midterm 2 econ txst

Table: Unemployment Statistics for Country X Type of Unemployment 1995 2005 Frictional unemployment 1.5% 1% Cyclical unemployment 3.4% 4.7% Structural unemployment 2.5% 1.9% Reference: Ref 11-5 (30-5) (Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 1995?

4%

If the growth rate of money is 3% and the growth rate of velocity is 1%, the growth rate of nominal GDP is:

4%.

If the down payment for a $250,000 home is $50,000 and the mortgage is $200,000, the leverage ratio is:

4.

If the money supply in a country is $200 million, the velocity of money is 5, and real GDP is 250 million, the price level of the country must be:

4.00.

If the price level in 2016 is 140 and it falls to 133 in 2017, what has the economy experienced between 2016 and 2017?

5% deflation

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's labor force participation rate is:

55%.

If nominal spending growth is 5% and the economy is in recession at a -1% real growth rate, what is the inflation rate?

6%

When inflation is 4% and the real GDP growth rate is 2%, what is the spending growth rate?

6%

A saver buys a $10,000 zero-coupon government bond for $9,375. When it matures a year from now, what will be the approximate implied interest rate?

6.67%

Table: Labor Data Adult population 200 million Labor force 150 million Employed persons 138.75 million Discouraged workers 10.5 million Reference: Ref 11-2 (30-2) (Table: Labor Data) According to the accompanying labor data, the unemployment rate is:

7.5%.

Which of the following identities represents the quantity theory of money?

Mv = PYR

A negative real shock causes the economy's:

SRAS and LRAS curves to shift inward.

As a result of an increase in expected inflation, the:

SRAS curve shifts up and to the left.

For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to:

decrease.

If the demand for loanable funds decreases, ceteris paribus, interest rates will:

decrease.

In the short run, a negative AD shock will cause the growth rate of output to:

decrease.

In the short run, a negative real shock will cause output growth to:

decrease.

When a negative shock to aggregate demand occurs, the inflation rate will:

decrease.

Saving is:

income that is not spent on consumption goods.

The position of the long-run aggregate supply curve shows the economy's:

potential growth rate given by the real factors of production.

The "Solow" growth rate is the rate of economic growth that occurs when:

prices and wages are flexible.

If the Fed wants to increase the money supply, it will typically:

purchase additional government bonds.

In economics, investment refers to the:

purchase of new capital goods.

The reserve ratio (RR) is the:

ratio of reserves to deposits.

If spending growth is 6% and inflation is also 6%, this means that:

real GDP did not increase.

In the graph of the AD-AS model, what is measured on the horizontal axis?

real GDP growth

According to the quantity theory of money, a change in the money supply affects:

real GDP in the short run but not in the long run.

A recession is defined as a widespread decline in:

real income (GDP).

A major hurricane hitting the East Coast of the United States is an example of a:

real shock.

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?

$1.2 million

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?

$1.2 million

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP?

$100,000

Table: Statistics for a Small Economy Item Value in dollars ($) Cash held by public 7 million Small-time deposits 30 million Money market mutual funds 18 million Checkable deposits 36 million Currency & total reserves at the Fed 12 million Large-time deposits 20 million Demand deposits 14 million Reference: Ref 15-1 (34-1) (Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M2 in this country amounts to:

$105 million.

Table: Statistics for a Small Economy Item Value in dollars ($) Cash held by public 7 million Small-time deposits 30 million Money market mutual funds 18 million Checkable deposits 36 million Currency & total reserves at the Fed 12 million Large-time deposits 20 million Demand deposits 14 million Reference: Ref 15-1 (34-1) (Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, the monetary base amounts to:

$12 million.

If zero-coupon bonds with a maturity date of one year are available with an implied interest rate of 5% and a face value of $30,000, what is the approximate purchase price for those bonds?

$28,571.43

Table: Statistics for a Small Economy Item Value in dollars ($) Cash held by public 7 million Small-time deposits 30 million Money market mutual funds 18 million Checkable deposits 36 million Currency & total reserves at the Fed 12 million Large-time deposits 20 million Demand deposits 14 million Reference: Ref 15-1 (34-1) (Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M1 in this country amounts to:

$57 million.

If banks keep one-eighth of their deposits in the form of reserves, and the Fed credits Alex's bank account with $8,000, how much does the money supply increase?

$64,000

If velocity is constant, the growth rate of the money supply is 2%, and inflation is 3%, then real output growth will be:

-1%

If the nominal interest rate is 8% while the inflation rate is 10%, then the real rate of return for lenders is:

-2%.

Table: Consumer Price Index Year CPI (End-of-Year Value) 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 Reference: Ref 12-1 (31-1) (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010?

. 1.68%

If money growth = 5%, velocity growth = -3%, and inflation = 2%, then real GDP growth must equal:

0%

Lillian loaned A.J. $10,000 and increased her purchasing power by $200 when A.J. repaid the loan a year later. Deflation of 2% also occurred that year. What nominal interest rate did Lillian charge A.J.?

0%

If spending growth is 3% and real GDP growth is 2%, what is the inflation rate?

1%

If banks are holding 100% of deposits in reserves, the money multiplier will be:

1.

An investment of $1,000 in the bank at an annual interest rate of 4% at the same time that prices rise by 2.5% generates a real return of:

1.5%

According to the quantity theory of money, if money supply is $1,000 million, the overall price level is 200, and real GDP is 50 million, then the velocity of money is equal to:

10.

A country has 24 million people in the labor force, and 21.5 million of them are employed. What is the unemployment rate in this country?

10.4%

Bank A has $100 million in deposits, $15 million in required reserves, and $85 million in loans. Bank A's reserve ratio is:

15%.

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?

150

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?

2%

Lonnie lends Burt $15,000 in 2009. Burt repaid Lonnie $150 in real interest for the 1-year loan. Inflation that year was 1.5%. What nominal interest rate did Lonnie charge Burt?

2.5%

If the reserve ratio is 4%, the money multiplier is:

25

If the reserve ratio is 4%, the money multiplier is:

25.

Table: Consumer Price Index Year CPI (End-of-Year Value) 2005 195.3 2006 201.6 2007 207.3 2008 215.3 2009 214.5 2010 218.1 Reference: Ref 12-1 (31-1) (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2007 to 2008?

3.86%

What is the labor force participation rate for a nation with an adult population of 20 million, 12 million employed workers, and 3 million unemployed workers?

75%

(Table: Labor Data) According to the accompanying labor data, the labor force participation rate is:

75%.

If you buy a $500,000 house with $50,000 down, the leverage ratio is:

9

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's unemployment rate is:

9.1%.

When consumers suddenly become more pessimistic about the economy, a negative aggregate demand shock shifts the:

AD curve inward, reducing the real growth rate in the short run.

Monetary policy is used to stabilize the economy by changing factors that shift the:

AD curve.

How can the Fed offset a positive shock to aggregate demand?

Decrease the growth rate of the money supply.

_____ is a decrease in the average level of prices, whereas _____ is a reduction in the inflation rate.

Deflation; disinflation

Quantitative easing occurs when the:

Fed buys long-term securities.

How will market interest rates and bond prices most likely change if the Federal Reserve decides to make a small, one-time increase in the money supply?

Interest rate decrease and bond price increase

Which of the following would be considered unemployed?

Janice, a senior in college, started job hunting early in the hope that she would have secured a job by the time she graduates in May.

Which of the following individuals can be counted as unemployed?

Jean, who left her job to search for a higher-paying position

Deflation is:

a decrease in prices; that is, a negative inflation rate.

In the basic model that includes the AD and LRAS curves only, increased spending growth causes:

a higher inflation rate, but no change in the real growth rate.

A significant real shock in an economy can result in:

a leftward shift of the LRAS, SRAS, and AD curves.

What type of shock could be responsible for an increase in growth and a decrease in the inflation rate?

a positive real shock

The main reason people save during their working years is:

a preference toward a smooth consumption path over time.

A real price is:

a price that has been corrected for inflation

Which of the following is an example of an unemployed person?

a recent college graduate looking for her first job

Disinflation is:

a reduction in the rate of inflation.

In the AD-AS diagram, an increase in money supply growth causes:

a shift of the aggregate demand curve to the right.

A real shock causes:

a shift of the long-run aggregate supply curve.

Which shock can the Fed deal with most effectively?

a shock to AD

Which of the following causes a shift of the AD curve to the right?

an increase in consumer confidence

Which of the following most likely causes a shift of the long-run aggregate supply curve to the right?

an increase in crop production due to more rainfall

Consider the three aggregate demand curves shown in the graph. Movement from Point A to Point D represents:

an increase in spending growth from 4% to 6%.

Inflation is:

an increase in the average level of prices

Money is best defined as:

anything that is a widely accepted means of payment.

In the basic model that includes the AD and LRAS curves only, aggregate demand shocks caused by changes in the growth of money supply:

are neutral in both the short run and long run.

One of the Fed's greatest powers is its ability to:

boost market confidence.

People smooth their consumption over their lifetime by:

both borrowing and saving.

If the Federal Reserve offsets a negative shock to aggregate demand with increased money growth:

both inflation and real GDP growth will rise

Structural unemployment is:

caused by long-lasting shocks or changes in permanent features of an economy.

M1 is equal to currency plus:

checkable deposits.

If the Fed wishes to lower interest rates, it should:

conduct an open market purchase.

M2 refers to:

currency, checkable deposits, savings deposits, money market mutual funds, and small-time deposits.

Unemployment correlated with the business cycle is called:

cyclical unemployment.

A leverage ratio is the ratio of:

debt to equity.

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.

decreased

A 2% increase in real growth, ceteris paribus, _____ inflation by _____.

decreases; 2%

In a fractional reserve banking system, banks hold only a fraction of their:

deposits as reserves.

The quantity theory of money:

describes the general relationship between money, velocity, real output, and prices.

If the growth rate of the money supply decreases from 10% to 5%, which of the following is a prediction of the quantity theory of money?

disinflation

The long-run aggregate supply curve shows that long-run economic growth:

does not depend on the rate of inflation.

When the Federal Reserve buys bonds, the supply curve for bonds:

does not shift.

The economy's AD curve is:

downward sloping.

A surplus of savings in the loanable funds market will:

drive market interest rates down.

A shortage of savings in the loanable funds market will:

drive market interest rates up.

In reference to the consumption-smoothing theory, a person typically saves the most:

during working years.

Reserves held at the Fed are:

electronic claims that can be converted into currency if the bank wishes.

The loanable funds market is the market where:

equilibrium interest rates are determined by the actions of borrowers and lenders.

Episodes of hyperinflation are caused by:

extremely high rates of money growth.

If spending grows by 2%, real GDP growth is 5%, and velocity is stable, then prices will be _____ at a rate of _____ according to the aggregate demand curve.

falling; 3%

The Solow growth rate is the rate of economic growth that would occur given:

flexible prices and the existing real factors of production.

Time preference is the desire to:

have goods and services sooner rather than later.

If the velocity of money and real GDP are fixed, then the quantity theory of money implies that the price level will:

increase at the same rate as the growth in the money supply.

Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:

increase by $1,000.

Assuming the velocity of money and real GDP are fixed, the quantity theory of money predicts that a 2% increase in the money supply causes a 2%:

increase in the average price level.

If the Fed wants to decrease the money supply, it will:

increase the rate of interest paid on reserves.

An increase in life expectancy should cause saving in the United States to:

increase.

An increase in the supply of saving curve will cause the equilibrium quantity of borrowing to:

increase.

If the demand for loanable funds increases, ceteris paribus, interest rates will:

increase.

In the short run, a negative real shock will cause the inflation rate to:

increase.

In the basic model that includes the AD and LRAS curves only, an increase in aggregate demand:

increases the inflation rate, but not the growth rate.

When workers lose their jobs and become officially unemployed, the unemployment rate:

increases.

The aggregate demand curve shows all the combinations of _____ that are consistent with a specified rate of spending growth.

inflation and real GDP growth rates

When a negative real shock hits the economy, in the absence of any monetary intervention:

inflation decreases, but real growth increases.

Which of the following combinations would be on an aggregate demand curve with a spending growth rate of 6%?

inflation rate of 8%, real growth rate of -2%

In the absence of monetary intervention following a negative shock to aggregate demand.

inflation, real growth, and nominal wage growth will all decrease.

The discount rate is the:

interest rate banks pay when they borrow directly from the Fed.

A monetary policy will increase GDP in the short run if:

interest rates decrease, encouraging more investment.

People will usually save more if the interest rate:

is higher.

People will usually borrow more if the interest rate:

is lower.

A negative real shock causes the long-run aggregate supply curve to shift:

left.

Money illusion occurs when people:

mistake changes in nominal prices for changes in real prices

Money illusion is a condition in which people:

mistakenly confuse changes in nominal prices for changes in real prices.

When economists state that "money is neutral," they mean that the:

money supply does not affect real GDP or unemployment.

The relationship between bond prices and interest rates is:

negative.

A negative shock to AD will cause the inflation rate to increase in:

neither the short run nor the long run.

A positive real shock causes the aggregate demand curve to:

not shift at all.

An example of a negative real shock is a rapid increase in:

oil prices.

The money multiplier equals:

one divided by the reserve ratio.

The Federal Reserve's major tool(s) to control the money supply is(are):

open market operations, discount rate lending, and paying interest on reserves.

The Federal Funds rate is the:

overnight lending rate on loans from one major bank to another.

A decrease in oil prices is an example of a _____ productivity shock.

positive

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then in relative terms the real of price milk between 2000 and 2010:

remained the same.

What is one of the causes of frictional unemployment?

scarcity of information

A negative real shock causes the long-run aggregate supply curve to:

shift inward.

Increased uncertainty will cause the economy's AD curve to:

shift inward.

An increase in spending growth will cause the aggregate demand curve to:

shift outward.

A decrease in spending growth will cause the economy's aggregate demand curve to:

shift to the left.

When the Federal Reserve buys bonds, the demand curve for bonds:

shifts outward.

Which of the following individuals can be counted as part of the labor force?

someone who is collecting unemployment benefits

Which of the following represents ownership in a corporation?

stocks

The natural unemployment rate is the rate of _____ unemployment plus the rate of _____ unemployment.

structural; frictional

A worker repairing VHS cassette-tape players was laid off because most of his customers have started using DVD players. This worker is now:

structurally unemployed.

The Federal Reserve can influence the economy by shifting.

the AD curve.

A higher leverage ratio means that:

the firm is at a greater risk for becoming insolvent.

The demand to borrow shows the relationship between borrowing and:

the interest rate.

The supply of savings function shows the relationship between saving and:

the interest rate.

Which of the following would shift the long-run aggregate supply curve to the right?

the invention of a new computer chip that makes assembly production twice as fast

What is the reserve requirement?

the legal minimal percentage of deposits required to be held in reserve by banks

Investment is:

the purchase of new capital goods.

When inflation rises unexpectedly:

the real interest rate will fall short of the equilibrium rate, which will benefit borrowers and harm lenders.

In the AD-AS model, an increase in money growth will cause the growth rate of real GDP to increase in:

the short run only

An increase in the rate of expected inflation causes:

the short-run aggregate supply curve to shift up.

Individual savings contributes to:

the supply of loanable funds.

From an initial equilibrium in the basic model that includes the AD and LRAS curves only, an increase in money supply growth will cause inflation:

to increase and real growth to remain unchanged.

If an earthquake strikes, destroying a large number of factories, the long-run aggregate supply curve will move:

to the left.

If a productive new technology arrives, the long-run aggregate supply curve will move:

to the right.

The economy's SRAS curve is:

upward sloping.

The short-run aggregate supply curve is:

upward sloping.

The average number of times a dollar is spent on final goods and services during a year is the:

velocity of money.

The economy's LRAS curve is:

vertical.

The SRAS curve is upward-sloping because:

wages and prices are sticky in the short run.