ECON 2020-Final Practice Questions

15- For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving? a. $1.5 trillion and $2.5 trillion, respectively b. $1.5 trillion and $1.5 trillion, respectively c. $2.5 trillion and $2.5 trillion, respectively d. $2.5 trillion and $1.5 trillion, respectively

a. $1.5 trillion and $2.5 trillion, respectively Private savings=Y-T-C=$11t-$2.5t-$7t=$1.5 trillion National savings=Private+Public=$1.5t+$1t=$2.5 trillion

39- The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves? a. $19.5 million b. $15 million c. $25.5 million d. $0 million

a. $19.5 million Reserve required=$300m*0.085=$25.5 million, Actual reserve=$300m-$255m=$45 million, so excess=$45m-$25.5=$19.5 million

14- A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase? a. $400 billion b. $800 billion c. $0 d. $200 billion

a. $400 billion Since S-I=NX $400-$200=$600-exports $200-$600=-exports $400=exports

23- If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is: a. 1 percent. b. −1 percent. c. 12 percent. d. 7 percent.

a. 1 percent.

41- If the reserve ratio is 4 percent, then the money multiplier is: a. 25. b. 0.04. c. 2.5. d. 10.

a. 25. MM=1/RR so MM=1/0.04=25

28- In the proper order, which age group has the highest unemployment rate and which has the highest labor-force participation rate? (less than 55: employed=400,000, unemployed=25,000, population=600,000; 55 and older: employed=100,000, unemployed=7,000, population=200,000) a. 55 and older, under 55 b. 55 and older, 55 and older c. Under 55, 55 and older d. Under 55, under 55

a. 55 and older, under 55

19- ​​​​A decrease in Y from Y1 to Y2 is explained as follows: a. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. b. The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. c. An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2. d. A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.

a. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2. b is false because if the Fed increases money supply, it would not affect the money demand curve but the supply curve. d is false because a decrease in P would decrease the money demand. c is false because an increase in P would cause an increase in demand for money.

18- Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve? a. As the price level increases, the interest rate rises, so spending falls. b. As the price level increases, the interest rate falls, so spending rises. c. As the money supply increases, the interest rate falls, so spending rises. d. As the money supply increases, the interest rate rises, so spending falls.

a. As the price level increases, the interest rate rises, so spending falls. The interest-rate effect explains that if P increases, goods and services require more money which increases the demand for money so people want to sell bonds since the interest rate will increase, but then investment will lower.

1-Which of the following would not be directly included in aggregate demand? a. Government's tax collections b. An increase in firms' inventories c. Purchases of goods by households d. Firms' purchases of newly produced machinery

a. Government's tax collections AD relies on price level and GDP which affects consumption and interest rates therefore investment. Since b and d would be classified as investments and c as consumption so a would be wrong.

5- One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports. a. Its trade deficit rose. b. Its trade surplus fell. c. Its trade deficit fell. d. Its trade surplus rose.

a. Its trade deficit rose. NX=exports-imports, so -NX means more imports than exports. If imports rose more than exports, -NX would become greater.

21- The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. What is measured along the horizontal axis of the graph? a. The quantity of loanable funds b. The interest rate c. The size of the government budget deficit or surplus d. Private saving

a. The quantity of loanable funds

1- In 2014 income per person in the United States was about 10 times that in India. a. True b. False

a. True

3- Journey Motorcycles produced 100 motorcycles using 50 workers who each worked 8 hours a day. Journey's productivity was ¼. a. True b. False

a. True

4- If a production function has constant returns to scale, then if all inputs double so does production. a. True b. False

a. True

6- If Country A produces 7,000 units of goods and services using 700 hours of labor, and if Country B produces 5,500 units of goods and services using 500 units of labor, then productivity is lower in Country A than in Country B. a. True b. False

a. True

11- Indonesians, for example, have a lower standard of living than Americans because they have a lower level of productivity. a. True b. False

a. True Lower productivity leads to lower GDP and GDP per person.

33- Consider two people who are currently out of work. Tim is not looking for work because there have been many job cuts where he lives, and he doesn't think it likely that he will find work. Bev is not currently looking for work, but she would like a job, and she has looked for work in the past. The Bureau of Labor Statistics considers: a. both Tim and Bev to be marginally attached workers. b. neither Tim nor Bev to be marginally attached workers. c. only Bev to be a marginally attached worker.

a. both Tim and Bev to be marginally attached workers. Tim is not working but isn't giving up the idea that he will work in the future, and same with Bev.

31- If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is: a. cyclical unemployment amounting to 0.5 percent of the labor force. b. frictional unemployment amounting to 0.5 percent of the labor force. c. search unemployment amounting to 0.5 percent of the labor force. d. structural unemployment amounting to 0.5 percent of the labor force.

a. cyclical unemployment amounting to 0.5 percent of the labor force.

17- If Y and V are constant and M doubles, the quantity equation implies that the price level: a. doubles. b. more than doubles. c. does not change. d. changes but less than doubles.

a. doubles. Since MV=PY, if V and Y don't change but M doubles, P also has to double for the equations to remain correct.

49- The First Bank of Roswell, Assets: Reserves=$30,000, Loans=$170,00; Liabilities: Deposits=$200,000. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will: a. have $64,000 in excess reserves. b. be in a position to make new loans equal to a maximum of $6,000. c. be unable to make any new loans. d. have $4,000 in excess reserves.

a. have $64,000 in excess reserves. If reserve requirement=10%, $200,000*0.1=$20,000 must go in reserves so there is an excess reserve greater or equal to $20,000.

14- Starting at point A (r=6, LF=120, eq of D1 and S1), the enactment of an investment tax credit would likely cause the quantity of loanable funds traded to: a. increase to $160 and the interest rate to rise to 7% (point C where r=7, LF=160, and eq of D3 and S1). b. decrease to $80 and the interest rate to fall to 4% (point B where r=4, LF=80, and eq of D2 and S1). c. increase to $160 and the interest rate to fall to 4% (point D where r=4, LF=160, and eq of D1 and S2). d. decrease to $80 and the interest rate to rise to 7% (point E where r=7, LF=80, and eq of D1 and S3).

a. increase to $160 and the interest rate to rise to 7% (point C).

13- The following table presents information about a closed economy whose market for loanable funds is in equilibrium: GDP=$8.7 trillion, Consumer Spending=$6.1 trillion, Taxes Minus Transfers=$1.0 trillion, Government Purchases=$0.8 trillion. The quantity of loanable funds demanded is: a. $1.6 trillion. b. $1.8 trillion. c. $0.8 trillion. d. $1.4 trillion.

b. $1.8 trillion.

25- Assume the following information for an imaginary, closed economy: GDP=$100,000, Taxes=$22,000, Government Purchases=$25,000, National Saving=$15,000. For this economy, investment amounts to: a. $12,000. b. $15,000. c. $38,000. d. $18,000.

b. $15,000.

44- A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to: a. $920. b. $80. c. $92. d. $8.

b. $80. Reserve=$1,000*0.08=$80

11- The purchase of U.S. government bonds by Egyptians is an example of: a. U.S. imports. b. foreign portfolio investment by Egyptians. c. U.S. exports. d. foreign direct investment by Egyptians.

b. foreign portfolio investment by Egyptians. If foreign people purchase U.S. bonds, money is added into the U.S. loanable funds supply so it is technically an export but more specifically it is a domestic purchase of foreign stocks for the Egyptians so a foreign portfolio investment by Egyptians.

25- Other things the same, an increase in the U.S. real interest rate induces: a. foreigners to buy more U.S. assets, which increases U.S. net capital outflow. b. foreigners to buy more U.S. assets, which reduces U.S. net capital outflow. c. Americans to buy more foreign assets, which reduces U.S. net capital outflow. d. Americans to buy more foreign assets, which increases U.S. net capital outflow.

b. foreigners to buy more U.S. assets, which reduces U.S. net capital outflow. If real interest rate increases, domestic assets are more attractive and NCO decreases. (market for foreign-currency exchange)

22- Other things the same, if the U.S. price level falls, then U.S. residents want to buy: a. fewer foreign bonds. The real exchange rate falls. b. more foreign bonds. The real exchange rate falls. c. fewer foreign bonds. The real exchange rate rises. d. more foreign bonds. The real exchange rate rises.

b. more foreign bonds. The real exchange rate falls. If P falls, the U.S. dollar value increases so you can buy more foreign goods for less U.S. dollars and since E=foreign/domestic currency, E decreases.

2- Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably raise: a. neither productivity nor real GDP per person in Eurnesia. b. real GDP per person and productivity in Eurnesia. c. productivity but not real GDP per person in Eurnesia. d. real GDP per person but not productivity in Eurnesia.

b. real GDP per person and productivity in Eurnesia.

15- If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate: a. falls and the quantity of dollars exchanged for foreign currency does not change. b. rises and the quantity of dollars exchanged for foreign currency falls. c. rises and the quantity of dollars exchanged for foreign currency does not change. d. rises and the quantity of dollars exchanged for foreign currency rises.

b. rises and the quantity of dollars exchanged for foreign currency falls. NCO=supply of dollars in the market for foreign exchange, so if NCO shifts left the exchange rate E increases. The exchange rate=foreign currency/domestic currency so less dollars will be exchanged for the foreign currency.

8- The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land the: a. supply of money decreases, the value of money rises, and prices fall. b. supply of money increases, the value of money falls, and prices rise. c. demand for money increases, the value of money rises, and prices rise. d. demand for money decreases, the value of money falls, and prices fall.

b. supply of money increases, the value of money falls, and prices rise. If there is a sudden increase in gold in the economy, the supply would increase. This would cause the value of gold to fall, increasing the price level. (MD vs. MS graph)

9- If saving is greater than domestic investment, then there is a trade: a. deficit and Y > C + I + G. b. surplus and Y > C + I + G. c. deficit and Y < C + I + G. d. surplus and Y < C + I + G.

b. surplus and Y > C + I + G. We know S=I+NX so S-I=NX. If S>I, NX would be positive (trade surplus). Then S=Y-C-G and Y=C+G+I+NX so Y>C+I+G.

12- If the real exchange rate is 1, then there is a (at eq of r=0.8: MS and MD=$400, at r=1: MD=$300 and MS=$400): a. surplus of 100 so the real exchange rate will rise. b. surplus of 100 so the real exchange rate will fall. c. shortage of 100 so the real exchange rate will fall. d. shortage of 100 so the real exchange rate will rise.

b. surplus of 100 so the real exchange rate will fall. Since the supply is $400 but the demand is only $300, there is a surplus of $100 so the interest rate will decrease to go back to equilibrium.

10- When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in: a. real interest rates. b. the value of money. c. nominal interest rates. d. the money supply.

b. the value of money. In this graph, the price level can change the value of money, but interest rates will only change the quantity of loanable funds demanded, and the money supply changes because of P or the value of money.

19- Assume the following information for an imaginary, closed economy: GDP=$100,000, Taxes=$22,000, Government Purchases=$25,000, National Saving=$15,000. For this economy, private saving amounts to: a. $22,000. b. $37,000. c. $18,000. d. $15,000.

c. $18,000.

35- If the local government imposed a minimum wage of $4 in Productionville (18,000 demanded, 8,000supplied), how many people would be unemployed? a. 2,000 b. 3,000 c. 0 d. 10,000

c. 0 8,000-18,000=-10,000 so suppliers would be in need of employees but no one would be unemployed.

29- Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are employed and 5 million are unemployed, then: a. 35 million are in the labor force. b. 35 million are not in the labor force. c. 30 million are not in the labor force. d. 75 million are in the labor force.

c. 30 million are not in the labor force.

17- ​​The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves, Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit? a. A movement from Point C (S2, D2) to Point B (S2, D1) b. A movement from Point B to (S2, D1) Point A (S1, D1) c. A movement from Point B (S2, D1) to Point F (D2, S1) d. A movement from Point A (S1, D1) to Point C (S2, D2)

c. A movement from Point B (S2, D1) to Point F (D2, S1)

40- A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $8,000 in reserves and $2,000 in loans. c. It has $800 in reserves and $9,200 in loans. d. It has $1,250 in reserves and $8,750 in loans.

c. It has $800 in reserves and $9,200 in loans. Reserves=$10,000*0.08=800 and loans=$10,000-$800=$9,200.

4- If the interest rate is above the Fed's target, the Fed should: a. sell bonds to increase the money supply b. sell bonds to decrease the money supply. c. buy bonds to increase the money supply. d. buy bonds to decrease the money supply.

c. buy bonds to increase the money supply. If the Fed buys bonds, it puts money into the economy, increasing the supply, shifting MS to the right which lowers the interest rate. It could also lower the money demand by lowering the price level or increasing GDP.

6- If expected inflation is constant and the nominal interest rate decreased by 2 percentage points, then the real interest rate: a. increases, but by less than 2 percentage points. b. decreases by 2 percentage points. c. decreases, but by less than 2 percentage points. d. increases by 2 percentage points.

c. decreases, but by less than 2 percentage points. Since nominal interest rate=real interest rate+inflation rate, if the nominal interest rate decreases by 2%, the real interest rate would decrease by 2%-inflation rate.

10- The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will: a. not be affected unless widespread civil disorder or civil war results. b. increase because the total amount of human capital in the country will increase as the new owners learn how to farm. c. fall and remain lower for a long time. d. fall temporarily, but will return to where it was when the new owners learn how to farm.

c. fall and remain lower for a long time. Since the productivity at the farms would decrease substantially, it will take a long time before it goes back to what it used to be.

42- If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves: a. increase by $20 million and the money supply eventually increases by $100 million. b. decrease by $20 million and the money supply eventually decreases by $400 million. c. increase by $20 million and the money supply eventually increases by $400 million. d. decrease by $20 million and the money supply eventually decreases by $100 million.

c. increase by $20 million and the money supply eventually increases by $400 million. Money multiplier=1/0.05=20 so since the money supply increases by $20 million, $20 million*20=$400 million, so the money supply eventually increases to $400 million.

24- When the interest rate increases, the opportunity cost of holding money: a. increases, so the quantity of money demanded increases. b. decreases, so the quantity of money demanded decreases. c. increases, so the quantity of money demanded decreases. d. decreases, so the quantity of money demanded increases.

c. increases, so the quantity of money demanded decreases. When the interest rate increases, investment decreases so the quantity of money demanded decreases in the loanable funds decreases.

27- Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as: a. Unemployed. b. Employed c. not in the labor force. d. marginally attached worker.

c. not in the labor force.

21- If the money supply is MS2 (eq is D: value=2) and the value of money is 5, then there is an excess (eq MS1 is A: value=5): a. demand for money that is represented by the distance between points A (MS1) and C (MS1). b. demand for money that is represented by the distance between points A (MS1) and B (MS2). c. supply of money that is represented by the distance between points A (MS1) and B (MS2). d. supply of money that is represented by the distance between points A (MS1) and C (MS1).

c. supply of money that is represented by the distance between points A (MS1) and B (MS2). Since the equilibrium for value of money=5 is MS2, there will be an excess in supply represented by the difference between MS1 and MS2.

50- What is the M1 money supply in Florencial? (Large time deposits=120, Small time deposits=80, Demand deposits=300, Other checkable deposits=50, Savings deposits=65, Traveler's checks=5, Money market mutual funds=200, Currency=150, Credit card balances=300, Miscellaneous categories of M2=30) a. $705 billion b. $585 billion c. $570 billion d. $505 billion

d. $505 billion Because M1=currency and checkable deposits so in this case: M1=(Currency=150)+(Demand deposits=300)+(Other checkable deposits=50)+(Traveler's checks=5)=$505

​​43- What is the M2 money supply in Florencial? (Large time deposits=120, Small time deposits=80, Demand deposits=300, Other checkable deposits=50, Savings deposits=65, Traveler's checks=5, Money market mutual funds=200, Currency=150, Credit card balances=300, Miscellaneous categories of M2=30) a. $1,300 billion b. $580 billion c. $1,000 billion d. $880 billion

d. $880 billion M2=currency+checkable deposits+savings account+money market mutual funds so: M2=(Currency=$150)+(Traveler's checks=$5)+(Small time deposits=$80)+(Demand deposits=$300)+(Other checkable deposits=$50)+(Savings deposits=$65)+(Money market mutual funds=$200)+(Miscellaneous categories of M2=$30)=$880 billion

34- (eq is at $6 per 60 hundred workers) If the government imposes a minimum wage of $8 (30 hundred demanded, 70 hundred supplied), then how many workers will be unemployed? a. 7,000 b. 3,000 c. 0 d. 4,000

d. 4,000 7,000-3,000=4,000

45- First National Bank, Assets: Reserves=$1,200, Loans=$8,000, and Short-term securities=$800; Liabilities and Owners': Deposits=$9,000, Debt=$800, and Capital=$200. This bank's leverage ratio is: a. 7.5. b. 2. c. 13.3. d. 50.

d. 50.

26- Which of the following is an example of an efficiency wage? a. A below-equilibrium wage paid by a small business exempt from minimum-wage laws b. A wage tied to participation in a government-sponsored job training program c. A higher wage paid to a more experienced worker d. An above-equilibrium wage paid by a firm to reduce turnover costs

d. An above-equilibrium wage paid by a firm to reduce turnover costs

22- The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. Which of the following events would shift the supply curve to the left? a. Government goes from running a balanced budget to running a budget deficit. b. In response to tax reform, firms are encouraged to invest more than they previously invested. c. Any of the above events would shift the supply curve from S1 to S2. d. In response to tax reform, households are encouraged to save more than they previously saved.

d. In response to tax reform, households are encouraged to save more than they previously saved.

9- Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that: a. Sue's income per day will be higher than Mary's. b. Sue's productivity is higher than Mary's. c. Sue's income per hour will be higher than Mary's. d. Mary's productivity is higher than Sue's.

d. Mary's productivity is higher than Sue's.

18- Suppose private saving in a closed economy is $12b and investment is $10b. a. National saving must equal $12b. b. Public saving must equal $2b. c. The government budget surplus must equal $2b. d. The government budget deficit must equal $2b.

d. The government budget deficit must equal $2b.

24- The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. What is measured along the vertical axis of the graph? a. The quantity of investment b. The tax rate c. The quantity of saving d. The interest rate

d. The interest rate

5- Suppose a country increases trade restrictions. This country would be pursing: a. an outward-oriented policy, which most economists believe has beneficial effects on the economy. b. an outward-oriented policy, which most economists believe has adverse effects on the economy. c. an inward-oriented policy, which most economists believe has beneficial effects on the economy. d. an inward-oriented, which most economists believe has adverse effects on the economy.

d. an inward-oriented, which most economists believe has adverse effects on the economy. More restrictions on trade=less trade=inward-oriented policy which economists agree have a negative effect on the economy.

20- If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade: a. surplus and negative net exports. b. deficit and positive net exports. c. surplus and positive net exports. d. deficit and negative net exports.

d. deficit and negative net exports. If the country sells fewer goods than it buys, imports>export. Since NX=exports-imports, NX will be negative

23- Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction: a. decreases U.S. net capital outflow. b. increases U.S. net capital outflow by more than the value of the bond. c. increases U.S. net capital outflow by the value of the bond. d. does not change U.S. net capital outflow.

d. does not change U.S. net capital outflow. Since NCO=NX and Gabrielle is using U.S. dollars to buy U.S. bonds, it would qualify as consumption C and not and import or export (NX).

13- If the economy starts at A (eq of LRAS, SRAS1, and AD1) and moves to D (intersection of SRAS1 and AD2) in the short run, the economy: a. moves to B (intersection of SRAS2 and AD1) in the long run. b. stays at D in the long run. c. moves to A in the long run. d. moves to C (intersection of SRAS2, AD2, LRAS) in the long run.

d. moves to C in the long run. At first there is a decrease in consumption and investment which lowers the price level and GDP so unemployment increases in the short run. In the long run, the price level will decrease until everything goes back to equilibrium.

47- If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it: a. will initially see reserves decrease by $500. b. will be able to use this deposit to make new loans amounting to $500. c. must increase required reserves by $100. d. must increase required reserves by $50.

d. must increase required reserves by $50. Since reserve=deposits*reserve requirement: $500*0.10=$50

16- In the long run, money demand largely depends on: a. the interest rate but not the price level. b. the price level and the interest rate. c. neither the price level nor the interest rate. d. the price level but not the interest rate.

d. the price level but not the interest rate. The money demand curve depends on price level, the demand of loanable funds depends on the interest rate.

2-The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for: a. shifts in the aggregate-demand curve. b. the slope of short-run aggregate supply. c. the slope of long-run aggregate supply. d. the slope of the aggregate-demand curve.

d. the slope of the aggregate-demand curve. These effects are affect the aggregate demand and effects usually only affect the slope of demand it does not shift it.

38- Suppose that the natural rate of unemployment is 5% for those under 55 and 3% for those 55 and older (less than 55: employed=400,000, unemployed=25,000, population=600,000; 55 and older: employed=100,000, unemployed=7,000, population=200,000). The cyclical unemployment rate for those under 55 is: a. 0.88%, which is greater than the cyclical unemployment rate for those 55 and older. b. 0.88%, which is less than the cyclical unemployment rate for those 55 and older. c. −0.83%, which is less than the cyclical unemployment rate for those 55 and older. d. −0.83%, which is greater than the cyclical unemployment rate for those 55 and older.

b. 0.88%, which is less than the cyclical unemployment rate for those 55 and older. Ur <55= 25,000/(400,000+25,000)=5.88% Ur >55=7,000/(100,000+7,000)=6.5% If natural unemployment rate=5% for <55 and 3% for >55, cyclical for <55=5.88-5=.88% and for >55=6.5-5=1.5%.

46- In the special case of the 100-percent-reserve banking, the money multiplier is: a. 2 and banks do not create money. b. 1 and banks do not create money. c. 2 and banks create money d. 1 and banks create money.

b. 1 and banks do not create money. Money multiplier=1/reserve requirement so: MM=1/1=1 so no money is made.

30- Suppose that some country had an adult population of about 46 million, a labor-force participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were unemployed? a. 2.54 million b. 2.76 million c. 3.68 million d. 8 million

b. 2.76 million

48- A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can, given the reserve requirement. It follows that the reserve requirement is: a. 75 percent. b. 25 percent. c. 2.5 percent. d. 33.3 percent.

b. 25 percent. Reserve Requirement=1-(loans/deposits) =1-(6,000/8,000) =1-0.75=0.25

36- If the local government imposed a minimum wage of $7 (9,000 demanded, 14,000 supplied) in Productionville, how many people would be unemployed? a. 10,000 b. 5,000 c. 0 d. 2,000

b. 5,000 14,000-9,000=5,000

37- In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered ended within one week and therefore was short term, and what percentage of the unemployment you encountered in a given week was long term? a. 86.7% was short term; 13.3% was long term b. 86.7% was short term; 88.9% was long term c. 52% was short term; 88.9% was long term d. 52% was short term; 13.3% was long term

b. 86.7% was short term; 88.9% was long term Short-term= 52/60=0.867 Since there is 52 weeks in a year, you can assume for any given week, 1 person is unemployed in the short-run so: Long-term=8/9=.889

3- A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the United States? a. Only the one in Italy. b. Both the one in Ohio and the one in Italy. c. Neither the one in Ohio nor the one in Italy. d. Only the one in Ohio.

b. Both the one in Ohio and the one in Italy. Since they are borrowing money in the U.S. it will all affect the loanable funds demand in the U.S., wherever they decide to spend the borrowed money does not matter.

12- Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. a. Country A had the higher level of real GDP and Country B had the higher level of real GDP per person. b. Country B had the higher level of real GDP and real GDP per person. c. Country B had the higher level of real GDP and Country A had the higher level of real GDP per person. d. Country A had the higher level of real GDP and real GDP per person.

b. Country B had the higher level of real GDP and real GDP per person. GDP A=600*8*2.5=12,000 GDP B=560*8*3=13,440 GDP/pers A=12,000/1,000=12 GDP/pers B=13,440/800=16.8

32- Octavia does not currently have a job, but she has applied for several jobs in the previous week. Eve is an unpaid stay-at-home mom who has not searched for work in recent years. Who does the Bureau of Labor Statistics count as "not in the labor force"? a. Neither Octavia nor Eve b. Eve but not Octavia c. Both Octavia and Eve d. Octavia but not Eve

b. Eve but not Octavia

8- Two countries with the same saving rates must have the same growth rate of real GDP per person. a. True b. False

b. False

7- An increase in the saving rate permanently increases the growth rate of real GDP per person. a. True b. False

b. False Can help fund resources but only for a short amount of time.

7- Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would happen to the dollar? a. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. b. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. c. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. d. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.

b. It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. Since more people want U.S. dollars, the demand for money would increase, increasing the interest rate and NCO so the exchange rate would also increase, meaning that the U.S. dollar appreciates. This then makes U.S. goods more expensive in regards to foreign goods.

20- Consider the expressions T − G and Y − T − C. Which of the following statements is correct? a. The first of these is private saving; the second one is public saving. b. The first of these is public saving; the second one is private saving. c. Each one of these is equal to public saving. d. Each one of these is equal to national saving.

b. The first of these is public saving; the second one is private saving.

16- Assume the following information for an imaginary, closed economy.: GDP=$100,000, Taxes=$22,000, Government Purchases=$25,000, National Saving=$15,000, This economy's government is running a budget: a. deficit of $12,000. b. deficit of $3,000. c. surplus of $3,000. d. surplus of $12,000.

b. deficit of $3,000.