Make Up Exam EC111

Consider the table below, with Labor data for Aridia GO TO QUESTION 10 The labor force of Aridia in 2012 was

LF=E+U 1800

A recession is always associated with

declining real GDP

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. For this economy, an initial increase of $500 in government purchases translates into a

$1,390 increase in aggregate demand in the absence of the crowding-out effect. DELTAy=multiplier*DELTAg =2.78*500

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually increases by

$1600 mm= 1/.125=8 (pie)s increases by 200 *8=$1600

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. SEE QUESTION 38 In 2010, this country's real GDP was

$500 150*2 + 200*1 = 500

If V and M are constant, and Y doubles, the quantity equation implies that the price level.

*a. falls to half its original level USE M*V=P*Y

Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final goods. Laborland has a population of 5,000, of whom 4,000 work 12 hours a day to produce a total of 120,000 final goods.

*b. Workland has higher productivity but lower real GDP per person than Laborland REAL GDP W(224000/10000)=22.4 IS SMALLER THAN L(120000/5000)=24 PRODUCT W(224,000/(7000*8))=4 hours IS LARGER THAN L((4000*12)/48000)= 2.5 hours

The money multiplier equals

1/R, where R represents the reserve ratio for all banks in the economy.

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. SEE QUESTION 40 In 2010, this country's GDP deflator was

180 900/500 * 100

You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate on the nominal interest rate?

43.75% a*t*r=2.5 a*t*i=2.5+2=4.5 8-i+0=4.5 t=(3.5/8)=0.4375

Given a nominal interest rate of 5 percent, in which of the following cases would you earn the highest after-tax real rate of interest?

The after-tax real interest rate is the same for all of the above a)5-3=2=r a*t*i=0.8*5=4 a*t*r=4-3=1 b)a*t*i=.6*5=3 a*t*r=3-2=1 c)a*t*i=0.4*5=2 a*t*r=2-1=1 a*t*r=1 in all cases

Which of the following could explain an increase in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

The demand for loanable funds shifted rightward

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates

a. the multiplier effect.

When the money supply increases

interest rates fall and so aggregate demand shifts right

In which of the following cases would the quantity of money demanded be largest?

r=0.03 P=1.3 Md(r(-),P(+),y(+)) Md is largest when r is smallest and P is the greatest

To decrease the money supply, the Fed can

sell government bonds or increase the discount rate

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

sell government bonds or increase the discount rate.

According to classical macroeconomic theory, changes in the money supply affect

the price level, but not real GDP.

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. SEE QUESTION 21 What is the inflation rate in 2010?

3.9%

Consider this (hypothetical) information for Metropolis Bank in the following table to answer the following question. GO TO QUESTION 24 Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

$100,000 ER=10,000 mm=1/0.10 = 10 New (pies)= 10,000*10

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Sue Holloway's 1944 income in 2013 dollars is

$148,909. 2000*(218.4/17.6)

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. Josh Holloway's 2013 income in 1944 dollars is

$16,923 210000*(17.6/218.4)

A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute

$200 to GDP.

Whip-It manufactures blenders. In 2009 it had $50,000 of blenders in inventory. In 2010 it sold $300,000 of blenders to consumers and had $40,000 of blenders in inventory. How much did blenders produced by Whip-it add to GDP in 2010?

$290000

Suppose the MPC is 0.60. Assume there are no crowding out effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right?

$500 billion and $300 billion Multiplier= 1/0.4= 2.5 DELTAy=200*2.5=500 DELTAy=200=DELTAc=0.6(200)=120 DELTAy=120*2.5=300

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. SEE QUESTION 39 In 2010, this country's nominal GDP was

$900 150*2 + 200*3

Suppose the economy is in long-run equilibrium. If there is an income tax cut at the same time that major new sources of oil are discovered in the country, then in the short-run a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same

*a. real GDP will rise and the price level might rise, fall, or stay the same.

8. The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if a. the price level is higher than expected making production more profitable. b. the price level is higher than expected making production less profitable. c. the price level is lower than expected making production more profitable. d. the price level is lower than expected making production less profitable.

*a. the price level is higher than expected making production more profitable.

Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to a. rise. This rise in price expectations shifts the short-run aggregate supply curve to the right. b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left. c. fall. This fall in price expectations shifts the short-run aggregate supply curve to the right. d. fall. This fall in price expectations shifts the short-run aggregate supply curve to the left

*b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left.

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The marginal propensity to consume for this economy is

0.64 MPC=(DELTAc)/(DELTAy)=(7040-6720)/(8500-800)

Consider this (hypothetical) information for Metropolis Bank in the following table to answer the following question. GO TO QUESTION 23 Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement

10 percent .02*500000=10000 = RR = 50000 rrr= 50,000/500,000

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. SEE QUESTION 18 What is the inflation rate in 2008?

12% ((140-125)/125)*100

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income?

141% (16293/12000)*100

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. SEE QUESTION 20 What is the Consumer Price Index in 2009?

154 ((x-140)/140)=0.10

The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The multiplier for this economy is

2.78 MULTIPLIER = 1/1-MPC = 1/0.36

Consider the table below that contains data for the closed economy of Batterland, which produces only waffles and pancakes. The base year is 2008. SEE QUESTION 41 Using the GDP deflator, this country's inflation rate from 2010 to 2011 was

32.2% NOM GDP 2011= 100*4+200*3 =1380 REAL GPD 2011= 180*2+220*1=580 GDP DEFLATOR 2011= 1380/580*100= 238 PIE2010= ((238-180)/180)*100

The BLS reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent. From this group 36.40 million were employed and 1.93 million were unemployed. About what were the labor-force participation rate and the unemployment rate for this group?

63.9%, 5.0% LF=36.4+1.93=38.33 LF participation rate= (38.33/59.98)*100=63.9% URate= 1.93/38.33*100=5%

. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. In response to which of the following events could aggregate demand increase by $1,500?

A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. DELTAy=1500=DELTAg*2.78 DELTA=1500/2.78=540

Consider the table below that lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. SEE QUESTION 19 What is the inflation rate in 2005?

Cannot be defined

Consider the table below, with Labor data for Aridia GO TO QUESTION 12 The labor-force participation rate of Aridia in 2012 was

Labor-force participation = LF/population (LF=E+U) b. 56.25%.

Giulia says that the future value of $250 saved for one year at 7 percent interest is less than the future value of $250 saved for two years at 5 percent interest. Isabella says that the present value of a $250 payment to be received in one year when the interest rate is 7 percent is less than the value of a $250 payment to be received in two years when the interest rate is 5 percent.

Only Guila is correct G = 250(1+0.07)<250(1+0.05)^2 267.5<275.625 I = 250/1.07 < 250/(1.05)^2

Consider the table below, with Labor data for Aridia GO TO QUESTION 11 The unemployment rate of Aridia

U Rate = U/LF increased from 2010 to 2011 and decreased from 2011 to 2012.

Which of the following sequences best explains the negative slope of the aggregate-demand curve? a. price level ↑ Þ demand for money ↑ Þ equilibrium interest rate ↑ Þ quantity of goods and services demanded ↓ b. price level ↑ Þ demand for money ↓ Þ equilibrium interest rate ↑Þ quantity of goods and services demanded ↓ c. price level ↓ Þ demand for money ↓ Þ equilibrium interest rate ↑Þ quantity of goods and services demanded ↓ d. price level ↑ Þ equilibrium interest rate ↑Þ demand for money ↑Þ quantity of goods and services demanded ↓.

a. price level ↑ Þ demand for money ↑ Þ equilibrium interest rate ↑ Þ quantity of goods and services demanded ↓

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.

There is evidence that the rate at which money changed hands rose during the German hyperinflation. This means that a. velocity rose. If monetary neutrality holds the rise in velocity increased the ratio M/P. b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P. c. velocity fell. If monetary neutrality holds the fall in velocity increased the ratio M/P. d. velocity fell. If monetary neutrality holds the fall in velocity decreased the ratio M/P.

b. velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level

c. falls, shifting aggregate supply right.

The money supply increases if

d. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans.

Tom and Lilly rented a house for $12,000 last year. At the start of this year they bought the house they had been renting directly from the owner for $250,000. This year, they believe they could rent the house out for $12,000, but decide not to and live in it instead. How much does Tom and Lilly's decision to buy the house change GDP?

it does not change GDP

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

selling bonds. This selling would reduce reserves and money supply .

The aggregate supply curve is upward sloping in

the short run, but not the long run