Econ 102 Midterm 2 Practice Test

Based on these stats, what is the level of business investment: inventories: $12 million Housing $400 million Equipment $500 million Business structures $350 million Intellectual property $700 million

$1562

If you invest 5,000 and get an average return of 1.5% a year, how much will you have after 20 years?

$6,734

if the nominal rate of interest is 4.5%, the rate of inflation is 2% and the risk premium is 1.5% the risk-free rate is:

2.5%

suppose that the federal reserve has recently cut interest rates, and there is a credit.e forecast that the fed will again cut interest rates in the future. A manage who is IS-MP savvy will expect that:

GDP will rise, and sales will increase

which of the following shifts the IS curve to the left

a fall in gov. spending

suppose that with a real interest of 3% there is no output gap. If the real interest rate is below 3% the economy forecast predicts:

a positive output gap

analysts in your consulting firm concluded that the current rate of unemployment is greater than the EQ rate, which leads you to conclude that:

actual GDP is less than potential GDP

Analysts in your consulting firm concluded that the current rate of unemployment is less than the EQ rate, which leads you to conclude that:

actual GDPis greater than potential GDP

the efficient market hypothesis states that

at any given time, stock prices are fairly valued, reflecting all available info

when the United States gives foreign aid to developing nations in Africa, the ______ account is affected

current

Physical capital is purchased through investment spending, which in turn is mostly financed by:

savings

when there is a deficit in the U.S. balance of payments on current account, people pay the difference by:

selling assets to other countries

the three major pillars of the financial sector are the:

stock market, the bond market, and the banks

how is the IS-MP framework affected if there is a rise in home values and wealth in the economy?

the IS curve shifts right

which of these is true about investment and saving

investment creates new productive capacity, whereas saving does not involve any spending on new capital

A bank run occurs when:

many bank customers try to withdraw their funds at one time

The Mexican peso fell against the US dollar by almost 3/4ths of its initial value. However, economists have concluded that this did not result in a corresponding fall in prices of Mexican products expressed in dollars. What explains this paradox?

inflation in Mexico increased

Depreciation refers to the:

decline in capital due to wear and tear, obsolescence, accidental damage, and aging

the demand curve for loanable funds slopes:

down, bc quantity of loanable funds demanded falls when the price of borrowing money rises.

banks solve information problems by:

gathering info pertinent to a borrower's creditworthiness

when china joined the World Trade Organization, Americans:

increased their imports from China, but the supply of the US dollar remained fixed in the dollar market.

a bond is a

promise to pay back a loan with interest

when inflation falls below its target rate, the federal reserve will:

raise interest rates

which will rise when the economy is expanding?

real GDP growth

A report says unemployment will fall 2%, what will output do based on Okun's rule of thumb?

rise by 4%

If corporate tax rates fall in the U.S, the demand of the dollar will _____, and the dollar will _____.

rise; appreciate

if Y < AE:

the stock of inventories in the economy will fall

what happens to the investment line if the real interest rate increases?

there is a movement up and to the left along the same investment line

which economic indicator would you expect will decrease continuously as the economy grows?

unemployment