ECON Exam #3

The inflation tax refers to

the revenue a government creates by printing money.

Which of the following is included in M2 but not in M1?

Small time deposits

Which of the following best represents fiat money?

The Euro

Which of the following groups meets to discuss changes in the economy and determine monetary policy?

The Federal Open Market Committee

If Y and V are constant and M doubles, the quantity equation implies that the price level

doubles

The principle of monetary neutrality implies that an increase in the money supply will increase

the price level, but not real GDP

When the Consumer Price Index decreases from 140 to 125

less money is needed to buy the same amount of goods, so the value of money rises.

Refer to Figure above. If the relevant money-demand curve is the one labeled MD2, then the equilibrium value of money is

0.61 and the equilibrium price level is 1.6

If M = 5,000, P = 5.5, and Y = 9,000, what is velocity?

10

Which of the following will help to prevent bank runs?

100% reserve banking

Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as last year. The price level this year must be

135

Suppose that the adult population in the country of Atlantis is 140 million. If 90 million people are employed and 10 million are unemployed, then

40 million are not in the labor force

Bank of Cheerton Assets Liabilities Reserves $4,200 Deposits $60,000 Loans 55,800 Refer to Table above. The Bank of Cheerton's reserve ratio is ​

7.0 Percent

Suppose that the Bureau of Labor Statistics reported that there were 62 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 45.3 million were employed and 3.6 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

78.9% and 7.4%

Refer to Figure above. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the velocity of money is 4. If the money market is in equilibrium, then the economy's real GDP amounts to

8,000.0

Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed"?

Anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off

Natalia worked part-time for her mother's business without pay. Tabitha was absent from work because she had strep throat. Who is counted as "employed" by the Bureau of Labor Statistics?

Both Natalia and Tabitha

Which of the following does the Federal Reserve not do?

Conduct fiscal policy

Which list ranks assets from most to least liquid?

Currency, stocks, houses

According to economists, "money" means the same thing as "wealth".

False

An increase in money demand would create a surplus of money at the original value of money.

False

If the Fed buys bonds in the open market, the money supply decreases.

False

Minimum-wage laws affect all workers.

False

The quantity theory of money can explain hyperinflations but not moderate inflation.

False

decrease and the money supply eventually decreases.

If the public decides to hold more currency and fewer deposits in banks, bank reserves

According to the classical dichotomy, which of the following increases when the money supply increases?

The nominal wage

Of the following groups, who is eligible for unemployment insurance benefits?

The unemployed who were laid off because their previous employers no longer needed their skills

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

True

For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.

True

For a given real interest rate, an increase in the inflation rate reduces the after-tax real interest rate.

True

Structural unemployment results when the number of jobs is insufficient for the number of workers.

True

The labor-force participation rate tells us the fraction of the population that has chosen to participate in the labor market.

True

The money multiplier is higher when bankers are more cautious and hold excess reserves.

True

When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as

a unit of account

If an unemployed person quits looking for work, then, eventually the unemployment rate

and the labor-force participation rate both decrease

Labor unions

are similar to cartels.

The leverage ratio is calculated as

assets divided by bank capital.

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

buy $300,000 worth of bonds.

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.

In the last part of the 1800s

deflation made it harder for farmers to pay off their debt.

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called

frictional unemployment

Over the past several decades, the difference between the labor-force participation rates of men and women in the U.S. has

gradually decreased.

The existence of money leads to

greater specialization and to a higher standard of living.

Money demand refers to

how much wealth people want to hold in liquid form

An increase in the minimum wage above the equilibrium wage

increases structural unemployment.

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.

The theory of efficiency wages explains why

it may be in the best interest of firms to offer wages that are above the equilibrium level.

If the reserve requirement is 7 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $200, it

must increase required reserves by $14.

According to the assumptions of the quantity theory of money, if the money supply decreases by 5 percent, then

nominal GDP would fall by 5 percent; real GDP would be unchanged.

The price level is a

nominal variable

Marginally attached workers are people who are

not working and are not looking for work, but would work if asked.

The labor force equals the

number of people employed plus the number of people unemployed

In the 1970s, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by

purchasing bonds on the open market, which would have lowered the value of money.

The amount of unemployment varies

substantially over time and across countries.

The supply of money increases when

the Fed makes open-market purchases.

Refer to the Figure above. When the money supply curve shifts from MS1 to MS2,

the equilibrium value of money decreases.

The discount rate is

the interest rate the Fed charges banks.

The natural rate of unemployment

varies less than the measured unemployment rate.

Cyclical unemployment refers to

year-to-year fluctuations in unemployment around its natural rate.