Macroecon final holmes
The money supply grows at a faster rate than real GDP.
Based on the quantity theory of money, if velocity is constant, inflation is likely to occur when:
False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.
Evaluate the following statement: Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit.
Some wages will fail to keep up with anticipated inflation; Menu costs; Paper money loses its purchasing power by the rate of inflation
Even perfectly anticipated inflation imposes costs. Why?
growth rate of the money supply determines the rate of inflation
Evidence shows that the quantity equation is correct over the long run, which implies that the
Y=C+I-G+NX
GDP equation
Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.
In 2008, the required reserve ratio for a bank's first $9.3 million in checking account deposits was zero. It was 3 percent on deposits between $9.3 million and $43.9 million, and 10 percent on deposits above $43.9 million. In most cases, and for simplicity, we assume that the required reserve ratio is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10. Is the real-world deposit multiplier greater than, less than, or equal to the simple deposit multiplier?
Households, firms, and banks.
In addition to the Federal Reserve Bank, what other economic actors influence the money supply?
total production experiences periods of increases and periods of decreases
The business cycle exists because
total expenditure; total income
The circular-flow diagram shows that ___________ should equal ___________.
households
The circular-flow diagram shows that all sources of income are owned by
It can be hundreds, even thousands, of percentage points per year; It is caused by central banks increasing the money supply at a rate much greater than the growth rate of real GDP; In the presence of hyperinflation, firms and households avoid holding money
Which of the following is true with respect to hyperinflation?
labor force participation rate
is the percentage of the working-age population in the labor force.
Cyclical unemployment
is the unemployment caused by a recession
Excess reserves
reserves banks keep above the legal requirement
milk
what good would be least desirable as a medium of exchange?
wages
when looking at GDP as the amount of total income, the largest component of total income in the U.S. is
checking account deposits
which piece of the M1 definition makes up most of the money supply?
Final good
A new home purchased by a family is what kind of good?
Final good
A new pick-up truck purchased by a consumer is what kind of good?
a decrease in total production
A recession occurs when an economy experiences a period in which there is
Efficiency wages
According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." What is Costco's CEO referring to?
by an amount greater than the decrease in reserves
An initial decrease in a bank's reserves will decrease checkable deposits
African Americans
As of April 2017, which of the following demographic groups had the highest unemployment rate?
decrease
As output (GDP) is increasing, the amount of cyclical unemployment would
They decrease the opportunity cost of job search.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
In the market system, new firms are constantly entering and exiting various industries; Some business are expanding while others are contracting
How does the U.S. economy create and destroy millions of jobs each year?
7
How many Federal Reserve Bank's Board of Governors are there--who were appointed by the president of the U.S. to 14-year, nonrenewable terms.
12
How many Federal Reserve Districts is the United States divided into?
4
How many years is the appointed chairman in his position?
0.8%
If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
larger than nominal GDP in years before the base year
If prices rise over time, then real GDP will be
other assets can also be used to make transactions to buy goods and services
M1 includes more than just currency because
GDP minus depreciation
National income is
net exports.
One major component of GDP that can be negative is
None
One share of Google stock is what kind of good?
banks set long-term policy decisions, loan decisions, and deposit decisions based on the reserve requirement.
Reserve requirements are changed infrequently because
It is decreasing for men and increasing for women
Since 1948, which of the following best describes the trend in the labor force participation rate?
RGDP < NGDP because prices are rising
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP?
Lenders lose from a lower real interest rate; Borrowers gin from a lower real interest rate.
Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%. Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation?
fiat money
The U.S. dollar can best be described as
allows for greater specialization; reduces the transaction costs of exchange; eliminates the double coincidence of wants
The use of money
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service
Transfer payments are not included in GDP calculations because
lower for college graduates than for people with a high school degree, and vary greatly among ethnic groups.
Unemployment rates are
Wages, Interest, Rent, and Profit
What are the four categories of income?
Denver
Which of the following is not a Federal Reserve district?
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods
Which of the following statements about the consumption component of GDP is not correct?
Production from a U.S. firm that operates in Mexico
Which of the following would be included in the gross national product (GNP) of the United States?
GDP does not include household production or production from the underground economy
Why is GDP an imperfect measurement of total production in the economy?
Gross Domestic Product (GDP)
the market value of all final goods and services produced in a country during a period of time
Intermediate good
Coffee beans purchased by a coffee shop is what kind of good?
included in neither the M1 definition of the money supply nor the M2 definition
Credit cards are
personal income minus personal taxes
Disposable personal income is
increase by $100; remain the same
If you move $100 from your savings account to your checking account, then M1 will __________ and M2 will ___________.
A bank run involves one bank; a bank panic involves many banks.
In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?"
True. If wages are increasing slower than the average price of goods and services, purchasing power falls.
Indicate whether the following statement is true or false and why. "A wage is rising slower than the rate of inflation is actually falling."
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed
Inventories are part of investment and therefore included in GDP because
national income minus retained corporate earnings plus government transfer payments and interest on government bonds
Personal income is
$3,676
Price indexes can be used to compare prices across different periods. Suppose that a year of tuition for college at public institutions averaged a cost of $1,943 in 1989 and that the CPI index was 120 in 1989. If the CPI index was 227 in 2009, then the cost of tuition in 2009, as the result of inflation would equal
The costs of pollution are not included; GDP does not include crime rates or income distribution; The value of leisure is not included
Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
Frictionally unemployed
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells then that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
2.6%
Suppose an economy has inflation rate of 3.7% and a bank makes a loan with an interest rate of 6.3%. In this case, the real interest rate is
Structurally unemployed
Suppose that Sally J. Society recently lost her job as an underwater welder. In looking for a new job, she discovers that the only available jobs are for economists and that there are no openings for underwater welders because the trade is not obsolete. If Sally J. Society decides to return to school to earn an Economics degree, what is the best classification for her unemployment status?
Cyclically unemployed
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?
$1,000 billion increase
Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if bank reserves increase by $50 billion?
$5000
Suppose you deposit $1,000 cash into your checking account. By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.20? The change in checking deposits is equal to:
$18,000
Suppose you deposit $2,000 cash into your checking account. By how much will the total money supply increase as a result when the required reserve ratio is 0.10? The change in money supply is:
it carries out the policy directives of the FOMC
The Federal Reserve Bank of New York is always a voting member of the FOMC because
the velocity of money
The average number of times each dollar in the money supply is used to purchase goods and services is called
Any asset that people are generally willing to accept in exchange for goods and services.
The economic definition of money is:
wages
The largest component of gross domestic income is
is equal to the nominal interest rate minus the inflation rate.
The real interest rate
shows the percentage of the labor force that is considered unemployed
The unemployment rate
Consumption, investment, government purchases, and net exports
What are the four major categories of expenditure?
Unit of account; Standard of deferred payment; store of value; medium of exchange
What are the functions of money?
Discount policy; Reserve requirements; open market operations
What are the policy tools of the Federal Reserve to manage the money supply?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
What effect do labor unions have on the unemployment rate?
Consumer price index (CPI)
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:
will increase some but the impacts will be much larger for some groups of workers.
What is the relationship between the unemployment rate and enacting or increasing a minimum wage? When a minimum wage is enacted or increased across a country, the unemployment rate
all remaining unemployment is either frictional or structural; the unemployment rate is greater than zero; the natural rate of unemployment prevails
When the economy is at full employment,
Producer price index
Which of the following can give an early warning of future increases in the price level?
housing, transportation, and food
Which of the following categories make up about three-quarters of the market basket?
New product bias; Substitution bias; Increase in quality bias
Which of the following causes changes in the CPI to overstate the true inflation rate?
(Number of unemployed/number in labor force) X 100
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
M2 is the best definition of money as a medium of exchange.
Which of the following is not a correct statement about M2?
Inflation causes the real wage to fall which means that firms have to pay more for workers.
Which of the following is not a cost created by high inflation?
M=M1 definition of the money supply V=(PxY)/M V=Average number of times a dollar is spend on goods and services P=the GDP deflator
Which of the following is true with respect to Irving Fisher's quantity equation, MxV=PxY?
reserve requirements
Which of the following policy tools is the Federal Reserve least likely to use in order to actively change the money supply?
Prices generally increase at the same rate across most periods of time.
Which of the following statements about prices and inflation is not correct?
the economy needs some short-term unemployment in order to allow for better matching of jobs with workers that possess the proper skill sets.
Why do economists believe that setting a goal of zero percent unemployment is not feasible or desirable? Creating a goal of zero percent unemployment for an economy is not feasibly nor is it desirable becasue
$70,288
Your father earned $34,000 per year in 1984. To the nearest dollar, what is the equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
It is based on company payroll and not on unverifiable answers; It does not include information about self-employed people.
The BLS uses the establishment survey to collect information on employment in the economy. Indicate one drawback of the establishment survey compared to the current population survey and indicate one advantage.k
the Board of Governors and 12 regional districts
The Federal Reserve is divided into two bodies:
M1, savings accounts, small time deposits, and money markets.
The M2 definition of the money supply includes
many U.S. dollars are held outside of the country by foreigners
The amount of U.S. currency outstanding averages about $2,800 per person in the U.S. This large amount of currency per person can be partially explained because
the asset must be generally accepted by most people; the asset should be durable and not lose value due to spoilage; the asset should be divisible since goods are valued at different amounts
What makes an asset usable as a medium of exchange?
relatively brief
When compared to the Great Depression, the typical length of unemployment in the modern (pose-Great Depression-era) U.S. economy is
households can use some of their income to purchase goods from foreigners as imports.
When examining the circular-flow diagram,
transfer dollars, and therefore purchasing power into the future.
When money is acting as a store of value, it allows an individual to
The money supply will increase
When the Federal Reserve buys bonds through open market operations,
Discouraged workers are not considered unemployed; It fails to account for illegal activities; Underemployed people are considered employed; It does not account for inaccurate responses to the Current Population Survery
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, and imperfect measure of the extent of joblessness in the economy?
