Macroeconomics-Exam 2

Fed's Current Set Interest Rate Paid on Reserves

1%

Fed's Required Reserve Ratio

10%

As a result of an increase in the growth rate of the money supply: a.) real GDP growth increases only in the short run, and the inflation rate increases in both the short run and the long run. b.) both the real growth and the inflation rate increase only in the short run. c.) real GDP growth increases only in the long run, and the inflation rate increases only in the short run. d.) real GDP growth increases in both the short run and the long run, and the inflation rate increases only in the short run.

A

Holding everything else constant, an increase in the growth rate of the money supply will cause the aggregate demand curve to: a.) shift outward. b.) not shift at all. c.) shift randomly. d.) shift inward.

A

If = 4%, = 3%, and = 2%, then must equal: a.) 1%. b.) 2%. c.) 7%. d.) 6%.

A

If the money supply is $375 million, the velocity of money is 5, and real GDP is $12.5 million, what is the average price level? a.) 150 b.) 100 c.) 50 d.) 12.5

A

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005. a.) decreased b.) increased 10% c.) increased 20% d.) remained the same

A

In the AD-AS model, what happens to the economy in the short run when consumer spending decreases? a.) Inflation is lower, and the real growth rate is lower. b.) Inflation is lower, and the real growth rate is higher. c.) Inflation is higher, and the real growth rate is higher. d.) Inflation is higher, and the real growth rate is lower.

A

Inflation is: a.) an increase in the average level of prices. b.) when people mistake changes in nominal prices for changes in real prices. c.) a decrease in the average level of prices. d.) the average number of times a dollar is spent on final goods and services in a year

A

Labor adjustment costs refer to the costs of: a.) moving workers from declining industries to growth industries. b.) hiring and training workers. c.) pay raises for productive workers. d.) firing unproductive workers.

A

Someone who recently moved to Florida because of its warmer climate will need to spend some time looking for a new job. This is an example of: a.) frictional unemployment. b.) structural unemployment. c.) underemployment. d.) cyclical unemployment.

A

Sticky wages and prices: a.) increase the impact of positive shocks. b.) reduce the impact of negative shocks. c.) have no effect on the impact of negative shocks. d.) offset the impact of positive shocks.

A

The Federal Funds rate is the: a.) overnight lending rate on loans from one major bank to another. b.) ratio of reserves to deposits. c.) interest rate on short-term Treasury securities. d.) interest rate banks pay when they borrow directly from the Fed.

A

The economic forces that amplify shocks by spreading them across time and sectors of the economy are called: a.) transmission mechanisms. b.) aggregate demand conveyances. c.) intertemporal substitutions. d.) irreversible investments.

A

The monetary base (MB) refers to: a.) currency plus total reserves held at the Fed. b.) currency, savings deposits, money market mutual funds, and small time deposits. c.) currency. d.) currency plus checkable deposits.

A

The position of the long-run aggregate supply curve shows the economy's: a.) potential growth rate given by the real factors of production. b.) long-run inflation rate. c.) rate of money growth plus velocity growth. d.) expected inflation rate.

A

The quantity theory of money predicts that the main cause of inflation is increases in: a.) the money supply. b.) prices. c.) real output. d.) consumption.

A

Uncertainty magnifies negative shocks by: a.) keeping resources in unproductive areas. b.) increasing the number of irreversible investments. c.) slowing the speed of transmission of the negative shocks. d.) providing clear investment signals.

A

When the Fed sells government bonds in the open market: a.) the monetary base decreases and interest rates increase. b.) the monetary base increases and interest rates decrease. c.) both the monetary base and interest rates decrease. d.) both the monetary base and interest rates increase.

A

Which asset would you classify as being most liquid? a.) demand deposits b.) gold bullion c.) small-time deposits d.) a home

A

Which of the following is a problem with deflation? a.) It raises the real cost of debt repayment. b.) It causes people to pay more taxes. c.) Stopping it will cause a recession. d.) There is no problem with deflation; falling prices are good for the economy.

A

Which of the following is an example of money illusion assuming that inflation is 5%? a.) You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend. b.) You receive a 10% raise at your part-time job and start spending extra money on entertainment every weekend. c.) You do not receive a raise at your part-time job but cut out some expenses as you notice some prices rising. d.) You receive a 5% raise at your part-time job but do not increase or decrease your spending.

A

Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? a.) The CPI measures the average prices of goods and services consumed by typical consumers, whereas the GDP deflator measures the average prices of all goods and services in the economy. b.) The CPI measures the average prices of retail goods and services, whereas the GDP deflator measures the average prices of wholesale goods. c.) The CPI measures the average prices of all final goods and services purchased by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy. d.) The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods and services purchased by consumers.

A

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's unemployment rate? a.) 16.7% b.) 25% c.) 10% d.) 40%

B

According to the quantity theory of money, an increase in the money supply causes an increase in _____ over the long run. a.) real GDP b.) prices c.) production d.) the velocity of money

B

An unemployed person is one who: a.) works for a job that pays less than he or she expected. b.) does not have a job but is actively looking for one. c.) stays at home and is not looking for work. d.) is not willing to work even though he or she is able to.

B

Debt monetization means that a government pays off its debt by: a.) lowering inflation. b.) increasing the money supply. c.) raising tax revenues. d.) borrowing from foreigners.

B

Every night, resources at your school—classrooms, desks, etc.—are unemployed. This is an example of: a.) collateral damage. b.) time bunching. c.) labor adjustment costs. d.) irreversible investment.

B

Frictional unemployment is best defined as: a.) a normal level of unemployment caused by high wages. b.) short-term unemployment caused by difficulties of matching employees to employers. c.) unemployment caused by cyclical conditions of an economy. d.) long-term unemployment caused by changing features of an economy.

B

Intertemporal substitution tends to amplify business cycles because: a.) assets are typically worth more in booms than in recessions. b.) the returns to work are higher in booms than in recessions, so people work more during booms and less during recessions. c.) the returns to investment are higher when others are investing as well, thus we see more investment during booms and less during recessions. d.) many people are hesitant to change jobs during recessions and thus resources are stuck in less productive uses.

B

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that the reserve ratio (RR) is 10%. By how much is the money supply expected to change? a.) $160,000 b.) $1.6 million c.) $16 million d.) $1.76 million

B

The Solow growth rate is the economy's: a.) expansionary growth rate. b.) potential growth rate. c.) recessionary growth rate. d.) actual growth rate.

B

The average number of times a dollar is spent on final goods and services during a year is the: a.) money supply. b.) velocity of money. c.) consumption rate. d.) quantity theory of money.

B

The primary reason we think of inflation as bad even when wages rise with it is that it: a.) increases the velocity of money. b.) distorts the information delivered by prices. c.) makes things more expensive for consumers. d.) leads to lower real wages

B

The reserve ratio is the ratio of bank reserves to: a.) currency demand. b.) bank deposits. c.) bank loans. d.) the monetary base.

B

Unemployment correlated with the business cycle is called: a.) seasonal unemployment. b.) cyclical unemployment. c.) frictional unemployment. d.) structural unemployment.

B

Which of the following most likely causes a shift of the long-run aggregate supply curve to the right? a.) an increase in oil prices due to a fire in a major oil refinery b.) an increase in crop production due to more rainfall c.) an increase in the money supply d.) a decrease in tax revenues

B

With respect to real output, in the long run, money is: a.) expansionary. b.) neutral. c.) temporary. d.) velocity.

B

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. What is this country's labor force participation rate? a.) 75% b.) 83.3% c.) 66.7% d.) 50%

C

A real shock is any shock that increases or decreases the growth rate of: a.) real GDP. b.) nominal GDP. c.) potential GDP. d.) prices.

C

An increase in _____ will shift the SRAS curve. a.) neither actual inflation nor expected inflation b.) actual inflation, but not expected inflation c.) expected inflation, but not actual inflation d.) both actual inflation and expected inflation

C

An unexpected increase in export growth is a: a.) factor that has no impact on AD in the short run. b.) shock that is always matched by an equal decrease in import growth. c.) positive AD shock. d.) negative AD shock.

C

As the baby boomers retire, the United States labor force participation rate will: a.) remain the same. b.) increase. c.) decrease. d.) fluctuate unpredictably.

C

During recessions the unemployment rate: a.) decreases. b.) fluctuates randomly. c.) increases. d.) remains relatively constant.

C

If the Fed wants to increase the money supply, it will _____ Treasury securities. a.) issue b.) sell c.) buy d.) hold

C

In a small economy, the money supply is $400,000, and the velocity of money is 3. The current average price level in the economy is 1. What is the level of real GDP in this economy? a.) $1.6 million b.) $400,000 c.) $1.2 million d. $133,333

C

In the basic model that includes the AD and LRAS curves only, a shock that reduces the velocity of money by 2 percentage points causes: a.) an increase of the inflation rate by 2 percentage points. b.) a decrease of the inflation rate by less than 2 percentage points. c.) a decrease of the inflation rate by 2 percentage points. d.) an increase of the inflation rate by less than 2 percentage points.

C

In the basic model that includes the AD and LRAS curves only, shocks to aggregate demand always cause changes in: a.) neither real GDP growth nor inflation. b.) both real GDP growth and inflation. c.) inflation only. d.) real GDP growth only.

C

Jordan loaned Taylor $1,200 on March 15, 2009. Taylor returned $1,260 on March 14, 2010. Inflation was 2% over the 1-year period. What is the real interest rate that Taylor paid? a.) 5% b.) 7% c.) 3% d.) 2%

C

Minimum wage laws and unions tend to: a.) lower wages and lower unemployment. b.) lower wages and raise unemployment. c.) raise wages and raise unemployment. d.) raise wages and lower unemployment.

C

Other things held constant, an increase in the velocity of money will cause the aggregate demand curve to: a.) not shift at all. b.) shift inward. c.) shift outward. d.) shift randomly.

C

The persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy is called: a.) cyclical unemployment. b.) frictional unemployment. c.) structural unemployment. d.) seasonal unemployment.

C

The primary purpose of the AD-AS model is to explain: a.) the steady-state output. b.) long-term economic growth. c.) business fluctuations. d.) trends in output.

C

When the expected rate of inflation is higher than the actual rate of inflation, wealth is: a.) not redistributed at all. b.) redistributed at random. c.) redistributed from borrowers to lenders. d.) redistributed from lenders to borrowers.

C

Which of the following is NOT part of natural unemployment? a.) frictional unemployment b.) frictional and structural c.) cyclical unemployment d.) structural unemployment

C

Which of the following is a real shock that contributed to the economic contraction during the Great Depression? a.) a reduction in tariff and other trade restrictions b.) tax cuts c.) widespread bank failures d.) an increase in money supply growth

C

Which of the following is considered unemployed? a.) Julie, a full-time housewife, is searching for a part-time position. b.) Joe, a retired college professor, does community volunteer work. c.) John, on temporary layoff from his work, awaits recall. d.) Jason, a full-time college student, is looking for a part-time job.

C

Which of the following would the BLS define as a discouraged worker? a.) Robert, a retired teacher, who works full time as a greeter at a discount store b.) Susan, who has been unemployed for the past three years and is looking for a part-time job c.) Mary, who was laid off last year and who was looking for a full-time job until last month d.) Quinton, who has a doctorate in chemistry, but works full time as a taxi driver

C

Monetary Base

Currency and money currently held in bank reserves

M1

Currently exchangeable forms of money

Civilian Unemployment Rate

Currently under 5%

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. How many people in this country are in the labor force? a.) 30 million b.) 15 million c.) 25 million d.) 20 million

D

A hurricane that damages buildings and roadways along the Gulf Coast is considered a: a.) positive real shock. b.) negative demand shock. c.) positive demand shock. d.) negative real shock.

D

A real price is: a.) an increase in the average level of the price of a good. b.) a decrease in the average level of the price of a good. c.) the average number of times a dollar is spent on final goods and services in a year. d.) a price that has been corrected for inflation.

D

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be: a.) 9.23%. b.) 10%. c.) 7.69%. d.) 8.33%.

D

Intertemporal substitution refers to: a.) the decision on how to allocate time between work and leisure. b.) the preference for households to smooth their consumption over time. c.) the decision to substitute one television show for another during the same time slot. d.) the tendency to work more when the returns to work are higher.

D

Money illusion is: a.) the average number of times a dollar is spent on final goods and services in a year. b.) an increase in the average level of prices. c.) a decrease in the average level of prices. d.) mistaking changes in nominal prices for changes in real prices.

D

Money is best defined as: a.) the total amount of fixed assets we own. b.) anything that has a high nominal value. c.) only the amount we spend in a given period. d.) anything that is a widely accepted means of payment.

D

Open market operations refer to: a.) the buying and selling of stocks in the stock market. b.) decisions by the Fed to raise or lower interest rates. c.) decisions by the Fed to increase or decrease the money multiplier. d.) the buying and selling of government bonds by the Fed.

D

Paying a higher interest rate on reserves held at the Fed will tend to: a.) have an ambiguous effect on the money supply. b.) increase the money supply. c.) not change the money supply. d.) decrease the money supply.

D

Suppose the nominal GDP of a country is $500 billion. If the velocity of money in the country is 10, then the country's money supply will equal: a.) $5,000 billion. b.) $510 billion. c.) $490 billion. d.) $50 billion.

D

Systemic risk is present when: a.) a bank or other financial institution acts recklessly, hoping that the Fed and regulators will later bail them out. b.) the U.S. government defaults on Treasury securities. c.) the Fed increases the money supply when it should decrease it. d.) the failure of one financial institution will bring down other institutions as well.

D

The Federal Reserve is the: a.) banker's bank in the United States. b.) U.S. central bank. c.) federal government's bank. d.) federal government's bank, central bank, and banker's bank in the United States.

D

The supply of labor: a.) increases during booms and recessions alike. b.) decreases during booms and recessions alike. c.) decreases during a boom and increases during a recession. d.) increases during a boom and decreases during a recession.

D

To increase the money supply in the economy, the Fed would: a.) carry out open market sales and/or raise the reserve ratio. b.) carry out open market sales. c.) increase the discount rate. d.) carry out open market purchases and/or lower the discount rate.

D

What factors triggered the Great Depression? a.) decreased inflation and increased income taxes b.) decreased employment and increased money supply c.) decreased investment and increased inflation d.) decreased consumer spending and tight monetary policy

D

When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing: a.) high disinflation. b.) falling GDP per capita. c.) deflation. d.) hyperinflation.

D

When workers lose their jobs and become officially unemployed, the labor force participation rate: a.) decreases. b.) changes unpredictably. c.) increases. d.) remains constant.

D

Which of the following individuals is practicing intertemporal substitution? a.) Anneliese studies continuously throughout the semester for her final exams. b.) Sharona decides to stop being a stay-at-home mother and enters the workforce to get extra money for future college expenses. c.) The United States enters a recession, and Tashika loses her job. d.) Malika decides to stop being a stay-at-home mother and enters the workforce because the economy is booming.

D

Which of the following is NOT true of structural unemployment? a.) It is persistent over time. b.) It is long-term in duration. c.) It results from industry restructuring. d.) It results from scarcity of information

D

Convertible Currency

Has value because it can be exchanged for commodity money

M2

M1 and assets easily convertible to exchangeable forms

Commodity Money

Money in the form of goods with value in and of itself