Macro Econ Exam 2 (Ch. 9, 11, 12, 13)
Which of the examples provides the best evidence that inflation has occurred?
A person whose salary has increased is able to purchase fewer goods and services.
What is a real price?
A real price refers to a price that has been adjusted to account for inflation.
Which is NOT an example of a major reason that funds are borrowed to make large investments in physical capital and human capital?
A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash.
There were many causes that contributed to the financial crisis of 2007-2008. Which of the choices most accurately describes the role of securitization in contributing to the crisis?
Banks bundled mortgages together and then sold them on the market as a financial asset. However, the risk level of these securitized assets was often much higher than the purchaser thought.
Which of the following is a concern among economists regarding the aging of the U.S. population?
Since older people are less likely to work, an aging population will lead to a decreased labor force participation rate in the United States and lower tax revenues.
A country's total civilian noninstitutionalized adult population is 1 million, and 500,000 people in this country are working, with another 20,000 people looking for work. Which of the following statements about the labor force statistics in this country is accurate?
The employment rate is 96.15% and the labor force participation rate is 52%.
Identify an example of consumption smoothing
all of these are examples of consumption smoothing
An investment tax credit results in:
an increase in the demand for loanable funds and an increase in the interest rate.
What is inflation?
an increase in the overall price level
Increases the interest rate
an investment tax credit an increase in large investments
Select the definition of consumption smoothing
borrowing in periods of low income and saving in periods of high income to make consumption less variable than income
The crowding-out effect of government borrowing refers to a decrease in:
both private consumption and private investment.
If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?
business will not take out the loan
The source of the _______ for loanable funds is investment
demand
High and volatile inflation:
destroys the ability of market prices to send signals about the value of resources and opportunities
The labor force is made up of:
employed and unemployed workers
The natural rate of unemployment equals
frictional unemployment plus structural unemployment.
Not in the labor force
full-time students people in active military service full-time home-makers people in prison retirees who neither have a job nor are looking for a job mental patients confined in institutions people who actively looked for a job during the last 12 months, but not the last four weeks
Increases in the minimum wage will most likely lead to:
higher unemployment.
Higher interest rates typically _____ saving, ceteris paribus.
increase
During a financial crisis in the early 2000s, the government of Argentina partially froze bank accounts for a year. Given the supply of savings and the demand to borrow functions, we would expect this action to cause the interest rate to:
increase and borrowing to decrease.
Decreases the interest rate
increase in savings decrease in investor optimism
Increase in the unemployment rate
increase in the minimum wage increase in unions' influence
Which of the terms acts as the "price" in the market for loanable funds?
interest rate
Simon is a junior chef at a three-star Michelin-renowned restaurant, Sur La Table. He loses his job and applies for, and is accepted into, a state funded program that allows unemployed individuals to take medical technician courses at their local community colleges for free
job retraining
The government decides to give all unemployed workers a free account on a federal job bank, allowing workers to find jobs easier than ever before and hopefully expediting re-employment.
job search assistance
Two of the challenging factors faced by the U.S. Bureau of Labor Statistics when computing the consumer price index are:
new goods and better-quality goods.
The shadow banking system refers to
non-bank financial firms that acted as banks by borrowing and lending in an effort to make a profit
Unemployed
people who do not have a job but actively looked in the last four weeks
A discouraged worker is a(n):
person who has given up looking for work but would still like a job if one is available.
Melissa decides to start her own personal library by amassing a private collection of books and magazines about world religions, cooking, comics, and economics. As she reads an issue of The Economist, she discovers that overall price levels have changed only 0.01% in the past two years, and decides it does not matter whether she starts the project now or later.
price stability
During the financial crisis, because of high leverage, losses on mortgages:
pushed banks toward insolvency.
When using the quantity theory of money to analyze the relation between inflation, money, real output, and prices, we typically assume that:
real output and the velocity of money are constant.
In the market for loanable funds:
savers supply loanable funds and borrowers demand loanable funds.
The supply of loanable funds comes from _____, and the demand for loanable funds comes from _____.
saving; investment
Calopolis, a college town in Northern California, has for many years banned the presence of fast food restaurants in city limits. As of 2012, however, the city will allow several fast food companies to open franchised locations.
shift in demand
Due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades.
shift in demand
As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less
shift in supply
Frictional unemployment is best defined as:
short-term unemployment caused by the difficulties of matching employees to employers.
Which of the following would likely cause a shortage in the loanable funds market?
strict limits on interest rates
The typewriter industry goes bankrupt and lays off all its workers. In sharp contrast, the burgeoning electronic word processing industry hires 10,000 workers that same year. This type of unemployment resulting from the shift in industries would best be catagorized under
structural unemployment.
The natural unemployment rate is the rate of _____ unemployment plus the rate of _____ unemployment.
structural; frictional
The source of the _______ for loanable funds is saving
supply
Government can influence a person's choice to work or not through:
taxes on workers and benefits paid to nonworkers.
The Keynesian explanation for cyclical unemployment is:
that wage demands are too high relative to changing prices.
Which of the factors would decrease the rate of frictional unemployment?
the advent of the Internet, which makes finding available jobs easier
Which of the following do economists consider an investment?
the construction of a new factory
According to the quantity theory of money, the major cause of inflation in the long run is an increase in:
the growth rate of the money supply.
How does a country's rigidity of employment index correspond to the amount of long-term unemployment for that nation?
the larger the index number, the greater the long-term unemployment
Employed
those who worked during the previous week people temporarily away from their jobs due to illness people temporarily away from their jobs due to vacation
When the economy is doing well, a significant share of unemployment is frictional.
true
Which of the choices is most directly related to cyclical unemployment?
recessions
Inflation occurs when the growth in _____ exceeds the growth in _____.
the money supply; output
Two influences on the rise in the female labor force participation rate in the United States are _____ and _____.
the rising proportion of services in national output; the availability of birth control
Find the velocity of money when 𝑀=$522M=$522, 𝑃=105P=105, and 𝑌R=$23YR=$23. M is the money supply, v is the velocity of money, P is the price level, and YR is the real gross domestic product (GDP). Round your answer to 2 decimal places.
4.63
Suppose the Chief Financial Officer (CFO) of a company is interested in raising funds for a major investment by issuing bonds of varying maturity to investors. One of the longer-term bonds being issued can be purchased for $25,000.00$25,000.00 per bond and pays $1,900.00$1,900.00 annually to the investor. What is the anual interest rate on this bond?
7.6%
China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy
shift in supply
In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy?
$1.2 million
At an 8% interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate fell to 5%?
$190 billion
My Attempt Brian has grown tired of paying rent each month to his landlord and has decided to purchase a condo. Brian has been saving money and has $21.00$21.00 that he will use as a down payment on this condo. He will take out a mortgage to pay the remaining price. Brian finds a suitable condo and negotiates a price of $439.00$439.00. Assume that there are no extra fees associated with purchasing the condo. Upon moving in, how much equity does Brian have in this condo? What is Brian's leverage ratio associated with this condo when he moves in?
$21.00 19.90
You are considering purchasing a car, and you are offered a loan with a nominal interest rate of 7%. Assume inflation is expected to average 3% over the life of the loan. What is the real interest rate?
4%
After a financial crisis hits the country of Barbaria, 1010 million people become unemployed. If 6565 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.
13.33%
The overall population for Region A is 102102 million people. The labor force contains 4646 million people, 3232 million people are employed, and 1414 million are unemployed. What is the unemployment rate? Round your answer to two decimals.
30.43%
How do banks engage in specialization and division of labor?
Banks coordinate the collection of lenders' funds and employ specialists in risk assessment to ensure that the funds are safely used.
What does the term money neutrality mean?
Changes in the money supply have no real effects on the economy in the long run.
_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.
Deflation; disinflation
The ratio of the nominal value of economic output to the real value of economic output multiplied by 100 is the:
GDP deflator.
Which of the choices is the best example of creative destruction?
In the past month, there were 20,000 layoffs but 22,000 new hires.
________ are a mechanism by which crowding out occurs.
Increases in interest rates
Peter is a compulsive gamer. He decides to buy World of Warcraft, all of its expansions, Starcraft 2, a PS3, a Wii, and an Xbox 360, since prices in general have been rising at an alarming rate.
Inflation
Which of the situations is an example of the crowding-out effect on investment as it pertains to macroeconomics?
Jack wants to borrow money to create a cowboy-themed inflatable bounce house for kids called "Wild Wild West." However, the government is running a deficit which has increased interest rates so much that Jack can no longer afford to borrow the money.
Out of these individuals, whose money gained the most value during their time period?
Linda's money gained the most value.
What information does the World Bank's "rigidity of employment index" provide?
a summary of firms' costs for hiring, firing, and adjusting employment hours
If money is neutral, what does this imply about the use of monetary policy?
Monetary policy is more effective in the short term than the long term.
Why is the demand for loanable funds downward sloping?
More people borrow money when interest rates are low than when they are high.
As interest rate decreases, what happens to the quantity of loanable funds demanded?
Quantity demanded will increase
What effect will an increase in interest rates have on the quantity of loanable funds supplied?
Quantity supplied will increase
Employment laws can vary significantly by country. For instance, in the United States, many jobs are governed by the principle of employment at-will. Employment at-will is rarer in certain countries in Europe, such as Portugal. Regulation and collective bargaining impact labor markets to a larger extent in Europe than in the United States. How do European labor markets compare to the labor market in the United States as a result of these varying labor laws?
The labor market in Europe is less flexible than in the United States.
What is the neutrality of money with respect to the quantity theory of money?
The money supply can affect the growth rate of prices (inflation) in the long run. The money supply cannot affect the growth rate of real GDP in the long run. The money supply can affect the growth rate of the real GDP in the short run.
A $10,000 face-value bond costs $9,250 and matures in one year. If the interest rate on similar bonds rises by 2%, what is the approximate price change for this bond?
The price of the bond falls to $9,082.
In a macroeconomic context, choose the best definition for the term velocity.
The rate at which money circulates through an economy.
Which of the following is TRUE of the effects of employment protection laws?
They create employment security for workers with a job.
Which of the following best defines a financial intermediary?
a financial institution that transforms investor funds into financial assets
In the market for loanable funds, _____ coordinates between the savers and borrowers.
a financial intermediary
Select the correct definition of inflation.
a general and ongoing rise in the average level of prices in an economy
The main reason people save during their working years is:
a preference toward a smooth consumption path over time.
Determine if the people in the example have benefited - i.e., are winners - or have been harmed - i.e., are losers - by unexpected inflation. a. The United States federal government, which had almost $15 trillion in debt in 2011 b. Karen, a retired school teacher who relies upon her fixed pension to pay for her expenses c. Third National, a bank that loaned many people money for home purchases d. Joy, who borrowed $40,000 to pay for her college education e. Herb, who keeps his savings in an old coffee can
winner loser loser winner loser
The government implements a new policy where people receiving unemployment benefits must provide proof that they are searching for work. Otherwise, they will lose their benefits in 11 month.
work test
Which of the following programs could help overcome structural unemployment?
worker retraining, limitations to unemployment benefits, and job-search assistance
A seasonal worker saves more when her income rises and saves less when her income falls. This behavior is referred to as:
consumption smoothing
If you earned $10 an hour in 2005 when the CPI was 100, and you earn $11 an hour today when the CPI is 120, then your real wage rate has _____ since 2005.
decreased
Which of the following is an example of an unemployed person?
a recent college graduate looking for her first job
What is crowding out?
a reduction in consumption and investment spending that results from government borrowing
Decrease in the unemployment rate
decreased unemployment benefits introduction of employment‑at‑will doctrine
Since the mid-1960s, the male labor force participation rate in the United States has _____ and the female labor force participation rate has _____.
decreased; increased
Linda postpones her wedding even though most food prices and most service prices were dropping this year, which would help keep the cost of the wedding down.
deflation
What affects labor force participation rates?
demographics, tax structure, and technological advances such as the birth control pill
Chelsea recently lost her job as an accountant. However, thanks to her stellar resume, she is able to quickly find a new job after two weeks. Much to her pleasure, she receives a tax credit because she was able to quickly find a new job.
early employment bonus
Inflation:
is an increase in the average price level.
For savers, the role of financial intermediaries is to:
reduce the default risk on money they save and lend.