($3,500 ÷ 251.1) × 100 = $1,393.87
a. $3,500 × (251.1 ÷ 38.8) = $22,650.77
2. During which period was the U.S. economy in a contraction? a. 2001-2005 b. 2008-2009 c. 2004-2008 d. 2005-2008 e. 2000-2004
a. 2001-2005
1. During which period was the U.S. economy in an expansion? a. 2005-2009 b. 2000-2004 c. 2009-2013 d. 2004-2008 e. 2000-2012
a. 2005-2009
10.If the dollar price of a bond is $10,000 and the face value of the bond is 10,500, the interest rate paid by the bond is equal to ________. a. 5% b. 50% c. 0.5% d. 4.76% e. 47.6%
a. 5%
10.According to the above table, the unemployment rate in this economy is equal to (unemployed/labor force)*100 a. 9.4%. b. 90.6%. c. 12.6%. d. 10.4%. e. 64.8%.
a. 9.4%.
10.What is the difference between a mortgage and a mortgage-backed security? a. A mortgage is a loan, whereas a mortgage-backed security is a pool of mortgages. b. There is no difference between them. They are the same. c. A mortgage is a loan and a mortgage-backed security is a liability. d. A mortgage is a debt to be paid in several years, whereas a mortgage-backed security has to be paid in one single year. e. A mortgage is like a bond and a mortgage-backed security is a bond issued by the U.S. government.
a. A mortgage is a loan, whereas a mortgage-backed security is a pool of mortgages.
10.You are the holder of shares in a start-up tech company. If large swings in the stock market increase financial investors' concerns in the riskiness of this new tech company, what will happen to the demand for the company's shares of stock and the price of its shares? a. Both demand for and price of the shares of stock will decrease. b. Both demand for and price of the shares of stock will increase. c. None of them will be affected by the swings in the stock market. d. Demand will decrease and the price of the shares will increase. e. Demand will increase and the price of the shares will decrease.
a. Both demand for and price of the shares of stock will decrease
10.Which of the following statements is true regarding a healthy economy? a. Cyclical unemployment is zero. b. Marginally attached workers do not exist. c. Natural unemployment is zero. d. Underemployment does not exist. e. Frictional unemployment is zero.
a. Cyclical unemployment is zero.
10.Which of the following describes an advantage of having foreign savings buying U.S. Treasury securities? a. Foreign savings keep interest rates lower in the United States than rates would be otherwise. b. Foreign savings keep interest rates higher in the United States than rates would be otherwise. c. Foreign savings are harmful to the U.S. economy. They do not provide any benefit to the U.S. economy. d. Foreign savings must occur through buying Treasury securities to be beneficial for the economy. e. Foreign savings allow U.S. firms and government to undertake their activities at higher costs.
a. Foreign savings keep interest rates lower in the United States than rates would be otherwise.
10.A country's consumer price index (CPI) was 175 last year, and this year it is 185. Which statement is correct? a. Inflation was 5.7% this year. b. Inflation was 10.0% this year. c. Inflation was 15.7% this year. d. Deflation was 5.7% this year. e. Deflation was 10.0% this year.
a. Inflation was 5.7% this year.
10.What will happen in the market for U.S. Treasury securities if the U.S. government eases the inflow of foreign savings in the United States? a. The demand curve will shift to the right, causing the price of U.S. Treasury securities to increase. b. The demand and supply curves will shift to the right, causing the price of Treasury securities to increase. c. The demand and supply curves will shift to the left, causing the price of Treasury securities to decrease. d. The demand curve will shift to the right, causing the price of Treasury securities to decrease. e. The supply curve will shift to the left, causing the price of Treasury securities to increase.
a. The demand curve will shift to the right, causing the price of U.S. Treasury securities to increase.
10.What would be the effect on the market for bonds of Company X if the default risk decreases for Company X? a. The demand curve will shift to the right, causing the price of the bond to rise. b. The demand curve will shift to the left, causing the price of the bond to rise. c. The supply curve will shift to the right, causing the price of the bond to fall. d. The demand curve will shift to the left, causing the price of the bond to fall. e. The supply curve will shift to the left, causing the price of the bond to rise.
a. The demand curve will shift to the right, causing the price of the bond to rise.
10.Which of the following is an example of frictional unemployment? a. Raymond loses his job as a steel worker because the economy is in a downturn. b. Chad graduates with his master's degree in economics and is searching for an analyst job. c. Edith has decided to retire after 35 years of working at the state prison. d. Cameron quits his job at the circus to volunteer for the Red Cross. e. Jasmine loses her job as a newspaper editor because the publication has gone digital.
b. Chad graduates with his master's degree in economics and is searching for an analyst job.
10.If there are 12 million people in the labor force and the labor force participation rate is 87%, how many people are in the work-eligible population? a. 1.38 million b. 13.8 million c. 7.25 million d. 72.5 million e. 725 million
b. 13.8 million
8. What was the inflation rate between 2017 and 2018? (110.0/106.9)*100 a. 1.6% b. 2.9% c. 3.6% d. 4.7% e. 5.3%
b. 2.9%
10.If the interest rate on a 1-year bond is 15% and its face value is $10,000.00, the dollar price of the bond is _________. a. $10,000.00 b. $1,500.00 c. $8,695.65 d. $11,500.00 e. $8,596.50
c. $8,695.65
10.Suppose the quantity of money increases by 5%, the velocity of money is constant, and inflation is 2%. Based on the equation of exchange, by how much does the real gross domestic product (GDP) change? a. -3% b. 1% c. 3% d. 5% e. 7%
c. 3%
10.What would happen if interest rates were to fall? a. Firms would likely borrow less money because their rates of return would have decreased. b. Households would likely borrow less money because their rates of return have decreased. c. Firms would likely borrow more money because their costs of borrowing have decreased. d. Foreign entities would likely borrow less money because their rates of return have decreased. e. It must mean that inflation has increased because nominal rates have decreased.
c. Firms would likely borrow more money because their costs of borrowing have decreased.
10.You borrow $50,000 today at a rate of 5%. Today, inflation instantly rises to 7% and stays that way for the duration of your loan. Based on the above information today a. the real rate of interest on your loan is 2%. b. the real rate of interest on your loan is 10%. c. the real rate of interest on your loan is -2% d. you will pay the lender back exactly $55,500. e. you will pay the lender back exactly $60,700.
c. the real rate of interest on your loan is -2%
10.Wealth increases in the United States because the value of the stock market increases; if all else is equal, these increases would cause a. a smaller gap between the real and nominal rates of interest. b. the demand for loanable funds to decrease. c. the supply of loanable funds to increase. d. the supply of loanable funds to decrease. e. inflation to increase
c. the supply of loanable funds to increase.
3. American Paper Inc. sells paper to Educational Textbook Co. for $200,000. Educational Textbook Co. uses the paper to make textbooks, selling them to consumers for a total of $600,000. These transactions contribute ________ to gross domestic product (GDP). a. $4,000 b. $30,000 c. $200,000 d. $600,000 e. $800,000
d. $600,000
7. What is the value of the gross domestic product (GDP) deflator in 2017? a. 70.0 b. 93.5 c. 102.1 d. 106.9 e. 110.7
d. 106.9
10.According to the above table, the labor force participation rate in this economy is equal to(labor force/work-eligible)*100 a. 9.4%. b. 90.6%. c. 58.3%. d. 64.4%. e. 8.5%.
d. 64.4%
10.What would be an example of increased productivity of physical capital? a. A potter's workshop starts paying for itself when the potter begins to sell finished pieces. b. A new piece of architectural software gets more use as workers gradually get familiar with it. c. A forklift moves more pieces per hour when there is a more experienced operator at the wheel. d. A new automated lathe performs the same jobs faster than the older model did. e. A commercial truck uses less diesel fuel after a tune-up than it did before.
d. A new automated lathe performs the same jobs faster than the older model did.
10.Which of the following people would be officially considered unemployed? a. Mitchell, who is a full-time student working part-time at the bookstore b. Janice, who is actively seeking a full-time job while currently working at a part-time job c. Jade, who has stopped looking for a job because she feels there are no jobs available for her d. Jenna, who just graduated from college and is searching for a job that fits her graphic-design skills e. Ralph, who is a stay-at-home father and is not currently looking for a job
d. Jenna, who just graduated from college and is searching for a job that fits her graphic-design skills
10.What would be the effect on the market for bonds of Company X if the default risk increases for Company X? a. The demand curve will shift to the right, causing the price of the bond to rise. b. The demand curve will shift to the left, causing the price of the bond to rise. c. The supply curve will shift to the right, causing the price of the bond to fall. d. The demand curve will shift to the left, causing the price of the bond to fall. e. The supply curve will shift to the left, causing the price of the bond to rise.
d. The demand curve will shift to the left, causing the price of the bond to fall.
10.With respect to inflation, one could correctly state that a. U.S. inflation and E.U. inflation were directly related, but E.U. inflation was generally more than U.S. inflation. b. U.S. inflation and E.U. inflation were inversely related, but E.U. inflation was generally more than U.S. inflation. c. U.S. inflation and E.U. inflation were directly related, but U.S. inflation was generally more than E.U. inflation. d. U.S. inflation and E.U. inflation were inversely related, but U.S. inflation was generally more than E.U. inflation. e. both the United States and the European Union experienced deflation from about mid-1980 until about mid-1986.
a. U.S. inflation and E.U. inflation were directly related, but E.U. inflation was generally more than U.S. inflation.
10.Assuming the graph represents the market for loanable funds, which of the following would represent a decrease in time preferences (i.e., people are more patient)? a. a shift from Line 1 to Line 4 b. a shift from Line 4 to Line 1 c. a shift from Line 2 to Line 3 d. movement from A to B e. a new shortage of loanable funds represented by the distance from C to D
a. a shift from Line 1 to Line 4
10. Deflation was occurring a. between 2003 and 2004. b. from 1996 until 1999. c. from 1996 through 1999 and between 2003 and 2004. d. in none of the years shown. e. in all of the years shown.
a. between 2003 and 2004.
10.Which of the following is a valuable source of information that bondholders can use before purchasing a bond? a. bond rating agencies b. secondary markets c. New York Stock Exchange d. NASDAQ e. The Securities and Exchange Commission
a. bond rating agencies
10.If people bought the same market basket of goods again and again, the a. consumer price index (CPI) would be extremely accurate. b. CPI would be less accurate. c. gross domestic product (GDP) deflator would be more accurate. d. GDP deflator would be less accurate. e. CPI would be biased upward relative to the GDP deflator.
a. consumer price index (CPI) would be extremely accurate.
10.Josiah was a repairman for a payphone company. With the introduction of the cell phone, Josiah lost his job and was unemployed for one year. In this example, the ________ in the phone industry led to ________. a. creative destruction; structural unemployment b. marginally attached workers: cyclical unemployment c. frictional unemployment; marginally attached workers d. recession; frictional unemployment e. expansion; creative destruction
a. creative destruction; structural unemployment
10.The value of the consumer price index (CPI) is best described as the relationship of a. current year prices to base year prices, holding the contents of the market basket content constant. b. current year prices to base year prices, including changes in the content of the market basket. c. base year prices to current year prices, holding the contents of the market basket content constant. d. base year prices to current year prices, including changes in the content of the market basket. e. current year quantity to base year quantity, including changes in the prices of the market basket.
a. current year prices to base year prices, holding the contents of the market basket content constant.
10.There is an increase in the perceived riskiness of bonds from retail firms. As a consequence, the dollar price of retail firms will _________ and the interest rate they pay will _________. a. decrease; increase b. Increase; increase c. decrease; decrease d. increase; decrease e. not be affected; remain the same
a. decrease; increase
10.As a result of the 2007 financial crisis, when financial institutions began faltering, a. financial intermediaries all over the world became less inclined to extend loans. b. financial intermediaries all over the world started to give out subprime loans. c. the government did not get involved. d. the government bailed out all institutions that failed. e. financial intermediaries all over the world became more inclined to extend loans.
a. financial intermediaries all over the world became less inclined to extend loans.
10.With respect to inflation, we can observe that a. inflation seemed to stabilize in the years 2000-2002, but it then spiked between 2002 and 2004. b. inflation was always under control in every year shown. c. there was a relatively constant increase in inflation throughout the entire period shown. d. inflation tended to fall consistently throughout the entire period shown. e. there were periods of inflation and deflation depicted in the chart.
a. inflation seemed to stabilize in the years 2000-2002, but it then spiked between 2002 and 2004.
10.The total number of a company's issued shares of a stock, multiplied by the price per share, represents the company's a. market value. b. rating. c. stock index. d. yield. e. par value.
a. market value.
10.Signs at gas stations are designed to be able to quickly and easily change the posted price of gas. This helps reduce the ________ costs of inflation. a. menu b. price confusion c. shoe-leather d. money illusion e. substitution
a. menu
10.Milton Friedman, who won the Nobel Prize in economics, characterized inflation as being "high and variable." These characteristics of inflation create problems because a. of future price uncertainty. b. of arbitrage. c. of the signal emissions problem. d. deflation could occur. e. inflation always becomes hyperinflation.
a. of future price uncertainty.
10.Assume the supply of loanable funds decreases while the demand for loanable funds remains constant. This would cause a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase. b. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease. c. both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase. d. the equilibrium interest rate to increase, leading to a new lower equilibrium quantity. the equilibrium interest rate to increase, but the equilibrium quantity of loanable funds would remain unchanged
a. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.
10.According to the price confusion problem, if the price of a product increases, then a. the market demand has increased, and the firm's output should increase. b. the market demand has increased, and the firm's output should decrease. c. the price increase is due to inflation, and the firm's output should increase. d. the price increase is due to inflation, and the firm's output should decrease. e. prices as a whole fall, and the firm's output should increase.
a. the market demand has increased, and the firm's output should increase.
10.Which of the following reflects an accurate economic chain of events? a. Investment finances savings, which causes the economy to shrink. b. Savings finances investment, which allows the economy to grow as a result of a larger capital stock. c. Savings finances future consumption, which allows future production to increase from a larger capital stock. d. Investment finances future consumption, which allows incomes—and thus savings—to grow. e. Higher interest rates increase savings, which causes consumption smoothing.
b. Savings finances investment, which allows the economy to grow as a result of a larger capital stock.
10.What is the consumer price index (CPI)? a. The CPI is the measure of consumer prices in both rural and urban areas. It is calculated by adding up all prices. b. The CPI is a measure of the price level based on the consumption patterns of a typical consumer. c. The CPI is a measure of all prices in the economy. d. The CPI is a measure of food prices because food is what is consumed. e. The CPI is a measure of food, clothing, and housing prices.
b. The CPI is a measure of the price level based on the consumption patterns of a typical consumer.
10.Inflation necessarily occurs when a. the price of gasoline rises. b. a measure of the overall price level, such as the consumer price index (CPI), rises. c. housing prices fall. d. there is an increase in the rate of change in the price level. e. the prices of all goods rise.
b. a measure of the overall price level, such as the consumer price index (CPI), rises.
10.Assuming the graph represents the market for loanable funds, which of the following would represent a decrease in wealth of foreign entities? a. a shift from Line 1 to Line 4 b. a shift from Line 4 to Line 1 c. a shift from Line 2 to Line 3 d. movement from A to B
b. a shift from Line 4 to Line 1
10.Assuming the graph represents the market for loanable funds, which of the following would represent an decrease in household wealth? a. a shift from Line 1 to Line 4 b. a shift from Line 4 to Line 1 c. a shift from Line 2 to Line 3 d. movement from A to B e. a new shortage of loanable funds represented by the distance from C to D
b. a shift from Line 4 to Line 1
10.Treasury securities a. are first bought and sold in secondary markets. b. are first sold through auctions to large financial firms. c. are only available to domestic buyers. d. can never default. e. are riskier than most other investment options.
b. are first sold through auctions to large financial firms
10.If a bond CANNOT be resold in secondary markets, the a. demand for that security will increase. b. demand for that security will decrease. c. supply for that security will increase. d. supply and the demand for that security will decrease. e. supply and the demand for that security will increase.
b. demand for that security will decrease.
5. The consumption category includes all purchases by ________ with the exception of ________. a. households; automobiles b. households; new housing c. households; services d. businesses; buildings e. buildings; inventory
b. households; new housing
10.If your nominal wage rises and you think that it automatically means your real wage has risen, then you are experiencing a. shoe-leather costs. b. money illusion. c. menu costs. d. hyperinflation. e. price confusion.
b. money illusion.
10.If everyone began feeling better about their economic future, "animal spirits" would become a. negative. b. more positive and firms would invest more, causing the demand for loanable funds to increase. c. more positive and firms would invest more, causing the supply of loanable funds to increase. d. more positive and firms would invest more, causing the supply of loanable funds to decrease. e. more positive and firms would invest more, causing the demand for loanable funds to decrease.
b. more positive and firms would invest more, causing the demand for loanable funds to increase.
10.In 2005, housing prices were high and rising. The high prices were interpreted as growing demand and spurred builders to build more houses. It appears now that the high prices actually reflected inflation rather than real long-run increases in demand. This is an example of the ________ problem. a. deflation b. price confusion c. menu cost d. shoe-leather cost e. future price uncertainty
b. price confusion
10.If, in a particular nation, the population is aging, in the near future we would expect a. savings to increase. b. savings to decrease. c. borrowing to decline. d. consumption variation to increase. e. savings as a percentage of income to fall.
b. savings to decrease.
10.One of the main characteristics of bonds is that a. bonds are ownership shares in a firm. b. the dollar price and interest rate of a bond have an inverse relationship. c. a bond's dollar price is calculated as growth rate. d. bonds can never default. e. the dollar price and interest rate of a bond have a positive relationship.
b. the dollar price and interest rate of a bond have an inverse relationship.
10.Consider an economy producing at its full employment output level. In this case the unemployment rate is equal to a. zero. b. the natural rate. c. the rate of cyclical unemployment. d. the rate of frictional unemployment. e. the rate of structural unemployment.
b. the natural rate.
10.If foreign incomes were to fall, then, all things being equal, this would cause a. the demand for loanable funds to increase. b. the supply of loanable funds to decrease. c. both the demand and supply of loanable funds to increase. d. the demand of loanable funds to increase and the supply to decrease. e. the demand for loanable funds to decrease.
b. the supply of loanable funds to decrease.
10.Frictional unemployment is present in an economy because a. workers often need to update their skills. b. workers take time to decide which jobs are best for them. c. firms often lay off workers due to economic recession. d. the unemployment rate is too low. e. there are often changes in the industrial makeup of an economy.
b. workers take time to decide which jobs are best for them.
10.In Dallas, the cost of living index is 91.9, and in San Francisco, it is 164.0. You currently work in Dallas and your salary is $60,000. You are offered a promotion and pay raise to $75,000 to move to San Francisco. If you take the promotion, a. your nominal wage and your real wage have increased. b. your nominal wage increased but your real wage has decreased. c. your nominal wage decreased but your real wage has increased. d. both your nominal and real wages have decreased. e. your real wage remained constant even though your nominal wage rose.
b. your nominal wage increased but your real wage has decreased.
10.What is one clear benefit of foreign investment in the United States? a. Foreign investment in the United States increases interest rates, creating more investment and greater future gross domestic product (GDP). b. Foreign investment in the United States makes the United States less dependent on other countries. c. Foreign investment in the United States lowers interest rates, creating more investment and greater future GDP. d. Foreign investment in the United States limits the amount of outsourcing that occurs. e. Foreign investment in the United States provides more sellers of treasury bonds, making it harder to buy and sell.
c. Foreign investment in the United States lowers interest rates, creating more investment and greater future GDP.
10.Which of the following is a secondary stock market? a. North American Stock Exchange b. Standard & Poor's (S&P) 500 c. New York Stock Exchange d. Dow Jones Industrial Average (the Dow) e. U.S. Stock Exchange
c. New York Stock Exchange
10.What is one reason why a government will deliberately inflate its national money supply? a. The action promotes the long-term health of the national economy. b. The action is part of efforts to attract overseas investors and immigrant labor. c. The action is part of printing money to pay off the government's debts. d. The action tamps down the growth rate of an overheated economy. e. The action helps the money supply keep up with the consequences of rising prices.
c. The action is part of printing money to pay off the government's debts.
9. Ford Motor Co. is an American company that produces vehicles in Thailand. The value of Ford's production in Thailand is included in a. both U.S. gross domestic product (GDP) and U.S. gross national product (GNP). b. half U.S. GDP and half U.S. GNP. c. U.S. GNP but not U.S. GDP. d. U.S. GDP but not U.S. GNP. e. neither U.S. GDP nor U.S. GNP.
c. U.S. GNP but not U.S. GDP.
10.If a large group of U.S. workers begins to retire, you can expect a. an increase in the unemployment rate. b. an increase in the labor force. c. a decrease in the labor force participation rate. d. no effect on the labor force participation rate. e. no effect on the unemployment rate.
c. a decrease in the labor force participation rate
10.Assuming the graph represents the market for loanable funds, which of the following would represent a cut in corporate tax rates, causing business owners and managers to become more optimistic? a. a shift from Line 1 to Line 4 b. movement from B to A c. a shift from Line 2 to Line 3 d. movement from A to B e. a shift from Line 3 to Line 2
c. a shift from Line 2 to Line 3
10.Assume the market for loanable funds is in equilibrium at 5% interest. Assuming that firms become more pessimistic about future profits, all else being equal, a. the equilibrium interest rate would rise and the equilibrium quantity would fall. b. both the equilibrium interest rate and the equilibrium quantity would rise. c. both the equilibrium interest rate and the equilibrium quantity would fall. d. the equilibrium interest rate would fall and the equilibrium quantity would rise. e. the equilibrium real rate of interest would become negative and the equilibrium quantity would remain unchanged.
c. both the equilibrium interest rate and the equilibrium quantity would fall.
10.Assume the demand for loanable funds decreases while the supply of loanable funds does not change. The result of this would be that a. the equilibrium quantity of loanable funds decreases and the equilibrium interest rate increases. b. the equilibrium quantity of loanable funds increases and the equilibrium interest rate decreases. c. both the equilibrium quantity of loanable funds and the equilibrium interest rate decrease. d. the equilibrium interest rate decreases, but the equilibrium quantity of loanable funds remains unchanged. e. the equilibrium interest rate increases, but the equilibrium quantity of loanable funds remains unchanged.
c. both the equilibrium quantity of loanable funds and the equilibrium interest rate decrease.
10.Holding all else equal, the existence of a secondary market is beneficial for the firm because a. demand curve for the security to shift to the left, causing the price of the security to fall. b. supply curve for the security to shift to the right, causing the price of the security to fall. c. demand curve for the security to shift to the right, causing the price of the security to rise. d. supply curve for the security to shift to the right, causing the price of the security to rise. e. supply curve for the security to shift to the left, causing the price of the security to rise.
c. demand curve for the security to shift to the right, causing the price of the security to rise.
10.Nadia earns $65,000 a year issuing parking tickets as a city employee. Her salary is included in the ________ category of gross domestic product (GDP). a. consumption b. investment c. government purchases d. imports e. exports
c. government purchases
10.What is a commonly used term for noninvestment-grade bonds? a. amplified-risk securities b. low-yield securities c. junk bonds d. D-grade bonds e. lower medium bonds
c. junk bonds
10.Consumption smoothing means that a. people tend to consume about the same amount each month. b. people tend to consume about the same amount each year, and, if more is consumed this year than in the past, they would tend to consume less next year. c. people save more in their middle years than in early or later life. d. consumption patterns tend to correlate perfectly with income. consumption tends to vary more than income over a person's lifetime
c. people save more in their middle years than in early or later life.
10.Since 1979, employment in the service industry in the United States has a. stayed constant. b. fallen significantly. c. risen significantly. d. disappeared. e. fallen marginally.
c. risen significantly.
10.Marcus was an aircraft mechanic for 27 years. An advancement in technology automated his job, so Marcus lost his job. A person who loses his or her job this way would be considered a. frictionally unemployed. b. cyclically unemployed. c. structurally unemployed. d. naturally unemployed. e. a marginally attached worker.
c. structurally unemployed.
10.If inflation is occurring, then a. both real and nominal interest rates are greater than zero. b. both real and nominal interest rates are less than zero. c. the nominal interest rate exceeds the real interest rate. d. the real rate of interest exceeds the nominal rate of interest. e. preferences in the nation have fallen.
c. the nominal interest rate exceeds the real interest rate.
10.With respect to inflation, one could state that a. although U.S. inflation was generally higher in the 1970s and 1980s, the situation was reversed in the in 1990s for the European Union. b. inflation in both the United States and the European Union was higher in the 1990s than it was in the 1970s and 1980s. c. deflation was a problem in the United States and the European Union in the 1990s, but inflation was a problem for both in the 1970s and 1980s. d. U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s. e. typically, while the European Union had inflation problems, the United States had deflation problems.
d. U.S. and E.U. inflation both tended to be higher in the 1970s and 1980s than in the 1990s
10.Assuming the graph represents the market for loanable funds, which of the following would represent the government borrowing less? a. a shift from Line 1 to Line 4 b. a shift from Line 4 to Line 1 c. a shift from Line 2 to Line 3 d. a shift from Line 3 to Line 2
d. a shift from Line 3 to Line 2
10.Assuming the graph represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy? a. a shift from Line 1 to Line 4 b. a shift from Line 3 to Line 2 c. a shift from Line 2 to Line 3 d. a shift from Line 4 to Line 1 e. a new shortage of loanable funds represented by the distance from C to D
d. a shift from Line 4 to Line 1
10.After a treasury security is sold for the first time, a. it can no longer be sold. b. it must be sold to someone in a secondary market before it hits its maturity date. c. it loses its initial value. d. anyone can buy it in the large and active secondary market for U.S. Treasury securities. e. only large financial firms can buy it through auctions.
d. anyone can buy it in the large and active secondary market for U.S. Treasury securities.
10.Which of the following types of workers are considered unemployed by the official Bureau of Labor Statistics measure? a. marginally attached workers b. part-time workers c. cyclically unemployed workers d. retired workers e. underemployed workers
d. cyclically unemployed
10.What happened to the consumer price index (CPI) of Brazil during the 2003-2004 time period? a. steadily increased b. increased and then decreased c. steadily decreased d. decreased and then increased e. increased rapidly
d. decreased and then increased
10.Tuition at a small university cost $5,000 per semester in 2014 and $5,500 in 2017. If the consumer price index (CPI) was 236.7 in 2014 and 245.1 in 2017, then we could say tuition has a. increased at exactly the same rate as inflation. b. decreased. c. increased more slowly than inflation. d. increased more rapidly than inflation. e. remained constant.
d. increased more rapidly than inflation.
10.Private rating agencies evaluate and then grade the default risk of bonds to address which of the following problems? a. the government's inability to judge default risks b. companies hiding their finances c. bondholders not having access to companies' finances d. individuals' inability to judge default risks e. too many investors picking risky bonds for their portfolios
d. individuals' inability to judge default risks
10.You are offered two jobs, one in Kansas City paying $60,000 and one in New York City paying $60,000. Suppose the consumer price index (CPI) in 107.2 in Kansas City, and 220.1 in New York City. If real wages are the only consideration, then you would a. be indifferent between the two jobs because the real wages are exactly the same. b. take the job in New York City because the real wage is higher there. c. take the job in New York City because the nominal wage is higher there. d. take the job in Kansas City because the real wage is higher there. e. take the job in Kansas City because the nominal wage is higher there.
d. take the job in Kansas City because the real wage is higher there.
10.The consumer price index (CPI) in Country A rises from 170 to 180 during a particular year. In the same year, the consumer price index in Country B rises from 240 to 250. This means a. the inflation rate in both countries is 10%. b. the deflation rate in both countries is 10%. c. the inflation rate in Country A is 5%, and the inflation rate in Country B is 10%. d. the inflation rate in Country A is 5.9%, and the inflation rate in Country B is 4.2%. e. the inflation rate in Country A is 10%, and the inflation rate in Country B is 5%.
d. the inflation rate in Country A is 5.9%, and the inflation rate in Country B is 4.2%.
10.If deflation is occurring, then a. both real and nominal interest rates are above zero. b. both real and nominal interest rates are below zero. c. the nominal interest rate exceeds the real interest rate. d. the real rate of interest exceeds the nominal rate of interest. e. time preferences in the nation have fallen.
d. the real rate of interest exceeds the nominal rate of interest.
10.Which of the following describes the relationship that exists between the interest rate a bond pays and its default risk? a. Bond interest rates fall with increased default risk. b. Bond interest rates and default risk are not related. c. Bond prices rise with increased default risk. d. Bond prices rise with increased interest rates. e. Bond interest rates rise with increased default risk.
e. Bond interest rates rise with increased default risk.
10.What did Milton Friedman mean by saying that "inflation is always and everywhere a monetary phenomenon"? a. Inflation affects only those who hold money, as savings or in the form of investments. b. Inflation is due to cash transactions, not transactions based on credit. c. In any economy that uses money as a medium of exchange, there will always be some inflation. d. Inflation is about rising prices, not about rising productivity. e. Inflation is caused by an increase in the money supply relative to the quantity of goods and services.
e. Inflation is caused by an increase in the money supply relative to the quantity of goods and services.
10.Which of the following describes a mortgage-backed security? a. It is a security that provides guarantees to the lender that the borrower will not default on the loan. b. It refers to the process of selling home mortgages in secondary markets. c. It is a new security that backs the loan agreement to the borrower. d. It is a new security that bundles several loan mortgages and increases the risk of default. e. It is a large number of separate home mortgages bundled into one single new security available for resale in secondary markets.
e. It is a large number of separate home mortgages bundled into one single new security available for resale in secondary markets.
10.Which of the following is an example of structural unemployment? a. Raymond loses his job as an automotive worker because the economy is in a downturn. b. Chad graduates with his master's degree in economics and is searching for an analyst job in Oklahoma. c. Edith has decided to retire after 35 years of working at the state prison. d. Cameron quits his job to go back to school. e. Jasmine loses her job as a newspaper distributor because the publication has gone digital.
e. Jasmine loses her job as a newspaper distributor because the publication has gone digital.
10.Which of the companies listed is a private bond-rating agency? a. Harvard University b. Berkshire Hathaway c. Bank of America d. Time Warner e. Moody's
e. Moody's
10.Which of the following individuals would NOT be considered part of the labor force? a. Aileen, who is a full-time student working part-time b. Kostas, who is working part-time but wants to be working full-time c. Kimberly, who has retired from the military and now works at the post office d. Justine, who is a full-time homemaker but recently started her own business online e. Thomas, who is not working but has given up searching for a job because he believes there are no jobs available for him
e. Thomas, who is not working but has given up searching for a job because he believes there are no jobs available for him
10.The price of a McDonald's hamburger in 1955 was $0.15 when the consumer price index (CPI) was 26.8; if, in 2018, the price was $1.00 when the CPI was 251.1, then, adjusted for inflation, the price of a McDonald's hamburger in 2018 was a. exactly the same as in 1955. b. much higher (more than double) than in 1955. c. much lower (less than half) than in 1955. d. a bit higher than in 1955. e. a bit lower than in 1955.
e. a bit lower than in 1955.
10.Which factor may be expected to decrease the supply of loanable funds in the United States over the next decade? a. a decrease in foreign investment b. a slowed rate of technological innovation c. a decline in investor confidence d. a leveling off of the trend of rising home values e. a wave of retirement of active workers
e. a wave of retirement of active workers
10.U.S. Treasury securities are generally considered less risky than any other bond because a. they cannot be sold in secondary markets. b. the government always pays its debt. c. politicians cannot threaten actions that could lead to default. d. the U.S. government is the largest borrowing entity in the economy. e. borrowers do not expect the U.S. government to default on its debt.
e. borrowers do not expect the U.S. government to default on its debt.
10.A marketing campaign by a local mall convinces people to spend more money than they did before the campaign. The campaign has successfully a. caused people to increase their consumption smoothing. b. caused people to reduce their time preferences. c. equalized the real and nominal rates of interest. d. increased the rate of inflation. e. caused people to increase their time preferences.
e. caused people to increase their time preferences.
10.The demand for loanable funds is a. savings, because households borrow more than firms. b. horizontal, because firms are infinitely sensitive to interest rates. c. vertical, because it is nonresponsive to interest rates. d. upward sloping, because at higher interest rates the opportunity cost of holding money increases. e. investment, because firms borrow to invest in physical or human capital
e. investment, because firms borrow to invest in physical or human capital
4. When Ellen buys a new computer for her accounting business, it is included in gross domestic product (GDP) as ________, and when she buys a new computer for personal use at home, it counts as ________. a. consumption; consumption b. consumption; investment c. government purchases; consumption d. investment; investment e. investment; consumption
e. investment; consumption
6. When an unemployed worker receives a payment from the government as a result of being unemployed, it is a. included in the consumption category of gross domestic product (GDP). b. included in the investment category of GDP. c. included in the government purchases category of GDP. d. included in the net export category of GDP. e. not included in any of the expenditure categories.
e. not included in any of the expenditure categories.
10.In 2018, the Target Corporation had $13 billion in bonds outstanding. This means that the Target Corporation a. experienced a loss of $13 billion in 2018. b. was due $13 billion from the owners of those bonds. c. owed less than $13 billion to the owners of those bonds. d. owed more than $13 billion to the owners of those bonds. e. owed $13 billion to the owners of those bonds.
e. owed $13 billion to the owners of those bonds.
10.Typically individuals have difficulty judging the default risk of any one company, let alone the thousands of firms that sell bonds in a developed economy. To address this problem, a. the price of bonds increases as more information is made available to investors. b. borrowing entities rate their own bonds. c. individuals should never invest in bonds. d. the government assigns ratings of borrowing entities. e. private rating agencies evaluate and then grade the default risk of borrowing entities.
e. private rating agencies evaluate and then grade the default risk of borrowing entities.
10.One could correctly argue that lower capital productivity would a. increase the value of capital and the supply of loanable funds. b. reduce the value of capital and the supply of loanable funds. c. only affect interest rates in the long run. d. increase the value of capital and the demand for loanable funds. e. reduce the value of capital and the demand for loanable funds.
e. reduce the value of capital and the demand for loanable funds.
