Econ test 2
Most hyperinflations end with _____ reforms that eliminate the need for _____.
fiscal; seigniorage
In 1932, the U.S. government imposed a two-cent tax on checks written on deposits in bank accounts. This action would be expected to ______ the currency-deposit ratio and ______ the money supply.
increase; decrease
According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be:
increasing.
Over the business cycle, investment spending ______ consumption spending.
is more volatile than
The classical dichotomy:
is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money.
Which of the following rankings (from most severe to least severe) best captures the degree of hardship associated with various types of unemployment?
job losers, job leavers, marginally attached
According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ______ each year and give workers ______ raises.
less; smaller
In a fractional-reserve banking system, banks create money when they:
make loans.
Government policies directed at reducing frictional unemployment include:
making unemployment insurance 100 percent experience rated.
The quantity equation for money, by itself:
may be thought of as a definition for velocity of money.
Data on unemployment in the United States show that:
most weeks of unemployment are attributable to the long-term unemployed.
When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage.
much greater than
The unemployment rate in the United States since 1952 has:
never been close to zero.
The opportunity cost of holding money is the:
nominal interest rate.
Assume that the economy starts from long-run equilibrium. If the Federal Reserve increases the money supply, then ______ increase(s) in the short run and ______ increase(s) in the long run.
output; prices
If the transactions velocity of money remains constant while the quantity of money doubles, the:
price of the average transaction multiplied by the number of transactions must double.
In the short run an adverse supply shock causes:
prices to rise and output to fall.
When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then:
the money supply increases.
If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then:
the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen.
The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:
the money supply.
In a steady state:
the number of people finding jobs equals the number of people losing jobs.
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:
$600 billion
If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:
$800 billion
The price level decreases and output increases in the transition from the short run to the long run when the short-run equilibrium is _____ the natural rate of output in the short run.
below
If Central Bank A cares only about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:
both Central Bank A and Central Bank B should increase the quantity of money.
Checking account balances that are linked to debit cards are included in:
both M1 and M2.
A difference between the economic long run and the short run is that:
demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.
Liabilities of banks include:
demand deposits.
The earned income tax credit:
does not raise labor costs.
The long run refers to a period:
during which prices are flexible.
According to the Fisher effect, the nominal interest rate moves one-for-one with changes in the:
expected inflation rate.
More frequent holidays for workers in Europe than in the United States contribute to:
fewer hours worked per year by the average employed person in Europe than the average employed person in the United States.
Money that has no value other than as money is called ______ money.
fiat
Between 1880 and 1896, the price level in the United States fell 23 percent. This movement was ______ for bankers of the Northeast and ______ for farmers of the South and West.
good; bad
When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.
greater; outward
Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have ______ rates of inflation and decades of low money growth tended to have ______ rates of inflation.
high; low
According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P.
higher; lower
If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ______ prices and ______ output in the short run.
higher; lower
The demand for real money balances is generally assumed to:
increase as real income increases.
The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate fell by 1 percentage point over a year, Okun's law predicts that real GDP would:
increase by 5 percent.
Variables expressed in terms of money are called ______ variables.
nominal
The general demand function for real balances depends on the level of income and the:
nominal interest rate.
Paying efficiency wages helps firms reduce the problem of adverse selection by:
providing an incentive for the best-qualified workers to remain with the firm.
According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:
the Federal Reserve.
European unemployment rates are positively correlated with each of the following except:
the amount of coordination among employers in bargaining with unions.
Which of the following is an example of a demand shock?
the introduction and greater availability of credit cards
The ratio of the money supply to the monetary base is called:
the money multiplier
If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.
the money supply
If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:
the money supply decreases.
All of the following are reasons for frictional unemployment except:
unemployed workers accept the first job offer that they receive.
Examples of "active" labor-market policies include all of the following except:
unemployment insurance
When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:
unit of account.
Workers unemployed as a result of wage rigidity are:
waiting for a job to become available.
Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity.
weaker; stronger
If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:
10 percent.
Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Reference: Ref 4-1 (Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank?
5
According to the quantity theory a 5 percent increase in money growth increases inflation by ___ percent. According to the Fisher equation a 5 percent increase in the rate of inflation increases the nominal interest rate by _____.
5; 5
Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed?
9 percent.
Exhibit: Shift in Aggregate Demand Reference: Ref 10-1 (Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD1. The economy moves first to point ______ and then, in the long run, to point ______.
C; B
If nominal wages cannot be cut, then the only way to reduce real wages is by:
adjustments via inflation.
In a country on a gold standard, the quantity of money is determined by the:
amount of gold.
Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to:
no change in the real wage and a rise in unemployment.
Differences in unemployment rates across demographic groups are most closely correlated with differences in:
job-separation rates.
In the United States, the money supply is determined:
jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.
Assume that a country experiences a reduction in productivity that lowers the marginal product of labor for any given level of labor. In this case, the:
labor demand curve shifts downward and to the left.
The percentage of government revenue raised by printing money has usually accounted for:
less than 3 percent of government revenue in the United States.
To increase the money multiplier, the Fed can:
lower the interest rate paid on reserves.
If the demand for real money balances is proportional to real income, velocity will:
remain constant.
To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.
sales; raise
The inconvenience associated with reducing money holdings to avoid the inflation tax is called:
shoeleather costs.
A decline in the Index of Supplier Deliveries is typically an indicator of a future _____ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future _____ in economic production.
slowdown; slowdown
Unemployment insurance increases the amount of frictional unemployment by:
softening the economic hardship of unemployment.
The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment.
structural; frictional
Which of the following would most likely be called a hyperinflation?
Price increases averaged 300 percent per year.
The value of banks' owners' equity is called bank:
capital
Demand deposits are funds held in:
checking accounts.
The aggregate demand curve tells us possible:
combinations of P and Y for a given value of M.
If a change in government regulations allows banks to start paying interest on checking accounts, this will:
increase the demand for money.
