ECON-1202 Final Exam Study guide
D. All of the above
New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge capital? A. Public education B. Patents C. Subsidies D. All of the above E. A and B only
C. Changes in monetary policy.
Which of the following will not have an effect on the long−run Phillips curve? A. Changes in unemployment insurance. B. Changes in demographics. C. Changes in monetary policy. D. Extended periods of high unemployment.
D. Banks borrow and banks lend.
Who borrows money and who lends money at this "target interest rate"? A. Banks borrow and the Fed lends. B. The Fed borrows and banks lend. C. Banks borrow and investors lend. D. Banks borrow and banks lend.
False
Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets. True False
C. D to A.
Refer to the figure. The appreciation of the euro is represented as a movement from A. A to B. B. D to C. C. D to A. D. B to C.
C. money supply growing at a faster rate than real GDP.
The quantity theory of money predicts that, in the long run, inflation results from the A. velocity of money growing at a faster rate than real GDP. B. money supply growing at a lower rate than real GDP. C. money supply growing at a faster rate than real GDP. D. velocity of money growing at a lower rate than real GDP.
D. principle of a double coincidence of wants
A baseball fan with a Mike Trout baseball card wants to trade it for a Manny Machado baseball card, but everyone the fan knows who has a Machado card doesn't want a Trout card. Economists characterize this problem as a failure of the A. market clearing mechanism. B. irrational exuberance doctrine. C. theory of comparative advantage. D. principle of a double coincidence of wants
A. increase; increase
A government budget surplus from reduced government spending (no change in net taxes) will ________ the level of investment in the economy and ________ the level of total saving (private plus public) in the economy. A. increase; increase B. decrease; increase C. increase; decrease D. decrease; decrease
B. a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve.
A supply shock is A. an increase in the rate of inflation as a result of expansionary fiscal policy, resulting in a leftward shift of the SRAS curve. B. a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve. C. an increase in potential GDP caused by a government expenditure multiplier, resulting in a leftward shift of the AD curve. D. an increase in both the inflation and the unemployment rates that may sometimes result in a rightward shift of the SRAS curve. Stagflation is a combination of inflation and recession. Stagflation occurs when a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP.
A. $3,320
A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2019 and 2022 are shown in the table. What is nominal GDP in 2019? A. $3,320 B. $3,690 C. $6,360 D. $7,035
C. $6,360
A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2019 and 2022 are shown in the table. What is real GDP in 2022, using 2019 as the base year? A. $3,320 B. $3,690 C. $6,360 D. $7,035
D. increase the demand for the currency.
According to a 2013 article on Top Forex News: "[India's] central bank raised interest rates yesterday in order ... to support the weakening currency (the Indian rupee)." Source: "RBI Raises Rates, Rupee Stronger," topforexnews.com, July 16, 2013. Higher interest rates strengthen a currency because they A. increase the supply of the currency. B. decrease the supply of the currency. C. decrease the demand for the currency. D. increase the demand for the currency.
C. vertical
According to the "rational expectations" school of thought in macroeconomics, the short−run Phillips curve is ________ in face of anticipated changes in monetary policy. A. horizontal B. negatively sloped C. vertical D. positively sloped
C. Efficiency wages
According to Costco's CEO, Jim Sinegal: "Paying good wages and keeping your people working for you is good business...Imagine that you have 120,000 loyal ambassadors out there who are constantly saying good things about Costco. It has to be a significant advantage for you." What is Costco's CEO referring to? A. Structural unemployment B. Marketing strategies C. Efficiency wages D. Union contracts
A. cause the dollar to depreciate increasing net exports
An expansionary monetary policy in the United States should A. cause the dollar to depreciate increasing net exports B. cause the dollar to appreciate increasing net exports C. decrease the dollar price of imports. D. decrease net exports.
A. less than the increase in government spending.
As a result of crowding out in the short run, the effect on real GDP of an increase in government spending is often A. less than the increase in government spending. B. more than the increase in government spending. C. equal to the increase in government spending. D. unrelated to the increase in government spending.
B. The federal funds rate
As the figure to the right indicates, the Fed can affect both the money supply and interest rates. However, in recent years, the Fed targets interest rates in monetary policy more often than it does the money supply. Which interest rate does the Fed target? A. The long-term nominal interest rate B. The federal funds rate C. The discount rate D. The short-term real interest rate
false
Bifurcated labor markets that have developed in many European nations best reflect the differing levels of cyclical unemployment tied to labor market "employment protection laws." True False
B. expansionary fiscal policy and contractionary monetary policy.
Both interest rate and exchange rate will be increased by A. expansionary monetary policy and contractionary fiscal policy. B. expansionary fiscal policy and contractionary monetary policy. C. expansionary fiscal policy and contractionary fiscal policy. D. expansionary monetary policy and contractionary monetary policy.
A. Business investment projects B. The value of the dollar C. Consumption of durable goods
Changes in interest rates affect aggregate demand Which of the following is affected by changes in interest rates and, as a result, impacts aggregate demand? (Mark all that apply.) A. Business investment projects B. The value of the dollar C. Consumption of durable goods D. Government spending
D. All of the above.
Consider the figure to the right. Why does the short-run aggregate supply curve (SRAS) slope upward? A. Firms and workers fail to predict changes in the price level. B. Contracts keep wages "sticky". C. Prices of final goods rise more quickly than the prices of inputs. D. All of the above. E. A and B only.
C. It increased by less than indicated by a multiplier with a constant price level.
Consider the figure. An increase in government spending shifted the aggregate demand curve from AD1 to AD2. As a result, both price level and real GDP increased. What can be said, however, about the increase in real GDP? A. It increased by more than indicated by a multiplier with a constant price level. B. It increased by the same amount as indicated by a multiplier with a constant price level. C. It increased by less than indicated by a multiplier with a constant price level. D. None of the above.
C. No. The Fed cannot target both the money supply and the interest rate simultaneously.
Consider the figure. Can the Fed achieve a $900 billion money supply (MS) AND a 5% interest rate (point C)? A. No. The Fed does not control the money supply. B. Yes. Controlling the money supply sets the interest rate. C. No. The Fed cannot target both the money supply and the interest rate simultaneously. D. Yes. The Fed can target the money supply or the interest rate.
E. Both A and B
Consider the figures below and determine which is the best description of what causes the shift from AD1 to AD2. A. Example A shows a contractionary monetary policy. The price level and real GDP both fall. B. Example B shows an expansionary monetary policy. The price level and real GDP both rise. C. Example A shows an expansionary monetary policy. The price level rises and real GDP falls. D. Both examples show expansionary monetary policy. The price level and real GDP both rise. E. Both A and B
A. Example (A): Expansionary fiscal policy. Example (B): Contractionary fiscal policy.
Consider the figures below. Determine which combination of fiscal policies shifted AD1 to AD2 in each figure and returned the economy to long-run macroeconomic equilibrium. A. Example (A): Expansionary fiscal policy. Example (B): Contractionary fiscal policy. B. Example (A): Contractionary fiscal policy. Example (B): Contractionary fiscal policy. C. Example (A): Contractionary fiscal policy. Example (B): Expansionary fiscal policy. D. Example (A): Expansionary fiscal policy. Example (B): Expansionary fiscal policy.
A. Example (A): Increase government spending Example (B): Increase taxes
Consider the figures to the right. Which of the following combinations of specific fiscal policy will return the economy to long-run macroeconomic equilibrium (point C)? That is, what policy will move aggregate demand from AD2 to AD2, (policy) in the second period? A. Example (A): Increase government spending Example (B): Increase taxes B. Example (A): Decrease government spending Example (B): Decrease taxes C. Example (A): Increase taxes Example (B): Increase government spending D. Example (A): Decrease government spending Example (B): Decrease government spending
B. 108.5.
Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The GDP deflator for 2022 equals A. 92.2. B. 108.5. C. 102.6. D. 109.1.
A. Wealth effect B. Interest rate effect
Consider the downward-sloping aggregate demand (AD) curve to the right. Which of the following results in a movement from point A to point B (a movement up along the AD curve) or from point A to point C (a movement down along the AD curve)? (Mark all that apply.) A. Wealth effect B. Interest rate effect C. Multiplier effect D. Inflation effect
part 1: A. Short run effects of contractionary monetary policy. part 2: C. Long run effects of contractionary monetary policy.
Consider the long-run Phillips curve and the short-run Phillips curve in the graph at right. part 1:A movement from point A to point B could be caused by A. Short run effects of contractionary monetary policy. B. Short run effects of lower interest rates. C. Short run effects of expansionary fiscal policy. D. Short run effects of expansionary monetary policy. part2:A movement from point A to point C could be caused by A. Long run effects of expansionary monetary policy. B. Short run effects of expansionary fiscal policy. C. Long run effects of contractionary monetary policy. D. Short run effects of contractionary fiscal policy.
A. there is a movement from A to B. A. there is a movement from A to C.
Consider the per-worker production function graph. If there is an increase in capital per hour worked, holding technology constant, then A. there is a movement from A to B. B. there is a movement from D to C. C. there is a movement from A to C. D. there is a movement from B to D. If there is an increase in technology, holding constant the quantity of capital per hour worked, then A. there is a movement from A to C. B. there is a movement from A to B. C. there is a movement from C to D. D. there is a movement from D to B.
C. larger in an open economy because the higher interest rates will reduce domestic investment, consumption of durables and net exports.
Crowding out effect from the use of expansionary fiscal policy will be A. insignificant because fiscal policy is highly effective for both open and closed economies in the short run. B. larger in a closed economy because the higher interest rates will reduce domestic investment, consumption of durables and increase net exports. C. larger in an open economy because the higher interest rates will reduce domestic investment, consumption of durables and net exports. D. smaller in an open economy because the lower interest rates will increase domestic investment, consumption of durables but decrease net exports.
D. appreciation; depreciation
Currency ___________ occurs when the market value of a country's currency rises relative to the value of another country's currency, while currency ____________ occurs when the market value of a country's currency declines relative to value of another country's currency. A. inflation; deflation B. deflation; inflation C. depreciation; appreciation Your answer is not correct. D. appreciation; depreciation
D. a permanent trade-off between unemployment and inflation.
Economists who believed that the Phillips curve represented a structural relationshipLOADING... believed that the curve represented A. a cyclical trade-off between unemployment and inflation. B. no trade-off between unemployment and inflation. C. a temporary trade-off between unemployment and inflation. D. a permanent trade-off between unemployment and inflation.
B. incorrect. The supply of loanable funds is determined by household saving.
Evaluate the following statement: "Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else." The statement is A. correct. Depositing money in a bank is neither saving nor borrowing. B. incorrect. The supply of loanable funds is determined by household saving. C. correct. Depositing money in a bank is borrowing, not saving. D. incorrect. The supply of loanable funds is determined by firms' willingness to borrow.
A. are reserves banks keep above the legal requirement.
Excess reserves A. are reserves banks keep above the legal requirement. B. are the deposits that banks do not use to make loans. C. are loans made at above market interest rates. D. are reserves banks keep to meet the reserve requirement. Part 2 Suppose the required reserve ratio is 12% and a bank has the following balance sheet: This bank keeps required reserves of $1200 and excess reserves of $800 (Enter your responses as integers.)
part 1D. when U.S. firms and households want foreign currencies so that they can buy goods and services produced in those foreign countries. part 2 D. if the interest rate and other conditions in the foreign countries are lucrative for U.S. firms and households to invest dollars.
Foreign households and foreign firms demand U.S. dollars in exchange for foreign currency for all of the following, except Part 1 A. when foreign firms and households want to invest in the United States either through foreign direct investment or through foreign portfolio investment. B. when currency traders want dollars because they expect that the value of the dollar in the future to be greater than its current value. C. when foreign firms and households want dollars so that they can buy goods and services produced in the United States. D. when U.S. firms and households want foreign currencies so that they can buy goods and services produced in those foreign countries. part 2 U.S.households and U.S. firms supply U.S. dollars in exchange for foreign currency A. when foreign firms and households want dollars so that they can buy goods and services produced in the United States. B. when U.S. consumers and firms want to buy goods and services that are not produced in a foreign country. C. if U.S. currency speculators become convinced that the future value of the foreign currency will be lower relative to the dollar. D. if the interest rate and other conditions in the foreign countries are lucrative for U.S. firms and households to invest dollars.
part 1 C. automatic stabilizers. part 2A. The president and Congress reduce tax rates to increase the amount of investment spending. B. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. E. The government provides stimulus funds to repair roads and bridges to increase spending in the economy.
Government spending and taxes that increase or decrease without any actions taken by the government are referred to as A. discretionary fiscal policy. B. government expenditures. C. automatic stabilizers. D. monetary policy. Part 2 Which of the following are examples of discretionary fiscal policy? (Check all that apply.) A. The president and Congress reduce tax rates to increase the amount of investment spending. B. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. C. Additional taxes are collected as the economy experiences an increase in income resulting from economic growth. D. A state government borrows money to finance the building of a new bridge. E. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. F. The government spends more on the military to provide assistance to England after a natural disaster.
B. Changes in the price level do not affect the level of GDP in the long run.
How does a decrease in the price level affect the quantity of real GDP supplied in the long run? A. In the long run, a decrease in the price level decreases inflation, which will decrease real GDP. B. Changes in the price level do not affect the level of GDP in the long run. C. In the long run, a decrease in the price level increases inflation, which will decrease real GDP. D. In the long run, a decrease in the price level will increase real GDP.
C. The exchange rate will decrease.
How would a decrease in the U.S. budget deficit affect the exchange rate in the market for dollars? A. The exchange rate will not be affected by a change in the budget deficit. B. The exchange rate will increase. C. The exchange rate will decrease. D. The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.
B. The Fed's policies will be inflationary.
If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy, which of the following would you expect to see? A. The Fed will reduce the natural rate of unemployment. B. The Fed's policies will be inflationary. C. The rate of inflation will fall as the Fed tries to reduce the unemployment rate. D. The Fed's policies will be deflationary.
A. Procyclical policy
If the Federal Reserve is late to recognize a recession and implements an expansionary policy too late, the result could be an increase in inflation during the beginning of the next phase. Even though the goal had been to reduce the severity of the recession, the poor timing caused another problem: inflation. This is an example of what type of policy? A. Procyclical policy B. Tight policy C. Countercyclical policy D. Fiscal policy
A. the dollar has depreciated.
If the exchange rate changes from $2.00 = £1 to $2.01 = £1, then A. the dollar has depreciated. B. the dollar has appreciated. C. the British pound has depreciated. D. the British pound has stayed constant in value.
B. the Phillips curve is vertical.
If, in the long run, real GDP returns to its potential level, then in the long run, A. the Phillips curve is upward-sloping. B. the Phillips curve is vertical. C. the Phillips curve represents a structural relationship. D. the Phillips curve disappears
D. Both A and B above are true.
In January 2021, the working-age population of the United States was 260.9 million. The working-age population is divided into those in the labor force (160.2 million) and those not in the labor force (100.7 million). The labor force is divided into the employed (150.0 million) and the unemployed (10.1 million). Those not in the labor force are divided into those not available for work (93.6 million) and those available for work (7.1 million). Finally, those available for work but not in the labor force are divided into discouraged workers (0.6 million) and those currently not working for other reasons (6.5 million). Use this data to help determine which one of the following statements is true: A. The unemployment rate is 10.1 million/160.2 million×100=6.3%. B. The labor force participation rate is 160.2 million/260.9 million×100=61.4%. C. The labor force is 260.9 million. D. Both A and B above are true.
B. Households, firms, and banks.
In addition to the Federal Reserve Bank, what other economic actors influence the money supply? A. The U.S. President and Vice President. B. Households, firms, and banks. C. The U.S. Mint and the U.S. Treasury. D. The U.S. Senate and the U.S. House of Representatives.
A. unemployment rate to fall
In early 2020, Edelman Brady (aged 64) lost his job with Delphi Automotive Co. (an auto parts manufacturer) when the company shifted production from internal combustion engines to electric vehicle engines. Later in 2020, discouraged by his inability to find employment (with another "team") Edelman stopped looking for a job. As a result (in 2020) when Edelman quit looking for a job, we would expect (the then), A. unemployment rate to fall B. inflation rate to rise C. unemployment rate to rise D. real GDP per capita to rise (since there are less workers in the labor force)
D. All of the above.
In the figure to the right, when the money supply increased from MS1 to MS2, the equilibrium interest rate fell from 4% to 3%. Why? A. Increased demand for Treasury securities drives down their interest rate. B. Increased demand for Treasury securities drives up their prices. C. Initially, firms hold more money than they want relative to other financial assets. D. All of the above.
C. Point C
In the figure, at what point is the inflation rate stable? That is, at what point can we refer to the inflation rate as the nonaccelerating inflation rate of unemployment? A. Point A B. Point B C. Point C D. None of the above
D. All of the above.
In the figure, expected inflation is initially at 1.5%. When expected inflation increases to 4.5%, which of the following will occur? A. At the natural rate of unemployment, inflation is 4.5%. B. Unemployment reaches the natural rate of 5%. C. To have 3.5% unemployment rate, inflation would be 7.5%. D. All of the above.
C. It decreases.
In the figure, the exchange rate between the Japanese yen and the U.S. dollar increased because demand increased by more than supply. As a result, what happens to U.S. real GDP? A. It remains constant. B. It increases. C. It decreases. D. The two are unrelated.
D. Increase in real GDP or increase in the price level
In the figure, which of the following events is most likely to cause a shift in the money demand (MD) curve from MD1 to MD2 (Point A to Point C)? A. Increase in real GDP or decrease in the price level B. Decrease in real GDP or decrease in the price level C. Decrease in real GDP or increase in the price level D. Increase in real GDP or increase in the price level
A. Contracts with workers keep wages sticky. D. Workers and firms might not have rational expectations.
Indicate the two main objections to the idea that the short-run Phillips curve is vertical. A. Contracts with workers keep wages sticky. B. Wages tend to adjust quickly. C. Any wage rising more quickly than the rate of inflation is actually falling. D. Workers and firms might not have rational expectations.
B. Lower interest rates C. Decrease in the U.S. exchange rate relative to other currencies E. Increased consumer optimism F. Lower taxes
Indicate which of the following would cause a shift in the aggregate demand curve from point A to point C. (Mark all that apply.) A. Inflation B. Lower interest rates C. Decrease in the U.S. exchange rate relative to other currencies D. Decrease in the price level E. Increased consumer optimism F. Lower taxes
A. Removing supply bottlenecks is the key to reducing inflation in Terbia.
Inflation in the developing country of Terbia has been rising over the last few years and is currently at a very high level. Two stock market analysts, Stanley Durro and Michelle Thompson, are discussing the possible causes of inflation. Michelle thinks that the real reason why prices are rising is because Terbia's economy is expanding. Stanley disagrees. He argues that the inflation is not demand driven; on the contrary, too much money in the economy is increasing the price level. Which of the following statements are Michelle and Stanley most likely to disagree with? A. Removing supply bottlenecks is the key to reducing inflation in Terbia. B. In a developing economy, when aggregate demand is increasing, inflation is likely to occur. C. Terbia's growth prospects could be adversely affected by the high level of inflation. D. Purchasing power of Terbia's currency has been declining over the last few years. E. An increase in interest rates is likely to reduce consumption demand and therefore inflation.
B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.
In 2008, the required reserve ratio for a bank's first $9.3 million in checking account deposits was zero. It was 3 percent on deposits between $9.3 million and $43.9 million, and 10 percent on deposits above $43.9 million. In most cases, and for simplicity, we assume that the required reserve ratio is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10. Is the real-world deposit multiplier greater than, less than, or equal to the simple deposit multiplier? A. Greater. Inflation plays a large role in the increase in checkable deposits. B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier. C. Equal. There is no difference between the two. D. None of the above. They are very different concepts.
B. Real GDP, because it is a better indicator of changes in a country's production of goods and services.
In 2019, before the arrival of the Covid-19 pandemic in Mexico, according to an article in the Wall Street Journal, "The central bank [of Mexico] expects gross domestic product will expand between 0.8% and 1.8% this year." Source: Anthony Harrup, "Bank of Mexico Cuts 2019 Economic Growth Estimate," Wall Street Journal, May 29, 2019. Is it likely that the forecast the newspaper cited is of nominal GDP or of real GDP? Briefly explain. A. Real GDP, because it is a better indicator of changes in how much an economy consumes. B. Real GDP, because it is a better indicator of changes in a country's production of goods and services.
A. natural rate of unemployment caused by elevated frictional unemployment
In 2021, many economists had predicted that when the (coronavirus) pandemic ended and the Government's "shuttering in or other restrictive policies" have been lifted, the overall structure or pattern U.S. consumer demand would be permanently affected. They contended that, for example, there would be more airline travel (certainly greater leisure airline travel), more in-seating restaurant dining (i.e., dining outside the home) and more large scale sporting events or concerts. Other industries, they predicted, would see rapid declines in demand, such as food delivery services. Assume that this had occurred in 2022. If so, then we would have most likely seen in 2022, at least for some period of time, an elevated A. natural rate of unemployment caused by elevated frictional unemployment B. natural rate of unemployment caused by elevated cyclical unemployment C. natural rate of unemployment caused by falling rates of cyclical unemployment (since a falling cyclical unemployment rate must correspond to a rising natural rate of unemployment.) D. level of structural unemployment caused by a higher natural rate of unemployment
D. B to A.
Italians cut back on smoking and cut their demand for American cigarettes in half. Assuming all else remains constant, this would be represented as a movement from A. D to C. B. B to C. C. A to D. D. B to A.
D. All of the policies would likely reduce this type of unemployment.
Last year in the Wall Street Journal, it was reported that U.S. businesses in the construction, housing and auto repair markets were having difficulties finding qualified employees, while the unemployment rates of recent college graduates in selected social science fields (not economics) were rising. Which of the following policies would most likely reduce this (latter) type of unemployment? A. None of the selections will reduce this type of unemployment because this type of unemployment is the equivalent of "technological unemployment" first articulated by Adam Smith in the Wealth of Nations and this is unaffected by governmental policies since technological change is driving the employment patterns in the U.S. economy. B. More job training programs. C. Equalizing public subsidies and grants available for colleges and universities and private technical schools. (Currently colleges and universities receive far greater public subsidies and grants than private technical schools.) D. All of the policies would likely reduce this type of unemployment. E. A decrease in a binding minimum wage.
B. real business cycle models.
Models that use factors, such as technology shocks, to explain fluctuations in real GDP instead of changes in the money supply are called A. real monetary models. B. real business cycle models. C. real technology models. D. monetary business cycle models.
True
Monetary policy has a greater impact in an open economy than it does in a closed economy. True False
B. more important than increases in physical capital in explaining long-run growth.
One of the lessons from the economic growth model presented in this chapter is that technological change is A. equally as important as increases in physical capital in explaining long-run growth. B. more important than increases in physical capital in explaining long-run growth. C. only possible in countries that have already attained a high level of real GDP per capita. D. less important than increases in physical capital in explaining long-run growth.
E. All of the above are correct.
Part 1 In an opinion column in the Wall Street Journal, economist Alan Blinder of Princeton University asks, "Is the Phillips curve dead?" Source: Alan S. Blinder, "Is the Phillips Curve Dead? And Other Questions for the Fed," Wall Street Journal, May 3, 2018. a. Why have some economists and policymakers in recent years wondered whether the short-run Phillips curve trade-off between unemployment and inflation might no longer hold? A. Inflation expectations have been well anchored, and this stabilization of expectations has weakened the Phillips curve relationship. B. Recent data for the unemployment and inflation rates don't show a pattern consistent with the Phillips curve relationship. C. The effects of globalization indicate that the inflation rate is less responsive to the unemployment rate than was true in earlier decades. D. Only A and B are correct. E. All of the above are correct. Part 2 b. Briefly summarize how economists explain what has happened to the short-run trade-off between unemployment and inflation. Some economists argue that the employment-population ratio has been trending lower over the past 20 years. As a result, there may be more slack in the labor market for a given unemployment rate than was true in earlier years. If the employment-population ratio returns to previous levels, the short-run relationship between inflation and unemployment may begin to look more like a typical Phillips curve.
A. back to the 5% natural rate of unemployment.
Part 1 Suppose a Phillips curve graph illustrates a situation in which the current inflation rate and the expected inflation rate are both 4 percent. The current unemployment rate and the natural rate of unemployment are both 5 percent. Show the effect on the economy of a severe (adverse) supply shock. The adverse supply shock will shift the short-run Phillips curve up. As a result of the supply shock, the rate of inflation has increased. If the Federal Reserve keeps monetary policy unchanged, eventually the unemployment rate will be: A. back to the 5% natural rate of unemployment. B. lower than the 5% natural rate of unemployment. C. higher than the 5% natural rate of unemployment. D. zero.
part 1 A. The Fed's traditional approach was to enact monetary policies designed to keep the economy at the natural rate of unemployment. part 2 A. The Fed's approach of targeting unemployment rates changed, as it no longer viewed tight labor markets as an automatic signal of higher inflation.
Part 1 What role did the natural rate of unemployment traditionally play in the Fed's approach to monetary policy? A. The Fed's traditional approach was to enact monetary policies designed to keep the economy at the natural rate of unemployment. B. The Fed's traditional approach was to enact monetary policies designed to keep unemployment below the natural rate of unemployment. C. The Fed's traditional approach was to enact monetary policies designed to keep inflation low, and it did not consider the natural rate of unemployment. D. The Fed's traditional approach was to enact monetary policies designed to keep the money supply constant, and it did not consider the natural rate of unemployment. Part 2 How did the Fed's new monetary policy strategy announced in 2020 affect that role? A. The Fed's approach of targeting unemployment rates changed, as it no longer viewed tight labor markets as an automatic signal of higher inflation. B. The Fed's approach of targeting unemployment rates changed, as it now viewed tight labor markets as an automatic signal of higher inflation. C. The Fed's approach of targeting unemployment rates changed, as it now viewed high unemployment as an automatic signal of low inflation. D. The Fed's approach of targeting unemployment rates changed, as it no longer viewed tight labor markets as an automatic signal of low inflation.
C. $333 billion increase
Question content area Part 1 Suppose the reserve requirement is 15%. What is the effect on total checkable deposits in the economy if bank reserves increase by $50 billion? A. $3 billion increase B. $50 billion increase C. $333 billion increase D. $750 billion increase
B. appreciated against the yen.
Question content area left Part 1 In the figure, the exchange rate equilibrium occurs at the point where the quantity demanded equals the quantity supplied, ¥120 = $1 (point A). If the equilibrium exchange rate changed from ¥120 = $1 to ¥150 = $1, we would say that the dollar A. is unrelated to the yen. B. appreciated against the yen. C. remained stable against the yen. D. depreciated against the yen.
B. Demand would increase and the economy moves from A to B.
Refer to the diagram to the right. Suppose that the U.S. government deficit causes interest rates in the United States to rise relative to those in the European Union. Assuming all else remains constant, how would this be represented? A. Demand would decrease and the economy moves from B to A. B. Demand would increase and the economy moves from A to B. C. Supply would increase, demand would decrease, and the economy moves from C to B to A. D. Supply would decrease, demand would decrease, and the economy moves from B to C to D.
B. an increase in the proportion of income after net taxes used for consumption.
Refer to the diagram to the right. Which of the following is consistent with the diagram? A. an increase in household income B. an increase in the proportion of income after net taxes used for consumption. C. an increase in transfer payments to households D. an increase in tax revenues collected by the government
A. Poorer countries should grow more quickly and will be at point A.
Refer to the graph. According to the economic concept of catch-up, which of the following is CORRECT? A. Poorer countries should grow more quickly and will be at point A. B. Richer countries should grow more slowly and will be at point A. C. Richer countries should grow more quickly and will be at point B. D. Poorer countries should grow more slowly and will be at point B.
B. $6,400.
Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals A. $7,400. B. $6,400. C. $5,800. D. 2,440 units.
B. by less than $500
Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing returns? A. by more than $5,000 but less than $20,000 B. by less than $500 C. by more than $500 but less than $5,000 D. by exactly $500
A. $100 million
Suppose that the Federal Reserve makes a $10 million discount loan to First National Bank (FNB) by increasing FNB's account at the Fed. Complete the following T-account to show the impact of this transaction. Assume that before receiving the discount loan, FNB had no excess reservesLOADING.... The maximum amount of the $10 million that FNB can issue in loans is $10 million. Assume that banks want to keep 10 percent of their deposits as reserves. The maximum total increase in the money supply that can result from the Fed's discount loan is A. $100 million. B. $90 million. C. $9 million. D. None of the above.
C. AD, SRAS, and LRAS must increase by the same amount.
Suppose that the economy grows from 2023 to 2024 without inflation. Which of the following graphs correctly shows this situation? (Note: 2024 positions are shown with green dashed lines.) part 2 To have growth without inflation, which of the following must be true? A. Potential GDP must remain constant. B. AD must decrease to reduce inflationary pressure. C. AD, SRAS, and LRAS must increase by the same amount. D. There must be no change in SRAS. E. There must be no change in AD.
B. Open market purchase of government securities.
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium (point C) in the second period? A. Decrease taxes. B. Open market purchase of government securities. C. Increase the reserve requirement. D. Raise the discount rate.
C. Open market purchase of government securities
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium (point C) in the second period? (What policy will increase the price level and increase actual real GDP?) A. Decrease taxes B. Increase the reserve requirement C. Open market purchase of government securities D. Increase the discount rate
C. Increase government spending
Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reaches point (B). What policy would the federal government likely pursue in order to move AD2 to AD2, policy and reach equilibrium (point C) in the second period? A. Open market purchase of government securities B. Increase taxes C. Increase government spending D. All of the above
B. Lenders lose from a lower real interest rate. C. Borrowers gain from a lower real interest rate.
Suppose the fixed interest rate on a loan is 5.75%, the risk of default is zero and the rate of inflation is (and is expected to be) 4.25%. Suppose now, however, that instead of 4.25%, the inflation rate unexpectedly rises and reaches 5.5% (and nothing else changes). Who gains and who loses from this unanticipated inflation? (Mark all that apply.) A. Lenders gain from a lower real interest rate. B. Lenders lose from a lower real interest rate. C. Borrowers gain from a lower real interest rate. D. Borrowers lose from a lower real interest rate.
C. an increase in interest rates in Mexico and an increase in the value of the peso relative to other currencies.
Suppose the government of Mexico runs a budget deficit. This will result in: A. a decrease in interest rates in Mexico and a decrease in the value of the peso relative to other currencies. B. a decrease in interest rates in Mexico and an increase in the value of the peso relative to other currencies. C. an increase in interest rates in Mexico and an increase in the value of the peso relative to other currencies. D. an increase in interest rates in Mexico and a decrease in the value of the peso relative to other currencies.
D. $400 billion increase
Suppose the reserve requirement is 15%. What is the effect on total checkable deposits in the economy if bank reserves increase by $60 billion? A. $60 billion increase B. $900 billion increase C. $4 billion increase D. $400 billion increase
A. Country B's living standards will increase much more rapidly in the long run.
Suppose two countries, Country A and Country B, have a similar real GDP per capita. Country A has an average economic growth rate of 2% and Country B has an average economic growth rate of 3.3%. In the long run, what can we predict about living standards in the two countries? A. Country B's living standards will increase much more rapidly in the long run. B. Country A's living standards will increase much more rapidly in the long run. C. Growth rates are not related to living standards. D. The countries will experience similar increases in their living standards.
A. foreign direct investment.
Technological change is more important to long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through A. foreign direct investment. B. savings and investment. C. health and education. D. wars and civil strife.
B. increased by $1,000,000 since the unsold RV is treated as business inventory investment for GDP calculations
The Bill Belichick RV Manufacturing Co., which produces motor homes or coaches (or "RV"s) in Boston produced 10 motor homes (or "RV"s) in 2017 at an average sales price of $100,000 each. Unfortunately, for Bill and his company he only sold 9 (in 2017) of the 10 RVs that were produced in 2017. As a result of Bill Belichick RV Manufacturing Co.'s 2017 production, GDP in the U.S. in 2017: A. increased by $1,000,000 since the unsold RV is treated as imputed consumption similar to residential homes B. increased by $1,000,000 since the unsold RV is treated as business inventory investment for GDP calculations C. increased by $900,000, with GDP rising in the subsequent year when the 10th RV is actually sold D. increased by $900,000 but not the full $1,000,000 because the company was only able to sell 9 RVs in 2017
C. it carries out the policy directives of the FOMC.
The Federal Reserve Bank of New York is always a voting member of the FOMC because A. it is the largest of the Federal Reserve districts. B. it always has an employee as a member of the Board of Governors. C. it carries out the policy directives of the FOMC. D. it has the most political affiliations of the Federal Reserve districts.
C. the current account plus the financial account.
The balance of payments is equal to A. the current account divided by the financial account. B. the current account times the financial account. C. the current account plus the financial account. D. the current account minus the financial account.
D. net exports, net investment income, and net transfers.
The current account records A. only net exports. B. net capital flows, net investment income, and net transfers. C. only net capital flows. D. net exports, net investment income, and net transfers. E. net capital flows and net investment income.
C. Quantity of capital per hour worked
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. What are the key factors that determine labor productivity? (Mark all that apply.) A. Efficiency wages B. Trade C. Quantity of capital per hour worked D. Technological change
B. only net capital flows.
The financial account records A. net capital flows, net investment income, and net transfers. B. only net capital flows. C. net capital flows and net investment income. D. only net exports. E. net exports, net investment income, and net transfers
D. the rate of inflation is negative (that is, deflation)
The nominal interest rate will be less than the real interest rate when A. the rate of inflation is positive but decreasing. B. the real interest rate is negative. C. the rate of inflation is positive and increasing. D. the rate of inflation is negative (that is, deflation)
B. in the long run.
There is a strong link between changes in the money supply and inflation A. in neither the short run nor the long run. B. in the long run. C. in the short run. D. in both the short run and the long run.
D. All of the above.
The (FOMC) Federal Open Market Committee A. determines the target federal funds rate and the direction of open market operation policies. B. includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks (though not all are voting members). C. makes decisions that are voted on by all 7 members of the Board of Governors but only 5 of the 12 regional bank presidents. D. All of the above. E. A and B only.
A. Private saving equals $2 trillion and public saving equals $2 trillion.
Using the information above, what is the value of private saving and public saving? A. Private saving equals $2 trillion and public saving equals $2 trillion. B. Private saving equals $10 trillion and public saving equals $4 trillion. C. Private saving equals $4 trillion and public saving equals $10 trillion. D. Private saving equals $2 trillion and public saving equals $1 trillion.
B. 11 percent.
Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be A. 6 percent. B. 11 percent. C. 19 percent. D. 15 percent.
D. technological change; "B" to "C
Utilizing the aggregate production functions to the right, Robert Solow asserted that the most significant or critical factor in driving long term economic growth is __________ and is reflected in the movement from ____ to _____. A. economies of scale; "D" to "C" B. technological change; "A" to "B" C. capital accumulation; "A" to "C" D. technological change; "B" to "C E. capital accumulation; "B" to C"
B. The Fed will pursue an expansionary monetary policy.
What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of long-run macroeconomic equilibrium? A. The Fed will pursue a contractionary fiscal policy. B. The Fed will pursue an expansionary monetary policy. C. The Fed will pursue a contractionary monetary policy. D. The Fed will pursue an expansionary fiscal policy. If the Fed's policy is successful, what is the effect on the following indicators? Actual real GDP: increases Potential real GDP: does not change Price level: increases Unemployment: decreases
B. Provide savings incentives
What can low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved technology? A. Increase the interest rate on borrowing B. Provide savings incentives C. Print more money D. All of the above
B. A movement from point A to point C.
What effect does expansionary monetary policy have on equilibrium if consumers have rational expectations? A. A movement from point B to point C. B. A movement from point A to point C. Your answer is correct. C. A movement from point A to point B. D. A movement from point C to point A.
B. The discount rate is the rate at which the Fed lends to banks.
What is the discount rate? A. The discount rate is the rate at which banks lend to their best customers. B. The discount rate is the rate at which the Fed lends to banks. C. The discount rate is the rate at which auto loans and mortgages are made. D. The discount rate is the rate at which banks lend to each other.
D. The federal funds rate.
What is the name of the "target interest rate" mentioned in this article? A. The prime rate. B. The mortgage rate. C. The discount rate. D. The federal funds rate.
part 1A. $8.21 part 2C. Both real and nominal average hourly earnings increased.
What is the real average hourly wage in 2009? A. $8.21 B. $17.42 C. $8.61 D. $7.92 What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010? A. Real average hourly earnings decreased and nominal average hourly earnings increased. B. Both real and nominal average hourly earnings decreased. C. Both real and nominal average hourly earnings increased. D. Real average hourly earnings increased and nominal average hourly earnings decreased.
C. It shifts up such that a given level of unemployment occurs at a higher price level.
When SRAS1 shifts to SRAS2, the price level increases and the level of real GDP falls. What happens to the short-run Phillips curve when the short-run aggregate supply curve shifts (a supply shock)? A. It shifts down such that a given level of unemployment occurs at a higher price level. B. It shifts up such that a given level of unemployment occurs at a lower price level. C. It shifts up such that a given level of unemployment occurs at a higher price level. D. It shifts down such that a given level of unemployment occurs at a lower price level.
A. sells treasury securities increasing interest rates, leading to a stronger dollar that lowers net exports in an open economy.
When the Federal reserve uses contractionary monetary policy to reduce inflation, it A. sells treasury securities increasing interest rates, leading to a stronger dollar that lowers net exports in an open economy. B. buys treasury securities increasing interest rates, leading to a weaker dollar that increases net exports in an open economy. C. sells treasury securities decreasing interest rates, leading to a stronger dollar that lowers domestic investment in a closed economy. D. buys treasury securities decreasing interest rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.
B. surplus; downward
When the exchange rate (measured as foreign currency per dollar) is above the equilibrium exchange rate, there is a ___________ of dollars and, consequently, ____________ pressure on the exchange rate. A. surplus; upward B. surplus; downward C. shortage; downward D. shortage; upward
part 1 A and C part 3 A. Due to the higher price level, workers will demand higher wages, and firms will raise prices and cause SRAS to shift to the left to point C.
Which of points A, B, C, or D can represent a long-run equilibrium? A, B, C, and D B A and B A and C B and D D b. Suppose that initially the economy is at point A. Then aggregate demand increases from AD Subscript 1 to AD The new short-run equilibrium will be at point D. The long-run equilibrium point will be at point C. Which of the following best explains how the economy will adjust from the short-run equilibrium point to the new long-run equilibrium point? A. Due to the higher price level, workers will demand higher wages, and firms will raise prices and cause SRAS to shift to the left to point C. B. Due to the recession, workers and firms will be willing to accept lower wages and prices and AD will shift to the left to point B. C. Due to the higher price level, consumption and investment spending will decrease and the economy will be at B. D. Due to the lower price level, firms and workers will be willing to accept lower wages and prices and SRAS will shift to the right further.
A. Overnight reverse purchase agreement facility C. Term deposit facility E. Interest on reserves
Which of the following Fed monetary policy tools have only been used since the 2007-2009 financial crisis? (Mark all that apply.) A. Overnight reverse purchase agreement facility B. Open market operations C. Term deposit facility D. Reserve requirements. E. Interest on reserves
B. Reserve requirements D. Open market operations E. Discount policy
Which of the following are included in the Fed's traditional monetary policy toolkit? (Mark all that apply.) A. Interest on reserves B. Reserve requirements C. Term deposit facility D. Open market operations E. Discount policy
D. term deposit facility
Which of the following policy tools is the Federal Reserve least likely to use in order to actively change the money supply? A. open market operations B. discount loans C. discount rate D. term deposit facility
C. Production from a U.S. firm that operates in Mexico.
Which of the following would be included in the gross national product (GNP) of the United States? A. Production from an Hungarian citizen who works in Denver, CO. B. Production from a Canadian firm that operates in Montana. C. Production from a U.S. firm that operates in Mexico. D. All of the above are included in the GNP of the U.S.
A. an increase in the demand for dollars
Which of the following would cause the dollar to appreciate? A. an increase in the demand for dollars B. an increase in the supply of dollars C. a decrease in the demand for dollars D. an increase in the demand for imports from foreign countries
A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Why does inflation make nominal GDPLOADING... a poor measure of the increase in total production from one year to the next? A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities. B. GDP is a measure of production in quantity terms. C. Nominal GDP separates increases in GDP as a result of price changes from increases in GDP as a result of quantity changes. Your answer is not correct. D. All of the above E. A and B only
A. $70,288
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104? A. $70,288 B. $34,000 C. $73,100 D. $16,447
C. definitely rose or fell, depending on the population growth rate.
c. Given your answers to parts (a) and (b), and assuming that the central bank's forecast is accurate, is it likely that living standards in Mexico rose or fell in 2019? Briefly explain. Based on parts (a) and (b) and assuming the Mexican central bank's forecast is accurate, living standards in Mexico A. definitely fell, since Mexico suffers from government corruption. B. definitely rose, since GDP was expected to grow between 0.8% and 1.8% during the year. C. definitely rose or fell, depending on the population growth rate. D. remained the same, because there is no correlation between GDP growth rates and living standards.
B. d
look carefully at at the following list a. The coins in your pocket. b. The funds in your checking account. c. The funds in your savings account. d. Your Citibank Platinum MasterCard. Which of the things above is NOT included in the M1 definition of the money supply? (Mark all that apply.) A. a B. d d Your answer is correct. C. b D. c
B. buys U.S. government bonds.
Investment, as defined by economists, would not include which of the following? Ford A. buys a new robotic machine (from a plant in Ohio) to assemble cars. B. buys U.S. government bonds. C. builds another assembly plant in the United States. D. adds 1,000 new cars to inventories.
