Econ 102 Exam 3

Credit cards are A) a part of money because they are used in so many transactions. B) not part of money because the government has no control over the amount of credit outstanding. C) not part of money because they represent a loan of money to the user. D) a part of money when the transaction approach is used but not when the liquidity approach is used

C) not part of money because they represent a loan of money to the user.

Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is CORRECT? A) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. B) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. C) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent. D) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent.

B) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent.

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the A) rest of the world may or may not finance the U.S. trade deficit. B) United States must borrow an amount equal to imports minus exports. C) United States must borrow an amount equal to national saving. D) United States must borrow an amount equal to consumption expenditure plus investment.

B) United States must borrow an amount equal to imports minus exports.

Saving and investment that increase a nation's capital lead to A) slower growth because there is a lack of consumption. B) an increase in labor productivity. C) a decrease in labor productivity as capital is used to replace labor. D) a decrease in the amount of capital per worker.

B) an increase in labor productivity.

The sale of $1 billion of securities to a bank or some other business by the Fed is an example of A) a change in the required reserve ratio. B) an open market operation. C) a multiple contraction of the quantity of money. D) a last resort loan.

B) an open market operation.

Depository institutions do all the following EXCEPT A) pool risks. B) create required reserve ratios. C) create liquidity. D) minimize the cost of obtaining funds.

B) create required reserve ratios.

The monetary base is the sum of A) foreign and domestic deposits at the Fed. B) currency and reserves of depository institutions. C) currency and checkable deposits at depository institutions. D) U.S. Treasury notes and other government securities.

B) currency and reserves of depository institutions.

Labor productivity increases with A) increases in consumption expenditure. B) increases in capital. C) increases in depreciation. D) All of the above answers are correct.

B) increases in capital.

In the absence of a Ricardo-Barro effect, a government budget deficit ________ the demand for loanable funds and ________ investment. A) decreases; decreases B) increases; decreases C) decreases; increases D) increases; increases

B) increases; decreases

This year Pizza Hut makes a total investment of $1.3 billion in new stores. Its depreciation in this year is $300 million. Pizza Hut's gross investment is ________ and its net investment is ________. A) $1.0 billion; $0.7 billion B) $1.0 billion; $1.3 billion C) $1.3 billion; $1.0 billion D) $1.3 billion; $1.6 billion

C) $1.3 billion; $1.0 billion

At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled A) 1 machine. B) 2 machines. C) 3 machines. D) 6 machines.

C) 3 machines.

In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012? A) 3.8 percent B) 0.38 percent C) 9.0 percent D) 8.3 percent

C) 9.0 percent

Between which pair of countries or continents listed below has real GDP per person converged the most since 1960? A) Canada and South America B) United States and Africa C) Canada and Japan D) United States and South America

C) Canada and Japan

Which of the following statements are TRUE regarding the demand for labor? I. The quantity of labor demanded depends on the real wage rate. II. If the money wage rate increases and the price level remains the same, the quantity of labor demanded decreases. A) I only B) II only C) I and II D) neither I nor II

C) I and II

Which of the following is TRUE? I. As the real interest rate increases, people increase the quantity they save. II. The supply of loanable funds curve is downward sloping. III. As disposable income increases, the supply of loanable funds curve becomes steeper. A) I and III B) II and III C) I only D) III only

C) I only

Which of the following is associated with classical growth theory? I. Growth in real GDP can continue indefinitely. II. Technological growth increases as the population grows. III. Population explosions bring real GDP per person back to subsistence levels. A) I B) II C) III D) I and III

C) III

Which of the following shifts the demand for loanable funds curve leftward? A) a decrease in the taxes paid by the business B) a fall in the real interest rate C) a decrease in the expected profit D) a rise in the real interest rate

C) a decrease in the expected profit

Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the opportunity cost of borrowed funds. II. The real interest rate equals the nominal interest rate adjusted for inflation. A) I B) II C) both I and II D) neither I nor II

C) both I and II

Economic growth is measured by A) changes in nominal GDP. B) changes in the employment rate. C) changes in real GDP. D) All of the above are used to measure economic growth

C) changes in real GDP.

The gaps between the United States and the Asian countries of Honk Kong, Singapore, Korea and China have been A) there are no gaps between these Asian countries and the United States B) remaining fairly constant C) decreasing D) increasing

C) decreasing

Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is A) increasing. B) constant. C) decreasing. D) negative.

C) decreasing.

We are interested in long-term growth primarily because it brings A) higher price levels. B) trade wars with our trading partners. C) higher standards of living. D) lower price levels.

C) higher standards of living.

In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to 2012, Armenia's standard of living ________. A) decreased B) did not change C) increased D) might have increased, decreased, or remained unchanged but more information is needed to determine which

C) increased

Aside from being a means of payment, the other functions of money are A) medium of exchange and the ability to buy goods and services. B) pricing, contracts, and store of value. C) medium of exchange, unit of account, and store of value. D) medium of exchange, unit of account, and means of lending.

C) medium of exchange, unit of account, and store of value.

Controlling the quantity of money and interest rates to influence aggregate economic activity is called A) foreign policy. B) fiscal policy. C) monetary policy. D) bank antitrust policy.

C) monetary policy.

In the above figure, technological progress that increases the expected profit will A) have no effect on the demand for loanable funds curve. B) make the demand for loanable funds curve become horizontal. C) shift the demand for loanable funds curve rightward. D) shift the demand for loanable funds curve leftward.

C) shift the demand for loanable funds curve rightward.

Greater optimism about the expected profits from investment projects A) shifts the demand for loanable funds curve leftward. B) causes a movement downward along the demand for loanable funds curve. C) shifts the demand for loanable funds curve rightward. D) causes a movement upward along the demand for loanable funds curve

C) shifts the demand for loanable funds curve rightward.

In 2010, of the following which nations had the highest level of real GDP per person? A) Europe Big 4 B) Japan C) China D) Canada

D) Canada

Convergence of the income gap has been most dramatic between A) South America and the United States. B) the Central European countries and the United States. C) Africa and the United States. D) Hong Kong and the United States.

D) Hong Kong and the United States.

9) Suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond A) does not change because it is not affected by the interest rate. B) falls from $25,000 to $20,000. C) rises from $2,000 to $2,500. D) falls from $2,500 to $2,000.

D) falls from $2,500 to $2,000.

According to the Ricardo-Barro effect A) government budget deficits increase households' expected future disposable income. B) government deficits raise the real interest rate. C) taxpayers fail to foresee that government deficits imply higher future taxes. D) households increase their personal saving when governments run budget deficits

D) households increase their personal saving when governments run budget deficits

If the saving rate increases, a country's growth rate of real GDP per hour of labor ________ and capital per hour of labor ________. A) increases; decreases B) decreases; increases C) decreases; decreases D) increases; increases

D) increases; increases

The capital stock increases whenever A) net investment exceeds gross investment. B) gross investment is exceeds net investment. C) gross investment is negative. D) net investment is positive.

D) net investment is positive.

U.S. investment is financed from A) private saving and borrowing from the rest of the world only. B) private saving, government budget deficits, and borrowing from the rest of the world. C) private borrowing, government budget deficits, and lending to the rest of the world. D) private saving, government budget surpluses, and borrowing from the rest of the world

D) private saving, government budget surpluses, and borrowing from the rest of the world

If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________. A) surplus; negative B) deficit; positive C) deficit; negative D) surplus; positive

D) surplus; positive

According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Based on this story, it is most likely that the slowdown reflects a A) change to India's long-term economic growth rate. B) shrinkage of India's economy. C) temporary business cycle expansion. D) temporary business cycle slowdown.

D) temporary business cycle slowdown.

As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market? A) There was a leftward shift in the supply of loanable funds curve. B) There was a movement down along the demand for loanable funds curve. C) There was a rightward shift in the supply of loanable funds curve. D) There was a movement up along the supply of loanable funds curve.

A) There was a leftward shift in the supply of loanable funds curve.

An increase in labor productivity shifts the labor ________ curve ________. A) demand; rightward B) supply; leftward C) demand; leftward D) supply; rightward

A) demand; rightward

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately A) 10 percent. B) 6 percent. C) 4 percent. D) 0.25 percent.

B) 6 percent.

An increase in physical capital or a technological advance A) raises the real wage rate. B) decreases demand for labor. C) decreases the quantity of labor employed. D) shifts the production function downward.

A) raises the real wage rate.

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled A) -$300,000. B) -$100,000. C) $200,000. D) $1 million.

B) -$100,000.

Over the past 100 years, real GDP per person in the United States has grown at an average of ________ percent a year. A) 1 B) 2 C) 3 D) 4

B) 2

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate? A) Consumers are willing to spend less and hence save more at higher real interest rates. B) A lower real interest rate makes more investment projects profitable. C) Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. D) All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.

B) A lower real interest rate makes more investment projects profitable.

Which of the following is TRUE regarding the real wage rate? The real wage rate I. is always greater than the money wage. II. measures the quantity of goods and services an hour's work can buy. A) only I B) only II C) both I and II D) neither I nor II

B) only II

The term "crowding out" relates to the decrease in A) consumption expenditure from an increase in investment. B) private investment from a government budget deficit. C) the real interest rate from a government budget deficit. D) saving from an increase in disposable income.

B) private investment from a government budget deficit.

If the price level rises by 3 percent and workers' money wages increase by 3 percent, then the A) quantity of labor demand will decrease. B) quantity of labor demanded does not change because there is no change in the real wage rate. C) quantity of labor demand will increase. D) Any of the above could occur depending on the magnitude on the dollar increase in the price level versus the dollar increase in the wage rate.

B) quantity of labor demanded does not change because there is no change in the real wage rate.

Most ________ is embodied in physical capital. A) economic growth B) technological change C) human capital D) labor productivity

B) technological change

Countries or regions in which real GDP per person has not grown as fast as in the United States since 1960 include A) Japan. B) Canada. C) countries in Africa. D) Hong Kong

C) countries in Africa.

A rise in the real interest rate A) creates a movement downward along the demand for loanable funds curve. B) shifts the demand for loanable funds curve leftward. C) creates a movement upward along the demand for loanable funds curve. D) shifts the demand for loanable funds curve rightward.

C) creates a movement upward along the demand for loanable funds curve.

Labor productivity, real GDP per labor hour, increases if A) there is an increase in the accumulation of human capital. B) new technologies are continuously discovered. C) saving and investment cause an increase in the quantity of capital per worker. D) All of the above answers are correct.

D) All of the above answers are correct.

The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet? A) Securities increase by $100 million and reserves increase by $100 million. B) Securities increase by $100 million and reserves decrease by $100 million. C) Securities decrease by $100 million and deposits decrease by $100 million. D) Securities decrease by $100 million and reserves increase by $100 million.

D) Securities decrease by $100 million and reserves increase by $100 million.

The relationship between education and economic growth can best be summarized by saying that A) educated people are less apt to consume goods that deplete economic resources, which encourages economic growth. B) educational expenditures tend to be inflationary, which discourages economic growth. C) educational expenditures tend to divert funds from productive investments, which discourages economic growth. D) education has benefits beyond those who receive the education, which encourages economic growth.

D) education has benefits beyond those who receive the education, which encourages economic growth.

In the loanable funds market, the supply comes from A) only saving and the government budget surplus. B) only the government budget surplus and international borrowing. C) only saving. D) saving, the government budget surplus and international borrowing.

D) saving, the government budget surplus and international borrowing.