Econ
If real GDP increases from $5 billion to $5.25 billion and the population increases from 2 million to 2.02 million, real GDP per person increases by ___ percent.
4.0
If the price of a U.S. government bond is $50 and the owner of the bond is entitled to $2.50 income each year, then the interest rate on the bond is
5 percent
The following statements about the business cycle are correct except
it is a regular predictable cycle in real GDP around potential GDP
Rick withdraws $500 from his savings account, keeps $100 as currency, and deposits $400 in his checking account.
M1 increases by $500 and M2 does not change
In the long run, money market equilibrium determines the
price level
An open market _______ of $100 million of securities ______
purchase; increases bank reserves
A commercial bank creates money when it does all the following except
puts cash in its ATMs
The Fed fights inflation by
raising the federal funds rate, which raises interest rates and decreases aggregate demand
Gross domestic product is the market value of all the _______ in a given time period.
final goods and services produced by all firms located in the United States
A ________ is a final good and ________ is an intermediate good.
gasoline bought by you; jet fuel bought by Southwest Airlines
A commodity or token is money if it is
generally accepted as means of payment
Saving equals
income minus consumption expenditure minus net taxes
The full-employment quantity of labor
increases if labor becomes more productive
6. The natural unemployment rate _______.
increases if unemployment benefits become more generous
The natural unemployment rate
increases if unemployment benefits become more generous
An increase in the government budget deficit
increases private saving and decreases investment
Job rationing
increases the natural unemployment rate
A government budget surplus
increases the supply of loanable funds
An increase in expected profit _______ the real interest rate and ________ the quantity of loanable funds.
increases; increases
U.S. national debt _______ when the federal government's _______.
increases; outlays exceed tax revenue
The increase in real GDP per hour of labor that results from an increase in capital per hour of labor
is larger at a small quantity of capital than at a large quantity of capital
Money in the United States today includes
the currency in people's wallets, stores' tills, and the bank deposits that people and businesses own
The CPI bias arises from all of the following items except
the goods and services bought by poor people
Crowding out occurs when
the government budget is in deficit and the real interest rate rises
Aggregate supply increases when
the money wage rate falls
The quantity of money demanded increases if
the nominal interest rate falls
Households' labor supply decisions are influenced by all of the following except
the number of full-time jobs available
In new growth theory, the source of economic growth is ______
the persistent want for a higher standard of living
The quantity of real GDP demanded increases if
the price level falls
The BLS reported that the CPI in July 2010 was 226. This news tells you that
the prices of consumption goods and services have risen, on average, by 126 percent since the base year
The BLS count Jody as being unemployed if she
wants a job and is willing to take a job but after searching last week cannot find a job
The supply of loanable funds increases
when disposable income increases or wealth decreases
U.S. potential GDP is the value of the goods and services produced in the United States
when the U.S. economy is at full employment
The Fed's policy tools include all the following except
taxing banks' deposits at the Fed
If the population growth rate is 2 percent, real GDP per person will double in 7 years if real GDP grows by ______ percent per year.
12
When the price level is rising at ______ and the real interest rate is 1 percent a year, the nominal interest rate is 3 percent a year
2 percent a year
If nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a year, then real GDP increases by
3 percent a year
Of the alternative measures of the price level, _________ overcomes the bias of the CPI and is a better measure of the cost of living because it
PCE price index; uses a current basket of all consumption goods
The federal government's major outlay in its budget is_______ and its major source of revenue is
Social Security and other benefits; personal income taxes
The Fed's operational goals include
a core inflation rate between 1 and 2 percent a year and an output gap as small as possible
When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to
add indirect taxes less subsidies to convert aggregate income from factor cost to market prices
The Fed's choice of monetary policy strategy is
adjusting the federal funds rate to best fulfill its dual mandate
A tax cut increases
aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor
If the economy is at full employment and the Fed increases the quantity of money, _______.
aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise
When potential GDP increases,
aggregate supply increases
The expenditure approach to measuring U.S. GDP equals
all expenditure by Americans on goods and services produced in the United States in a given time period
When the economy goes into recession, the biggest increase in unemployment is _________
cyclical because jobs are lost in many industries as they cut production
All of the following increase labor productivity except
an increase in consumption
The costs of inflation do not include
an increase in saving and investment
An efficiency wage results in all of the following except
an increase in the full-employment quantity of labor
An economy can achieve faster economic growth without
an increase in the population growth rate
Needs-tested spending is _______ fiscal policy because it _______.
automatic; increases in recession and decreases in expansion
Holding money provides a benefit
because it is a means of payment
An increase in expected future income increases
consumption expenditure, which increases current aggregate demand
When the CPI increases from 200 in 2010 to 210 in 2011 and the nominal wage rate is constant at $10 an hour, the real wage rate
decreases by 5 percent
The money multiplier
decreases if banks increase their desired reserve ratio
Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.
demanded; real GDP supplied
A marginally attached worker is a person who _
doesn't work, is available and willing to work, but hasn't looked for job recently
When the government lowers the income tax rate,
employment increases and potential GDP increases
In the long run with a constant velocity of circulation, the inflation rate
equals the money growth rate minus the growth rate of real GDP
The opportunity cost of holding money
equals the nominal interest rate on bonds
A government expenditure multiplier
exceeds 1
When the unemployment rate _________ the natural unemployment rate, real GDP is _________ potential GDP and the output gap is _________.
exceeds; below; negative
In the loanable funds market, an increase in
expected profit increases the demand for loanable funds
The Fed's monetary policy instrument is the
federal funds rate
Commercial banks' assets include
loans to individuals and businesses and government securities
The Fed's "dual mandate" is to achieve
low inflation and maximum employment
The Fed's "dual mandate" is to achieve
low inflation and maximum employment C. a stable quantity of money and stable prices
Discretionary fiscal policy to stimulate the economy includes
lowering the tax rate paid by households with middle incomes
Financial capital is the
money used to buy physical capital
The increase in real GDP per hour of labor that results from an advance in technology makes labor _______ productive ________.
more; at all quantities of capital
If the quantity theory of money is correct and other things remain the same, an increase in the quantity of money increases
nominal GDP and the price level
Real GDP per person is not an accurate measure of the standard of living because it
omits the goods and services that people produce for themselves
The classical growth theory is that real GDP per person ______.
only temporarily rises and then returns to the subsistence level
Automatic fiscal policy
operates as the economy moves along its business cycle
When the price level_______, the inflation rate ______
rises rapidly; is high
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a
rising price level and demand-pull inflation
To fight unemployment and close a recessionary gap, the Fed
stimulates aggregate demand by lowering the federal funds rate, which increases the quantity of money
The economy is at full employment when all unemployment is
structural and frictional
A monetary policy rule is ______ to discretionary monetary policy because
superior; a rule keeps inflation expectations anchored
A monetary policy rule is ______ to discretionary monetary policy because______.
superior; a rule keeps inflation expectations anchored
The demand for labor curve shows the relationship between
the quantity of labor businesses are willing to hire and the real wage rate
The supply of labor is the relationship between
the real wage rate and the quantity of labor supplied
Potential GDP is the value of real GDP when
the unemployment rate equals the natural unemployment rate
If the Fed increases the quantity of money, people will be holding
too much money, so they buy bonds and the interest rate falls
If the BLS included all marginally attached workers as being unemployed, the ________ would be __________.
unemployment rate; higher
The CPI measures the average prices paid by __________ for _________.
urban consumers; a fixed basket of consumption goods and services