Final Exam Study Guide ECON 202

The first national bank is currently loaned up. A customer opens a new account and saves 1000 dollars in it. Assume that the required reserve ratio is 10%. How much excess reserve does the bank have right after the new account is opened?

$900

If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to ________

$14,000 of new money

It takes time for workers to find jobs that they desire. The unemployment resulted from workers taking time to find good jobs is called ________?

Frictional Unemployment

Which of the following statements regarding GDP is correct?

GDP includes factory production, but not any harm that may be inflicted on the environment.

Personal consumption is a ______ variable that measures the value of goods and services purchased by households during a time period. (Fill in the blank with either stock or flow.)

flow

For the purpose of macroeconomic analysis, an economy is considered to be in the short run when prices and wages are ________.

fixed

A variable that is measured over a specific period of time is a ________ variable.

flow

According to the equation of exchange, rapid increases in money supply almost always lead to rapid increases in

the price level

According to the equation of exchange, if real GDP and money supply stays the same,

the rate of inflation equals the rate of change in money velocity.

According to the equation of exchange, if real GDP and money supply stays the same, ________

the rate of inflation equals the rate of change in money velocity.

How is the implicit price deflator for GDP defined?

the ratio of nominal GDP to real GDP

It takes a long time to collect, analyze, and publish economic data. As a result,

there is a delay between the time an economic problem occurs and the time the monetary authority deals with it.

When a government provides obligation-free aid to an individual, the government is said to be making a ________.

transfer payment

The short-run Phillips curve shows that when inflation increases

unemployment decreases.

According to the wealth effect, when there is a change in the price level, ________ changes and consumption changes as a result

wealth

In the long run, an economy's inflation rate is determined almost solely by

both the rate of money growth and the rate of real GDP growth.

Which of the following is not a goal of monetary policy?

budget balancedness

The first national bank currently holds $500 excess reserves. Suppose now its deposits at the Fed increases by $500 dollars. Given a 10% required reserve ratio, compared with the situation now, by how much will the economy s money stock increase after the first national bank becomes fully loaned up?

$9000

From year 1 to year 2, the nominal GDP grew 3% to 103, and money velocity increased by 10% to 99. By how much did the money supply change from year 1 to year 2? (Remember, a positive number represents an increase and a negative one a decrease. Also note that this question is asking for the change, not the rate of change.)

-0.07

Consider only the short run. The economy was operating at point A at end of year 1. The inflation rate was 33.33% from year 1 to year 2. Suppose you know that aggregate demand remained the same throughout this period, what is the change in aggregate supply?

-12

Use the information above, calculate X. GDP deflator 101 nominal GDP 4549, 4681 Real GDP 4511

-2.15

Consider the government of Country E, suppose in 2018, its tax revenue was $35 billion dollars and its expenditure $40 billion dollars. What is the amount of its budget surplus in 2018?

-5

Using the information above, calculate the rate of change in government tax revenue from year 1 to year 2.

-53.33

The current condition of the market of milk is shown in the figure above, if farmers are to enjoy a lower feed price, and as a result, 9 units of additional milk are available for sale regardless of the price level. By how much will equilibrium price change as a result?

-6

YearNominal GDPGDP DeflatorReal GDPGDP Deflator Inflation Rate14119100 2 1154348X 3 1254588Y Use the information above, calculate Y minus X.

-6.30

Suppose the market of NAS servers can be depicted by the above figure. If demand decreases by 15 at all price levels, by how much would equilibrium price change? Make sure your answer is a positive number if you think the price will increase and a negative number if you think the price will decrease.

-9

From year 1 to year 2, the nominal GDP grew 3% to 103, and money velocity increased by 10% to 99.

0.03

Suppose the figure shows the current condition of the market, that is, the current price level is $4. After a shift in the demand curve, with all else the same, there is a shortage of 10 million pounds in the market. By how much should we change the price (from $4) in this market to restore equilibrium given the new demand curve?

1

Use the information provided in the table above and calculate the growth rate of GDP from year 1 to year 2. VariableYear 1Year 2GDP Consumption41,54642,566Investment12,15512,370Government purchase Import8,7468,834Export6,6746,866Government tax revenue12,67612,915Government budget surplus 306Government budget deficit130

1.77

Suppose in an economy with a fractional reserve banking system and a required reserve ratio of 7.5%, a decrease of $200 in checable deposits was caused by a reduction of $20 in reserves. What is the percentage of deposits that banks hold in their reserves?

10

Base year CPI is 100. CPI for 2014 is 124. CPI for 2015 is 130. CPI for 2016 is 143. Given these data, what is the rate of inflation over the 2015 to 2016 period? (Round your answer to the nearest %.)

10%

Suppose last year, there are 94 million people employed in the economy. The total population last year was 206 and the unemployment rate was 9.4%. How many millions of people are not in the labor force?

102.25

Suppose in an economy with a fractional reserve banking system and a reserve ratio of 16.4%, an increase of $2,124 in checable deposits could be due to a minimum of an increase of $236 in reserves. What is the percentage of deposits that banks are required to hold in their reserves?

11.11

If the reserve ratio is 10 percent, to create $12000 new money, we need $________ of additional reserves.

1200

Suppose the last year, the amount of employment in the economy was at its natural level. From the last year to this year, the economy experienced an inflation rate of 1.75%. If you know that the real GDP this year is 11,900 billions, what is the real GDP last year? (Assume that the aggregate demand curve stayed the same throughout the two years.)

12000

Given that the CPI in year 1 is 120, the inflation rate from year 1 to year 2 is 3%, and the CPI in year 3 is 140. What is the inflation rate from year 2 to year 3?

13.27

During spring cleaning, you found an old receipt that says your parents bought you a toy for $6 when you were 7. If the CPI today is 206 and the CPI when you were 7 was 87, how much money do you need in order to buy the same toy today? (Assume that the CPI is an accurate measure of the price of the toy.)

14.21

You know that that the CPI in year 1 is 138.5, the inflation rate from year 1 to year 2 is 2.4%, and the inflation rate from year 2 to year 3 is 1.3%. What is the CPI in year 3?

143.67

Suppose a country produces two final goods only, good A and good B. In 2017, the price for good A was $3 and the price for good B was $8. In 2018, the prices for good A and good B were $2 and $11 respectively, and the outputs of good A and B were 104 units and 103 units respectively. In 2019, the prices for good A and good B are $4 and $11 respectively, the outputs are 204 units and 207 units respectively. The base year is 2017. What is the GDP deflator inflation rate from 2018 to 2019?

15.53

Suppose you are to pay $850 today for a bond with a $1000 face value that matures one year from now. What is the interest rate (as percentage) you are getting by purchasing this bond?

17.65

In the market of peaches shown in the figure above, farmers experienced good weather and as a result, 5 units of additional peaches are available for sale regardless of the price level. By how much will equilibrium quantity change as a result?

2

Hyperinflation is generally defined as an inflation rate in excess of ________% per year.

200

The table shows the consolidated balance sheet of all the commercial banks in an economy. Values not listed and items that are left empty are unknown to you. These values may or may not be zero. Assume that the reserve ratio does not change unless specifically stated below, and that the required reserve ratio is 10%. What is the maximum amount of deposit that can be generated if an additional reserve of $200 is added to the system?

2000

Consider two bonds. Bond A currently trades at a price of $771 and Bond B a price of $979. Suppose that in both markets, the interest rates are the same 7%. What's the difference between the face values of the two bonds? (Your answer should be the size or magnitude of the difference, that is, a number that's always non-negative.)

222.56

Compared with the wage of a typical worker 45 years ago, the wage today is 400% higher. Over the same time period, the overall price level of the economy increased by 375%. What is the growth rate of the purchasing power of a typical worker's wage over this period of time?

25

The figure shows the conditions of the face mask market before and after a flue season. Click on the market equilibrium point after the flu season.

277235

In 2017, the Government of the United Islands of Pineapples had a tax revenue of $356 million dollars and expenditures of $359 millions. What was the amount of budget deficit in that year?

3.00

Let year 1 be the base year. Given that the inflation rate is 5.9% in year 2 and 6.5% in year 3, how much does it cost at the end of year 3 to purchase the same goods and services that cost 274 at the beginning of year 1?

309.03

The demand of college textbooks shifted from D1 to D2, while the supply stayed the same. Click on the point in the graph that represents the market equilibrium after this shift.

359,160

Consider only the short run. In the economy depicted in the figure above, point A represents the state of the economy at the end of year 1. During the course of year 2, the central bank bought government bonds, and the magnitude of the effect of this policy change on aggregate demand is 30. Suppose the economy was in equilibrium at the end of year 2, what is the inflation rate from year 1 to year 2?

40

Last year in Country C, 200 million people were unemployed and another 200 were out of the labor force. You know that last year, the unemployment rate in Country C was 3.5%, what was the total population of Country C last year?

5,914.29

Consider a simultaneous shift of both the demand curve and the supply curve. Before the shift, the market equilibrium is at a point where the price is 6 and the quantity is 25. Also, before the shift, with each additional unit increase in price, the quantity supplied increases by 5 and the quantity demanded decreases by 5. Now, due to a change in some government policy, the demand decreases by 10 at all price levels. At the same time, the supply also decreased in such a way that when the price level is 8, the quantity supplied is 15. What is the new market equilibrium price after this simultaneous shift?

7

Last year, the economy saw a 2% increase in real GDP from 100 billion dollars the year before. Over the same period of time, the overall price level, as measured by the GDP deflator, increased by 5% to 105. If the money supply has been 50 billions of dollars over the last two years, what was the rate of change in money velocity from the year before the last to the last year?

7.1

The table shows the consolidated balance sheet of all the commercial banks in an economy. Values not listed and items that are left empty are unknown to you. These values may or may not be zero. Assume that the reserve ratio does not change unless specifically stated below, and that the required reserve ratio is 5.24%. If $329 of additional reserve can be used to create up to $1,562 of new money, what is X?

7550.30

An hour of computer time in your college's computer time costs $5 this year but only $4 last year. You decide to use this information to construct a price index with this year being the base year. What would this price index be for the last year?

80

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Suppose the supply of the dollar decreases and the demand of the dollar increase. Which point leads us to the exchange rate after these changes? (Your answer should be one upper case letter among those in the above figures.)

A

An increase in real GDP could happen at the same time with all of the following except?

A decrease in the amount of final goods and services produced

Consider the market of DVD players. Which of the following would result in an increase in supply? Select all that apply.

A new container ship design makes shipping of raw materials much cheaper. The utility companies jointly decrease the price of electricity for businesses.

Which of the following statements are correct? Select all that apply.

A part unemployment is caused by managerial and technological changes. Frictional unemployment is due to the time it takes for firms and unemployed workers to find each other.

Consider the market of DVD players. Which of the following would result in an increase in demand? Select all that apply.

A startup offers free DVD rentals for 12 months for new customers.

Which of the following statements is correct?

A typical supply curve slopes upward.

Which of the following is least likely to be frictional unemployment?

A worker with 10 years experience assembling tape recorders is unemployed because nobody buys tape recorders anymore.

What happens if the Fed decides to buy 12 billion dollars worth of government bonds from the secondary market?

Aggregate demand increases.

The long run Phillips curve ________.

All of the above are correct.

Which statement below about a bond is correct?

All of the above statements are correct.

Which of the following is true about aggregate demand?

All of the above.

Which of the following statements is incorrect?

All of these statements are correct.

Suppose you observe an increase in aggregate demand and a decrease in the price level in the long run. Which of the following are likely to have also happened during the same period? Select all that apply.

All workers in the US get a college education for free. Scientists discover a cheap new energy source.

Which of the following statements about the production possibilities curve are correct? Select all that apply.

An economy sits on its production possibilities curve if it allocates factors of production according to its comparative advantage. As production technologies improves, the production possibilities curve expand or move upwards and to the right.

What are the long-run effects of an investment tax credit? Select all that apply.

An increase in aggregate demand A higher overall price level

Every economy must answer some fundamental questions. Which one of the following is NOT one of them?

At what price should goods be sold?

Which of the following statements are correct? Select all that apply.

Automatic stabilizers only reduce the rate of change of GDP; they do not alter the direction of change of GDP.

Which of the following statements are correct about automatic stabilizers? Select all that apply.

Automatic stabilizers reduce the speed at which output level changes. Automatic stabilizers are called automatic since they do not need to be specifically "activated" by policy makers during an economic crisis.

Which of the following is incorrect?

Banks decide how much excess reserves to hold, so excess reserves can be positive or negative.

Which of the following is a motive for holding money?

Both the above

Which of the following is not a goal of monetary policy?

Budget balancedness

Any variable that could affect the quantity supplied of a good regardless of its price level is called a ________.

Supply Shifter

________ is a factor of production that is used for producing other goods and services.

Capital

Which of the following are consistent with the demographics of poverty in the US in 2010

College graduates and those with higher levels of education are unlikely to be poor. Female-headed housholds with no male adult wage earners are much more likely to live in poverty. Middle-aged persons are less likely to be poor than persons 18 years old or younger

Which type of unemployment below is not a part of an economy's natural rate of unemployment?

Cyclical unemployment

Consider the market of imported sports cars. Suppose that in 2019, the import duty (tax) of sports cars increased and due to the release of a new trucking game, fewer consumers prefer a sports car to a pickup truck. The figure above shows these two changes. Which one is a graphical representation of the demand schedule of this market before all the changes? (Your answer should one of the following: S1 S2 D1 D2 A B C D)

D2

In the market represented by the figure above, the demand curve shifted from D1 to D2 and the supply curve shifted from S1 to S2 at the same time. As a result, equilibrium quantity [d] and equilibrium price [d2].

Decreased decreased

The demand curve is a graphical representation of a ________.

Demand schedule

Which of the following are macroeconomic issues? Select all that apply.

Do we have enough tax revenue to support an expansion of government subsidized health care for the poor? How many new jobs have the current administration created?

The short-run Phillips curve is

Downward sloping

When all transactions take place at the equilibrium price, the quantity demanded must ________ the quantity supplied.

Equal

When the supply curve shifts to the right, what is least likely to happen?

Equilibrium price increases.

In the figure above, Panel (a) shows that the money demand curve shifts to the left to D2. As a result, the interest rate will [f1]; (rise, fall) the demand for bonds will [r1]; the price of bonds will [r2]; the overall price level in the economy will [r3]; and real GDP will [r4].

Fall Rise Rise RIse Rise

Which of the following is not a factor of production?

Financial assets

The efficiency-wage theory implies that ________.

Firms offer a real wage above the market equilibrium level.

A ________ is one for which the choice of one use does not require that we give up another.

Free Good

Which of the following statements are correct? Select all that apply.

Historically, most people lived in poverty. To compare the income of economies using different currencies, a good way is to base the comparison on purchasing powers rather than exchange rates.

Which of the following is NOT one of the three fundamental questions facing all the economies?

How much should goods and services be sold for?

Skills a worker has as a result of education, training, or experience that can be used in production are called ________.

Human capital

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Suppose that the economy is currently at its long run equilibrium. Now the Fed doubles the discount rate and the federal funds rate. Which point corresponds to the current level of real GDP?

I

Suppose we hold money velocity constant, which of the following statements is true according to the quantity theory of money?

If the Fed doubles money supply, nominal GDP doubles.

Suppose we hold money velocity constant, which of the following statements is true according to the quantity theory of money?

If the Feds doubles money supply, nominal GDP doubles.

The time between the enactment of a policy and the time the policy starts to cause changes in economic activities is known as the ________.

Impact lag

Which of the following statements are correct? Select all that apply.

In recent years, higher education has become an important pathway away from self-perpetuating poverty. In developed economies today, skilled labor is worth much more than unskilled labor. The problem of income inequality has become increasingly severe in the US in recent decades.

Which of the following statements is correct?

Inflation is an increase in the average level of prices.

Consider the money market which starts from an initial equilibrium. Suppose that: All electronic fund transfers between all types of accounts can be cleared instantly. Which of the following must happen in the short run as a result? Select all that apply.

Interest rate decreases. Demand for bonds increases. GDP deflator increases. Unemployment decreases.

Which of the following statements is not true about the consumer price index?

It decreases when the price of any good decreases.

Which of the following statements about unemployment are correct? Select all that apply.

It is possible for the rate of cyclical unemployment to be any number - positive, negative, or zero. The natural level of employment is one at which some workers are unemployed.

Which of the following is correct about opportunity cost?

It is the value of the best opportunity forgone in a particular choice.

Which of the following is correct about technology?

It plays a crucial role in putting factors of production to work.

Which of the following is correct?

It takes a long time to make fiscal policies.

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Suppose that the economy is currently at its long run equilibrium. Now the government puts in place a new anti-money laundering policy that requires a mandatory 14 day waiting period for all deposits and withdrawals from all types of accounts. As a result of the above event, in the short run, which point corresponds to the overall price level of final goods and services in the economy? (Your answer should be one upper case letter among those in the above figures.) Selected Answer: JCorrect Answer:

J

Which of the following is not directly controlled/operated by the Fed?

Legislations regulating the banking system

Which of the following statements is correct?

Liquidity is the ease with which an asset can be converted into currency.

Which of the following statements are normative? Select all that apply.

Local governments have as much duty as the federal government when it comes to promoting free trade.

Which of the following statements are normative? Select all that apply.

Local governments have as much duty as the federal government when it comes to promoting free trade. The same salary must be offered to both male and female workers if they are doing the same job.

The figure above depicts the conditions of the market of hand sanitizer before and after changes in both supply and demand. If before the changes, the market equilibrium price was 42, then we know that the equilibrium price after the changes is [lower1] and that the equilibrium quantity after the changes is [lower2].

Lower Lower

Which of the following is least likely to result in the formation of human capital?

Luck

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Which point represents the equilibrium in the money market after the Fed makes an open market purchase of government bonds? (Your answer should be one upper case letter among those in the above figures.)

M

Which of the following sets of variable(s) do you need to know in order to calculate the deposit multiplier, when banks are not necessarily loaned up?

Maximum possible change in checkable deposits and change in reserves

Which of the following statements is correct?

Monetary policy decisions can be made very quickly.

Which of the following is a positive statement?

More government regulations make it more expensive for businesses to operate.

Which of the following is not true about demand and quantity demanded?

Moving along a demand curve changes demand.

What happens when the Fed carries out an contractionary monetary policy?

Net exports decreases

Transfer payments are such that the recipients must

None of the above is correct.

To promote economic development, the government should ________.

None of the above promotes economic development.

Consider the market of personal computers, what effect could increasing cost of electricity have?

Supply curve shifts to the left

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Suppose that the economy is currently at its long run equilibrium. Now the Fed lowers the required reserve ratio for all commercial banks in the economy effective immediately. As a result of the above event, in the short run, which point corresponds to the level of real GDP in the economy? (Your answer should be one upper case letter among those in the above figures.)

O

When the Fed buys or sells federal government bonds, we say that it is conducting ________.

Open-market Operations

When the Fed buys or sells federal government bonds, we say that it is conducting ________.

Open-market operations

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Suppose currently, there is a recessionary gap in the economy. Which point corresponds to the bond price once the economy returns to its long run equilibrium?

P

The figures above represent different markets. The labels and the direction of shift of the curves are intentionally omitted. You need to determine which market each figure represents according to the information available to you in the figure. The possibilities are: the the final goods and services market, the money market, the bond market, the currency market. A market may be represented by more than one figures where each shows the change in the market due to a different event. Before you attempt to answer the question, you might want to take a few seconds to look at each figure and determine the market it represents and the possible changes it depicts. Suppose that the economy is currently at its long run equilibrium. Now the Fed requires all commercial banks to charge a $59.99 monthly fee for all checking accounts with a balance less than $250,000. In the short run, which point corresponds to the bond price as a result of this event?

P

Which of the following are among the top two sources of US federal government tax revenues? Select all that apply.

Payroll taxes Individual income taxes

Consider the market of personal computers, which of the following is not a supply shifter?

Popularity of smart phones and laptops.

Which of the following outcomes are consistent with the event described below? Select all that apply. The Fed increases the federal funds rate.

Price of bond decreases Price of final goods and services decrease

Which of the following is not a demand shifter of good A?

Price of good A

Consider the market of personal computers, what effect could increasing cost of electricity have?

Supply curve shifts to the left.

An economy going through repeated patterns of expansions followed by contraction then expansion again is said to be going through ________.

business cycles

Which of the following are among the top four sources of US state and local government tax revenues? Select all that apply.

Property Taxes

Which of the following should be included in US GDP? Select all that apply.

Purchases by French households of groceries imported from the US. The value of a newly constructed single-family house in Maryland.

When the Fed puts new reserve into the banking system, which of the following does not happen as a result?

Real GDP decreases

Suppose people suddenly like to hold more bonds due to some psychological reasons unrelated to the economy. What happens to real GDP?

Real GDP is likely to increase.

Which of the following situation can be described using the term stagflation?

Rising inflation and unemployment

Which of the following is most likely to be a macroeconomic question?

Should the minimum wage be increased so as to benefit workers such as Jane the cashier?

Which statements below are correct about final goods, value added, and related concepts? Select all that apply.

Some goods produced by an economy do not count towards GDP once the value of all final goods are counted. We can calculate GDP by adding up the value added of all goods, regardless of whether they are final goods or intermediate goods. (Assume that the economy only produces goods.) The total value of all final goods and services produced by an economy during a year is a part of that year's GDP

Money held in response to concern that bond prices and the prices of other financial assets might change represents the ________ demand for money.

Speculative

In the short run, an increase in government purchases increases

both the above

Who decides whether and when the US economy is in recession?

The Business Cycle Dating Committee of the NBER

Which of the following statements is false about the FOMC?

The FOMC meets twice a month

Which of the following statements about the tools of monetary policy are correct? Select all that apply.

The Fed facilitates lending between commercial banks. The federal funds rate is an interest rate that the Fed effectively controls.

Which of the following is an example of contractionary monetary policy?

The Federal Reserve decreases the amount of money supply.

Which of the following statements is incorrect?

The LRPC shifts when there is a change in inflation expectations.

Which of the following statements are correct? Select all that apply.

The amount of investment in an economy is a flow variable. A flow variable is dependent on a specific period of time. A stock variable is independent of time. The amount of capital in an economy is a stock variable.

What is the demand of money?

The amount of wealth people hold as money as opposed to other types of assets.

Which of the following is capital?

The barn farmers put the chicken in at night.

According to the model of job search and the theory of reservation wage, which of the following statements are correct? Select all that apply.

The best job offer received by a worker may pay a better wage if job information costs less. A job search ends when the best offer received equals the workers reservation wage. The best job offer keeps getting better as a worker keeps search for new jobs.

When can we call a government's budget balanced? Select all that apply.

The budget surplus equals zero. The budget deficit equals zero.

When a commercial bank sells some federal government bonds to the Fed through the Fed s open market operations, which of the following does not happen?

The commercial bank reduces the amount of its liabilities.

If the GDP deflator for the current year is 224, which of the following is impossible?

The current price level is lower than that of the base year.

Which of the following statements is the least accurate?

The degree of inequality cannot be measured because it is a subjective concept.

Which of the following cannot happen with an increase in demand, other things unchanged?

The demand curve shifts to the left.

Which statement among the following is least likely to be true?

The demand curve shifts to the right, i.e., there is an increase in demand, if price goes up.

Which of the following is not an example of automatic stabilizer?

The deposit insurance program

When the production possibilities curve expand/shift up and to the right, an economy's production possibilities improve. This could be due to which of the following?

The economy is enjoying better technology

Which of the following can be determined by money market equilibrium?

The interest rate

Which of the following statements is correct?

The natural rate of unemployment reflect, partly, structural unemployment.

Which of the following statements involving labor force is correct?

The percentage of the labor force unemployed is the unemployment rate.

Which of the following events below are likely to reduce money demand? Select all that apply.

The replacement of cash with government issued credit cards for all, regardless of credit history. A drop in the overall price level

Which of the following should be a part of GDP?

The total amount of salary the government pays to its police officers. The value of all the new domestically produced cars. The amount of money you spend buying food from your local farms.

Which of the following is measured by GDP?

The value of ingredients you used to cook dinner for yourself.

Which statements below are correct about the structure of the Fed? Select all that apply.

There are a total of 12 regional banks in the federal reserve system. The chairperson of the Fed serves four-year terms. The FOMC directs the NY Fed when it comes to open market operations. The Fed is allowed to buy and sell US government bonds.

Which of the following statements is not true about the labor force?

To be in the labor force, a worker has to be employed full-time.

An economy falls into whatâ s known as a liquidity trap when ________.

a change in monetary policy has no effect on interest rates

Which of the following is not a shared characteristic among successful economies?

a strong military

In the bond market, what happens if more firms are looking to issue bonds to borrow money?

the interest rate increases

In an economy, the relationship between the overall price level and total amount of goods and services that economic agents are willing and able to purchase is captured by the ________ curve.

aggregate demand

People in low-income countries often suffer from ________.

all of the above

What happens when the transaction cost of buying and selling bonds decreases? Base your choice on your analysis of the money market and its relationship with the real economy.

all of the above

The long run Phillips curve ________.

all of the above are correct.

What is the most likely result in the long run when the aggregate supply curve shifts to the right?

an increase in real GDP

Which event below is likely to increase money demand, other things unchanged?

an increase in real GDP

Which of the following is inconsistent with what depicted in the figure above?

an increase in unemployment benefit payments

If Congress increased the tax rate on interest income, investment

and saving would decrease

If Congress increased the tax rate on interest income, investment ________

and saving would decrease

In assuming that people pursue their self-interest, economists are

assuming that people pursue satisfaction that cannot be simply measured by money.

A ________ is a promise by the issuer to pay the owner one or a series of payments on some specific date(s).

bond

Cyclical unemployment ________

can be negative

Cyclical unemployment

can be negative.

Which of the following statement is incorrect?

capital can be financial assets

The ________ model shows flows of spending and income through the economy.

circular flow

Which of the following items are considered currency? Select all that apply.

coins paper money

In the federal funds market, the buyers and sellers are, respectively ________.

commercial banks and commercial banks

In general, if a reduction in the price of one good increases the demand for another, the two goods are called ________?

complements

A Lorenz curve shows the ________ received by individuals or groups.

cumulative shares of income

A nominal value is a number with a unit of measurement of dollars of the ________ period.

current

A decrease in government spending ________

decreases the interest rate and so investment spending increases.

A decrease in the overall level of prices is often referred to as?

deflation

Two goods are called substitutes if when the price of one increases, the ________ for the other increases.

demand

The demand curve is a graphical representation of a ________.

demand schedule

In a supply/demand diagram depicting the money market, the demand curve is ________. (Choose one from downward sloping, upward sloping, vertical, horizontal)

downward sloping

The short-run Phillips curve is ________

downward sloping.

According to what you learned in this course, in the long run, employment may not reaches its natural level if ________ theory is true. (Fill in the blank with the name of the theory.)

efficiency wage

Consider the market of personal computers. Suppose there is an increase in the cost of electricity to both buyers and sellers. What effect could it have?

equilibrium price decreases

When the supply curve shifts to the right, what is least likely to happen?

equilibrium price increases

________ are the reserves banks hold above the required level.

excess reserves

Crowding out reduces the effectiveness of

expansionary fiscal policy.

A movement to the left along a given short-run Phillips curve could be caused by ________

expansionary monetary policy, but not a reduction in the natural rate of unemployment.

The figure above depicts the situation in Country C over the last 5 years, in which E1 corresponds to the economic condition experienced by Country C in year 1. E2 corresponds to the condition in year 2, and so on. The essential feature of the phase Country C went through from year 3 to year 4 is a change in inflation ________.

expectations

Institutions that take in funds from some economic agents and makes them available to others are known collectively as ________.

financial intermediaries

A bank is a ________ that accepts deposits, makes loans, and offers checking accounts.

financial intermediary

Government purchases can be calculated by adding together purchases of goods and services from firms by government agencies and the total value of goods and services produced by ________ during a time period.

government agencies themselves

Which of the following elements is not depicted in the circular flow model?

governments

Which of the following is not a function that defines a typical commercial bank?

helping companies sell bonds

According to the dependency theory, developing nations are poor because they depend too much on ________.

high-income nations

The law of demand dictates that, all else the same, a ________ price leads to a lower quantity demanded.

higher

Ceteris paribus is a Latin phrase that means ________.

holding all else the same

Which of the following is not a component of GDP?

imports

There is a trade deficit when ________ exceeds ________.

imports;exports

The Human Development Index includes all of the following dimensions except ________.

income inequality

In the short run, an increase in government purchases, ________

increases real GDP

In the short run, an increase in government purchases,

increases real GDP.

For ________ goods, demand decreases as buyersâ income increases.

inferior

The Phillips curve is a graphical device that shows the relationship between ________ and unemployment.

inflation

The short-run Phillips curve shows a relationship between

inflation and unemployment

In the short run, as the Fed implements expansionary monetary policies,

inflation increases.

In a supply/demand diagram depicting the market for money, the vertical axis represents the ________.

interest rate

In the money market, the adjustments of the ________ makes the quantity of money demanded equal to the quantity of money supplied.

interest rate

n the money market, the adjustments of the ________ makes the quantity of money demanded equal to the quantity of money supplied.

interest rate

The quantity theory of money

is likely to hold in the long run.

Discretionary fiscal policy

is subject to recognition lags.

Frictional unemployment occurs because

it takes time for people seeking jobs and employers seeking workers to find each other.

A decrease in supply can be visualized on the graph by shifting the supply curve to the ________

left

It is possible for the rate of cyclical unemployment to be any number - positive, negative, or zero. The natural level of employment is one at which some workers are unemployed.

liquid

Most of the times when an economy grows normally, it is good to have

low unemployment and low inflation.

There are two possible outcomes about the economy next year. We will have outcome A if there is a small increase in AD. We will have outcome B if there is a large increase in AD. Comparing the two outcomes, inflation in outcome A is ________ than that in outcome B; unemployment in outcome A is ________ than that in outcome B.

lower;higher

As real GDP falls, ________

money demand falls, so the interest rate falls.

Suppose that money velocity is stable in the long run and that the real GDP stays unchanged, the equation of exchange then implies that in the long run, inflation rate roughly equals the rate of growth in ________. (Fill in the blank with two words.)

money supply

When the Fed sells government bonds in the open market, what happens as a result?

money supply decreases

In the long run, the inflation rate is determined by ________.

money supply growth rate

From the equation of exchange, we know that a change in the money supply changes nominal GDP when we assume that

money velocity stays the same.

In the short run, according to the Phillips curve, there is ________ relationship between inflation and unemployment.

negative

The ________ GDP is the total value of final goods and services produced during a particular period valued in terms of current prices.

nominal

According to the equation of exchange, money supply times money velocity equals ________.

nominal GDP

The implicit price deflator, a price index for all final goods and services produced, is the ratio of ________ to ________.

nominal GDP; real GDP

The major components of PCE price index are ________. Select all that apply.

nondurable goods services durable goods

An increase in the natural rate of unemployment is the result of

none of the above

Consider the market of personal computers. Suppose there is an increase in the cost of electricity to the sellers. What effect could it have?

none of the above

How can we measure economic well-being?

none of the above

When analyzing the economy in the short run, it is reasonable to assume that ________

none of the above is likely to stay constant.

We cannot say an expectation is rational if ________?

not all the information is used to form the expectation.

In the figure, point E1 represents the state of the economy in year 1; point E2 represents the state of the economy in year 2, and so on. Based on the graph, we can tell that from year 1 to year 2, the economy went through the ________ phase.

phillips

A statement of fact or a hypothesis is a ________ statement.

positive

The money people hold for contingencies represents their ________ for money.

precautionary demand

In the long run, the relative values of ________ determines how fast the over price level changes.

price expectations

A market in which households are buyers and firms are sellers is a ________ market.

product

In economics, when people choose among alternatives, there are three ideas that are involved. Which of the following is NOT one of them?

productivity

State and local tax receipts are dominated by

property taxes and sales taxes.

Money velocity is ________.

the number of times an average dollar is spent on final goods and services;

Which of the following options are likely to be used by policymakers in response to a recessionary gap? Select all that apply.

purchase bonds from the secondary market reduce income taxes

According to the ________, in a country like the US, changes in money supply moves the price level proportionately in the long run.

quantity theory of money

In the long run, an increase in the money supply growth rate ________

raises expected inflation so the short-run Phillips curve shifts right.

A recession is usually defined as a period during which an economy experiences sustained drops in ________.

real GDP

An economic expansion is a time period during which ________is more or less continuously increasing.

real GDP or the real GDP

In the long run, as the aggregate demand curve shift to the right, ________

real GDP stays the same

The time between a problem arises in the economy and when policymakers realize the problem is known as the ________.

recognition lag

From the 1970s to the 1990s, the US economy moved from the stagflation phase to the ________ phase.

recovery

Which program below is least likely to reduce poverty?

renewable energy tax credit

Banks do not keep all the deposits in their vaults. The amount of deposit they do keep is known as their ________.

reserve

The major components of PCE price index are ________. Select all that apply.

services nondurable goods durable goods

An increase in inflation expectations causes the short-run Phillips curve to

shift to the right

The ________ Phillips curve depicts a situation most consistent with the Phillips phase.

short-run

The quantity demanded at today's price is higher than that at yesterday's price. Suppose yesterday's price is one at which the market clears. We know that today, there is a ________ (surplus, shortage) in the market.

shortage

Which of the following is the worst example, among the four, of a choice at the margin regarding water consumption?

should we consume water or not?

Long-lasting episodes of surplus or shortages in a market is often the result of ________ price.

sticky

Structural unemployment occurs because

structural shifts in the economy eliminate certain jobs from declining sectors.

For which of the following time period could the relationship between inflation and unemployment in the US be best described using a downward sloping curve?

the 1960s

Credit easing is a strategy that revolves around ________ to improve the functions of the credit market and expand access to liquidity.

the extension of central bank lending

The Federal Reserve sets a specific target for

the federal funds rate.