Make Up Exam Review

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. What is the inflation rate in 2008? a. 12% b. 15% c. 32% d. 40%

a. 12%

Which of the following could explain an increase in the equilibrium interest rate and in the equilibrium quantity of loanable funds? a. The demand for loanable funds shifted rightward. b. The demand for loanable funds shifted leftward. c. The supply of loanable funds shifted rightward. d. The supply of loanable funds shifted leftward.

a. The demand for loanable funds shifted rightward.

If V and M are constant, and Y doubles, the quantity equation implies that the price level a. falls to half its original level. b. doubles. c. more than doubles. d. does not change

a. falls to half its original level.

When the money supply increases a. interest rates fall and so aggregate demand shifts right. b. interest rates fall and so aggregate demand shifts left. c. interest rates rise and so aggregate demand shifts right. d. interest rates rise and so aggregate demand shifts left

a. interest rates fall and so aggregate demand shifts right.

Suppose the economy is in long-run equilibrium. If there is an income tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same

a. real GDP will rise and the price level might rise, fall, or stay the same.

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates a. the multiplier effect. b. the crowding-out effect. c. the Fisher effect. d. None of the above is correct

a. the multiplier effect.

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if a. the price level is higher than expected making production more profitable. b. the price level is higher than expected making production less profitable. c. the price level is lower than expected making production more profitable. d. the price level is lower than expected making production less profitable

a. the price level is higher than expected making production more profitable.

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Josh Holloway's 2013 income in 1944 dollars is a. $11,528. b. $16,923. c. $149,009. d. $26,059

b. $16,923.

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The marginal propensity to consume for this economy is a. 0.32 b. 0.64 c. 0.56 d. 0.84

b. 0.64

The money multiplier equals a. 1/R, where R represents the quantity of reserves in the economy. b. 1/R, where R represents the reserve ratio for all banks in the economy. c. 1/(1+R), where R represents the quantity of reserves in the economy. d. 1/(1+R), where R represents the reserve ratio for all banks in the economy

b. 1/R, where R represents the reserve ratio for all banks in the economy.

Consider this (hypothetical) information for Metropolis Bank in the following table to answer the following question. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement? a. 12 percent b. 10 percent c. 8 percent d. 6 percent

b. 10 percent

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income? a. 71 percent b. 141 percent c. 165 percent d. 198 percent

b. 141 percent

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. What is the Consumer Price Index in 2009? a. 150 b. 154 c. 156 d. Cannot be determined

b. 154

Consider the table below, with Labor data for Aridia The labor-force participation rate of Aridia in 2012 was a. 43.4% b. 56.25% c. 63.3% d. 68.4%

b. 56.25%

The BLS reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent. From this group 36.40 million were employed and 1.93 million were unemployed. About what were the labor-force participation rate and the unemployment rate for this group? a. 60.7%, 5.0% b. 63.9%, 5.0% c. 60.7%, 3.2% d. 63.9%, 3.2%

b. 63.9%, 5.0%

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. In response to which of the following events could aggregate demand increase by $1,500? a. A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. b. A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. c. An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding- out effect. d. An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding-out effect

b. A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.

Consider the table below, with Labor data for Aridia The unemployment rate of Aridia a. increased from 2010 to 2011 and increased from 2011 to 2012. b. increased from 2010 to 2011 and decreased from 2011 to 2012. c. decreased from 2010 to 2011 and increased from 2011 to 2012. d. decreased from 2010 to 2011 and decreased from 2011 to 2012

b. increased from 2010 to 2011 and decreased from 2011 to 2012.

Tom and Lilly rented a house for $12,000 last year. At the start of this year they bought the house they had been renting directly from the owner for $250,000. This year, they believe they could rent the house out for $12,000, but decide not to and live in it instead. How much does Tom and Lilly's decision to buy the house change GDP? a. it reduces GDP by $12,000 b. it does not change GDP c. it raises GDP by $238,000 d. it raises GDP by $250,000

b. it does not change GDP

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Sue Holloway's 1944 income in 2013 dollars is a. $23,033. b. $136,909. c. $148,909. d. $240,960

c. $148,909.

Giulia says that the future value of $250 saved for one year at 7 percent interest is less than the future value of $250 saved for two years at 5 percent interest. Isabella says that the present value of a $250 payment to be received in one year when the interest rate is 7 percent is less than the value of a $250 payment to be received in two years when the interest rate is 5 percent. a. Giulia and Isabella are both correct. b. Giulia and Isabella are both incorrect. c. Only Giulia is correct. d. Only Isabella is correct

c. Only Giulia is correct.

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is a. a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply. b. a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply. c. an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply. d. an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply

c. an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets? a. only ABC b. only JLG c. both ABC and JLG d. neither ABC nor JLG

c. both ABC and JLG

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level a. rises, shifting aggregate demand right. b. rises, shifting aggregate demand left. c. falls, shifting aggregate supply right. d. falls, shifting aggregate supply left

c. falls, shifting aggregate supply right.

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by a. buying bonds. This buying would reduce reserves and money supply. b. buying bonds. This buying would increase reserves and money supply. c. selling bonds. This selling would reduce reserves and money supply . d. selling bonds. This selling would increase reserves and money supply

c. selling bonds. This selling would reduce reserves and money supply .

According to classical macroeconomic theory, changes in the money supply affect a. real GDP and the price level. b. real GDP but not the price level. c. the price level, but not real GDP. d. neither the price level nor real GDP

c. the price level, but not real GDP.

Whip-It manufactures blenders. In 2009 it had $50,000 of blenders in inventory. In 2010 it sold $300,000 of blenders to consumers and had $40,000 of blenders in inventory. How much did blenders produced by Whip-it add to GDP in 2010? a. $340,000 b. $310,000 c. $300,000 d. $290,000

d. $290,000

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. In 2010, this country's GDP deflator was a. 58.0 b. 100 c. 148.1 d. 180

d. 180

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. What is the inflation rate in 2005? a. 15% b. 32% c. 40% d. Cannot be determined

d. Cannot be determined

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest? a. Inflation is 3 percent; the tax rate is 20 percent. b. Inflation is 2 percent; the tax rate is 40 percent. c. Inflation is 1 percent; the tax rate is 60 percent. d. The after-tax real interest rate is the same for all of the above

d. The after-tax real interest rate is the same for all of the above

A recession is always associated with a. the end of a war. b. slowly growing real GDP. c. rising inflation. d. declining real GDP

d. declining real GDP

The money supply increases if a. households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. b. households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. c. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. d. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans

d. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans

The aggregate supply curve is upward sloping in a. the short and long run. b. neither the short nor long run. c. the long run, but not the short run. d. the short run, but not the long run

d. the short run, but not the long run

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. For this economy, an initial increase of $500 in government purchases translates into a a. $1,390 increase in aggregate demand in the absence of the crowding-out effect. b. $3,125.00 increase in aggregate demand in the absence of the crowding-out effect. c. $1,390 increase in aggregate demand when the crowding-out effect is taken into account. d.$3,125.00 increase in aggregate demand when the crowding-out effect is taken into account

a. $1,390 increase in aggregate demand in the absence of the crowding-out effect.

Consider this (hypothetical) information for Metropolis Bank in the following table to answer the following question. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves? a. $100,000 b. $110,000 c. $120,000 d. None of the above are correct

a. $100,000

Which of the following sequences best explains the negative slope of the aggregate-demand curve? a. price level ↑ = demand for money ↑ = equilibrium interest rate ↑ = quantity of goods and services demanded ↓ b. price level ↑ = demand for money ↓ = equilibrium interest rate ↑= quantity of goods and services demanded ↓ c. price level ↓ = demand for money ↓ = equilibrium interest rate ↑= quantity of goods and services demanded ↓ d. price level ↑ = equilibrium interest rate ↑= demand for money ↑= quantity of goods and services demanded ↓.

a. price level ↑ = demand for money ↑ = equilibrium interest rate ↑ = quantity of goods and services demanded ↓

In which of the following cases would the quantity of money demanded be largest? a. r=0.03, P=1.2 b. r=0.03, P=1.3 c. r=0.04, P=1.2 d. r=0.05, P=1.3

b. r=0.03, P=1.3

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to a. rise. This rise in price expectations shifts the short-run aggregate supply curve to the right. b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left. c. fall. This fall in price expectations shifts the short-run aggregate supply curve to the right. d. fall. This fall in price expectations shifts the short-run aggregate supply curve to the left

b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that a. velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P. b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P. c. velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P. d. velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.

b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by a. $25 b. between $200 and $300 c. $1600 d. $2500

c. $1600

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. In 2010, this country's real GDP was a. $100 b. $390 c. $400 d. $500

c. $400

Suppose the MPC is 0.60. Assume there are no crowding out effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right? a. $300 billion and $180 billion b. $300 billion and $300 billion c. $500 billion and $300 billion d. $500 billion and$500billion

c. $500 billion and $300 billion

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. In 2010, this country's nominal GDP was a. $300 b. $440 c. $900 d. $1380

c. $900

Consider the table below, with Labor data for Aridia The labor force of Aridia in 2012 was a. 1400 b. 1600 c. 1800 d. 2000

c. 1800

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The multiplier for this economy is a. 1.21 b. 6.25 c. 2.78 d. 2.27

c. 2.78

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. What is the inflation rate in 2010? a. 60% b. 6% c. 3.9% d. 6.7%

c. 3.9%

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. Using the GDP deflator, this country's inflation rate from 2010 to 2011 was a. 15.2% b. 25.4% c. 32.2% d. 43.9%

c. 32.2%

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate on the nominal interest rate? a. 28.00 percent b. 36.25 percent c. 43.75 percent d. 67.50 percent

c. 43.75 percent

To decrease the money supply, the Fed can a. buy government bonds or increase the discount rate. b. buy government bonds or decrease the discount rate. c. sell government bonds or increase the discount rate. d. sell government bonds or decrease the discount rate.

c. sell government bonds or increase the discount rate.