ECON TEST 3

Savings deposits are included in

M2 but not M1

When the price of broccoli increase relative to cauliflower, people who buy fresh vegetables respond by buying more cauliflower and fewer broccoli. As a result, the CPI has

a commodity substitution bias

Treasury Bonds are

a store of value, but not a medium of exchange

An economy's natural rate of unemployment is the

amount of unemployment that the economy normally experiences

An example of the new goods bias in the calculation of the CPI is a price increase in

an iPod player relative to a Walkman

Which of the following is not included in GDP?

carrots grown in your garden and eaten by your family

The Fed's primary tool to change the money supply is

conducting open market operations

The ease with which an asset can be

converted into the economy's medium of exchange determines the liquidity of that asset.

A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job is

counted as unemployed but should be counted as out of the labor force.

M1 includes

currency, demand deposits, travelers checks

As the reserve ratio increases, the money multiplier

decreases

Macroeconomists study

economy-wide phenomena

Jamarcus works part-time as a pizza delivery person in a college town. The Bureau of Labor Statistics counts Jamarcus as

employed and in the labor force

If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

exactly one-third as much to GDP as does a dress.

Which of the following pairs correctly identify W and Y?

firms and households

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

gross domestic product

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?

medium of exchange

The prices of the goods and services in the CPI market basket are collected

monthly

CPI market basket

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

According to 2012 data on the U.S. population, which of the following groups of adults of prime working age (ages 25-54) had the highest labor-force participation rate?

white males

If the reserve ratio is 8 percent, then $4,500 of additional reserves can create up to

$56,250 of new money

The GDP price index can be interpreted as

(Nominal GDP ÷ Real GDP) × 100

The labor-force participation rate is computed as

(labor force/adult population) x 100

GDP does not reflect

-the value of leisure. -the value of goods and services produced at home. -the quality of the environment. All of the above are correct.

Which of the following is a way to compute GDP?

. -total income earned. -total expenditures on final goods. -add up the market values of all final goods and services. All of the above are correct

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%

In the base year, the GDP deflator is always

100

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced

11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.

Real GDP is $1,400 billion and nominal GDP is $1,800. The GDP price index equals

128.6

Suppose that some country had an adult population of about 25 million, a labor-force participation rate of 60 percent, and an unemployment rate of 6 percent. How many people were employed?

14.1 million

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?

15 Billion

If the reserve ratio is 4 percent, then the money multiplier is

25

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

5 percent

Economists at the Congressional Budget Office estimated that for 2012, the U.S. natural rate of unemployment was

5.5%

A typical American worker covered by unemployment insurance receives

50 percent of his former wages for 26 weeks.

From 2013 to 2014, the CPI for medical care increased from 150 to 159. What was the inflation rate for medical care?

6 percent

If your real income in base year prices is $50,000, then if the CPI is 170, what is your nominal income?

85,000

Which of the following is an example of barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

According to 2012 data on the U.S. population, which of the following was correct for the adult population of prime working age, ages 25-54?

Black males had lower labor-force participation rates and higher unemployment rates compared to white males.

Bob is looking for work after school, but everywhere he fills out an application, the managers say they always have a lot more applications than open positions. Tom has a law degree. Several firms have made him offers, but he thinks he might be able to find a firm where his talents could be put to better use.

Bob is structurally unemployed, and Tom is frictionally unemployed

Suppose in year 1 the CPI is 90, in year 2 the CPI is 100, and in year 3 the CPI is 110. Then, inflation is

Both answers 11 percent between years 1 and 2 and 10 percent between years 2 and 3 are correct.

If 2010 is the base year, then the inflation rate in 2015 equals

CPI in 2015 - CPI in 2014/ CPI in 2014 X 100

The term economists use to describe a situation in which the economy's overall price level is rising is

Inflation

Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included

in German GDP, but is not included in U.S. GDP

Gross domestic product measure

income and expenditures

For an economy as a whole,

income must equal expenditure

When a bank loans out $1,000, the money supply

increases

In a fractional-reserve banking system, a decrease in reserve requirements

increases both the money multiplier and the money supply

A double coincidence of wants

is required when there is no item in an economy that is widely accepted in exchange for goods and services. is required in an economy that relies on barter. is a hindrance to the allocation of resources when it is required for trade.

When the Fed conducts open-market purchases,

it buys Treasury securities, which increases the money supply.

Frictional unemployment results from

job searching. It is often thought to explain relatively short spells of unemployment.

Which of the following formulas would you use to calculate the NOMINAL wage rate?

nominal wage rate = (real wage rate × CPI) ÷ 100

Discouraged workers are included in

none of the above

The fact the consumers substitute one good for another when prices change is

not taken into account by the fixed market basket used in calculating the CPI.

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

Changes in the GDP deflator reflect

only changes in prices

In a simple circular-flow diagram, firms use the money they get from a sale to

pay wages to workers. pay rent to landlords. pay profit to the firms' owners. All of the above are correct.

The inflation rate measures the

percentage change in the CPI from one year to the next year.

The Consumer Price Index (CPI) measures the changes of the

prices paid by consumers for a fixed market basket of consumer goods and services

The Federal Deposit Insurance Corporation

protects depositors in the event of bank failures

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study

real GDP

A recession has traditionally been defined as a period during which

real GDP declines for two consecutive quarters

If the inflation rate is greater than the nominal interest rate, then the

real interest rate will be negative

unemployment insurance

reduces the hardship of unemployment, but it also increases the amount of unemployment. reduces the incentive for the unemployed to find and take new jobs. causes workers to be less likely to seek guarantees of job security when they negotiate with employers over the terms of employment.

Frictional unemployment is inevitable because

sectoral shifts are always happening

The Federal Reserve

serves as a lender of last resort

Cyclical unemployment refers to

short-run fluctuations around the natural rate of unemployment

Dollar bills, rare paintings, and emerald necklaces are all

stores of value

If the wage is kept above the equilibrium wage for any reason, the result is

structural unemployment

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by consumers.

GDP is defined as

the market value of all final goods and services produced within a country in a given period of time

For an economy as a whole,

the market value of production must equal expenditure

Today, bank runs are

uncommon because of FDIC deposit insurance

Eric was laid off two months ago. He has not searched for other work because he is expecting to be recalled to work. The Bureau of Labor Statistics counts Eric as

unemployed and in the labor force

When we measure and record economic value, we use money as the

unit of account