Unit 2 Quiz Questions - Econ 205

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The Federal Reserve System is organized into _________ Federal Reserve districts.

12

The Federal Open Market Committee consists of

12 members, seven of who are the memvers of the Board of Governors and five of whom are presidents of Federal Reserve Banks

The Fed's policy is determined by the

Federal Open Market Committee

Regulating the amount of money in the United States is one of the most important responsibilities of the

Federal Reserves

All of the following can create a bias in the CPI EXCEPT the

GDP price index bias

Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in 2012 is definitely

less than 100

During 1990, a Hershey candy bar cost $.85. By 2007, the same Hershey candy bar cost $1.25. If the CPI was 130.7 in 1990 and 180.5 in 2007, the price of the 1990 Hershey candy bar in 2007 prices is

less than the price of the 2007 Hershey candy bar

The largest category of commercial banks' assets is

loans

If Caterpillar Inc. raises the price of earth-moving equipment that it manufactures in Illinois, then the CPI will ________ and the GDP deflator will ________.

not changing; increase

A credit card is

not money

A debit card is

not money but is used to transfer bank deposits which are money

Bo quit his job on September 1 and then, after looking for a new job, will begin his new job on October 1. Bo's action would

raise the September unemployment rate and lower October unemployment rate

When a good gets better from one year to the next, the CPI has a what is called

Quality change bias

Which of the following people would be classified as employed in the Current Population Survey?

Rich, who is working 20 hours a week but wants a full-time job

What is the central bank of the United States?

The Federal Reserve System

Across developed and newly industrialized economies, since 1989 the United States has generally had

a higher unemployment rate than Japan and Hong Kong and a lower unemployment rate than the Eurozone countries

When you join the local organic food market and then buy produce each month, money is used as

a medium of exchange and a unit of account

Which of the following is a thrift institution?

a savings and loan association

A marginally attached worker is

a worker who does not have a job and is available and wants one but has not made any efforts to find a job within the previous four weeks

The commodity substitution bias is most likely to put ________ into the CPI and so ________ the inflation rate.

an upward bias; overstate

The quality change bias is most likely to put ________ into the CPI and so ________ the inflation rate.

an upward bias; overstate

When the Fed sells $100 million of securities to a commercial bank, the

bank's reserves decrease

For a commodity or token to be money it must

be accepted in exchange for all other goods and services

The Fed influences the interest rate by using which of the following tools? i. open market operations ii. taxes on bank accounts iii. changes in required reserve ratios

both i and iii

Which of the following is a thrift institution? i. a credit union ii. the Fed iii. a savings bank

both i and iii

A-1 bank initially has no excess reserves. If the desired reserve ratio is 10 percent and a new deposit of $10,000 is made in A-1, then A-1

can immediately loan $9,000

Which of the following is NOT heal as an asset by banks?

checkable deposits

Which of the following is money?

checkable deposits

M1 is defined as a measure of money including, in part,

checkable deposits and currency

The monetary base is the sum of

coins, Federal Reserve notes, and banks' reserves at the Fed

If the Fed increases the discount rate,

commercial banks pay a higher interest rate if they borrow from the Fed

Sharisse brags to her mother that her starting salary as a management trainee is $36,000, much higher than her mother's starting salary of $21,000 as a management trainee several years ago. If the CPI the year Sharisse begins work is 181.2 and the CPI the year her mother started work was 109.1, Sharisse is

correct. Adjusting for price changes, her salary is more than her mother's salary

When the First Bank of Townsville makes a loan, it

creates a checkable deposit

Cisco is considering opening a financial institution that accepts savings deposits from only its employees and makes loans to only its employees. The best description of this financial institution is that it is a

credit union

M1 is composed of

currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses

Which of the following is an example of money?

currency in your wallet

The objects we use as money today include

currency outside the banks and bank deposits

The monetary base is equal to the sum of coins,

currency, banks' reserves at the Federal Reserve and checkable deposits at banks

During the Great Depression of the 1930s when the unemployment rate was exceptionally high due to the Great Depression, the government had employment programs, such as the Civilian Conservation Corps, which built campsites and planted trees. These programs were aimed at reducing which type of unemployment?

cyclical

Which type of unemployment is the consequence of downturns in the business cycle?

cyclical

The natural unemployment rate is the unemployment rate that exists when there is no

cyclical unemployment

The unemployment that fluctuates over the business cycle is called

cyclical unemployment

Each month the CPI is calculated by

dividing the current cost of the CPI market basket by the base period cost and then multiplying by 100

For anything to be considered money it must be

either a commodity or a token, as long as it is generally accepted as a means of payment

The purpose of the Current Population Survey is to determine the

employment status of the population

Potential GDP is the level of output produced when the unemployment rate is

equal to the natural unemployment rate

The real interest rate is negative if the inflation rate

exceeds the nominal interest rate

The part of a commercial bank's reserves that are larger than desired are called

excess reserves

Barter requires the

exchange of goods and services directly for other goods and services

The Consumer Price Index measures the average of the prices paid by Urban consumers for a _________ of consumer goods and services.

fixed market basket

Natural unemployment equals the sum of

frictional and structural unemployment

The ongoing normal creation and destruction of jobs creates

frictional unemployment

Rita graduated from college and is currently looking for a job; while Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job. These women are considered:

frictionally unemployed

The unemployment rates during the last 10 years in the Eurozone was

generally higher than the U.S. unemployment rate

The items included in the CPI are

goods and services consumed by the typical urban household

Open market operations are when the Fed buys or sells

government securities from banks or some other business

The women's labor force participation rate is

higher in the United States than in France

If the Fed increases the discount rate, commercial banks pay a ________ interest rate if they borrow money from the Fed and will therefore ________.

higher; borrow less money from the Fed and make fewer loans to consumers

Which of the following policy tools did the Fed create in 2008 to address the financial crisis? i. quantitative easing ii. credit easing iii. open market operations

i and ii

Which of the following statements about the United States is (are) correct? i. the labor force is larger than the number of employed people. ii. The labor force is larger than the number of unemployed people. iii. The number of unemployed people is larger than the number of employed people.

i and ii

Which of the following is a bias in the CPI? i. new goods bias ii. index change bias iii. commodity substitution bias

i and iii

Which of the following accept deposits from or sell shares to the general public? i. money market funds ii. thrift institutions iii. commercial banks

i, ii, and iii

Which of the following is a policy tool of the Fed? i. setting the required reserve ratios ii. conducting open market operations iii. quantitative easing

i, ii, and iii

Which of the following is a tool the Federal Reserve System can use to regulate the quantity of money? i. changing the discount rate ii. conducting open market operations iii. changing the required reserve ratio

i, ii, and iii

Credit cares are i. a generally accepted form of payment and therefor part of M1 ii. included in M1 because you write a check to pay your monthly bill iii. a means of borrowing money

iii only

Money performs all the following functions EXCEPT serving as a i. medium of exchange ii. unit of account iii. barter mechanism

iii only

The monetary base does NOT include which of the following items? i. Federal Reserve notes ii. banks' reserves at the Federal Reserve iii. U.S. government securities owned by the Federal Reserve

iii only

Suppose the Fed buys $1 million of government securities from Bank One, a large commercial bank. Bank One's reserves ________ and its deposits ________.

increase by $1 million; do not change

When a commercial back receives a deposit, it must keep part of the deposit as cash reserves to satisfy its

required reserves

Required reserve ratios are the minimum amount of

reserves any one bank must hold as a percentage of its deposits

Commercial bank reserves are typically less than 1 percent of total assets, however in 2013 bank reserves ________ because of ________.

rose to around 18 percent; the financial crisis of 2008-2009

Joann has just lost her job because her company was faced with more foreign competition and decided to restructure, which reduced the number of jobs at the company. Joann is

structurally unemployed

An example of the outlet substitution bias in the calculation of the CPI is a price increase in

textbooks bought through the campus bookstore relative to textbooks via Craigslist

When the economy is at full employment,

the amount of cyclical unemployment equals zero

The amount of loans that a bank can create is limited by

the bank's excess reserves

If you use a check to pay your monthly rent,

the check is not money because it is just an instruction to your bank to make a payment

When you use a credit card to pay your tuition,

the credit card is not money but is an ID card for an instant loan

Full employment occurs when

the cyclical unemployment rate is zero

The upward trend in the U.S. labor force participate rate the past 50 years is explained by

the increase in the female labor force participation rate

As technology advancements have led to more white collar jobs,

the labor force participation rate for women has increased over the last 50 years

If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year, we know that

the next year's CPI will be above 100

If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007, when the CPI was 172, then

the price of the soda was greater in real value in 1970 than in 2007.

A main reason for the low employment rate from 1995 through most of the 2000s was because of

the rapid development of the Internet industry and other new technologies

The presence of new goods that are of higher quality than the old goods leads the BLS to

try to separate price differences from improvements in quality

A common trait of money through history and across cultures is that money

was always generally accepted as a means of payments

The CPI market basket

weights the goods and services according to the budget of an average urban household.

February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?

$1.29 per gallon

In 2011, apples cost $1.49 a pound. Suppose the CPI was 120 in 2011 and 140 in 2012. If there is no change in the real price of an apple in 2012, what is the price of a pound of apples in 2012?

$1.74

In 2008, the nominal minimum wage rate was $7.25 an hour and the CPI was 200. The real minimum wage rate in 2008 was

$3.63 an hour

In August of 2013, the number of employed persons in the United States was 144.2 million, the number of unemployed persons was 11.3 million, and the number of persons not in the labor force was 90.5 million. What was the labor force in August of 2013?

155.5 million

Suppose the market basket of consumer goods and services costs $180 using the base period prices, and the same basket of goods and services costs $300 using the current period prices. The CPI for the current year period equals

166.7

A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was

18.3%

During the recessions of 2001 and 2008-2009

all measures of the unemployment rate (U-1 through U-6) increased

In the United States, the percentage of part-time workers who are part time for non economic reasons

does not fluctuate much with the business cycle

When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the two inflation rates

move up and down in similar but not identical ways.

The natural unemployment rate is

not known with certainty

Discouraged workers and marginally attached workers are

not part of the labor force

The labor force is the

number of employed people plus the number of unemployed people

When the unemployment rate equals the natural unemployment rate, most likely the economy is producing

on the PPF

If average annual tuition at public 4-year colleges was $1,908 in 1990, when the CPI was 130.7, and $8,655 in 2012 when the CPI was 229.6, then the real cost of annual tuition

rose by 158 percent during that period

If a single bank has $25,000 in excess reserves and the desired reserve ratio is 20 percent, what is the maximum this bank can loan?

$25,000

In 2008, Cameron began his career with SBC. His starting salary was $32,000. By 2012, his salary increased to $35,000. If the CPI was 100.0 in 2008 and 107.5 in 2012, Cameron's 2012 real income is

$32,558

The Fed purchases $1 million of U.S. government securities from First Bank. The desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all excess reserves. The Fed's purchase increases First Bank's excess reserves by how much?

$1,000,000

The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What is the total amount of deposits in this bank?

$1,600,000

If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make?

$1,800

If you are earning $20,000 this year and the CPI is 165, your real income in base year prices is

$12,121.21

The Fed buys $25,000 of government securities. The desired reserve ratio is 20 percent and the currency drain ratio is zero. What will be the change in the quantity of money?

$125,000

If the required reserve ratio is 15 percent, there is no currency drain, and banks loan all of their excess reserves, an increase in the monetary base of $20,000 leads to a total increase in the quantity of money of

$133,333

Suppose a bank has $1,000 in deposits and $100 in reserves. If the desired reserve ratio is 5 percent, how much can this bank increase its loans?

$50

A bank has checkable deposits of $1,000,000, loans of $600,000, and government securities of $400,000. If the required reserve ratio is 5 percent, the amount of required reserves is

$50,000

A new bank has reserves of $600,000, checkable deposits of $500,000, and government securities of $100,000. If the desired reserve ratio is 10 percent, the amount of loans this bank can make is

$550,000

If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits, then its desired reserves are

$700

The GDP price index can be interpreted as

(nominal GDP ÷ real GDP) × 100.

The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2010. The inflation rate in Syldavia from 2010 to 2011 was 2010: CPI 100 $15 and 3% 2011: CPI 95 $15 and 4% 2012: CPI 103 $17 and 9%

-5%

Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that money during the year 2013. If the inflation rate was 1 percent in 2013, what was Caroline's real interest rate?

3%

Consumers in a country buy only two goods, pens and CDs. The prices and quantities purchased by urban households are in the table above. If 2011 is the reference base year, the cost of the CPI market basket in the base year is 2011 Pens: 400 @ $1 CDs: 200 @ $15 2012 Pens: 400 @ $1.02 CDs: 200 @ $15.90

3400

Using the data below, the labor force participation rate is: Marginally attached workers: 2.1 Unemployed workers: 12.1 Employed workers: 140 Working-age: 250

60.8%

Which statement is most correct about the types of deposits a commercial bank can accept?

A commercial bank accepts checking, savings and time deposits

When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the

CPI measure tends to exceed the PCE price index measure

The CPI stands for

Consumer Price Index

If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change?

M1 will decrease, but M2 will remain the same

Which statement about money is most correct?

Money has been around for a long time and can include anything that is accepted as a means of payments

A commercial bank is defined as

a firm that is chartered to accept deposits and make loans

The bias in the CPI distorts private contracts because

a future payment that is linked to the CPI is likely to be raised above the true increase in the price level.

To measure the CPI, the BLS economic assistants check the prices of

about 80,000 goods and services every month

Checks are not money because

are just instruments to transfer money between banks

Between 1960 and 2010, the labor force participation rate for men

decreased in most years

If the Fed buys government securities from the non-bank public, then

deposits at banks increase and banks' reserves increase

Actual reserves are equal to

desired reserves plus excess reserves

During a recession, the percentage workers who are part time for economic reasons

increase more rapidly than the percentage of part-time workers

Comparing the effect on the monetary base between an open market purchase of government securities from a bank and the same open market operation conducted with the general public, the monetary base

increases by the same amount if the general public sells the securities or if a bank sells the securities.

If the money multiplier is 3.0, a $1,000 increase in the monetary base

increases quantity of money by $3,000

If the Fed makes an open market purchase of $1 million of government securities, the monetary base

is increased by $1 million

When a bank receives $100,000 in new deposits, the amount of loans the bank can make is limited by

its desired reserve ratio

At any point in time, a single bank can loan an amount equal to

its excess reserves

If the Federal Reserve ________ the required reserve ratio, the interest rate ________.

lowers; falls

Banks create money by

making loans and creating deposits, a process that is limited by the size of banks' excess

A commercial bank's main goal is to

maximize the wealth of its stockholders

When the Fed buys $100 million of securities from a commercial bank the

monetary base increases

The CPI is reported once every

month

If the CPI decreases from one year to the next, then the inflation rate is

negative

The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as ________ in total assets and ________ in reserves.

no change; a $100 million increase

When firms decide how much labor to hire, one of the factors that influences them is the

nominal wage rate divided by the price level and then multiplied by 100.

Since 1981, the

nominal wage rate increased and the real wage rate did not change by very much.

Producing an amount of GDP equal to potential GDP is most consistent with the economy producing

on the PPF

Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index. During 2012, Oscar Mayer aggressively reduces prices. Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks. The 2012 CPI is likely to

overstate the average prices paid by consumers

When discussing the CPI, the term "commodity substitution bias" refers to changes in

prices that lead households to change the items they buy

When the Fed __________, the quantity of banks' reserves decreases.

sells government securities

The Board of Governors has

seven members appointed to 14-year terms

The Board of Governors of the Federal Reserve System has

seven members serving 14-year terms appointed by the president of the U.S.

After the passage of the North American Free Trade Agreement, which made it less expensive to import goods from Mexico, workers in some industries found their factories being relocated to Mexico to take advantage of lower labor costs. These workers experienced what type of unemployment?

structural

If the Fed sells government securities to a member of the nonbank public, then the resulting effect on the quantity of money is

the same as if the securities were sold to a bank

When economists speak of the CPI bias, they are referring to

the tendency for the CPI to overstate price changes.

The CPI this year is 240 and the CPI in the previous year was 200, what is the annual inflation rate?

20%

Using the table below, the unemployment rate is: Total population: 250 Working- age: 160 Labor force: 120 Part-time: 15 Full-time: 100 Discouraged: 2

4.2%

In the data below, the size of the labor force is: Total: 80 Currently Employed:40 Not working and look for work: 2 Want to work but no longer looking for work: 4

42 million

Suppose the U.S. population is 275 million. If 210 million people are of working age, 135 million are employed, and 6 million are unemployed, what is the labor force participation rate?

67%

Consider the following people: -Chris quits his job as an automobile mechanic to pursue his college education full-time -Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job -Rita graduated from college and is currently looking for a job -Armando quit his job and will being his new job in four days -Thorton was fire from his job as a steel worker because of massive imports of steel and he is looking for a new job -Jung was laid off from his job as an appraiser because the firm's business declined because of a general downturn in the economy and he is currently looking for a new job as an appraiser Which of the following is structural unemployment?

Thorton

Vicki works part-time at Blaine Press to help pay her college tuition. She would be classified as

a voluntary part-time worker

Because the CPI overstates inflation,

as time passes, government outlays are increased by more than necessary to compensate for inflation.

When the unemployment rate is __________ the natural unemployment rate, real GDP is __________ potential GDP.

below; above

Nominal and real wage rates

could change in opposite directions

Suppose people decide to buy fewer GE stoves. If General Electric reduces the number of its employees to reduce its costs but no other stove company does so, which type of unemployment results?

frictional

Since 1960, the labor force participation rate in the United States

has generally increased

For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to

have a market basket that is consistent and corresponds to what households actually purchase

Constructing the CPI involves which of the following stages? i. conducting the monthly price survey ii. converting the CPI to an international index iii. selecting CPI market basket

i and iii

Which of the following describe the United States' unemployment rate over the last 80 years? i. The unemployment rate has decreased each year since the Great Depression. ii. The unemployment rate has averaged about 5.7% since 1929. iii. Job creation due to defense spending and consumer spending in the 1960s drove the unemployment rate to one of its lowest level

ii and iii only

When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing i. seasonal unemployment ii. structural unemployment iii. cyclical unemployment

ii only

Which of the following statements about the CPI is (are) correct? i. The only significant bias in the CPI is the commodity substitution bias. ii.The CPI probably overstates inflation by 1.1% points a year iii. As far as the bias in the CPI concerned, the new goods bias and the outlet substitution bias are irrelevant.

ii only

If you get an 8 percent increase in your nominal income, your real income

increases only if the inflation rate is less than 8 percent.

The number of part-time workers for economic reasons ________ during recessions and the number of part-time workers for noneconomic reasons ________ during recessions

increases; doesn't change

People who are working up to 34 hours per week but would like to work more are considered

involuntary part-time workers

Countries with higher than average unemployment rates have ________ compared to the United States.

more generous unemployment benefits and more regulated labor markets

In the United States, a reason for the increase of the labor force participation rate for women is that

more women pursued a college education and received higher wages upon graduation

Frictional unemployment is the result of

normal labor market turnover

After graduating from college, Yunis, age 22, started working for his parents' real estate business as an unpaid assistant. He works 25 hours a week helping manage rental units. In the Current Population Survey, Yunis is considered

part of the labor force and employed

In the United States between 1973 and 2013, the inflation rate

peaked during the late 1970s and 1980 and was at its generally lowest in the 1990s and 2000s

A change in the real wage rate measures the change in the

quantity of goods and services that an hour's work can buy

If the Federal government expands its support of education and retraining of workers who have been unemployed for a relatively long length of time, which type of unemployment would the education and retraining most likely be targeted?

structural

The total U.S. labor force participation rate increased over the past 50 years because

the female labor force participation rate increased

In 2008 as the recession worsened, suppose discouraged workers were included as part of the unemployment rate. Which of the following would have occurred?

the unemployment rate would increase

If we compare the last 30 years of inflation as recorded by the CPI and the PCE price index, we find that the

two measures fluctuate together

Full employment is the level of unemployment that occurs

when cyclical unemployment is zero

Consumers in Beachland consume only two goods, sodas and DVDs. If they spend $10 on sodas and $90 on DVDs a month, how many sodas and DVDs are in their CPI market basket if the price of a soda is $1 and the price of a DVD is $9?

10 sodas and 10 DVDs

During this year, nominal GDP in Syldavia was $720 billion and real GDP was $720 billion. The GDP price index in Syldavia in this year was

100

The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2011 is Quantity in 2011: Salt 2 and Bread 20 Price in 2011: Salt $1 and Bread $2.50 Price in 2012: Salt $2 and Bread $3

100

The reference base period for the CPI has an index number of

100

In 2013, the reference base period for the CPI for the nation of Webot, a typical consumer spent $30 on potatoes and $150 on steak. If the price of steak is $15 and the price of potatoes is $1 then there are ________ units of steak and ________ units of potatoes in the CPI market basket.

10; 30

Rick lost his job as a logistics and distribution coordinator nearly three years ago. After a long and failed search, Rick finally gives up and stops looking for a new job. Rick's decision to suspend his job search causes the unemployment rate to ________ and the labor force participation rate to ________.

decrease;decrease

Which of the following lowers frictional unemployment?

decreasing unemployment benefits

The CPI is biased because it

does not always take into account the changes in product quality.

Which type of unemployment is a permanent and healthy phenomenon in a dynamic economy?

frictional

Discouraged workers are included in the calculation of the i. unemployment rate ii. labor force participation rate iii.working-age population

iii only

Which of the following is NOT a cource of bias in the CPI? i. quality change bias ii. new goods bias iii. quantity change bias

iii only

For the purpose of measuring the cost of living for consumers, one reason the GDP price index is NOT a good substitute for the CPI is because the GDP price index

includes the prices of exported goods, which are not consumed in the United States.

During a recession, the average duration of unemployment tends to

increase


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