Macro Exam 2
Using the data in the table, what is the natural unemployment rate for this country in the year 1995?
4 percent
What is the number of people who are employed at the market clearing wage? How many people end up unemployed due to the implementation of a $10 minimum wage?
60 thousand; 40 thousand
A country has a population of 160 million. Thirty million of its people are under the age of 16, and ten percent of the population is either in the military or institutionalized. Seventy million people have jobs and five million are looking for work. What is the labor force participation rate in your country?
66 percent
Why is the demand for loanable funds downward sloping?
More people borrow money when interest rates are low than when they are high.
Which of the following can be defined as saving according to economics?
Sandra purchases a certificate of deposit from a bank.
Which of the following chains of logic explain the functions of banks in the process of economic growth?
Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.
Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator?
The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy
Compared to the United States, unemployment rates in Western Europe tend to be
higher because of more labor regulations.
When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing
hyperinflation
Inflation generally causes the taxes paid by individuals and business firms to
increase
When the Federal Reserve makes an open market purchase, the reserves of the banking system will
increase
Which of the following is NOT a function of the Federal Reserve?
providing loans to small businesses
Negative real rates of interest tend to:
reduce economic growth
Compared to other countries, inflation in the United States has been
relatively low
To be considered money, an asset must be
widely accepted as a means of payment.
Which of the following individuals can be counted as unemployed?
-None of the answers is correct.- Answers: 1. Darren, a ten-year-old child 2. Moesha, a full-time college student 3. Nazma, a stay-at-home mom
Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change?
$1.6 million
If $100 is saved at an annual interest rate of 10 percent, what will be the return in one year?
$10
At an 8 percent interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5 percent?
$190 billion
the fed reserve is the
-Each of these answers is correct.- Answers: 1. federal government's bank. 2. U.S. central bank. 3. banker's bank in the United States
Which of the following programs could help overcome structural unemployment?
-Each of these answers is correct.- Answers: 1. worker retraining 2. limitations to unemployment benefits 3. job search assistance programs
Which of the following did NOT contribute to the financial crisis of 2007-2008?
-Each of these contributed to the crisis.- Answers: 1. highly leveraged investment banks 2. highly leveraged homeowners 3. fear on the part of short-term lenders
Trading in the market for loanable funds determines the equilibrium
-It determines all three of these.- Answers: 1. interest rate. 2. amount of borrowing. 3. level of savings.
Why do firms and individuals borrow?
1. They want to smooth consumption. 2. Debt is often necessary for large purchases. 3. They believe their return will be greater than the interest rate. -Each of these explanations provides a reason for borrowing.-
Mario is saving if he does which of the following?
1. makes a deposit in a savings account at the bank 2. buys a share of stock in a computer company 3. buys a corporate bond -Each of these answers is correct-
Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010?
1.68%
A country has 24 million people in the labor force and 21.5 million of them are employed. What is the unemployment rate in this country?
10.4 percent
Suppose a nation's inflation rate is 5.8 percent from Year 1 to Year 2. If the CPI in Year 2 is 200, what was the CPI in Year 1?
189
Refer to the CPI values in the table for the years 2005 to 2010. In which year was the inflation rate the highest?
2008
If the required reserve ratio is 4 percent, the money multiplier is
25
What is the unemployment rate for a nation with 6 million employed and 2 million unemployed?
25 percent
For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to
decrease
In a country, where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case?
A large percentage of the population is aging and thus has retired.
If the interest rate rises from 5 percent to 9 percent, the number of new businesses will
decrease
How might changes in marginal tax rates on married couples affect labor force participation rates?
Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.
The main difference between M1 and M2 is that
M2 includes some less liquid assets in addition to the assets in M1
What is the overnight lending rate from one bank to another?
Federal Funds rate
Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs
I and II only
The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending.
I, II, and III only
Which of the following raises structural unemployment? I. higher union membership II. more unemployment benefits III. higher minimum wages
I, II, and II|
The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector.
II and III only
Which of the following best describes the effects of a major labor union that maintains a union wage above the market equilibrium wage?
The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases.
If someone buys a bond, economists would say that person is saving, not investing
True
Which of the following individuals can be counted as unemployed?
a man who was laid off from an auto manufacturing plant in Detroit
The reserve ratio is the ratio of bank reserves to
bank deposits
To increase the money supply in the economy, the Fed would
carry out open market purchases and/or lower the discount rate.
Which of the following is the most liquid asset?
currency
For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to
decrease
At lower interest rates, the cost of investing ______ and the funds that are demanded for investment ______.
decreases; increase
Which of the following assets would you classify as being most liquid?
demand deposits
The demand to borrow function is
downward sloping
The labor force is made up of
employed and unemployed workers.
What is a service that banks specialize in providing?
evaluating the quality of investment opportunities
All individuals who do not have a job are counted as unemployed.
false
In times of rising prices, lenders benefit at the expense of borrowers.
false
Negative real interest rates among countries result when they print too little money.
false
The unemployment rate in the United States has typically been higher than the unemployment rate in Europe.
false
When information about jobs becomes scarcer, frictional unemployment tends to decrease.
false
Financial intermediation can break down as a result of I. low and stable inflation II. government controls on interest rates III. bank failures
government controls on interest rates and bank failures
Since 1950, the female labor force participation rate in the United States
has risen
Discouraged workers are people who
have given up looking for work but would still like to work.
Time preference is the desire to
have goods and services sooner rather than later.
The percentage of adults in the labor force is the
labor force participation rate
During recessions the unemployment rate
increases
When workers lose their jobs and become officially unemployed, the unemployment rate
increases
What do we call an increase in the average level of prices in an economy?
inflation
The Federal Reserve acquires its exclusive powers through its ability to
issue money
Inflation hurts individuals because:
it affects the ability of market prices to send signals about the value of resources.
A major problem with inflation is that after it starts
it is difficult to stop without experiencing high unemployment
Holding reserves is costly for banks because
it leads to fewer profits
You earned $10 an hour in 2005, when the CPI was 90, and earn $12 an hour today, when the CPI is 120. As compared to 2005, in 2010 your real wage rate is ______ .
lower
In the United States, the amount of cash per capita is about $3,000. This figure
misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country.
When changes in nominal prices are confused with changes in real prices, people experience
money illusion
Which of the following assets would you classify as being most liquid?
money market mutual funds
France, Germany, Italy, and Spain have experienced ______ unemployment compared to the United States since 1980.
more
All else being equal, a working-age person who has more patience tends to have
more savings
The money multiplier equals
one divided by the reserve ratio
The supply of savings is positively sloped because
people are enticed to forgo consumption when interest rates are higher
When workers lose their jobs and become officially unemployed, the number of people in the labor force
remains constant
If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then the real of price milk is
same as $4.80
The supply of loanable funds comes from ______ and the demand for loanable funds comes from ______.
saving; investment
What is one of the causes of frictional unemployment?
scarcity of information
Firms primarily raise money by using which two methods?
selling stocks and issuing corporate bonds
When the Fed wants to increase interest rates, it
sells bonds in the open market
Which of the following individuals can be counted as part of the labor force?
someone who is collecting unemployment benefits
All of the following are means of payment in the United States EXCEPT
stock options
Oil shocks, the shift from manufacturing to service jobs, and the use of new technologies are reasons for _____unemployment.
structural
If consumers expect to have shorter life expectancy and desire to save less, then the
supply of loanable funds will decrease, and the equilibrium interest rate will increase.
An open market operation occurs when
the Fed buys or sells government bonds
Which of the three price indexes measures the average price level of the largest total number of goods?
the GDP deflator
When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on
the federal funds rate
The supply of savings function shows the relationship between saving and
the interest rate
The actual real rate of return for lenders is equal to
the nominal rate of return minus the inflation rate.
Investment is
the purchase of new capital goods
The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus,
they are somewhat insulated from the political process
An increase in the supply of savings will cause the interest rate
to decrease
When the U.S. government borrows, it sells
treasury bonds.
Bonds sold by the U.S. government have almost zero default risk.
true
If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.
true
Monetizing the debt occurs when the government pays off its debts by printing money.
true
f the Fed decides to increase the money supply by $200 million, it can buy government bonds in the open market for less than $200 million
true
the most liquid asset is cash
true
The presence of discouraged workers causes the measured unemployment rate to be
understated
Discouraged workers and underemployed workers are examples of
workers not included in the unemployment rate.