Economics Midterm 3 Part 1

12) An increase in the price level is defined as A) an expansion. B) inflation. C) a recession. D) a growth boom.

B) inflation.

6) In an economy, 40 million people are employed, 2 million are unemployed, and 8 million are not in the labor force. What is the labor force participation rate? A) 84 percent B) 80 percent C) 87.5 percent D) 83 percent

A) 84 percent

8) Discouraged workers ________ counted as officially unemployed because they ________. A) are not; are not actively seeking work B) are not; are not qualified to work C) are; are still in the labor force D) are; are not working

A) are not; are not actively seeking work

3) Nominal GDP is the value of final goods and services A) at the prices of that year. B) at the prices of a base year. C) at the prices of the immediately previous year. D) produced in foreign countries but consumed in the domestic country.

A) at the prices of that year.

11) Suppose the country of Quasiland experienced a decrease in real GDP and people were laid off from their jobs. The people would be considered part of A) cyclical unemployment. B) frictional unemployment. C) discouraged workers. D) structural unemployment.

A) cyclical unemployment.

21) Which of the following is NOT included in the M2 measure of money? A) shares of the stocks of large companies B) time deposits C) checking deposits D) traveler's checks

A) shares of the stocks of large companies

4) In an economy, 42 million people are in the labor force, 38 million are employed, and 47 million are of working age. How many people are not in the labor force? A) 9 million B) 5 million C) 19 percent D) 4 million

B) 5 million

29) In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of an increase in financial innovation such as the introduction of ATMs? A) The demand for money curve would shift rightward to MD2. B) The demand for money curve would shift leftward to MD0 C) There would be a movement upward along the demand for money curve MD1. D) There would be a movement downward along the demand for money curve MD1

B) The demand for money curve would shift leftward to MD0

26) Which of the following decreases the demand for nominal money? A) a decrease in the nominal interest rate B) a decrease in the price level C) an increase in real GDP D) an increase in the quantity of money

B) a decrease in the price level

19) If an economy tried to use bananas as money, which function would bananas likely have the most difficult time fulfilling? A) a means of payment B) a store of value C) a medium of exchange D) a unit of account

B) a store of value

27) An increase in the nominal interest rate A) leads to a downward movement along the demand for money curve. B) leads to an upward movement along the demand for money curve. C) shifts the demand for money curve rightward. D) shifts the demand for money curve leftward.

B) leads to an upward movement along the demand for money curve.

9) Frictional unemployment is the result of A) irresponsible workers with poor work habits. B) normal labor market turnover. C) technological change or foreign competition. D) a slowdown in the rate of economic expansion.

B) normal labor market turnover.

20) Which of the following is NOT included in M1? A) currency B) saving deposits C) checking deposits owned by individuals D) traveler's checks

B) saving deposits

7) Suppose the labor force in Tiny Town is 100 people. If the ________ in Tiny Town is 150 people, the labor force participation rate equals ________ multiplied by 100. A) number of employed persons; 100/250 B) working age population; 100/150 C) number of employed persons; 100/150 D) working age population; 100/250

B) working age population; 100/150

5) Based on the following data for the country of Tiny Town, the unemployment rate equals Population = 100 Labor force = 80 Number of employed persons = 70 Number of discouraged workers = 5 5) A) 15/80 × 100. B) 5/70 × 100. C) 10/80 × 100. D) 10/100 × 100.

C) 10/80 × 100.

14) If 2009 is the reference base period, what is the price index for the CPI basket of goods for 2015 in the above table? A) 128.0 B) 97.3 C) 102.8 D) zero because the price of Blu-rays fell and the price of water increased

C) 102.8

16) Suppose that last year the Consumer Price Index was 124; this year it is 130.7. What was the inflation rate between these years? A) 6.7 percent B) 5.1 percent C) 5.4 percent D) 30.7 percent

C) 5.4 percent

23) The Federal Reserve System A) conducts the nation's monetary policy. B) regulates the nation's financial institutions. C) Both answers A and B are correct. D) Neither answer A nor B is correct.

C) Both answers A and B are correct.

13) Suppose the Consumer Price Index is 143.6. What does that number mean? A) On average, goods cost $143.60. B) Prices rose 143.6 percent over the reference base period, on average. C) Prices rose 43.6 percent over the reference base period, on average. D) On average, goods cost $243.60.

C) Prices rose 43.6 percent over the reference base period, on average.

17) Aside from being a means of payment, the other functions of money are A) medium of exchange and the ability to buy goods and services. B) medium of exchange, unit of account, and means of lending. C) medium of exchange, unit of account, and store of value. D) pricing, contracts, and store of value.

C) medium of exchange, unit of account, and store of value.

1) The word "final" in the definition of GDP refers to A) the time period when production took place. B) counting the intermediate goods and services used to produce GDP. C) not counting intermediate goods or services. D) valuing production at market prices.

C) not counting intermediate goods or services.

18) Cigarettes served as money in some POW camps during World War II. Given this fact, we would expect to observe A) no one ever smoking a cigarette. B) only government-issued cigarettes being accepted as money. C) prices of other goods expressed in terms of cigarettes. D) people usually resorting to barter rather than using cigarettes as money.

C) prices of other goods expressed in terms of cigarettes.

10) Suppose that over a period of years the country of Quasiland switched from being an agriculturally-based economy to a technologically-based economy. As a result, many people lost jobs because they lacked the correct skills. As they search for new jobs, these people are part of A) cyclical unemployment. B) frictional unemployment. C) structural unemployment. D) discouraged workers.

C) structural unemployment.

15) Using the notation Pt to designate this period's price level and Pt-1 to designate last period's price level, the formula for measuring the inflation rate from last period to this period is A) [(Pt -1 - Pt) / Pt] × 100. B) [(Pt -1 - Pt) / Pt - 1] × 100. C) [(Pt - Pt - 1) / Pt] × 100. D) [(Pt - Pt - 1) / Pt - 1] × 100.

D) [(Pt - Pt - 1) / Pt - 1] × 100.

2) In the above figure, flow B represents households' ________. A) investment B) saving C) income D) consumption expenditures

D) consumption expenditures

25) An open market purchase of securities by the Fed A) decreases banks' total assets. B) involves a bank purchasing government securities from the Fed. C) decreases banks' reserves and increases banks' securities. D) increases banks' reserves and decreases banks' securities.

D) increases banks' reserves and decreases banks' securities.

22) The major role of a commercial bank is to A) make mortgage loans. B) restrain the growth of the quantity of money. C) sell shares and use the proceeds to buy stocks. D) receive deposits and make loans.

D) receive deposits and make loans.

30) In the above figure, if the interest rate is 4 percent, people: A) buy bonds so as to have a better store of value. B) buy stocks, because stocks are more liquid than currency. C) petition the Fed to tighten the quantity of money. D) sell bonds so as to convert them into money.

D) sell bonds so as to convert them into money.

28) An increase in real GDP A) leads to an upward movement along the demand for money curve. B) leads to a downward movement along the demand for money curve. C) shifts the demand for money curve leftward. D) shifts the demand for money curve rightward.

D) shifts the demand for money curve rightward.

24) Which of the following is NOT one of the Fed's monetary policy tools? A) last resort loans B) the required reserve ratio C) buying and selling U.S. government securities D) the income tax rate

D) the income tax rate