ECONOMICS

People come to expect that the price of a gallon of gasoline will rise next week. As a result

today's demand for gasoline increases.

Use the pair of diagrams below to answer the following questions Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in government expenditures moves the economy to

D AND 3

In the figure above, which movement reflects how consumers would react to an increase in the price of the commodity?

from point a to point e

Other things the same, a country that increases its savings rate will have

higher future capital and higher future real GDP per person

For a closed economy - i.e. an economy in which there are no international transactions - suppose for the current fiscal year that GDP is $11 trillion, consumption is $7 trillion, tax revenues equal $3 trillion, and the government runs a budget deficit of $1 trillion. Assuming transfer payments are zero, ceteris paribus, it follows that private saving is_____, and public saving is _____.

$1 trillion; - $1 trillion

Suppose U.S. nominal GDP in 2014 was $12.1. Some of the components, on the expenditure side of the equation, were as follows: Consumption = $8.2; Investment = $1.5; Government purchases of goods and services = $2.0; and Imports = $1.5, all in trillions of U.S. dollars. From this information, it follows that the nominal value of U.S. exports in 2014 was:

$1.9 trillion

What was the real GDP for Craiglandia in 2015?

$40.00

Suppose that in the nation state of Craiglandia there are 2 final goods produced in the economy - food and clothing. Suppose the economy produces 10 units of food and 5 units of clothing in 2000 (the base year), and 10 units of food and 10 units of clothing in 2015. Further suppose the price of food was $2.00 per unit in 2000, and $3.00 per unit in 2015; whereas the price of clothing was $2.00 in 2000 and $2.00 in year 2015. What was the nominal GDP for Craiglandia in 2015?

$50.00

Bank of Springfield Assets Liabilities Reserves $19,800 Deposits $180,000 Loans 160,200 Refer to table above, if the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

$9000

What is the labor force participation rate in XYZ?

((5+40)/55) x 100% = 81.8%

Suppose state XYZ has a working-age population of 55 citizens. Of these, 10 are not employed and not actively seeking work; 40 are employed; and 5 are not employed but are actively seeking work. What is the official unemployment rate in XYZ?

(5/(5+40)) x 100% = 11.1%

Ceteris paribus, which of the scenarios below will necessarily lead to a decrease in real GDP?

. The production of goods and services decreases.

Suppose the consumer price index (CPI) accurately measures inflation, and at the end of 2000, the CPI in the nation state of Brownville was 111.1. If the CPI at the end of 2001 was 113.2, then what was the rate of inflation (or deflation) in 2001?

1.89%

Refer to figure above, suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to

10,000

Buy Qty. Buy (Bid) Price Sell (Offer) Price Sell Qty 55 103.44 102.70 100 282 102.66 102.86 30 303 101.42 103.00 1000 662 100.98 103.50 203 10 100.12 103.98 82 Refer to the table above, the current stock price is

103.07

Refer to the table above. Assume the market basket for the consumer price index has two products - dog chow and chew toys. Assume the Base Year quantities are also the market basket quantities for calculating the Consumer Price Index. It follows that the Consumer Price Index for 2018 equals

116

The GDP deflator for Craiglandia, for 2015, is _______; and it follows that Craiglandia experienced _______between 2000 and 2015.

125; inflation

If total currency in circulation is $400 billion, total deposits are $800 billion, and total reserves are $320 billion, then the money multiplier is approximately

2.5

The following table shows some values of the Consumer Price Index and the corresponding inflation rates for 2012-2015. The value of the Consumer Price Index in 2014 was approximately.

236.7

A closed economy has income of $1,000, government spending is $200, taxes is $150, and investment is $250. What is private saving?

300

In country Wonderland, on average, people would like to save 20 dollars for every 100 extra dollars they earned. Then The multiplier of government spending equals

5

First National Bank Assets Liabilities and Owners' Equity Reserves $1,200 Deposits $9,000 Loans $8,000 Debt $800 Short-term securities $800 Capital (owners' equity) $200 Refer to table above, the leverage ratio equals

50

Suppose that the adult population is 4 million, the number of unemployed is 0.25 million, and the labor-force participation rate is 75%. What is the unemployment rate?

8.30%

In 1914, the "typical" daily wage at the Ford Motor Company was $5.00. In 1928, the figure was increased to $6.00. The U.S. CPI was 10.0 in 1914, and in 1928 it was 17.1. It follows that if Henry Ford had kept his workers' real daily wage constant between 1914 and 1928, then the nominal 1928 wage would have been

8.55

In country Wonderland, on average, people would like to save 20 dollars for every 100 extra dollars they earned. Then The marginal propensity to consumer ratio (MPC) equals %

80

On the basis of the information presented in the table below, which presents the correct ordering of real GDP per person from highest to lowest?​

Atlantis, Bensalem, Merpois

Use the following graph, which shows the unemployment rate on the vertical axis and the date on the horizontal axis, to answer question below. What type of unemployment is most likely measured by the differences between lines A and B?

Cyclical unemployment

Refer to Figure 33-10. If the economy starts at point C, stagflation would be consistent with point

D

Which of the following statements regarding GDP is correct?

GDP includes factory production, but not any harm that may be inflicted on the environment.

Which of the following would be included in the calculation of gross domestic product?

Government purchase of a new submarine

The diagram below illustrates the Loanable Funds market with and without government borrowing. Ceteris paribus, it follows that, if the government runs a budget deficit, which it finances by borrowing in the loanable funds market, then the post-deficit interest rate will be _______, and the quantity of loanable funds "crowded out" of the private sector will be _______.

L; Q - T

Suppose an American consumer goes to a sporting goods store in Dallas and purchases a Holland & Holland shotgun manufactured in the United Kingdom. Ceteris paribus, which of the following best explains the impact of this transaction on the U.S. national income and product accounts?

Net exports and nominal GDP both decrease.

Tom is an organic gardener. For several years, he produced only for his own consumption. Last year, he sold his vegetables on market. This year, he sold all of his vegetables to a company producing organic vegetable soup. When is the value of Tom's vegetables included in GDP?

Only when he sells his vegetable on market.

On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

Returns to capital become increasingly smaller as the amount of capital per worker increases.

Which of the following would be counted as investment when calculating gross domestic product?

The construction of a new house

Which of the following best represents an example of a "transfer payment"

The government pays, via Medicare, a physician for treating your grandfather's illness.

In the United States, for fiscal 2016, total government spending was roughly 38% of GDP; yet, using the expenditure method for calculating GDP, government expenditures were only 18% of GDP. Which of the following most likely explains the difference?

Transfer payments are included in the first figure; but not the second.

Which of the following statements best describes a version of the Efficiency Wages theory?

Wages are kept higher than market forces would dictate because employers want to induce high effort from the workers.

Which of the following statements about real and nominal interest rates is correct?

When the inflation rate is positive, ceteris paribus, the nominal interest rate will be greater than the real interest rate.

In the calculation of the CPI, tea is given greater weight than beer if

consumers buy more tea than beer.

Which of the following definitely causes a fall in the equilibrium price?

a decrease in demand combined with an increase in supply

Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation. If the Federal Reserve pursues an expansionary monetary policy, in the short run the economy moves to

a. 3% unemployment and 5% inflation. In the long run the economy moves to 5% unemployment and 5% inflation.

Refer to figure above, at the end of 2009 the relevant money-supply curve was the one labeled MS1. At the end of 2010 the relevant money-supply curve was the one labeled MS2. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

a. 50 percent

A decrease in consumption taxes would move the economy to

a. B in the short run and A in the long run.

Which of the following is correct? C

a. Inflation encourages savings through the tax treatment on capital gains. b. Inflation encourages larger holdings of currency by the public. c. None of above is correct. d. Inflation increases people's purchasing power.

The multiplier concept is important in the Keynesian model because

a. It explains why a small change in government spending can have a large impact on equilibrium output.

Which of the following statements concerning Keynesian analysis are true? B

a. Keynes recognized that equilibrium would occur in the economy when planned expenditure equals Actual expenditure b. Keynes's analysis started with the recognition that the total quantity demanded of an economy's output was the sum of three types of spending: consumer expenditure, planned investment spending, and government spending. c. All of the above are true. d. Keynes's analysis involves explaining why aggregate output is at a certain level by understanding what factors affect each component of aggregate demand and how the sum of these components could add up to an output smaller or greater than the economy is capable of producing

Which of the following equations is always correct in an open economy? C

a. NX = S - I b. NX = NCO c. All of the above are correct. d. NX = Y - C - G - I

After a corporation issues stock, the stock

a. None of the above are correct.

Which of the following is correct?

a. Over the business cycle investment fluctuates more than GDP.

Which of the following is a store of value? D

a. U.S. government bonds b. currency c. fine art d. All of the above are correct.

Which of the following contains a list only of things that increase when the budget deficit of the U.S. decreases?

a. U.S. supply of loanable funds, U.S. net capital outflow, U.S. domestic investment

Refer to Figure 33-8. Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P3 and Y3 , then it must be the case that

a. aggregate demand has increased.

Other things the same, as the price level decreases it induces greater spending on

a. consumption, net exports, and investment.

In modern developed economies, central banks (like the U.S. Federal Reserve System) perform at least two major tasks; they:

a. control the money supply and regulate banks.

On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would B

a. create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. b. All of the above are correct. c. shift the AD curve to the left. d. represent an action taken by the Federal

The Federal Reserve B

a. has other duties in addition to controlling the money supply. b. All of the above are correct. c. is the U.S.'s central bank. d. was created in 1913.

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the quantity theory,

a. inflation averaged 5% per year and the real interest rate was 4%.

When the government runs a budget deficit,

a. investment is lower than it would be if the budget were balanced.

Paper Money

a. is valuable because it is generally accepted in trade.

A U.S.-imposed quota on automobiles would shift

a. only the demand curve in the market for foreign-currency exchange right.

The long-run aggregate supply curve shifts right if D

a. technology advances. b. immigration from abroad increases. c. the capital stock increases. d. all of the above are correct.

Other things constant, which of the following would reduce unemployment and raise inflation? C

a. the government cuts taxes b. businesses become more optimistic about the future of the economy c. All of the above are correct. d. because of high growth abroad, net exports rise

If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same

a. the trade deficit falls and net capital outflows rise.

In an economy that relies upon barter,

a. there is no item in the economy that is widely accepted in exchange for goods and services.

In order to promote growth in living standards, policymakers must

all of the above

Ceteris paribus, the primary advantage of investing in mutual funds over individual stocks or bonds is that mutual funds:

allow investors with relatively small amounts of money to diversify their investment portfolios.

In 2000 there were 200,000 gas grills demanded at a price of $500. In 2001 there were more than 200,000 gas grills demanded at the same price. This increase could be the result any of the following EXCEPT

an increase in the supply of gas grills.

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

b. 3.5 percent and a real interest rate of 2 percent.

Which of the following is correct?

b. A recession in other countries reduces U.S. net exports so that U.S. aggregate demand shifts left.

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year.

b. His real salary has fallen and his nominal salary has risen

Which of the following statements regarding the Federal Reserve System (i.e. the Fed) is INCORRECT?

b. In the U.S. economy, the Fed is the primary organization for the conduct of fiscal, as well as monetary policy.

The "yardstick" people use to post prices and record debts is called

b. a unit of account.

On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the

b. an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.

To increase the money supply, the Fed could

b. auction more loans to banks.

The open-economy macroeconomic model includes

b. both the market for loanable funds and the market for foreign-currency exchange.

Proponents of rational expectations argued that the sacrifice ratio

b. could be low because people might adjust their expectations quickly if they found anti-inflation policy credible.

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has

b. depreciated, indicating inflation was higher in the U.S. than in India.

The marginal propensity to consumer MPC can be defined as that fraction of a:

b. given total disposable income that is consumed.

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher, then some firms believe that the relative price of what they produce has

b. increased, so they increase production.

Other things the same, a decrease in the price level causes real wealth to

b. rise, interest rates to fall, and the dollar to depreciate.

Refer to figure above, what quantity is measured along the vertical axis?

b. the value of money

Refer to table above, a 6 percent increase in the value of assets

b. will result in a 300 percent increase in owner's equity.

Refer to figure 35-8. Suppose the economy starts at 5% unemployment and 3% inflation and expected inflation remains at 3%. Which one of the following points could the economy move to in the short run if the Federal Reserve pursues a more contractionary monetary policy?

c. 7% unemployment and 1% inflation

If an economy is closed and if it has no government, then

c. All of the above are correct.

Which of the following statements concerning the aggregate demand and aggregate supply model is correct?

c. The price level and quantity of output adjust to bring aggregate demand and supply into balance.

If businesses in general decide that they have overbuilt and so now have too much capital, their response to this would initially shift

c. aggregate demand left.

Which of the following would cause prices to rise and real GDP to fall in the short run?

c. an increase in the production cost.

When we assume that the supply of money is a variable that the central bank controls, we

c. assume money supply is exogenous and take it as a constant.

Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

c. borrower or as a demander of funds.

As the price level rises, the value of money

c. decreases, so people must hold more money to purchase goods and services.

In the aggregate demand and aggregate supply model, sticky wages, sticky prices, and misperceptions about relative prices

c. explain why the short run aggregate supply curve is upward sloping.

Ceteris paribus, when the Fed conducts an "open-market sale,"

c. it sells Treasury securities, which puts downward pressure on the money supply.

If people had been expecting prices to rise but in fact prices fell, then who among the following would benefit?

c. lenders and people holding a lot of currency

If Huedepool Beer runs into financial difficulty, the stockholders as

c. part owners of Huedepool are paid after bondholders get paid.

Figure 32-7 Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

c. r3 and e1

A unfavorable supply shock will cause inflation to

c. rise and shift the short-run Phillips curve right.

Given that Monika's income exceeds her expenditures, Monika is best described as a

c. saver or as a supplier of funds.

A medium of exchange is

c. something that is generally acceptable in exchange for goods and services

Refer to figure above, if the money supply is MS2 and the value of money is 2, then there is an excess

c. supply of money that is represented by the distance between points A and B.

In order to maintain stable prices, a central bank must

c. tightly control the money supply.

If there are sticky wages, and the price level goes up the next period, then

c. wage are relatively cheaper next round and thus firms increase production.

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. Ceteris paribus, a shift from home-produced to market produced goods and services would:

cause GDP to increase.

If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to

d. $150,000 of new money.

Which of the following is included in both M1 and M2? (I) currency (II) checking account (III) bank demand deposits account with maturity less than 1 year (IV) saving account of mutual funds with maturity more than 1 year

d. (I), (II), and (III)

Rank the following in order of highest to lowest interest rate:

d. 5 year corporate bond, 1 year corporate bond, 1 year AA municipal bond, 1 year AAA municipal bond

On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:

d. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.

Use the (hypothetical) information in the following table to answer the following questions.Table 31-2 Country Currency Currency perU.S. Dollar U.S. PriceIndex Country PriceIndex Britain Pound .60 200 120 Germany Euro .80 200 200 Japan Yen 100 200 18000 Saudi Arabia Riyal 4 200 900 Venezuela Bolivar 6 200 1200 Refer to Table 31-2. For which country(ies) in the table does purchasing-power parity with the U.S. hold?

d. Britain and Venezuela

Institutions that help to match one person's saving with another person's investment are collectively called the

d. Financial system

Refer to Figure 34-1. Which of the following is correct?

d. If the interest rate is 4 percent, there is excess money supply, and the interest rate will fall.

Unemployment that occurs during the normal workings of an economy as people change jobs and move across the country is called

frictional unemployment

If a country has Y > C + I + G, then

d. S > I and it has a trade surplus.

The Fed's primary tool to change the money supply in US is

d. conducting open market operations.

Suppose some banks decide to increase their holdings of excess reserves relative to deposits. Ceteris paribus, this action will put _______ pressure on the money supply, and to reduce the impact of this action the Fed could _______.

d. downward; conduct open market purchases.

Under a fiat-money standard the value of the circulating medium of exchange is guaranteed by

d. government authority power.

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

d. households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

The inflation tax refers to

d. lost in purchasing power due to rising in price level.

Economic variables whose values are measured in monetary units are called

d. nominal variables.

Economists use the term "money" to refer to

d. those types of wealth that are regularly accepted by sellers in exchange for goods and services.

Suppose following the election of Joe Biden, the U.S. business community became more optimistic about the profitability of capital invested in U.S. industries. Ceteris paribus, it follows that the ______ loanable funds would _______, putting _______ pressure on the equilibrium interest rate.

demand for; increase; upward

If Y and V are constant and M doubles, the quantity equation implies that the price level

doubles

In the figure above, which movement reflects an increase in demand?

from point a to point d

Refer back to the previous problem. Suppose that between 2010 and 2018 your annual salary increased from $60,000 to $66,000. It follows that the economy experienced _______, and your real income _______. (Note: If nominal income grow slower than CPI, real income decreases

inflation; decreased

In the 1970s, as more women entered the labor force, the result was that the

labor force participation rates for females increased.

A fall in the price of a pizza ________ the price of a hamburger and ________ the quantity of hamburgers.

lowers; decreases

Noah is an unpaid stay-at-home father who is not currently searching for paid work. Pete is a full-time student who is not looking for a job. Who is included in the labor force by the Bureau of Labor Statistics?

neither Noah nor Pete

After a couple of months searching for a job, Sofia is hired. Which of the following increases?

neither the labor force nor the labor force participation rate

The logic behind the catch-up effect is that

new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

Rafael is the newly-appointed plant manager for a company that manufactures head phones. Rafael's senior supervisors told him that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should he do?

pay all workers more than the equilibrium wage rate

The introduction of a union into an industry

raises wages and lowers employment in that industry.

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study:

real GDP

A technological improvement lowers the cost of producing coffee. At the same time, consumers' preferences for coffee increase. The equilibrium price of coffee will

rise, fall, or stay the same, depending on the relative size of the shifts in the demand and supply curves

When an individual quits his job and decides to look for a new job immediately, the labor force participation rate

stay the same

An auto worker in Ohio who loses her job because the company relocated the plant to another country represents an example of

structural unemployment

People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as

structurally unemployed

A drop in the price of a compact disc shifts the demand curve for prerecorded tapes leftward. From that you know compact discs and prerecorded tapes are

substitutes

Wages for workers producing Walkmans and similar products will rise next year. Walkman Watch asks you to predict the effect of this change in next year's market for Walkmans. You predict that the major effect will be that the

supply curve for a Walkman will shift leftward

Ceteris paribus, the successful development of a new, pest-resistant strain of wheat (used to produce bread) will shift the _______ curve for bread, leading to a(n) _______ in the equilibrium price of bread and a(n) _______ in the equilibrium quantity exchanged. (NOTE: In this context, the expression ceteris paribus, used here and below, means "holding other variables constant.")

supply; decrease; increase

If a popular TV show on personal finance convinces Americans to save more for retirement, the _____curve for loanable funds would shift, driving the equilibrium interest rate_____.

supply; down

Which of the following agencies calculates the CPI?

the Bureau of Labor Statistics

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the CPI overstates inflation

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index.

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that

the country that started with less capital per worker will grow faster.

Refer to figure above, when the money supply curve shifts from MS1 to MS2, B

the equilibrium price level decreases. b. None of the above is correct. c. the economy's ability to produce goods and services increases. d. the demand for goods and services decreases

Christopher (age 25) is an unpaid, stay-at-home father who works as a volunteer at the local Habitat for Humanity chapter. Currently, Christopher is looking for a full-time paid job. The Bureau of Labor Statistics counts Christopher as

unemployed and in the labor force