Practice Test #2 Econ Exam

If traveler's checks were $1,000 higher and saving deposits were $500 higher, M1 would be

$1,000 higher and M2 would be $1,500 higher

Which of the following is an example of barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet

When the Fed decreases the discount rate, banks will

Borrow more from the Fed and lend more to the public; the money supply increases

Suppose that a large number of people who used to work or seek work no longer do either. Other things the same, this makes

Both the number of people unemployed and in the labor force fall

Which of the following does the Federal Reserve not do?

Conduct fiscal policy

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

Consumer price index rises much more than does the GDP deflator

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Corporate bond, U.S. government bond, municipal bond

If the Federal Open Market Committee decides to increase the money supply, it

Creates dollars and uses them to purchase government bonds from the public

Which list ranks assets from most to least liquid?

Currency, stocks, houses

If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, then by definition there is

Cyclical unemployment amounting to 0.8 percent of the labor force

Other things the same, if reserve requirements are decreased, the reserve ratio

Decreases, the money multiplier increases, and the money supply increases

The unemployment rate is computed as the number of unemployed

Divided by the labor force, all times 100

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI

Fails to account for the introduction of new goods

Providing training for unemployed individuals is primarily intended to reduce

Frictional unemployment

Sandy has graduated from college and is devoting her time to searching for a job. She has seen plenty of openings but has not yet been offered one that best suits her tastes and skills. Sandy is

Frictionally unemployed; frictional unemployment can exist even in the long run

You receive money as payment for mowing your neighbor's lawn. What function of money does this best illustrate?

Medium of exchange

Other things the same, when the interest rate rises, people would want to lend

More, making the quantity of loanable funds supplied increase

In a closed economy, what does the difference between the tax revenue and government purchases, (T - G), represent?

Public saving

Long-term bonds are

Riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds

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

Saver or as a supplier of funds

Which of the following is not included in M1?

Savings deposits

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a

Shortage and the interest rate is below the equilibrium level

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers

A problem that the Fed faces when it attempts to control the money supply is that

The Fed does not control the amount of money that households choose to hold as deposits in banks

Which of the following best represents fiat money?

The euro

What basket of goods and services is used to construct the CPI?

The goods and services that are typically bought by consumers as determined by government surveys

Suppose private saving in a closed economy is $21b and investment is $8b.

The government budget deficit must equal $13b

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation

What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income?

There would be an increase in the equilibrium quantity of loanable funds

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

[(CPI in Year 2 - CPI in Year 1)/CPI in Year 1] x 100