Econ final exam questions

Suppose that velocity is 3 and the money supply is $500 million. According to the quantity theory of money, nominal output equals:

1.5 billion (MxV=PxQ)

How many Federal Reserve districts are there?

12

according to the quantity theory of money, if the money supply grows by 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%

A change in which of these factors would cause a movement along the supply curve for labor rather than a shift of the labor supply curve?

A change in the wage

Which of these factors will not cause the demand curve for labor to shift?

A change in the wage

If the current wage is above the market clearing-wage, there is __________ in the labor market.

A surplus of labor

Which of the following factors does not cause a shift in the labor demand​ curve?

Changes in the wage rate.

Which of these factors can cause the natural rate of unemployment to change?

Demographic changes

When the economy is at full employment, which types of unemployment remain?

Frictional and structural

A country in which a significant fraction of domestic production takes place in foreign-owned factories and facilities is most likely a country where

GDP is much larger than GNP

which of the following accurately describes an effect of hurricane Katrina on GDP?

GDP would increase reflecting the costs of cleanup

Fiat money_______

Has no intrinsic value

Which of these predictions can be made using the growth rates associated with the quantity theory of money equation?

If the money supply grows at a faster rate than real GDP, there will be inflation

Which of these statements about interest rates and inflation is true?

If there is zero inflation, the nominal interest rate is equal to the real interest rate.

Government policies can help to reduce the levels of frictional and structural unemployment, but they can also help to increase them. Which of these policies can cause an increase in the levels of frictional and structural unemployment?

Increasing the minimum wage

What is the correct expression for calculating the Labor Force Participation Rate?

Labor Force Participation Rate = 100% * [(Employed+ Unemployed)/Potential Workers]

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of:

M1

What are the three functions that money serves in an economy?

Medium of exchange, store of value and unit of account

the quantity equation states that

MxV=PxY

According to the quantity theory of money, if the Fed engages in an open market purchase of bonds _______GDP will __________

Nominal; increase

a shortage occurs in a market when

Price is lower than the equilibrium price

When we say that money serves as a unit of account, we mean that:

Prices of goods and services are quoted in terms of money.

Which of these facts is true about the creation of the Federal Reserve System (the Fed)?

The Fed was created in 1913.

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committee

Who is the chairperson of the Federal Open Market Committee (FOMC)?

The chairperson of the Board of Governors.

Which of the following is the equivalent of the demand curve for labor?

The value of the marginal product of labor

What is the correct expression for calculating the unemployment rate?

Unemployment rate = 100% * [Unemployed/ (Employed+ Unemployed)]

Velocity is defined as:

V = (P x Q) / M

Let VMPL equal the value of the marginal product of labor and W equal the wage rate. When should a firm hire more workers to increase profit?

When VMPL > W

a left shift in the demand curve will lead to

a decrease in the equilibrium price and quantity

which of the following is likely to lead to an increase in the quantity supplied of steel?

a rise in the market price of steel (change of price itself)

which of the following is likely to cause the demand curve for cars to shift to the left?

a rise in the price of gasoline

at a products equilibrium price

any buyer who is willing and able to pay the price will find a seller for the product.

increase in real GDP would overstate the increase in the well-being of a country over time if, over that time period, the

average hours worked per week increased

When actual inflation is less than expected inflation,

borrowers lose and lenders gain

To increase the money supply, the FOMC directs the trading desk located at the Federal Reserve Bank of New York to:

buy U.S. Treasury securities from the public.

which of the following is true of cyclical unemployment?

cyclical unemployment is the deviation of the actual unemployment rate from the natural rate of unemployment

At full employment, __________.

cyclical unemployment is zero

the ______ in employment during a recession is smaller if wages are _______

decline; flexible

When institutions do not protect private property rights, do not uphold contracts, interfere with the working of markets and instead erect significant barriers into businesses and occupations, they are referred to as:

extractive economic institutions

frictional unemployment exists because

firms and workers have imperfect information about each other and the state of the economy

the value of the marginal product of labor is the______

firms labor demand schedule

The short-term unemployment that arises from workers, in the process of changing jobs, is called __________.

frictional unemployment

The "normal or natural" underlying level of unemployment in the economy is the __________.

full employment rate of unemployment

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

greater than 7 percent

In theory, any object ______ could play the role of fiat money.

in limited supply

The US data on the unemployment rate since 1948 shows that the unemployment rate tends to ________during_________

increase; recessions

which of the following statements correctly identifies a reason inflation can be used as a countercyclical policy tool?

inflation sometimes increases the demand for workers, which increases output and helps combat slowdowns

the purchase of a new house is included in

investment expenditures

two goods are said to be complements when a fall in the price of one good _____

leads to a rightward shift in the demand for the other good

assume that the economy is in a recession and consumers are expecting a fall in their income levels. this will cause a

leftward shift in the market demand for all goods

fiat money had

little to no intrinsic value and is authorized by the central bank or governmental body

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.

low, high

A seller's willingness to accept is the same as his_____ cost of production

marginal

Which of the following statements is true of marginal analysis?

marginal analysis compares the consequences of doing one more step of something

the firms value of marginal product of labor schedule slopes downward due to declining______

marginal product of labor

total cost falls wen marginal cost is _____, and total cost rises when marginal cost is _______

negative; positive

a debtor's quantity of credit demanded and the rate of interest are likely to be ____

negatively correlated

Sometimes there can be benefits from inflation. One of them is that more labor might be demanded after a rise in the price level. For this to happen, the _______wage would be fixed and _______the competitive equilibrium level.

nominal; above

Credit cards are:

not part of the money supply.

The Fed conducts monetary policy primarily through:

open market operations.

the best alternate use of a resource is referred to as its

opportunity cost

the principle of ___ is that the economic cost of using a factor of production is the alternative use of that factor that is given up

opportunity cost

the slope of a production possibilities frontier measure the ______ of producing one more unit of good.

opportunity cost

The drawback to calculating real GDP using base-year prices is that

relative prices change over time and these are not reflected in base-year prices, and this distorts GDP

exponential growth implies

relatively small differences in a growth rates will translate into large differences in the level of a quantity after many years of growing.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and job requirements is called __________.

structural unemployment

Which of the following statements is true?

technological innovation can cause wages to fall for some workers in an economy

Increases in the minimum wage will increase __________.

teenage unemployment

according to the quantity theory of money, inflation is caused by

the money supply growing faster than real GDP

the real interest rate is equal to

the nominal interest rate adjusted for inflation

during a deflationary period,

the nominal interest rate is less than the real interest rate

the real interest rate is

the nominal interest rate minus the inflation rate

Value added equals the market price of the firm's product minus

the price of intermediate goods

the Law of Demand states that

the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant

Which of these groups is included in the labor force?

the unemployed

assuming all else equal, if there is an increase in the real interest rate,

there will be an upward movement along the credit demand curve

which of the following is an example of marginal analysis?

to determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker.

suppose you have borrowed money from the bank to buy a house. Which of the following will happen if the inflation rate unexpectedly rises?

you will be better off (when actual inflation is greater than expected, borrowers are better off)

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.

Seven, 14-year terms, President

the willingness to pay for a commodity_______

decreases as consumption of the commodity increases

As the number of workers increases, the marginal product of labor __________ and the marginal revenue product of labor __________.

decreases, decreases

the rate at which a price index decreases is referred to as the

deflation rate

the ______ plots the relationship between prices and the quantity that buyers are willing to purchase.

demand curve

The slope of the labor demand curve can be attributed to the Law of:

diminishing marginal productivity of labor

a worker is said to be unemployed if he

does not have a job, has been actively looking for one in the prior 4 weeks, and is available for work

As the wage increases, the demand for labor curve:

does not shift, but the quantity demanded for labor decreases

employers often end up laying off more workers during a recession because of

downward rigidity of wages

The labor market may take a long time to adjust to economic growth due to __________.

excess capacity in production

which of the following equations best approximates the growth rate of nominal GDP, the growth rate of real GDP, and the inflation rate?

growth rate of nominal GDP= inflation rate+growth rate of real GDP

There is a strong link between changes in the money supply and inflation

in the long run, but not in the short run

which of the following is a good measure of the productivity of employed people in a country?

income per worker

how does the income approach to measuring GDP compare to the production and expenditure approach to measuring GDP?

it is the same, because all revenues are either payed to workers at the company or to the owners of the company

The transfer of short-term liabilities into long-term investments is called:

maturity transformations

the slope of a production possibilities frontier measures the ______ of producing one more unit of good

opportunity cost

If real GDP increases we know for sure that

output has risen

which of the following is omitted in the calculation of GDP?

physical capitol depreciation

if nominal GDP rises we can say that

production has risen or prices have risen or both have risen

As technology improves, the demand for labor curve:

shifts to the right

As the population increases, the labor supply curve:

shifts to the right

As the price of the final product increases, the demand for labor curve

shifts to the right.

the short-run aggregate production function is subject to _____ if capital stock is increased, holding the total efficiency units of labor constant

the Law of Diminishing Marginal Product

The Federal Reserve System is __________.

the central bank of the United States

fears of an impending civil war in baltonia have reduced the confidence of potential investors. assuming all else equal, which of the following is likely to happen in this case?

the demand of labor in baltonia will fall

suppose you have borrowed money from a bank to buy a house. which of the following will happen if the inflation rate unexpectedly rises?

you will be better off

which of the following is likely to shift the demand curve for coffee workers to the left, assuming all else equal?

a decrease in the price of coffee (could be cheaper, companies sell less coffee, and need less employees)

Your roommate argues that he can think of no better situation than living in a deflationary economy, as prices of goods and services would continuously fall. You disagree and argue that during a deflation, people can be made worse off because

borrowers will have to pay increasing amounts in real terms over time. (interest rate is increasing, for borrowing money, the interest rate will increase a lot)

assume that the market for notebooks is in equilibrium. which of the following is likely to happen if a few sellers of notebooks decide to edit the market, everything else remaining unchanged?

both the equilibrium price and quantity of notebooks decrease

If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to:

buy U.S. Treasury securities.

A sustained decrease in the average level of prices and wages in the economy is __________.

called deflation

If opportunity costs are ___, the production possibilities frontier would be graphed as a negatively sloped straight line

constant

If the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in __________.

contractionary monetary policy

menu costs refer to the

costs businesses incur when they change prices

If the labor demand is unchanged, an increase in the labor supply will __________ the equilibrium wage and __________ the number of workers employed.

decrease, increase

If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.

decrease; not change

how does the income approach of measuring GDP compare to the production and expenditure approach to measuring GDP?

it is the same, because all revenues are either payed to workers at the company or to the owners of the company.

if the quantity of goods and services produced in the economy decreases

it may be possible for nominal GDP to increase

suppose a country's labor supply increases in a year while its physical capitol stock remains constant. which of the following is likely to happen in this case if output is a function of capital ad the total efficiency units of labor?

its total output will increase

an economy's _______ during a recession

labor demand curve shifts to the left

one of the main reasons for hyperinflation episodes is____

large government budget deficits

The value of the marginal product of labor is the​ ____________.

market value of a​ worker's additional output for a firm.

according to the quantity theory of money, deflation will occur if the...

money supply grow at a slower rate than real GDP

the quantity theory of money predicts that, in the long run, inflation results from the

money supply growing at a faster rate than real GDP

An initial leftward shift in labor demand often creates a cascading chain of events, amplifying the impact of the initial shock. This is known as the ________ effect.

multiplier

the per-worker production function has a _____ slope; indicating that increases in capital per hour worked _____ real GDP

positive; increase

One of the primary goals of the Federal Reserve is __________.

price level stability

GDP is a measure of ______, not a measure of _______

production; sales to consumers

at the competitive equilibrium, the

quantity demanded is equal to the quantity supplied

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the __________.

quantity theory of money

which of the following statements correctly highlights the difference between real GDP and nominal GDP?

real GDP strips out the effect of changing prices on the value of goods and services produced, while nominal GDP does not strip out the effect of changing prices on the value of goods and services produced.

in periods when prices are falling, on average

real GDP will grow faster than nominal GDP

in periods when prices are falling, on average,

real GDP will grow faster than nominal GDP

the ______ theory emphasizes that changing productivity and technology are the main reasons behind fluctuations in an economy.

real business cycle

the opportunity cost of current consumption is

real interest rate

An optimizing economic agent will use the ________ rate while calculating the economic cost of a loan.

real interst

The history of hyperinflations includes __________.

recent events. Hyperinflations have occurred in recent times as well as the past

suppose in 2016, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2016?

the value of the services of the real estate agent

a profit-maximizing firm will pay a worker

the value of the worker's marginal product

the quantity theory of money was derived from the quantity equation by asserting that

the velocity of money was fixed

which of the following statements is true?

there are mutually beneficial gains from trade if opportunity costs differ

When the interest rate decreases, __________.

there is movement down a stationary money demand curve

The natural rate of unemployment is the __________.

unemployment rate that results when the economy produces the potential level of real GDP

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.

Monetary policy

Suppose you are available for work but have not looked for a job for at least the last four weeks because you believe that no jobs are available. You would then be counted as __________.

a discouraged worker

which of the following is likely to shift the credit demand curve of an automobile manufacturer to the right, assuming all else equal?

a plan to increase production and expand to newer markets

which of the following is likely to shift the demand curve for carpenters leftward, assuming all else equal?

a rise in the prices of the tools used by carpenters.

which of the following statements is true?

absolute advantage relates to production per unit of inputs, and comparative advantage involves the opportunity cost of producing different goods

which of the following equations is correct?

adults not in the labor force= potential adult workers-employed workers-unemployed workers

which of the following is likely to lead to a right shift in the supply curve of cotton?

an increase in labor productivity due to training programs

which of the following will likely lead to a rightward shift in the supply curve for cotton.

an increase in labor productivity due to training programs

which of the following would increase GNP in the United States?

an increase in the production of US-owned General Motors cars made in Mexico

which of the following is likely to be included in a country's GDP for a particular year?

an unsold inventory of automobiles produced in that year

the largest component of spending in gdp is

consumption spending

which of the following is one of the most important benefits of money in an economy.

money makes exchange easier, leading to more specialization and higher productivity

assuming all else equal, inflation can

reduce both the real interest rate and the real wage rate

assuming all else equal, if households are optimistic about their future income, it is likely to cause a

right shift of their credit demand curve

According to the quantity theory of money, the growth rate of money supply equals

the growth rate of nominal GDP

a production possibilities curve shows the

the maximum production of one good for a given level of production of another good

If the price level increases, __________.

the money demand curve shifts to the right

A producer is said to have a comparative advantage in the production of a good when:

the producer has a lower opportunity cost than the other producer.

which of the following tools is used to compare the income per capita across countries?

the purchasing power parity (PPP)

the law of supply states that

the quantity supplied of a good rises when the price rises, all other things remaining constant.

consider two economics, a and b. the nominal interest rate is the same in both economies, but the rte of inflation is higher in economy b. which of the following statements is true.

the real interest rate will be higher in economy A.

If the minimum wage is set above the market-determined clearing wage, the __________.

unemployment rate will be higher than it would be without a minimum wage

The impact of an increase in the wage rate on labor supply will be represented by ________, assuming all else equal.

upward movement along

the impact of an increase in the wage rate on labor demand is represented by a _____ the demand curve for labor, assuming all else equal

upward movement along

In a competitive labor​ market, the​ profit-maximizing number of workers that a firm will hire occurs where the​ ____________.

value of marginal product of labor is equal to the market wage.

Nominal GDP is GDP in a given year

valued in the prices of that year

unemployment normally arises when

wages are above the market clearing wage level