Economics Final Review

The money supply is 1,500 of which 500 is currency held by the public. Bank reserves are 200. The existing reserve/deposit ratio equals:

0.20

In a country with 200 million people aged 16 years and older, 120 million are in the labor force, and 114 million are employed, what is the participation rate?:

60 percent

Based on the information in the table, how big is the labor force? Population 16 and older 1,000,000 Participation Rate 80% Employed Workers 720,000

800,000

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____.:

800; 1,200.

The following table provides data for an economy in a certain year. Consumption expenditures 1,000 Imports 600 Government purchases of goods and services 700 Construction of new homes and apartments 500 Sales of existing homes and apartments 600 Exports 500 Government payments to retirees 200 Household purchases of durable goods 300 Begining-of-year inventory 500 End-of-year inventory 600 Business fixed investment 300 Given the data in the table, compute the investment component of GDP:

900.

Refer to the figure below. In the figure, a business cycle trough is shown by which point(s)?:

A and C and E

Which of the following would increase the investment component of U.S. GDP?:

A laundry in Seattle purchases a new clothes-washing machine produced in the U.S.

Who from among the following would be classified as out of the labor force?:

A person who is willing to work but has not looked for a job in two months.

Refer to the figure below. In the figure, which interval represents a business cycle expansion?:

A to B

The increase in the unemployment rate during a recession is associated with which type of unemployment?:

Cyclical unemployment.

Which of the following does not describe a characteristic of short-term economic fluctuations?:

Durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries.

Long-lived goods used for producing other goods and services are called:

capital goods.

Profits, rents, interest, and royalties are examples of:

capital income.

Bank reserves are:

cash and similar assets held to meet depositor withdrawals or payments.

The four components of aggregate expenditures are:

consumption, investment, government spending, and net exports.

Fiscal policy refers to:

decisions to determine the government's budget.

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

decrease.

People who enjoy high standards of living usually have all of the following EXCEPT:

freedom from scarcity.

Structural policy refers to:

government policies aimed at changing the underlying structure or instituions of the economy.

A government is running a budget deficit if:

government revenue is less than government spending.

The market value of final goods and services produced within a country during a period of time is called:

gross domestic product.

ALL of the following describe economic conditions during the Great Depression in the United States EXCEPT:

high rates of inflation.

The four categories of final users of GDP are:

households, firms, governments, and the foreign sector.

A trade deficit occurs when:

imports exceed exports.

If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living:

increased by 14 percent.

The labor force divided by the working age population equals the:

participation rate.

The degree to which people have access to goods and services that make their lives easier, healthier, safer, and more enjoyable is called the:

standard of living.

The natural rate of unemployment is equal to the unemployment rate when there is only:

structural and frictional unemployment.

The central bank of the United States is called:

the Federal Reserve System.

The amount of money in the United States is determined by:

the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve.

Monetary policy refers to:

the determination of the nation's money supply.

In reference to short-term economic fluctuations, the "peak" refers to:

the high point of economic activity prior to a downturn.

A trade imbalance occurs when:

the quantity of a country's exports differs significantly from the quantity of imports.

A trade deficit occurs when:

exports are less than imports.

Commercial banks create new money:

through multiple rounds of lending.

If actual output equals potential output, unusually slow potential output growth would tend to result in:

a recession.

An economy produces only 1,000,000 computers valued at $2,000 each. Of these, 200,000 are sold to consumers, 300,000 are sold to businesses, 300,000 are sold to the government, and 100,000 are sold abroad. No computers are imported. At the end of the year, the computer manufacturers hold the unsold computers in inventory. What is the value of the investment component of GDP?:

$0.8 billion.

The CPI equals 1.00 in year one and 1.15 in year two. If the nominal wage is $15 in year one and a contract calls for the wage to be indexed to the CPI, what will be the nominal wage in year two?:

$17.25.

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: Name of Company Revenues Cost of Purchased inputs Citrus Growers Inc. $0.75 0 Florida Jam Company $2.00 $.75 The Corner Store $2.50 $2.00 If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2015?:

$2.00

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: Name of Company Revenues Cost of Purchased inputs Citrus Growers Inc. $0.75 0 Florida Jam Company $2.00 $.75 The Corner Store $2.50 $2.00 What is the sum of the value added of all the firms?:

$2.50

There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:

$20,000,000.

Bob's Barber Shop cut 3,000 heads of hair in 2014 and 3,100 in 2015. The price of a haircut was $7 in 2014 and $8 in 2015. If 2014 is the base year, what was Bob's contribution to real GDP in 2014?:

$21, 000

The country of Northland produced $1,000 billion of output in one year. The population of Northland was 50 million, of whom 30 million were employed. What was average labor productivity in Northland?:

$33,333.

If the desired reserve/deposit ratio is 0.25 and the banking system receives an additional $10 million in reserves, bank deposits will increase by:

$40 million.

Based on the following information, the value of the M1 measure of the money supply is ______ and the value of the M2 measure of the money supply is ______. Assets Billions of Dollars Currency 20 Demand deposits 300 Money market mutual funds 800 Travelers' checks 10 Savings deposits 1,800 Other checkable deposits 200 Small denomination time deposits 1,100

$530 billion; $4,230 billion

Peg's Manicure Manor did 4,000 sets of nails in 2015 and 4,500 sets of nails in 2016. The price of a set of nails was $20 in 2015 and $22 in 2016. If 2015 is the base year, Peg's contribution to real GDP in 2015 was ______ and in 2016 was _____.:

$80,000; $90,000.

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.:

$9,000; $10,000.

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Turning Point Date Real GDP (1996 $ billions) (A) July 1953 1992.2 (B) May 1954 1941.0 (C) Apr. 1957 2182.7 (D) Apr. 1958 2117.4 (E) Apr. 1960 2391.0 Which of the turning points are peaks?:

(A), (C), and (E)

Suppose that the total expenditures for a typical household in 2010 equaled $5,500 per month, while the cost of purchasing exactly the same items in 2015 was $6,875. If 2010 is the base year, the CPI for the year 2015 equals:

1.25.

The table below gives the quantities and prices for 2000 and 2010 for an economy that produces just two goods: sailboats and coconuts. Quantity produced Price 2000 2010 2000 2010 Sailboats 10 20 $500 $525 Coconuts 2,000 2,400 $1 $2 For this economy that produces just sailboats and coconuts, and with 2000 is the base year, real GDP was approximately ______ times larger in 2010 than it was in 2000.:

1.77

Based on the information in the table, what is the unemployment rate? Population 16 and older 1,000,000 Participation Rate 80% Employed Workers 720,000

10.0%

Assume an economy produces only footballs and baseballs and the base year is 2005. Quantity produced Prices 2005 2006 2005 2006 Footballs 200 300 $20 $25 Baseballs 500 600 $10 $15 Given the data in the table above, what is the value of real GDP in 2006?

12,000

The following table provides data for an economy in a certain year. Consumption expenditures 1,000 Imports 600 Government purchases of goods and services 700 Construction of new homes and apartments 500 Sales of existing homes and apartments 600 Exports 500 Government payments to retirees 200 Household purchases of durable goods 300 Begining-of-year inventory 500 End-of-year inventory 600 Business fixed investment 300 Given the data in the table, compute the value of GDP:

2,500

The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____.:

200

Based on the information in the table, how many people are out of the labor force? Population 16 and older 1,000,000 Participation Rate 80% Employed Workers 720,000

200,000

The CPI in year one equaled 1.45. The CPI in year two equaled 1.51. The rate of inflation between years one and two was ______ percent.:

4.1.

In which of the following situations would GDP not change?:

As domestic consumers buy fewer tobacco products, tobacco manufacturers instead sell their products, at the same price, to foreign buyers.

Which of the following activities is most likely to be counted in GDP?:

Gail buys paper and cryaons to donate to poor children in need of school supplies.

Which of the following statement is normative?:

Higher taxes are needed to support education.

In Econland population and average labor productivity are constant. If a larger proportion of the population becomes employed workers, then total output will _____ and output per person will ______.:

Increase, increase.

The M2 measure of money consist of the sum of:

M1, savings deposits, small time deposits, and money market mutual funds.

M1 differs from M2 in that:

M2 includes savings deposits, small-denomination deposits, and money market mutual funds that are not included in M1.

Who from among the following would be classified as employed?:

Mario Faubert, a NHL hockey player at home sick with the flu.

The fraction of people who would like to be employed, but can't find work is called the:

Participation rate.

If you knew that two countries had the same level of real GDP per person, what additional piece of information would help you determine in which country people had a better standard of living?:

The average number of hours worked per week in each country.

Which of the following would increase the consumption component of U.S. GDP?:

You purchase a vacation at Disney World in Florida.

The consumer price index measures the cost of:

a fixed basket goods and services.

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

a medium of exchange.

An expansion is:

a period in which the economy is growing at a rate significantly above normal.

In Econland exports equal 25% of total output, while imports equal 20% of total output. Econland has:

a trade surplus. D. a trade deficit.

When money is the basic measure of economic value, it serves as:

a unit of account.

Positive analysis:

aims at determining only the economic consequences of a particular policy.

The value of intermediate goods is excluded from the measurement of GDP in order to:

avoid double counting.

A banking panic is an episode in which:

depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.

A particularly severe recession is called a(n):

depression.

The process of steady increase in the quantity and quality of goods and services the economy can produce is called:

economic growth.

Money market mutual funds are ______ the M1 measure of money and ______ the M2 measure of money.:

excluded from; included in.

If average labor productivity increases while population and the number of employed workers remain constant, then output per person:

increases.

When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

make more loans.

The real wage is the wage:

measured in terms of purchasing power.

Double coincidence of wants is avoided if money is used as a:

medium of exchange.

The Federal Open Market Committee makes decisions about ______ policy.:

monetary.

The Federal Reserve makes decisions regarding _____ policy while the Congress makes decisions regarding _____ policy.:

monetary; fiscal B.structural; fiscal

Any asset used to make purchases is:

money.

If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000 each, then when the market value of total output is calculated:

oranges receive a smaller weight than cars.

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the:

output gap.

Economic activity moves from a period of expansion to a ______ and then moves into a period of ______ until it reaches a _____.:

peak, recession; peak.

The unemployment rate is the:

percentage of the labor force that is out of work.

If Country A and Country B have the same total output, then the standard of living in these two countries can be different depending on:

population size.

"U.S. exports will increase as a result of joined CAFTA," is an example of a ______ statement, while "The U.S. should join CAFTA," is an example of a _____ statement.:

positive; normative

Deflation is a situation in which the:

prices of the most goods and services are falling over time.

Depression and lost self-esteem are examples of the ______ costs of unemployment, while the lost income and tax revenue are examples of the ______ costs of unemployment.:

psychological; economic.

Inflation is a measure of the ______ of prices; the CPI is a measure of the ______ of prices.:

rate of change in the level; current level.

A period in which the economy is growing at a rate significantly below normal is called a(n):

recession

If potential output for an economy equals $5 billion, and actual output equals $4.5 billion, then this economy has a(n):

recessionary gap.

If total output increases from $1 trillion to $2 trillion as population increases from 100 million to 200 million, then output per person:

remains constant.

The three functions of money are:

serving as a medium of exchange, unit of account, and store of value.

Which of the following correctly ranks the amounts from largest to smallest?:

total output, average labor productivity, output per person.

A person 16 years or older who does not work, but is actively looking for work, is officially classified as:

unemployed.

The Great Depression:

was a period of low production and high unemployment.