ECON 2020-400 Final

Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50. T/F?

True, $5 x (177/10) = $88.5

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?

$400 billion

Octavia does not currently have a job, but she has applied for several jobs in the previous week. Eve is an unpaid stay-at-home mom who has not searched for work in recent years. Who does the Bureau of Labor Statistics count as "not in the labor force"? Neither Octavia nor Eve Both Octavia and Eve Octavia but not Eve Eve but not Octavia

Eve but not Octavia

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

decreases by 2 percentage points.

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade

deficit and negative net exports.

The purchase of U.S. government bonds by Egyptians is an example of

foreign portfolio investment by Egyptians.

Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as employed. not in the labor force. marginally attached worker. unemployed.

not in the labor force.

If per capita real income grows by 2 percent per year, then it will double in approximately 20 years. T/F?

False

The same size decrease in the amount of capital stock per worker will cause output per worker to fall by more in a country with a relatively high level of capital per worker than in a country with a relatively low level of capital per worker. T/F?

False

Two countries with the same saving rates must have the same growth rate of real GDP per person. T/F?

False

Which of the following would not be directly included in aggregate demand?

Government's tax collections

If an unemployed person quits looking for work, then, eventually the unemployment rate and the labor-force participation rate are both unaffected. and the labor-force participation rate both decrease. is unaffected, and the labor-force participation rate decreases. decreases, and the labor-force participation rate is unaffected.

and the labor-force participation rate both decrease.

In the long run, money demand largely depends on

the price level but not the interest rate.

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that it does not matter if they charge $10 or $15. they should leave the price at $10. they should raise the price even more. they would do better charging $15 than $10.

they would do better charging $15 than $10.

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to $92. $8. $920. $80.

$80

Suppose that some country had an adult population of about 46 million, a labor-force participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were unemployed? 8 million 2.54 million 2.76 million 3.68 million

2.76 million

Which of the following events would shift the demand curve right from D1 to D2? The government goes from running a budget deficit to running a budget surplus. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. A change in the tax laws encourages people to consume less and save more. A change in the tax laws encourages people to consume more and save less.

Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries. Fran is saving; Miller is investing. Fran and Miller are both investing. Fran is investing; Miller is saving. Fran and Miller are both saving.

Fran is saving; Miller is investing.

The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change? It rises by $19 billion. It falls by $12 billion. It falls by $21 billion. It falls by $19 billion.

It falls by $12 billion.

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement. It has $40,000 in deposits. It has $3,600 in deposits. It has $39,600 in deposits. It has $32,400 in deposits.

It has $40,000 in deposits.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. It has $8,000 in reserves and $2,000 in loans. It has $1,250 in reserves and $8,750 in loans. It has $80 in reserves and $9,920 in loans. $800 in reserves and $9,200 in loans.

It has $800 in reserves and $9,200 in loans.

Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Scenario 33-1. What would happen to the dollar?

It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

Its trade deficit rose.

If the CPI today is 120 and the CPI five years ago was 80, then something that cost $1 five years ago would cost $1.50 in today's prices. T/F?

True

If the current year CPI is 140, then the price level has increased 40 percent since the base year. T/F?

True

In 2014 income per person in the United States was about 10 times that in India. T/F?

True

Journey Motorcycles produced 100 motorcycles using 50 workers who each worked 8 hours a day. Journey's productivity was 1/4. T/F?

True

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply? $150 $200 $50 $100

$150

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute $250 to GDP. $150 to GDP. $400 to GDP. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle.

$250 to GDP.

In the special case of the 100-percent-reserve banking, the money multiplier is

1 and banks do not create money.

If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is −1 percent. 7 percent. 1 percent. 12 percent.

1 percent

For which of the following individuals would the opportunity cost of going to college be highest? A student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball A promising young mathematician who will command a high salary once she earns her college degree A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

A famous, highly paid actor who wants to take time away from show business to finish college and earn a degree

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve?

As the price level increases, the interest rate rises, so spending falls.

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the United States?

Both the one in Ohio and the one in Italy.

Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods. Country A has higher productivity and higher real GDP per person than country B. Country A has higher productivity but lower real GDP per person than country B. Country A has lower productivity and lower real GDP per person than country B. Country A has lower productivity but higher real GDP per person than country B.

Country A has lower productivity and lower real GDP per person than country B.

Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. Country A had the higher level of real GDP and real GDP per person. Country B had the higher level of real GDP and Country A had the higher level of real GDP per person. Country B had the higher level of real GDP and real GDP per person.

Country B had the higher level of real GDP and real GDP per person.

a shift up in the supply curve from S1 to S2 is called? an increase in the supply of loanable funds. a decrease in the supply of loanable funds. a decrease in the quantity of loanable funds supplied.

a decrease in the supply of loanable funds.

GDP and GNP are identical when? exports and imports exactly balance. there are no taxes. ​all domestic production is by domestically owned producers and no foreign production is carried out by domestic producers. ​production by domestic producers in other countries is greater than production by foreign producers domestically.

all domestic production is by domestically owned producers and no foreign production is carried out by domestic producers

When the interest rate increases, the opportunity cost of holding money

increases, so the quantity of money demanded decreases.

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should compare the cost of staying one more semester to the benefits of staying one more semester. compare the total cost of your education to the total benefits of your education. compare the total benefits of your education to the cost of staying one more semester. compare the total cost of your education to the benefits of staying one more semester.

compare the cost of staying one more semester to the benefits of staying one more semester.

Gabrielle, an Italian citizen, uses some previously obtained dollars to purchase a bond issued by a U.S. company. This transaction

does not change U.S. net capital outflow.

If Y and V are constant and M doubles, the quantity equation implies that the price level

doubles

Other things the same, an increase in the U.S. real interest rate induces

foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.

Other things the same, if the U.S. price level falls, then U.S. residents want to buy

more foreign bonds. The real exchange rate falls.

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should

sell the ticket because the marginal benefit exceeds the marginal cost.

The economy of Mainland uses gold as its money. If the government discovers a large reserve of gold on their land the

supply of money increases, the value of money falls, and prices rise.

If saving is greater than domestic investment, then there is a trade

surplus and Y > C + I + G.

A production possibilities frontier is bowed outward when the rate of trade-off between the two goods being produced is constant. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve.

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving? $2.5 trillion and $1.5 trillion, respectively $2.5 trillion and $2.5 trillion, respectively $1.5 trillion and $1.5 trillion, respectively $1.5 trillion and $2.5 trillion, respectively

$1.5 trillion and $2.5 trillion, respectively

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is $7 billion and consumption is $6 billion. $6 billion and consumption is $7 billion. $6 billion and consumption is $6 billion. $7 billion and consumption is $7 billion.

$6 billion and consumption is $6 billion.

The price index was 128 in Year 2, and the inflation rate was 24 percent between Year 1 and Year 2. The price index in Year 1 was

103.2

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves? $0 million $19.5 million $15 million $25.5 million

19.5 million

Suppose a closed economy had public saving of −$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?

2 trillion and 2 trillion

Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government purchases equal 4,000, and taxes equal 3,000. What are private saving, public saving, and national saving? 2,000, −1,000, and 1,000, respectively. −2,000, 1,000, and 2,000, respectively. 2,000, 1,000, and 2,000, respectively. 1,000, 2,000, and 3,000, respectively.

2,000, −1,000, and 1,000, respectively

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

22.5 percent

If the reserve ratio is 4 percent, then the money multiplier is

25

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can, given the reserve requirement. It follows that the reserve requirement is

25 percent

Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are employed and 5 million are unemployed, then 30 million are not in the labor force. 75 million are in the labor force. 35 million are in the labor force. 35 million are not in the labor force.

30 million are not in the labor force.

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2017. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

70.9%

In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered ended within one week and therefore was short term, and what percentage of the unemployment you encountered in a given week was long term?

86.7 short term, 88.9 long term

Which of the following events would shift the supply curve right from S1 to S2? In response to tax reform, households are encouraged to save more than they previously saved. Government goes from running a balanced budget to running a budget deficit. Any of the above events would shift the supply curve from S1 to S2.

In response to tax reform, households are encouraged to save more than they previously saved.

If Korea is capable of producing either shoes or soccer balls or some combination of the two, then it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods. Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls. it would be impossible for Korea to have an absolute advantage over another country in both products. Korea should specialize in the product in which it has an absolute advantage.

Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.

Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that Sue's income per day will be higher than Mary's. Mary's productivity is higher than Sue's. Sue's income per hour will be higher than Mary's. Sue's productivity is higher than Mary's.

Mary's productivity is higher than Sue's.

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000? The Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the bank. The Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000. The Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000. The Fed buys a $10,000 bond from the bank or someone deposits $10,000 in the bank.

The Fed buys a $10,000 bond from the bank or the Fed lends the bank $10,000.

Suppose private saving in a closed economy is $12b and investment is $10b. The government budget deficit must equal $2b. National saving must equal $12b. Public saving must equal $2b. The government budget surplus must equal $2b.

The government budget deficit must equal $2b.

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence? The gains of domestic producers of the good exceed the losses of domestic consumers of the good. The price received by domestic producers of the good increases. The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is

This cannot be determined from the information given.

An increase in a country's saving rate permanently raises its productivity. T/F?

True

Choosing not to attend a concert so that you can study for your exam is an example of a tradeoff. T/F

True

If Country A produces 7,000 units of goods and services using 700 hours of labor, and if Country B produces 5,500 units of goods and services using 500 units of labor, then productivity is lower in Country A than in Country B. T/F?

True

Janet is a farmer. Which of the following are included in her human capital? Neither her tractor nor what she's learned from experience Her tractor but not what she's learned from experience Her tractor and what she's learned from experience What she's learned from experience but not her tractor

What she's learned from experience but not her tractor

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply. a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. Last Attempt Details:

an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.

Suppose a country increases trade restrictions. This country would be pursing

an inward-oriented, which most economists believe has adverse effects on the economy.

Consider two people who are currently out of work. Tim is not looking for work because there have been many job cuts where he lives, and he doesn't think it likely that he will find work. Bev is not currently looking for work, but she would like a job, and she has looked for work in the past. The Bureau of Labor Statistics considers neither Tim nor Bev to be marginally attached workers. only Tim to be a marginally attached worker. only Bev to be a marginally attached worker. both Tim and Bev to be marginally attached workers.

both Tim and Bev to be marginally attached workers.

If the interest rate is above the Fed's target, the Fed should

buy bonds to increase the money supply.

If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is cyclical unemployment amounting to 0.5 percent of the labor force. structural unemployment amounting to 0.5 percent of the labor force. frictional unemployment amounting to 0.5 percent of the labor force. search unemployment amounting to 0.5 percent of the labor force.

cyclical unemployment amounting to 0.5 percent of the labor force.

The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will not be affected unless widespread civil disorder or civil war results. increase because the total amount of human capital in the country will increase as the new owners learn how to farm. fall and remain lower for a long time.

fall and remain lower for a long time.

Suppose that in Brazil total annual output is worth $600 million and people work 30 million hours. In Peru, total annual output is worth $800 million and people work 50 million hours. Productivity is higher

in Brazil. Most variation in the standard of living across countries is due to differences in productivity.

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves decrease by $20 million and the money supply eventually decreases by $400 million. decrease by $20 million and the money supply eventually decreases by $100 million. increase by $20 million and the money supply eventually increases by $100 million. increase by $20 million and the money supply eventually increases by $400 million.

increase by $20 million and the money supply eventually increases by $400 million.

In a closed economy, if Y, C, and T remained the same, a decrease in G would reduce private saving and public saving. increase neither private nor public saving. increase public saving but not private saving. increase private saving but not public saving.

increase public saving but not private saving.

Suppose the cost of operating a 75-room hotel for a night is $6,000 and there are five empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay more than $80; because the average benefit will exceed the marginal cost. more than $40; because the marginal benefit will exceed the marginal cost. more than $40; because the average benefit will exceed the marginal cost.

more than $40; because the marginal benefit will exceed the marginal cost

If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it will be able to use this deposit to make new loans amounting to $500. will initially see reserves decrease by $500. must increase required reserves by $100. must increase required reserves by $50.

must increase required reserves by $50.

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

rises and the quantity of dollars exchanged for foreign currency falls.

An increase in the saving rate permanently increases the growth rate of real GDP per person. T/F?

False

Which of the following is an example of an efficiency wage? A wage tied to participation in a government-sponsored job training program A below-equilibrium wage paid by a small business exempt from minimum-wage laws An above-equilibrium wage paid by a firm to reduce turnover costs You Answered A higher wage paid to a more experienced worker

An above-equilibrium wage paid by a firm to reduce turnover costs

As capital per worker rises, output per worker rises. However, this increase in output per worker is smaller at smaller levels of existing capital per worker. T/F?

False

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money. True/False?

False

A hair stylist currently cuts and colors hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients. Yes, because cutting hair is profitable. No, because he may not be able to sell more services. It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his backyard. Regarding these two practices, which of the following statements is correct? Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. Only Joe's and Jim's grocery store purchases are included in GDP. Only Joe's grocery store purchases are included in GDP. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information.

Only Joe's and Jim's grocery store purchases are included in GDP.

A production possibilities frontier is bowed outward when the rate of trade-off between the two goods being produced depends on how much of each good is being produced. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. the rate of trade-off between the two goods being produced is constant. an economy is self-sufficient instead of interdependent and engaged in trade.

the rate of trade-off between the two goods being produced depends on how much of each good is being produced.

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $300 million of required reserves, $75 million of excess reserves, have issued $7,500 million of deposits, and hold $225 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Tazian Banks?

4 percent, 5 percent

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $300 million of required reserves, $75 million of excess reserves, have issued $7,500 million of deposits, and hold $225 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. Refer to Scenario 29-1. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

6900 million

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving? Public and national saving would fall. Public saving would rise and national saving would fall. Public saving would fall and national saving would rise. Public and national saving would rise.

Public and national saving would fall.

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that I = S + NX. S = I + NX. S = I. S = 0.

S = I + NX.

If a production function has constant returns to scale, then if all inputs double so does production. T/F?

True

Indonesians, for example, have a lower standard of living than Americans because they have a lower level of productivity. T/F?

True

Which of the following is an example of a normative, as opposed to a positive, statement? A law requiring the federal government to balance its budget would increase economic growth. Universal healthcare would be good for U.S. citizens. A decrease in the minimum wage would decrease unemployment. An increase in the cigarette tax would cause a decrease in the number of smokers.

Universal healthcare would be good for U.S. citizens.

The willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. This extra benefit society gets from vaccinating its citizens is known as

an externality.

Matilda just graduated from college. In order to devote all her efforts to college, she didn't hold a job. She is going to tour around the country on her motorcycle for a month before she starts looking for work. Other things the same, the unemployment rate increases, and the labor-force participation rate decreases. increases, and the labor-force participation rate is unaffected. and the labor-force participation rate both increase. and the labor-force participation rate are both unaffected

and the labor-force participation rate are both unaffected

When the market for money is drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in

the value of money.

Elena's aunt gave her $100 for her birthday with the condition that Elena buys herself something. In deciding how to spend the money, Elena narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally, she decides on Option B. The opportunity cost of this decision is

the value to Elena of the option she would have chosen had Option B not been available.