Macro Exam 2

A ________ occurs when a country's imports exceed its exports.

trade deficit

Which of the following statements best defines hyperinflation?

Inflation in an economy results in prices doubling within 3 years.

If the GDP deflator is 142, by how much have prices changed since the base year?

Prices have increased by 42%

Which of the following would increase GNP in the United States?

an increase in the production of U.S.-owned General Motors cars made in Mexico

The consumer price index is the

average of the prices of the goods and services purchased by a typical urban family of four.

The primary tool the Federal Reserve uses to increase the money supply is

buying Treasury securities.

Minimum wages ________.

can increase unemployment in an economy

Efficiency wages ________.

can lead to wage rigidity

A good can serve as money only if

citizens accept the good as a means of payment for transactions and debts.

Menu costs refer to the ________.

costs businesses incur when they change prices

A French tourist spent $1,200 in the United States this year. This transaction led to a(n) ________.

increase in the U.S. GDP

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would

increase the measured labor force participation rate.

If the natural rate of unemployment in a country is 6 percent and the unemployment rate in the country is 8 percent, the cyclical unemployment in the country must be ________.

2 percent

You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. If inflation over the year is 2%, what is the real interest rate you are paying?

3%

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?

3.5%

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn?

4.4%

If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is

5

If the labor force participation rate in an economy is 50 percent and there are 100 million potential adult workers in the economy, then the size of the labor force in the economy will equal ________.

50 million

If the number of potential workers in a country is 25 million and the size of the labor force in the country is 17 million, the number of adults not in the labor force will equal ________.

8 million

Which of the following will be included in the calculation of GDP using the expenditure method?

A foreign consumer's purchase of domestic goods

Legalizing all forms of illegal cannabis in New Mexico

increases GDP and reduces the size of the underground economy.

According to the quantity theory of money, inflation is caused by

the money supply growing faster than real GDP.

Hyperinflation results when ________.

the money supply grows very rapidly

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants.

If, at a given wage, the quantity of labor supplied exceeds the quantity of labor demanded, ________.

the wage rate will fall

Soldiers in a World War II prisoner-of-war camp

used cigarettes as money.

Discouraged workers are

workers who have stopped looking for work because they believe there are no jobs for them.

Scenario 14-2Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

$10,000

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.

$5,500; $5,250

Assume the average annual CPI values for 2017 and 2018 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?

(215.3-207.3)/207.3= 3.86

Scenario: The unemployment rate in Country Y is 6 percent, and the labor force is equals about 200 million people.Refer to the scenario above. Which statement is true about Country Y?

About 188 million people have a job.

Scenario: Mike's housekeeper charges $30 for mowing his lawn.Refer to the scenario above. Which of the following will happen if Mike decides to mow his lawn himself instead of paying his housekeeper for the service?

GDP will decrease.

Which of the following is a role of the Federal Deposit Insurance Corporation of the United States?

It safeguards deposits held with banks.

Which of the following statements is true?

Technological innovation can cause unemployment in a single industry.

The value of a country's exports during a particular year was $120,000 and the value of its imports was $85,000. Which of the following is true?

The country ran a trade surplus of $35,000 during that year.

Scenario: Sarah takes care of her son instead of sending him to a day care that charges $12,000 annually.Refer to the scenario above. Which of the following will happen if she puts him into a day care?

The country's GDP will increase by $12,000.

Which of the following transactions will be included in the calculation of GDP using the expenditure method?

The purchase of a private jet by the CEO of a company

Which of the following groups of people would be considered unemployed?

Workers who have been looking for jobs for the past 4 weeks

Which of the following goods is directly counted in GDP?

a 12-inch Subway sandwich purchased by a student

A bank run occurs when ______

a bank experiences an extraordinarily large volume of withdrawals

Cyclical unemployment is the result of

a slowdown in the economy.

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment.

In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services.

equals

Frictional unemployment exists because ________.

firms and workers have imperfect information about each other and the state of the economy

Efficiency wages cause unemployment because

firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.

Unemployment arising from job search is called ________.

frictional unemployment

A barter economy is an economy where

goods and services are exchanged for other goods and services.

An employed individual is one who ________.

has a full-time or part-time paid job

Data confirm that the quantity theory of money ________.

holds in the long run

A Bozeman, Montana, household receives a Social Security check for $800, which it uses to purchase a $599 television made in Korea by a Korean firm, as well as pay a local mechanic $191 to fix the family car. The household spends the remaining $10 on ice cream from Town and Country. As a result, U.S. GDP ________.

increases by $201

Double counting occurs when ________ included in the calculation of the GDP.

inputs are

Which of the following is not a function of the Federal Reserve System, or the "Fed"?

insuring deposits in the banking system

Which of the following is not directly counted in GDP?

intermediate goods

GDP

is the market value of the final goods and services produced in a country during a particular period of time.

Inflation that is ________ than what is expected benefits ________ and hurts ________.

less; lenders; borrowers

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

The purchase by a household in China of a CD produced in the United States is included in U.S.

net exports.

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

open market operations, discount policy, and reserve requirements.

Full employment is not considered to be zero unemployment, because

people do not find jobs instantaneously.

The nominal interest rate equals the real interest rate ________ the inflation rate.

plus

Suppose the reserve ratio is RR. Then

required reserves = RR × deposits.

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort.

If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?

store of value

An electrician accepts payment only in cash to avoid taxes. If he is paid $100, ________.

the GDP of his country will remain unchanged

What are menu costs?

the costs to a firm of changing prices

According to the quantity theory of money, the inflation rate equals

the growth rate of the money supply minus the growth rate of real output.

The discount rate is

the interest rate the Fed charges to banks for loans from the Fed.