Homework 4: Chpt 15, 16, 17

The existence of money leads to

greater specialization and to a higher standard of living

Economists generally argue that

high inflation is costly, but costs of moderate inflation are not nearly as large as the public believes .

In 2018 the Bureau of Labor Statistics reported that there were 57.4 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 36.3 million were employed and 1.2 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

65.3% and 3.2%

Scenario 29-1. 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. Suppose the Bank of Tazi loaned the banks of Tazi $10 million. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change?

$200 Million

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves?

$27,000

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?

$4,937.5 billion

Refer to Table 28-4. If the local government imposed a minimum wage of $4 in Productionville, how many people would be unemployed?

0

Which of the following will help to prevent bank runs? a. A 0% reserve requirement b. Fractional reserve banking c. 100% reserve banking d. Lack of government insurance of deposits

100% reserve banking

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.

False

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 falls by $12 billion.

Which of the following is consistent with the idea that high money supply growth leads to high inflation? a. Evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland but not the quantity theory. b. The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. c. The quantity theory but not evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland. d. Neither the quantity theory nor evidence from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

David and Asher buy the same pair of sneakers, but each in the wrong size. David proposes a size swap with Asher. This is an example of

barter, since the sneakers in the correct size have intrinsic value to both David and Asher.

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

both Tim and Bev to be marginally attached workers.

Public policy a. can reduce both frictional unemployment and the natural rate of unemployment. b. cannot reduce either frictional unemployment or the natural rate of unemployment. c. can reduce frictional unemployment, but it cannot reduce the natural rate of unemployment. d. cannot reduce frictional unemployment, but it can reduce the natural rate of unemployment.

can reduce both frictional unemployment and the natural rate of unemployment.

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

decreased. Other things the same, a decrease in velocity decreases the price level.

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

selling bonds. This selling would reduce reserves.

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 5, then the quantity of money

supplied is greater than the quantity demanded; the price level will rise.

The Bureau of Labor Statistics produces data on unemployment based on the number of people collecting unemployment insurance.

False

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

One reason economies always experience some unemployment is job search.

True

Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank

is in a position to make new loans equal to a maximum of $18,000.

Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

Those waiting to be recalled to a job from which they had been laid off

One explanation for long-run unemployment is that it takes time for workers to search for the jobs that are best suited for them.

True

People who report being unemployed but who, in fact, are working for "under the table" pay to avoid taxes on their earnings are really employed and therefore cause the reported unemployment rate to be higher than it would otherwise be.

True

The inflation tax falls mostly heavily on those who hold

a lot of currency but accounts for a small share of U.S. government revenue.