Unit 2 Quiz Questions - Econ 205
The Federal Reserve System is organized into _________ Federal Reserve districts.
12
The Federal Open Market Committee consists of
12 members, seven of who are the memvers of the Board of Governors and five of whom are presidents of Federal Reserve Banks
The Fed's policy is determined by the
Federal Open Market Committee
Regulating the amount of money in the United States is one of the most important responsibilities of the
Federal Reserves
All of the following can create a bias in the CPI EXCEPT the
GDP price index bias
Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in 2012 is definitely
less than 100
During 1990, a Hershey candy bar cost $.85. By 2007, the same Hershey candy bar cost $1.25. If the CPI was 130.7 in 1990 and 180.5 in 2007, the price of the 1990 Hershey candy bar in 2007 prices is
less than the price of the 2007 Hershey candy bar
The largest category of commercial banks' assets is
loans
If Caterpillar Inc. raises the price of earth-moving equipment that it manufactures in Illinois, then the CPI will ________ and the GDP deflator will ________.
not changing; increase
A credit card is
not money
A debit card is
not money but is used to transfer bank deposits which are money
Bo quit his job on September 1 and then, after looking for a new job, will begin his new job on October 1. Bo's action would
raise the September unemployment rate and lower October unemployment rate
When a good gets better from one year to the next, the CPI has a what is called
Quality change bias
Which of the following people would be classified as employed in the Current Population Survey?
Rich, who is working 20 hours a week but wants a full-time job
What is the central bank of the United States?
The Federal Reserve System
Across developed and newly industrialized economies, since 1989 the United States has generally had
a higher unemployment rate than Japan and Hong Kong and a lower unemployment rate than the Eurozone countries
When you join the local organic food market and then buy produce each month, money is used as
a medium of exchange and a unit of account
Which of the following is a thrift institution?
a savings and loan association
A marginally attached worker is
a worker who does not have a job and is available and wants one but has not made any efforts to find a job within the previous four weeks
The commodity substitution bias is most likely to put ________ into the CPI and so ________ the inflation rate.
an upward bias; overstate
The quality change bias is most likely to put ________ into the CPI and so ________ the inflation rate.
an upward bias; overstate
When the Fed sells $100 million of securities to a commercial bank, the
bank's reserves decrease
For a commodity or token to be money it must
be accepted in exchange for all other goods and services
The Fed influences the interest rate by using which of the following tools? i. open market operations ii. taxes on bank accounts iii. changes in required reserve ratios
both i and iii
Which of the following is a thrift institution? i. a credit union ii. the Fed iii. a savings bank
both i and iii
A-1 bank initially has no excess reserves. If the desired reserve ratio is 10 percent and a new deposit of $10,000 is made in A-1, then A-1
can immediately loan $9,000
Which of the following is NOT heal as an asset by banks?
checkable deposits
Which of the following is money?
checkable deposits
M1 is defined as a measure of money including, in part,
checkable deposits and currency
The monetary base is the sum of
coins, Federal Reserve notes, and banks' reserves at the Fed
If the Fed increases the discount rate,
commercial banks pay a higher interest rate if they borrow from the Fed
Sharisse brags to her mother that her starting salary as a management trainee is $36,000, much higher than her mother's starting salary of $21,000 as a management trainee several years ago. If the CPI the year Sharisse begins work is 181.2 and the CPI the year her mother started work was 109.1, Sharisse is
correct. Adjusting for price changes, her salary is more than her mother's salary
When the First Bank of Townsville makes a loan, it
creates a checkable deposit
Cisco is considering opening a financial institution that accepts savings deposits from only its employees and makes loans to only its employees. The best description of this financial institution is that it is a
credit union
M1 is composed of
currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses
Which of the following is an example of money?
currency in your wallet
The objects we use as money today include
currency outside the banks and bank deposits
The monetary base is equal to the sum of coins,
currency, banks' reserves at the Federal Reserve and checkable deposits at banks
During the Great Depression of the 1930s when the unemployment rate was exceptionally high due to the Great Depression, the government had employment programs, such as the Civilian Conservation Corps, which built campsites and planted trees. These programs were aimed at reducing which type of unemployment?
cyclical
Which type of unemployment is the consequence of downturns in the business cycle?
cyclical
The natural unemployment rate is the unemployment rate that exists when there is no
cyclical unemployment
The unemployment that fluctuates over the business cycle is called
cyclical unemployment
Each month the CPI is calculated by
dividing the current cost of the CPI market basket by the base period cost and then multiplying by 100
For anything to be considered money it must be
either a commodity or a token, as long as it is generally accepted as a means of payment
The purpose of the Current Population Survey is to determine the
employment status of the population
Potential GDP is the level of output produced when the unemployment rate is
equal to the natural unemployment rate
The real interest rate is negative if the inflation rate
exceeds the nominal interest rate
The part of a commercial bank's reserves that are larger than desired are called
excess reserves
Barter requires the
exchange of goods and services directly for other goods and services
The Consumer Price Index measures the average of the prices paid by Urban consumers for a _________ of consumer goods and services.
fixed market basket
Natural unemployment equals the sum of
frictional and structural unemployment
The ongoing normal creation and destruction of jobs creates
frictional unemployment
Rita graduated from college and is currently looking for a job; while Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job. These women are considered:
frictionally unemployed
The unemployment rates during the last 10 years in the Eurozone was
generally higher than the U.S. unemployment rate
The items included in the CPI are
goods and services consumed by the typical urban household
Open market operations are when the Fed buys or sells
government securities from banks or some other business
The women's labor force participation rate is
higher in the United States than in France
If the Fed increases the discount rate, commercial banks pay a ________ interest rate if they borrow money from the Fed and will therefore ________.
higher; borrow less money from the Fed and make fewer loans to consumers
Which of the following policy tools did the Fed create in 2008 to address the financial crisis? i. quantitative easing ii. credit easing iii. open market operations
i and ii
Which of the following statements about the United States is (are) correct? i. the labor force is larger than the number of employed people. ii. The labor force is larger than the number of unemployed people. iii. The number of unemployed people is larger than the number of employed people.
i and ii
Which of the following is a bias in the CPI? i. new goods bias ii. index change bias iii. commodity substitution bias
i and iii
Which of the following accept deposits from or sell shares to the general public? i. money market funds ii. thrift institutions iii. commercial banks
i, ii, and iii
Which of the following is a policy tool of the Fed? i. setting the required reserve ratios ii. conducting open market operations iii. quantitative easing
i, ii, and iii
Which of the following is a tool the Federal Reserve System can use to regulate the quantity of money? i. changing the discount rate ii. conducting open market operations iii. changing the required reserve ratio
i, ii, and iii
Credit cares are i. a generally accepted form of payment and therefor part of M1 ii. included in M1 because you write a check to pay your monthly bill iii. a means of borrowing money
iii only
Money performs all the following functions EXCEPT serving as a i. medium of exchange ii. unit of account iii. barter mechanism
iii only
The monetary base does NOT include which of the following items? i. Federal Reserve notes ii. banks' reserves at the Federal Reserve iii. U.S. government securities owned by the Federal Reserve
iii only
Suppose the Fed buys $1 million of government securities from Bank One, a large commercial bank. Bank One's reserves ________ and its deposits ________.
increase by $1 million; do not change
When a commercial back receives a deposit, it must keep part of the deposit as cash reserves to satisfy its
required reserves
Required reserve ratios are the minimum amount of
reserves any one bank must hold as a percentage of its deposits
Commercial bank reserves are typically less than 1 percent of total assets, however in 2013 bank reserves ________ because of ________.
rose to around 18 percent; the financial crisis of 2008-2009
Joann has just lost her job because her company was faced with more foreign competition and decided to restructure, which reduced the number of jobs at the company. Joann is
structurally unemployed
An example of the outlet substitution bias in the calculation of the CPI is a price increase in
textbooks bought through the campus bookstore relative to textbooks via Craigslist
When the economy is at full employment,
the amount of cyclical unemployment equals zero
The amount of loans that a bank can create is limited by
the bank's excess reserves
If you use a check to pay your monthly rent,
the check is not money because it is just an instruction to your bank to make a payment
When you use a credit card to pay your tuition,
the credit card is not money but is an ID card for an instant loan
Full employment occurs when
the cyclical unemployment rate is zero
The upward trend in the U.S. labor force participate rate the past 50 years is explained by
the increase in the female labor force participation rate
As technology advancements have led to more white collar jobs,
the labor force participation rate for women has increased over the last 50 years
If the prices of the goods and services contained in the CPI market basket increase from the base period to the next year, we know that
the next year's CPI will be above 100
If the price of a soda was 15 cents in 1970, when the CPI was 50, and 50 cents in 2007, when the CPI was 172, then
the price of the soda was greater in real value in 1970 than in 2007.
A main reason for the low employment rate from 1995 through most of the 2000s was because of
the rapid development of the Internet industry and other new technologies
The presence of new goods that are of higher quality than the old goods leads the BLS to
try to separate price differences from improvements in quality
A common trait of money through history and across cultures is that money
was always generally accepted as a means of payments
The CPI market basket
weights the goods and services according to the budget of an average urban household.
February 2010, the price of gasoline in the Florida was $2.629 per gallon and the CPI was 202.4 with a base period of 1982 to 1984. What was the real price of gasoline per gallon in base period dollars?
$1.29 per gallon
In 2011, apples cost $1.49 a pound. Suppose the CPI was 120 in 2011 and 140 in 2012. If there is no change in the real price of an apple in 2012, what is the price of a pound of apples in 2012?
$1.74
In 2008, the nominal minimum wage rate was $7.25 an hour and the CPI was 200. The real minimum wage rate in 2008 was
$3.63 an hour
In August of 2013, the number of employed persons in the United States was 144.2 million, the number of unemployed persons was 11.3 million, and the number of persons not in the labor force was 90.5 million. What was the labor force in August of 2013?
155.5 million
Suppose the market basket of consumer goods and services costs $180 using the base period prices, and the same basket of goods and services costs $300 using the current period prices. The CPI for the current year period equals
166.7
A country's CPI was 84.5 last year and 100.0 this year. The inflation rate was
18.3%
During the recessions of 2001 and 2008-2009
all measures of the unemployment rate (U-1 through U-6) increased
In the United States, the percentage of part-time workers who are part time for non economic reasons
does not fluctuate much with the business cycle
When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the two inflation rates
move up and down in similar but not identical ways.
The natural unemployment rate is
not known with certainty
Discouraged workers and marginally attached workers are
not part of the labor force
The labor force is the
number of employed people plus the number of unemployed people
When the unemployment rate equals the natural unemployment rate, most likely the economy is producing
on the PPF
If average annual tuition at public 4-year colleges was $1,908 in 1990, when the CPI was 130.7, and $8,655 in 2012 when the CPI was 229.6, then the real cost of annual tuition
rose by 158 percent during that period
If a single bank has $25,000 in excess reserves and the desired reserve ratio is 20 percent, what is the maximum this bank can loan?
$25,000
In 2008, Cameron began his career with SBC. His starting salary was $32,000. By 2012, his salary increased to $35,000. If the CPI was 100.0 in 2008 and 107.5 in 2012, Cameron's 2012 real income is
$32,558
The Fed purchases $1 million of U.S. government securities from First Bank. The desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all excess reserves. The Fed's purchase increases First Bank's excess reserves by how much?
$1,000,000
The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What is the total amount of deposits in this bank?
$1,600,000
If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make?
$1,800
If you are earning $20,000 this year and the CPI is 165, your real income in base year prices is
$12,121.21
The Fed buys $25,000 of government securities. The desired reserve ratio is 20 percent and the currency drain ratio is zero. What will be the change in the quantity of money?
$125,000
If the required reserve ratio is 15 percent, there is no currency drain, and banks loan all of their excess reserves, an increase in the monetary base of $20,000 leads to a total increase in the quantity of money of
$133,333
Suppose a bank has $1,000 in deposits and $100 in reserves. If the desired reserve ratio is 5 percent, how much can this bank increase its loans?
$50
A bank has checkable deposits of $1,000,000, loans of $600,000, and government securities of $400,000. If the required reserve ratio is 5 percent, the amount of required reserves is
$50,000
A new bank has reserves of $600,000, checkable deposits of $500,000, and government securities of $100,000. If the desired reserve ratio is 10 percent, the amount of loans this bank can make is
$550,000
If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits, then its desired reserves are
$700
The GDP price index can be interpreted as
(nominal GDP ÷ real GDP) × 100.
The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2010. The inflation rate in Syldavia from 2010 to 2011 was 2010: CPI 100 $15 and 3% 2011: CPI 95 $15 and 4% 2012: CPI 103 $17 and 9%
-5%
Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that money during the year 2013. If the inflation rate was 1 percent in 2013, what was Caroline's real interest rate?
3%
Consumers in a country buy only two goods, pens and CDs. The prices and quantities purchased by urban households are in the table above. If 2011 is the reference base year, the cost of the CPI market basket in the base year is 2011 Pens: 400 @ $1 CDs: 200 @ $15 2012 Pens: 400 @ $1.02 CDs: 200 @ $15.90
3400
Using the data below, the labor force participation rate is: Marginally attached workers: 2.1 Unemployed workers: 12.1 Employed workers: 140 Working-age: 250
60.8%
Which statement is most correct about the types of deposits a commercial bank can accept?
A commercial bank accepts checking, savings and time deposits
When comparing the annual inflation rate in the United States based on the CPI with the annual inflation rate based on the PCE price index, the data show that the
CPI measure tends to exceed the PCE price index measure
The CPI stands for
Consumer Price Index
If Joe withdraws a $100 bill from his checking account and Jack deposits another $100 bill in his savings account, by how will M1 and M2 change?
M1 will decrease, but M2 will remain the same
Which statement about money is most correct?
Money has been around for a long time and can include anything that is accepted as a means of payments
A commercial bank is defined as
a firm that is chartered to accept deposits and make loans
The bias in the CPI distorts private contracts because
a future payment that is linked to the CPI is likely to be raised above the true increase in the price level.
To measure the CPI, the BLS economic assistants check the prices of
about 80,000 goods and services every month
Checks are not money because
are just instruments to transfer money between banks
Between 1960 and 2010, the labor force participation rate for men
decreased in most years
If the Fed buys government securities from the non-bank public, then
deposits at banks increase and banks' reserves increase
Actual reserves are equal to
desired reserves plus excess reserves
During a recession, the percentage workers who are part time for economic reasons
increase more rapidly than the percentage of part-time workers
Comparing the effect on the monetary base between an open market purchase of government securities from a bank and the same open market operation conducted with the general public, the monetary base
increases by the same amount if the general public sells the securities or if a bank sells the securities.
If the money multiplier is 3.0, a $1,000 increase in the monetary base
increases quantity of money by $3,000
If the Fed makes an open market purchase of $1 million of government securities, the monetary base
is increased by $1 million
When a bank receives $100,000 in new deposits, the amount of loans the bank can make is limited by
its desired reserve ratio
At any point in time, a single bank can loan an amount equal to
its excess reserves
If the Federal Reserve ________ the required reserve ratio, the interest rate ________.
lowers; falls
Banks create money by
making loans and creating deposits, a process that is limited by the size of banks' excess
A commercial bank's main goal is to
maximize the wealth of its stockholders
When the Fed buys $100 million of securities from a commercial bank the
monetary base increases
The CPI is reported once every
month
If the CPI decreases from one year to the next, then the inflation rate is
negative
The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as ________ in total assets and ________ in reserves.
no change; a $100 million increase
When firms decide how much labor to hire, one of the factors that influences them is the
nominal wage rate divided by the price level and then multiplied by 100.
Since 1981, the
nominal wage rate increased and the real wage rate did not change by very much.
Producing an amount of GDP equal to potential GDP is most consistent with the economy producing
on the PPF
Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index. During 2012, Oscar Mayer aggressively reduces prices. Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks. The 2012 CPI is likely to
overstate the average prices paid by consumers
When discussing the CPI, the term "commodity substitution bias" refers to changes in
prices that lead households to change the items they buy
When the Fed __________, the quantity of banks' reserves decreases.
sells government securities
The Board of Governors has
seven members appointed to 14-year terms
The Board of Governors of the Federal Reserve System has
seven members serving 14-year terms appointed by the president of the U.S.
After the passage of the North American Free Trade Agreement, which made it less expensive to import goods from Mexico, workers in some industries found their factories being relocated to Mexico to take advantage of lower labor costs. These workers experienced what type of unemployment?
structural
If the Fed sells government securities to a member of the nonbank public, then the resulting effect on the quantity of money is
the same as if the securities were sold to a bank
When economists speak of the CPI bias, they are referring to
the tendency for the CPI to overstate price changes.
The CPI this year is 240 and the CPI in the previous year was 200, what is the annual inflation rate?
20%
Using the table below, the unemployment rate is: Total population: 250 Working- age: 160 Labor force: 120 Part-time: 15 Full-time: 100 Discouraged: 2
4.2%
In the data below, the size of the labor force is: Total: 80 Currently Employed:40 Not working and look for work: 2 Want to work but no longer looking for work: 4
42 million
Suppose the U.S. population is 275 million. If 210 million people are of working age, 135 million are employed, and 6 million are unemployed, what is the labor force participation rate?
67%
Consider the following people: -Chris quits his job as an automobile mechanic to pursue his college education full-time -Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job -Rita graduated from college and is currently looking for a job -Armando quit his job and will being his new job in four days -Thorton was fire from his job as a steel worker because of massive imports of steel and he is looking for a new job -Jung was laid off from his job as an appraiser because the firm's business declined because of a general downturn in the economy and he is currently looking for a new job as an appraiser Which of the following is structural unemployment?
Thorton
Vicki works part-time at Blaine Press to help pay her college tuition. She would be classified as
a voluntary part-time worker
Because the CPI overstates inflation,
as time passes, government outlays are increased by more than necessary to compensate for inflation.
When the unemployment rate is __________ the natural unemployment rate, real GDP is __________ potential GDP.
below; above
Nominal and real wage rates
could change in opposite directions
Suppose people decide to buy fewer GE stoves. If General Electric reduces the number of its employees to reduce its costs but no other stove company does so, which type of unemployment results?
frictional
Since 1960, the labor force participation rate in the United States
has generally increased
For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to
have a market basket that is consistent and corresponds to what households actually purchase
Constructing the CPI involves which of the following stages? i. conducting the monthly price survey ii. converting the CPI to an international index iii. selecting CPI market basket
i and iii
Which of the following describe the United States' unemployment rate over the last 80 years? i. The unemployment rate has decreased each year since the Great Depression. ii. The unemployment rate has averaged about 5.7% since 1929. iii. Job creation due to defense spending and consumer spending in the 1960s drove the unemployment rate to one of its lowest level
ii and iii only
When the automobile replaced horse-drawn carriages as the principal means of transportation, firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby increasing i. seasonal unemployment ii. structural unemployment iii. cyclical unemployment
ii only
Which of the following statements about the CPI is (are) correct? i. The only significant bias in the CPI is the commodity substitution bias. ii.The CPI probably overstates inflation by 1.1% points a year iii. As far as the bias in the CPI concerned, the new goods bias and the outlet substitution bias are irrelevant.
ii only
If you get an 8 percent increase in your nominal income, your real income
increases only if the inflation rate is less than 8 percent.
The number of part-time workers for economic reasons ________ during recessions and the number of part-time workers for noneconomic reasons ________ during recessions
increases; doesn't change
People who are working up to 34 hours per week but would like to work more are considered
involuntary part-time workers
Countries with higher than average unemployment rates have ________ compared to the United States.
more generous unemployment benefits and more regulated labor markets
In the United States, a reason for the increase of the labor force participation rate for women is that
more women pursued a college education and received higher wages upon graduation
Frictional unemployment is the result of
normal labor market turnover
After graduating from college, Yunis, age 22, started working for his parents' real estate business as an unpaid assistant. He works 25 hours a week helping manage rental units. In the Current Population Survey, Yunis is considered
part of the labor force and employed
In the United States between 1973 and 2013, the inflation rate
peaked during the late 1970s and 1980 and was at its generally lowest in the 1990s and 2000s
A change in the real wage rate measures the change in the
quantity of goods and services that an hour's work can buy
If the Federal government expands its support of education and retraining of workers who have been unemployed for a relatively long length of time, which type of unemployment would the education and retraining most likely be targeted?
structural
The total U.S. labor force participation rate increased over the past 50 years because
the female labor force participation rate increased
In 2008 as the recession worsened, suppose discouraged workers were included as part of the unemployment rate. Which of the following would have occurred?
the unemployment rate would increase
If we compare the last 30 years of inflation as recorded by the CPI and the PCE price index, we find that the
two measures fluctuate together
Full employment is the level of unemployment that occurs
when cyclical unemployment is zero
Consumers in Beachland consume only two goods, sodas and DVDs. If they spend $10 on sodas and $90 on DVDs a month, how many sodas and DVDs are in their CPI market basket if the price of a soda is $1 and the price of a DVD is $9?
10 sodas and 10 DVDs
During this year, nominal GDP in Syldavia was $720 billion and real GDP was $720 billion. The GDP price index in Syldavia in this year was
100
The data in the table above shows the consumption by families in a small (poor) economy. The families consume only salt and bread. The reference base period is 2011. The CPI in 2011 is Quantity in 2011: Salt 2 and Bread 20 Price in 2011: Salt $1 and Bread $2.50 Price in 2012: Salt $2 and Bread $3
100
The reference base period for the CPI has an index number of
100
In 2013, the reference base period for the CPI for the nation of Webot, a typical consumer spent $30 on potatoes and $150 on steak. If the price of steak is $15 and the price of potatoes is $1 then there are ________ units of steak and ________ units of potatoes in the CPI market basket.
10; 30
Rick lost his job as a logistics and distribution coordinator nearly three years ago. After a long and failed search, Rick finally gives up and stops looking for a new job. Rick's decision to suspend his job search causes the unemployment rate to ________ and the labor force participation rate to ________.
decrease;decrease
Which of the following lowers frictional unemployment?
decreasing unemployment benefits
The CPI is biased because it
does not always take into account the changes in product quality.
Which type of unemployment is a permanent and healthy phenomenon in a dynamic economy?
frictional
Discouraged workers are included in the calculation of the i. unemployment rate ii. labor force participation rate iii.working-age population
iii only
Which of the following is NOT a cource of bias in the CPI? i. quality change bias ii. new goods bias iii. quantity change bias
iii only
For the purpose of measuring the cost of living for consumers, one reason the GDP price index is NOT a good substitute for the CPI is because the GDP price index
includes the prices of exported goods, which are not consumed in the United States.
During a recession, the average duration of unemployment tends to
increase