Macroeconomics 1102 Final Launchpad Terms

If GDP in year 1 is $10,000 and GDP in year 2 is $10,175, then the growth rate of GDP between the two years is ___ percent.

1.75

There are _____ members of the Federal Open Market Committee.

12

Governors of the Federal Reserve System are appointed for _____-year terms and cannot be reappointed.

14

How long is the term for a Fed chairperson?

4 years

_____, the buying and selling of equally risky assets, ensures that equally risky assets earn equal returns.

Arbitrage

_____ is something of value that by agreement becomes the property of the lender if the borrower defaults.

Collateral

_____ national product is the market value of all final goods and services produced by a country's permanent residents, wherever located, in a year.

Gross

In 2013, which single component of U.S. government spending was the largest? a) defense b) unemployment insurance and welfare c) Social Security d) Medicare

Social Security spending was around 5 percent higher than defense spending in 2013

A _____ is a tax on imports. a) commodity tax b) tariff c) subsidy d) quota tax

Tariffs benefit domestic producers by placing a burden on foreign producers

Equilibrium in the market for loanable funds determines: a) the exchange rate and the quantity of loanable funds. b) the interest rate and the quantity of loanable funds. c) the exchange rate and the quantity of domestic savings. d) the interest rate and the quantity of domestic savings.

The price of loanable funds is the interest rate b

In the textbook, it is estimated that sugar quotas cost the U.S. economy about: a) $1.32 billion per year. b) $1.10 billion per year. c) $0.22 billion per year. d) $2.42 billion per year.

a $1.10 billion in wasted resources and $0.22 billion in lost gains from trade

Which help(s) to reduce the probability of a liquidity crisis? i. the existence of the FDIC ii. the Fed's role as lender of last resort iii. the existence of the Federal Open Market Committee. a) i and ii b) ii and iii c) i only d) i, ii, and iii

a A liquidity crisis occurs when banks are illiquid, meaning that their short-term liabilities are greater than their short-term assets

Indonesia, Brazil, and Argentina were not able to successfully peg their currencies to the U.S. dollar because: a) they did not and could not match the monetary and fiscal policies of the United States. b) speculators bought up the currencies of these countries, knowing that they were actually more valuable than the dollar. c) the United States refused to allow it. d) such pegging is frowned on by international regulations set forth by the IMF and the World Bank.

a A pegged exchange rate means that a government or central bank has promised to convert its current into another at a predetermined rate

What do Panama, Ecuador, and El Salvador all have in common? a) They all use the U.S. dollar as their currency. b) They all use dirty, or managed, floats for exchange rates. c) They are all part of the EU's currency union. d) They have all successfully pegged their currencies to the U.S. dollar.

a Dollarization occurs when a foreign country uses the US dollar as its currency

From 2006 to 2008, how much did Richard D. Lugar, R-IN, receive in donations from the American Crystal Sugar PAC? a) $0. b) $15,000. c) $100. d) $50,000.

a He did receive $0

In a typical year, spending on Social Security, Medicare, Medicaid, and defense represents about _____ of the federal government's budget. a) two-thirds b) half c) 90 percent d) one third

a IN 2013 these four things represented 66 percent of the federal budget

An import quota is: a) a numerical limit on imports. b) a nationalist policy. c) a subsidy to foreign producers. d) a tax on imports.

a Import quotas benefit domestic producers by placing a burden on foreign producers

Rationally ignorant voters are likely to make a decision based on: a) unreliable information. b) high-quality information. c) reliable information. d) social information.

a Rationally ignorant voters do make decisions based on unreliable information

The Federal Reserve does all of these activites EXCEPT: a) print money to pay federal employee salaries. b) manage the nation's check payment system. c) protect consumers with disclosure regulations. d) issue money.

a The Federal Reserve does not print money for specific expenditures

What is true regarding the causes of the Great Depression? a) The Great Depression was caused by a combination of real shocks and aggregate demand shocks. b) The Great Depression was caused by real shocks only. c) The Great Depression was not caused by shocks to the economy but rather by a stock market crash. d) The Great Depression was caused by aggregate demand shocks.

a The Great Depression resulted form an unfortunate concentrated an interrelated series of aggregate demand and real shocks.

The S&P 500: a) is a better stock market indicator than the Dow Jones Industrial Average. b) indicates the prices of 30 American stocks. c) gives especially high weight to high-tech stocks when compared to the NASDAQ Composite Index. d) indicates the prices of the 500 fastest-growing stocks worldwide.

a The S&P is composed of 500 companies compared to the Dow's 30

Put the following events in proper chronological order: (i) U.S. exports fall and U.S. imports rise; (ii) The government increases its budget deficit; (iii) Aggregate demand falls; (iv) The demand for U.S. dollars rises; (v) Interest rates rise; (vi) The dollar appreciates. a) ii, v, iv, vi, i, iii b) ii, iv, vi, v, i, iii c) vi, i, iii, v, iv, ii d) i, iii, ii, v, vi, iv

a The effect of fiscal policy on exchange rates will be offset by the grater difficulty in exporting at higher real interest rates

Purchasing power parity is an application of: a) the law of one price. b) the law of currency demand. c) the balance of payments theorem. d) tight monetary policy.

a The law of one price says that if trade were free, then identical goods should sell for about the same price throughout the world

According to the AD curve, if M-> + V-> is 10 percent and the rate of real growth is 4 percent, what must be the rate of inflation? a) 6 percent b) 14 percent c) 2.5 percent d) 4 percent

a The rate of spending growth for this AD curve is 10 percent

According to the median voter theorem, when voters vote for the policy that is closest to their ideal point on a line, then the ideal point of the median voter will ________ any other policy in a majority rule election. a) beat b) at least tie c) fall behind d) not influence

a This is the definition of the median voter theorem

Which event is NOT mentioned in the textbook as a real shock that contributed to the Great Depression? a) contraction of the money supply b) the Dust Bowl c) bank failures d) economic policy mistakes

a This was an aggregate demand shock that contributed to the Great Depression

A significant reduction in the rate of inflation is: a) disinflation. b) inflation. c) hyperinflation. d) deflation.

a When Fed chairman Paul Volcker reduced the inflation rate from 13.5 percent to 3 percent in the 1980s, the result was high unemployment

Money is a widely _____ means of payment.

accepted

inflation is an increase in the _____ level of prices.

average

Which is defined as currency + checkable deposits? a) M3 b) M1 c) M2 d) M4

b According to Figure 15.2, M1 was bout $2.7 trillion in 2014.

About how much did the federal government spend in 2013? a) $777.3 billion b) $3,454.3 billion c) $1,555.6 billion d) $2,165.1 billion

b But federal government tax revenues were only $2,774 billion, thus raising the national debt by $680 billion

Sometimes the government can help domestic firms _____ when they sell to international buyers. This is an example of strategic trade protectionism. a) market their products b) act like a cartel c) encourage price competition d) generate spillovers

b By restricting output, these firms can raise prices and revenue

When India's agricultural output falls, so does India's GDP. This is: a) only due to the direct contributions of agriculture to GDP. b) due in part to the fact that other parts of the Indian economy will suffer when farmers suffer. c) only due to the indirect effect of agriculture on other aspects of the Indian economy. d) primarily because of the role that nutrition plays in labor productivity.

b For instance, the demand for tractors will go down, and the shock spreads to other parts of the economy.

Government control of the media: a) is present in nearly half of all African countries. b) is associated with lower levels of political rights. c) encourages morality. d) leads to criticism of a communist system of governance.

b Government generally controls the media in countries whose citizens have fewer political rights and civil liberties than those of countries that allow freedom in the media

The billions of dollars spent in Japan and the European Union to subsidize producers specializing in HDTV: a) yielded significant spillovers for the broader economy. b) was probably a mistake. c) is the reason the United States chose an obsolete analog technology. d) is an example of the application of the national security argument in favor of trade restrictions.

b HDTV has not yielded any significant technological spillovers

Mistaking changes in nominal prices for changes in real prices is called: a) money neutrality. b) money illusion. c) price theory. d) real price effect.

b Prices are signals, and inflation makes price signals more difficult to interpret

A trade quota restricts the quantity of goods that can be: a) taxed. b) imported. c) exported. d) produced.

b Protectionism is meant to benefit domestic producers

In the past: a) the federal government issued currency on its own, but today the money we use in the United States is provided by many banks. b) many banks issued their own banknotes, but today the money we use in the United States is provided by one particular bank. c) money was not used in the United States, but today the money we use is provided by the Federal Reserve. d) the Federal Reserve issued money, but today the federal government does it.

b That one bank is the Federal Reserve System

Against which variables is the Long-Run Aggregate Supply curve plotted? a) the unemployment rate and the real GDP growth rate b) the inflation rate and the real GDP growth rate c) the inflation rate and time d) the inflation rate and the unemployment rate

b The Long-Run Aggregate Supply curve is vertical, however, suggesting that the potential growth rate does not depend on the rate of inflation

Which item is part of the current account? a) currency held by the government b) foreign aid c) purchases of shares of U.S. stocks by foreigners d) foreign direct investment

b The current account is the sum of the balance of trade, net income on capital held abroad, and net transfer payments

A special interest group, group S, has spent years lobbying for government support, claiming that its enterprise is in the public's best interest. The government has agreed to an initiative that provides benefits of $200 million to group S at a taxpayer cost of $240 million. This is a good example of the application of what principle from the textbook? a) Voter myopia can cause voters to make inefficient decisions. b) Special interests often have an incentive to be informed even if voters are rationally ignorant. c) When costs are internalized, resources are likely to be wasted. d) Diffusing benefits and concentrating costs can lead to political success.

b The special interest gained a lot from being informed and politically active, even if voters ignore this increase in taxes

What growth rate on the money supply did Milton Friedman advocate? a) 0.01 b) 0.03 c) 0 d) 0.05

b This is an example of using rules rather than discretion to determine monetary policy

Disinflation is BEST defined as: a) a significant increase in the rate of inflation. b) a significant reduction in the rate of inflation. c) a decrease in the average level of prices. d) an increase in the average level of prices.

b When Fed chairman Paul Volcker reduced the inflation rate from 13.5 percent to 3 percent in the 1980s, the result was high unemployment

The smallest area of government spending is: a) interest on federal debt. b) foreign aid. c) welfare. d) Social Security.

b Yet in one survey, 41 percent guessed that foreign aid was one of the two biggest

Banks, _____ markets, and stock markets are all examples of financial intermediaries.

bond

From the end of 2001 to mid-2004, low Federal Funds rates helped to make credit cheap throughout the economy, which meant that it was relatively easy to _____ money.

borrow

Cyclical unemployment is unemployment correlated with the _____ cycle.

business

Elimination of sugar tariffs would benefit all of the following individuals EXCEPT: a) No one would benefit from the elimination of sugar tariffs. b) a Brazilian sugar farmer. c) an American sugar producer. d) an American consumer of foods made with sugar.

c American sugar producers lobby aggressively for sugar trade restrictions

Exchange rates, like other market prices, are determined by: a) government regulation. b) central bank monetary policy. c) supply and demand. d) profit-maximizing entrepreneurs.

c Figure 20.2 shows the supply and demand for yen

Uncertainty drives people away from _____ and toward _____. a) consumption spending; investment spending b) investment spending; consumption spending c) investment spending; assets like cash d) assets like cash; investment spending

c Holding cash isn't very productive, but cash is what you want when you are in wait-and-see mode

Which industry mentioned in the textbook has yielded very important technological spillovers that warrant trade protection? a) computer chips b) HDTV c) The textbook does not give any examples of this type of industry. d) potato chips

c Key industries are hard to identify

Why does so much U.S. currency exist? a) Saddam Hussein stockpiled U.S. currency, and as it disappeared from circulation, the Fed kept printing new currency. b) Actually, not that much U.S. currency exists. c) U.S. dollars are the official currency in some other countries, and an unofficial currency in others. d) The average man, woman, or child in the United States typically carries approximately $3,000 in cash.

c Panama, Ecuador, and El Salvador all use the US dollar as currency

According to trends, when does the incumbent president win the presidential election? a) When personal disposable income is falling. b) When the incumbent's political party has been in power for too many consecutive terms. c) When the inflation rate in the year of the election is low. d) When the inflation rate in the year of the election is high.

c Personal disposable income is also correlated with the chances of winning an election

How is the cost of the sugar quota diffused? a) It is diffused over a very small number of consumers. b) It is diffused over a large number of producers. c) It is diffused over a small number of producers. d) It is diffused over millions of consumers.

c Producers do not experience any coast of the quota

Protectionism is the economic policy of restraining trade though quotas, tariffs, or other regulations that heavily burden _____ producers. a) monopoly b) inefficient c) foreign d) domestic

c Protectionism is meant to benefit domestic producers

Assume voters pay nearly double the world price for a good because of a government imposed tariff on imports. This premium equates to about $7 annually. Most voters, however, do not know about the existence of the tariff because they are: a) myopic. b) subject to propaganda and misinformation. c) rationally ignorant. d) willfully negligent.

c The benefits of being informed of the tariff are very low; yet the costs of acquiring this level of knowledge about all government policies are very high

The percentage change in the average level of prices over a specific period is the: a) disinflation rate. b) hyperinflation rate. c) inflation rate. d) deflation rate.

c The formula of the inflation rate is (P2- P1) / P1

The average interest rate on U.S. debt in 2014 was about: a) 5 percent, up from about 2 percent in 2007. b) 2 percent, about equal to what it was in 2007. c) 2.4 percent, down from about 5 percent in 2007. d) 5 percent, about equal to what it was in 2007.

c The national debt in 2014 was about $13 trillion, so the federal government had to pay out $13 trillion x 0.024 = $312 billion in interest payments

Which event is NOT mentioned as a possible real shock that might hit the U.S. economy? a) major new regulations b) changes in marginal tax rates c) changes in the growth rate of the money supply d) wars

c This is an aggregate demand shock

One factor that allows Saudi Arabia to successfully use strategic trade protectionism to increase oil revenues is that: a) oil is the only good that Saudi Arabia imports. b) Saudi Arabia has many significant exports. c) oil is the only significant export of Saudi Arabia. d) Saudi Arabia imports and exports large volumes of many diverse goods.

c This means that other countries cannot retaliate with restrictions on other imports from Saudi Arabia

Governors of the Federal Reserve System are appointed for 14-year terms and _____ be reappointed.

cannot

The _____ account measures changes in foreign ownership of domestic assets, including financial assets like stocks and bonds as well as physical assets.

capital

The national spending approach to measuring GDP states that GDP equals the sum of _____, investment, government purchases, and net exports.

consumption

A monetary policy is _____ when it is expected that a central bank will stick with its policy.

credible

The _____ account is the sum of the balance of trade, net income on capital held abroad, and net transfer payments.

current

_____ unemployment is unemployment correlated with the business cycle.

cyclical

Interest rates and bond prices: a) move in the same direction. b) are unrelated to one another. c) are both determined by the Federal Reserve. d) move in opposite directions.

d Arbitrage, the buying and selling of equally risky assets, ensures that equally risky assets earn equal returns

The debt-to-GDP ratio for the United States was at its peak in 1946. This is because the federal government borrowed heavily to: a) fund the New Deal programs that helped the economy recover from the Great Depression. b) pay off debt that had gone unpaid since the Great Depression. c) rebuild Japan and Germany after World War II. d) finance emergency expenditures for World War II.

d As discussed in Ch 9, it makes sense to borrow to pay for large expenses

To reduce child labor, people should focus on: a) reducing trade with countries where child labor is prevalent. b) building schools in countries where child labor is prevalent. c) employing military action against countries where child labor is prevalent. d) reducing poverty in countries where child labor is prevalent.

d Child labor is necessary in poverty

Protectionism tends to create a society: a) with incentives for people to cooperate. b) that is more profitable. c) that lacks social discord. d) that pits one interest group against another.

d For example, it pits sugar producers against sugar consumers

An increase in the average level of prices is defined as: a) disinflation. b) hyperinflation. c) deflation. d) inflation.

d Inflation results from having more money chasing the same amount of goods

The Environmental Protection Agency's impact on the economy is primarily due to its: a) ability to levy income taxes. b) control over Congressional budgets. c) large part of the overall federal budget. d) power to regulate how business affects the environment.

d Its mandates involve many billions of dollars of costs and benefits

The textbook presents some arguments in favor of restricting trade. With respect to the United States, these arguments are usually: a) very compelling. b) difficult to refute using standard economic theory. c) made by consumers who want lower prices and more imports. d) of limited applicability.

d Not many of the arguments presented applied very well to the US

_____ is the economic policy of restraining trade though quotas, tariffs, or other regulations that burden foreign producers but not domestic producers. a) Nationalism b) Comparative advantage c) Trade regulation d) Protectionism

d Protectionism is meant to benefit domestic producers

A price that has been corrected for inflation is referred to as a: a) list price. b) nominal price. c) deflated price. d) real price.

d Real prices are used to compare the prices of goods over time

When the Federal Reserve lends money to banks and other financial institutions because no one else will: a) it is acting as a primary market participant. b) it is creating a liquidity crisis. c) it is conducting open market operations. d) it is acting as a lender of last resort.

d The Fed accomplices this primarily through discount window lending

The "bridge to nowhere," a proposed bridge from the Alaskan town of Ketchikan (population 8,900) to Gravina Island (population 50), would have cost federal taxpayers $320 million. The residents of Gravina Island would have been happy to have the bridge built because: a) they would have built it whether construction was federally funded or not. b) they had no other constant means of reaching the mainland. c) it was less expensive than the annual cost of approximately $36,000 that each resident of the Island and Ketchikan had to spend on ferry transportation. d) the costs of the bridge would be externalized.

d The benefits of the bridge would have been concentrated among a small group of people, while American taxpayers would have covered the $320 million cost

Imports beyond a trade quota are: a) actually exports. b) nonexistent. c) produced domestically. d) heavily taxed or forbidden.

d this is how a quota restricts trade

When farmers _____ in population, the benefits of a price support become more concentrated on farmers and the costs become more diffused on nonfarmers.

decline

The political power of farmers has increased while the share of farmers in the population has _____.

declined

A deflation is a _____ in prices.

decrease

Deflation is a _____ in the average level of prices.

decrease

_____ is a decrease in the average level of prices.

deflaiton

A _____ is a decrease in prices.

delation

The Fed has considerable power to influence aggregate _____, but that power is constrained by uncertainty.

demand

Amartya Sen concluded that regardless of the wealth of a country, "no famine has taken place in the history of the world in a functioning _____."

democracy

The reserve ratio is the ratio of reserves to _____.

deposits

At the steady state, investment equals _____.

depreciation

When farmers decline in population, the benefits of a price support become more concentrated on farmers and the costs become more _____ on nonfarmers.

diffused

A _____ is a reduction in the inflation rate.

disinflation

A _____ is a significant reduction in the rate of inflation.

disinflation

The formula for the inflation rate is (P2 − P1) _____ by P1.

divided

From the end of 2001 to mid-2004, low Federal Funds rates helped to make credit cheap throughout the economy, which meant that it was relatively _____ to borrow money.

easy

A recession is a significant, widespread decline in real income and _____.

employment

The Solow growth rate is the rate that would occur given flexible prices and the ______ real factors of production.

existing

The Solow growth rate is the rate that would occur given flexible prices and the existing real _____ of production.

factors

There are _____ regional Federal Reserve Bank presidents on the Federal Open Market Committee.

five

A _____, or pegged, exchange rate means that a government or central bank has promised to convert its currency into another at a predetermined rate.

fixed

A country runs a capital surplus when the inflow of foreign capital is _____ than the outflow of domestic capital.

greater

The Solow ______ rate is the rate that would occur given flexible prices and the existing real factors of production.

growth

A regressive tax has lower tax rates on people with _____ incomes.

higher

The inflation rate is the percentage change in the average level of prices, as measured by a price _____, over a specific period.

index

A deflation is a negative _____ rate.

inflation

A disinflation is a significant reduction in the rate of _____.

inflation

The AMT was not indexed to _____, and is now an extra tax burden on many upper-middle-class families.

inflation

The formula for the _____ rate is (P2 − P1) divided by P1.

inflation

The short-run aggregate supply curve shows the positive relationship between the _____ rate and real growth during the period when prices and wages are sticky.

inflation

The unemployment rate is the percentage of the _____ force without a job.

labor

An economist who focuses on the U.S. current account deficit is likely to interpret the balance of payments as showing that Americans foolishly save too _____.

little

The _____ tax rate is the rate paid on an additional dollar of income in a progressive system.

marginal

_____ the debt is when the government pays off its debts by printing money.

monetizing

One of the Federal Reserve's most powerful tools is its influence on expectations, not its influence over the _____ supply.

money

_____ hazard occurs when banks and other financial institutions take on too much risk, hoping that the Fed and regulators will later bail them out.

moral

Change in money supply = change in reserves × money _____

multiplier

Voters are _____; they don't look at economic conditions over a president's entire term. Instead, they focus on economic conditions in the year of an election.

myopic

A deflation is a(n) _____ inflation rate.

negative

The _____ exchange rate is the rate at which you can exchange one currency for another.

nominal

_____ wage confusion occurs when workers respond to the wage number on their paychecks rather than to what their wage can buy.

nominal

The purchasing power _____ theorem says that the real purchasing power of a money should be the same, whether it is spent at home or converted into another currency and spent abroad.

parity

The aggregate demand curve shows all of the points where M-> _____ V-> equals inflation plus real GDP growth.

plus

The patterns of rising personal disposable incomes and falling inflation just before an election are collectively known as the _____ business cycle.

political

The short-run aggregate supply curve shows the _____ relationship between the inflation rate and real growth during the period when prices and wages are sticky.

positive

A real shock is any shock that increases or decreases the _____ growth rate.

potential

It has been found that "government ownership of the _____ restricts information flows to the public, which reduces the quality of the government."

press

A distorted _____ signal arises when government policy moves a price in a manner that encourages investors to take risks.

price

The purchasing power parity theorem is an application of the law of one _____.

price

A deflation is a decrease in _____.

prices

Monetizing the debt is when the government pays off its debts by _____ money.

printing

The purchasing power parity theorem says that the _____ purchasing power of a money should be the same, whether it is spent at home or converted into another currency and spent abroad.

real

It has been found that "government ownership of the press restricts information flows to the public, which _____ the quality of the government."

reduces

A disinflation is a significant _____ in the rate of inflation.

reduciton

A disinflation is a _____ in the inflation rate.

reduction

The federal debt-to-GDP ratio will rise in the future, because Americans are getting older on average and health-care costs per person have been _____ significantly.

rising

There are _____ members of the Federal Reserve Board of Governors.

seven

When a policy is specialized in its impact, is difficult to understand, and affects a _____ part of the economy, it is likely that lobbies and special interests will get their way.

small

At the steady state the capital _____ is neither increasing nor decreasing.

stock

The Fed has considerable power to influence aggregate demand, but that power is constrained by _____.

uncertainty

Discouraged workers are workers who have given up looking for work but who _____ a job.

want

The employment-at-_____ doctrine says an employee may quit and an employer may fire an employee at any time and for any reason.

will

The median voter theorem says that when voters vote for the policy that is closest to their ideal policy, the ideal policy of the median voter will _____ an election against any other policy.

win

The unemployment rate is the percentage of the labor force _____ a job.

without

The market value of the output produced in another country by a permanent U.S. resident would be included in: a) U.S. GDP only. b) neither U.S. GDP nor U.S. GNP. c) both U.S. GDP and U.S. GNP. d) U.S. GNP only.

a For a large nation like the US, GDP and GNP are very similar, but GDP is the more commonly used concept.

The labor force participation rate is the highest for those aged: a) 65 and over. b) 25 to 54. c) 55 to 64. d) 16 to 19.

b 83 percent of the population aged 25 to 54 participates in the labor force

In which country is the average number of years of schooling the highest? a) France b) The United States c) India d) South Korea

b As shown in Figure 8.5, GDP per capita is higher in countries with more human capital.

The variable γ is used to represent: a) the amount of capital that wears out or depreciates. b) the fraction of output that is invested in new capital. c) the fraction of capital that wears out or depreciates. d) the total amount of output that is invested in new capital.

b In the steady state, investment equals depreciation.

In order to counteract the decrease in investment demand during a recession, the government sometimes offers: a) a permanent investment tax credit. b) a permanent savings tax credit. c) a temporary savings tax credit. d) a temporary investment tax credit.

d An investment tax credit gives firms that invest in plants and equipment a tax break

The rule of 70 states that if the annual growth rate of a variable is x percent, then the doubling time is ____ years. a) −70 b) x c) (70 × x) d) (70 ÷ x)

d If the annual growth rate of a variable is x percent, then the doubling time is (70 / x) years.

At the steady state, the capital stock: a) is equal to zero. b) is decreasing. c) is increasing. d) is neither increasing nor decreasing.

d See Figure 8.4

The rule of 70 states that if the annual rate of return of an investment is x percent, it will take (70 ÷ x) years for the value of the investment to _____.

double

Trading in the market for loanable funds determines the _____ interest rate.

equilibrium

The leverage ratio is the ratio of debt to _____.

equity

Investment spending is private spending on tools, plants, and equipment used to produce _____ output.

future

The unemployment rate is the _____ of the labor force without a job.

percentage

A mutual fund _____ money from many customers and invests it in many securities in exchange for a management fee.

pools

The marginal _____ of capital is the increase in output caused by the addition of one more unit of capital.

product

Which factor is NOT cited in the textbook as a factor leading to the dramatic rise of female labor force participation rates during the last half of the twentieth century? a) an increase in the implicit tax on marriage b) the birth control pill c) the move from a manufacturing economy to a service economy d) growing acceptance of equality for women

a The textbook mentions the birth control pill, the growing acceptance of equality for women, and the move to a service economy as factors.

Business fluctuations are also called: a) business cycles. b) the long-term GDP trend. c) GDP deflations. d) nominal GDP cycles.

a These are the short-run movements in real GDP around its long-term trend.

The variable δ is used to represent: a) the fraction of output that is invested in new capital. b) the fraction of capital that wears out or depreciates. c) the total amount of capital that wears out or depreciates. d) the amount of output that is invested in new capital.

b In the steady state, investment equals depreciation

When economists use the variable K, they are referring to: a) the workers firms employ to produce goods and services. b) purchases of stocks and bonds. c) the tools, instruments, and other produced goods used to produce additional goods and services. d) the funds that firms use to buy and operate their businesses.

c Y = F( A, K, eL) is the Solow model, in which output is based on the quantity and quality of physical capital, human capital, and productivity of capital and labor.

In India, residents who purchase land must do so two or three times, from different parties, and developers cannot get good titles to land in order to build things like supermarkets. This demonstrates the importance of a dependable _____ system as an institution.

legal

For most of human history, people were poor, and there was _____ economic growth.

no

Money illusion causes people to respond to changes in _____ prices.

nominal

Frictional unemployment is _____-term unemployment caused by the ordinary difficulties of matching employee to employer.

short

Which event would cause the equilibrium interest rate in the market for loanable funds to increase? a) a rightward shift in the demand for loanable funds b) a rightward shift in the supply of loanable funds c) a downward shift in the demand for loanable funds d) a downward shift in the supply of loanable funds

a An increase in demand in the market for loanable funds would shift the demand curve to the right, causing the interest rate to rise.

A union is an association of workers that bargains collectively with employers over wages, benefits, and working _____.

conditions

Business fluctuations, or business cycles, are the short-run movements in real GDP around its _____-term trend.

long

Deflation is a decrease in the average level of _____.

prices

The rule of 70 states that if the annual growth rate of GDP per capita is x percent, it will take (70 ÷ x) _____ for it to double.

years

Which activity would be counted in the investment category of national spending? a) A family building a new home b) A household purchasing stock in Apple c) A child saving money in a piggy bank d) Parents paying for their child's private high school

a Most investment spending is done by firms, but this is one exception.

Which country is cited in the textbook as a growth disaster? a) South Korea b) the United States c) Argentina d) Japan

c Nigeria is also cited as a growth disaster

Growth in real GDP per capita is: a) always higher than the rate of population growth. b) not a very reliable indicator of changing living standards. c) the best reflection of changing living standards. d) probably the best single indicator of current economic performance.

c Real GDP per capita is real GDP divided by population

Despite being a relatively recent phenomenon, _____ has quickly transformed the world. a) the rule of 70 b) the iPhone c) economic growth d) inflation

c See Figure 7.3 for a depiction of real GDP per capita over time.

In the identity for the quantity theory of money, what does P represent? a) The money supply b) The velocity of money c) The average price level d) Real GDP

c The identity is Mxv = PxYr

What is true of active mutual funds? a) They involve a manager investing one customer's money in many firms. b) They involve people actively investing their own money in many firms. c) They tend to charge higher-than-average management fees. d) They are automated to mimic a broad stock market index.

c You are paying for that activity

If you buy a house (unlike a share of stock or a mutual fund), you get to live in it, and you get value from that. All else equal, this fact would cause us to expect that the rate of a return on a house should be _____.

lower

One study estimates that if India used the human and physical capital that it does have as efficiently as the United States uses its capital, it would be four times richer than it is today. This demonstrates the importance of competitive and open _____ as an institution.

markets

A _____ fund pools money from many customers and invests it in many securities in exchange for a management fee.

mutual

One study estimates that if India used the human and physical capital that it does have as efficiently as the United States uses its capital, it would be four times richer than it is today. This demonstrates the importance of competitive and _____ markets as an institution.

open

Under communal property, effort is divorced from payment, so there is little incentive to work. This demonstrates the importance of property _____ as an institution.

rights

Suppose the production function for an economy is Y = √K, and that γ = 0.25 and δ = 0.05. If the present capital stock is equal to 36: a) the economy is shrinking. b) the economy is in a steady state. c) investment equals depreciation. d) the economy is growing.

a In this case, investment is equal to 0.25 x sqr36 = 1.5, and depreciation is equal to 0.05 x 36 = 1.8, so investment falls short of depreciation.

The rule of _____ can be used to calculate the number of years that it takes for the magnitude of a variable to _____. a) 70; double b) 35; double c) 70; triple d) 35; triple

a The rule of 70 states that if the annual growth rate of a variable is x percent, then the doubling time is (70 / x) years.

The _____ is the increase in output caused by the addition of one more unit of capital: a) marginal product of capital b) marginal product of labor c) average product of labor d) average product of capital

a This is the increase in output caused by the addition of one more unit of capital

Active mutual funds: a) tend to charge higher-than-average management fees. b) are automated to mimic a broad stock market index. c) involve a manager investing one customer's money in many firms. d) involve people actively investing their own money in many firms.

a You are paying for that activity

The people born during the high-birthrate years from 1946 to 1964 are: a) generation X. b) the baby boomers. c) generation Y. d) the millennials.

b

Y = A√K represents: a) a production function that supposes economic growth is based on human capital alone. b) a production function that supposes economic growth is based on capital alone. c) a production function that supposes economic growth is based on government spending. d) a production function that supposes economic growth is based on capital and ideas that increase productivity

d In the full version of the Solow model, Y = F(A, K, eL)

People whose incomes fluctuate (like salespeople, writers, and homebuilders) smooth consumption by: a) having higher incomes in some years than in others. b) investing. c) having higher consumption in some years than in other years. d) saving.

d Saving helps to smooth consumption. By saving when income is high, these workers will have funds available for consumption when income is low.

All economists and investors can agree that investors who systematically beat the stock market are certainly: a) common. b) lucky. c) geniuses. d) rare.

d While investors like Warren Buffet may be genius, lucky, or both, such investors are certainly rare

According to the rule of 70, if GDP per capita grows at an annual rate of 10 percent, then it will double in approximately _____ years. a) 7 b) 10 c) 3 d) 6

7 70 / 10 = 7

Which statement MOST accurately describes GDP? a) GDP is the sum of the market value of all final goods and services consumed within a country in a given year. b) GDP is the sum of the market value of all final goods and services produced within a country in a given year. c) GDP is the sum of the market value of all goods and services purchased within a country in a given year. d) GDP is the sum of the market value of all intermediate goods and services produced within a country in a given year.

b This is exactly the definition of GDP

The factors that influence economic growth are: a) higher prices, lower unemployment, and higher production. b) lower prices, higher unemployment, and investments in technology. c) decreases in unemployment, increases in immigration, and rising prices. d) technological change, improvements in the skill adjusted quantity of labor, and increases in the amount of capital.

d Y = F(A, K, eL) is the Solow model, in which output is based on the quantity and quality of physical capital, human capital, and productivity of capital and labor.

The average number of times a dollar is spent on final goods and services in a year is called the: a) monetary speed. b) money illusion. c) quantity theory of money. d) velocity of money.

d the factors that determine the velocity of money change over time, but only slowly

Gross national product is the market value of all final goods and services produced by a country's permanent _____, wherever located, in a year.

residents

The NASDAQ Composite Index: a) consists of the prices of 500 leading American companies. b) averages the prices of a few thousand securities. c) gives less weight to high-tech stocks than the Dow or S&P 500 does. d) gives equal weight to all stocks.

b The NASDAQ gives especially high weight to small stocks and high-tech stocks

Which factor is cited in the textbook as a factor leading to the dramatic rise of female labor force participation rates during the last half of the twentieth century? a) the opening up of law schools to female students b) the birth control pill c) an unusual decline in fertility d) women's suffrage

b At the most basic and important level, the labor force participation rate responds to the incentive to work

Human capital is defined as: a) the stock of tools, including machines, structures, and equipment. b) the productive knowledge and skills that workers acquire through education, training, and experience. c) knowledge about how the world works that is used to produce goods and services. d) property, plant, and equipment used in the productive process.

b Human capital is tools of the mind, the stuff in people's heads that makes them productive.

Which statement demonstrates the importance of property rights as an institution to promote economic growth? a) Corruption is like a heavy tax that bleeds resources away from productive entrepreneurs. b) Under communal property, effort is divorced from payment, so there is little incentive to work. c) In many nations, civil war, military dictatorship, and anarchy have destroyed the institutions necessary for economic growth. d) In India, developers cannot get good titles to land in order to build simple things like supermarkets, because it is not clear who owns what.

b Investors and workers throughout the economy need to know that they will reap what they sow

The Standard and Poor's 500 (S&P 500) indicates: a) the 500 fastest-growing stocks worldwide. b) the prices of 500 stocks. c) the leading stock prices from 500 countries. d) the 500 fastest-growing American stocks.

b It is a much broader index than the Dow and a better indicator of the market as a whole.

Megan has loaded historical stock prices for about 100 blue chip stocks into Excel. She is now analyzing the data for trends and patterns. What type of analysis is she conducting? a) asset statistics b) technical analysis c) market analysis d) price surveying

b One study looked at 7,846 strategies of technical analysis and found that none of them consistently beat the market over time.

Consumption smoothing is useful for explaining: a) neither the supply of savings nor the demand to borrow. b) both the supply of savings and the demand to borrow. c) only the supply of savings. d) only the demand to borrow.

b Saving will bolster consumption in retirement, and borrowing will bolster consumption in youth

Which statement is NOT given in the textbook as a problem associated with using GDP as a measure of output and welfare? a) GDP does not count the underground economy. b) GDP does not count the purchase of corporate stock. c) GDP does not count nonpriced production. d) GDP does not count environmental costs.

b This is not a problem associated with using GDP as a measure of output, because the purchase of corporate stock should NOT be counted.

Which statement is true? a) A mutual fund that mimics a broad stock market index is called an active fund. b) A mutual fund that mimics a broad stock market index is called a passive fund. c) A mutual fund that mimics a broad stock market index is called a trends fund. d) A mutual fund that mimics a broad stock market index is called a dependable fund.

b This is the definition of a passive fund

Government purchases are: a) private spending on tools, plant, and equipment used to produce future output. b) spending by all levels of government on final goods and services. c) private spending on final goods and services. d) All of these choices are correct.

b This is the definition of government purchases

Which person is an unemployed person? a) a 46-year-old who lost his or her job and still wants to work but has given up looking for a job b) a 22-year-old new college graduate who is looking for a first job. c) a 20-year-old college student is without a job d) a 36-year-old who is in prison

b We count someone as unemployed if and only if he or she is willing and able to work and is looking but can't find a job

The people born during the high birthrate years from 1946 to 1964 are baby _____.

boomers

To _____ and hold is to purchase stocks and keep them for the long run regardless of what prices do in the short run.

buy

If per capita GDP is $1,000 and grows at 2 percent annual interest, approximately how long will it take before it is $4,000? a) 35 years b) 30 years c) 70 years d) 60 year

c 70 / 2 = 35 years to double one time. So doubling twice will take 35 x 2 = 70 years

What is NOT a variable in the factor income approach to GDP calculation? a) employee compensation b) rent c) consumption d) interest

c Consumption is a variable in the national spending approach, not the factor income approach to GDP calculation.

The equation Y = employee compensation + rent + interest + profit represents: a) the average income approach to GDP calculation. b) the GDP per capita approach to GDP calculation. c) the factor income approach to GDP calculation. d) the national spending approach to GDP calculation.

c Employee compensation, rent, interest, and profit represent the incomes of all the factors of production.

Which statement is given in the textbook as a problem associated with using GDP as a measure of output and welfare? a) GDP does not exclude goods produced abroad but purchased domestically. b) GDP does not count the purchase of used goods. c) GDP does not measure the distribution of income. d) GDP does not count the purchase of corporate stock.

c GDP measures the market value of final goods and services, but it reveals nothing about the distribution of income.

Larger markets for pharmaceuticals will lead to: a) decreased incentives to contract illnesses. b) increased incentives to contract illnesses. c) increased incentives to invest in research and development. d) decreased incentives to invest in research and development.

c If China and India were as rich as the US, the market for cancer drugs would be eight times larger.

Which situation is NOT a consequence of price signals being difficult to interpret because of inflation? a) Resources are wasted in activities that appear profitable but in fact are not. b) Entrepreneurs are less quick to respond to real opportunities. c) Consumers respond to real prices instead of to nominal prices. d) Resources flow more slowly to profitable uses.

c Inflation leads to money illusion - when consumers respond to nominal prices instead of real prices

An investor is looking for patterns by analyzing asset prices from the last 10 years. What type of analysis is she conducting? a) asset statistics b) price surveying c) technical analysis d) market analysis

c One study looked at 7,846 strategies of technical analysis and found that none of them consistently beat the market over time

The market where savers of funds trade with borrowers of funds is called: a) the market for income funds. b) the savings market. c) the market for loanable funds. d) the market for consumption goods.

c The savers supply loanable funds, and the borrowers demand loanable funds.

The marginal product of capital is the increase in output caused by the addition of one more: a) year of schooling. b) new idea. c) unit of capital. d) unit of labor.

c This is the additional or marginal product of capital

What is true of a passive mutual fund? a) It will usually be outperformed by an active mutual fund. b) It does not require a mutual fund manager. c) It mimics a broad stock market index. d) It does not earn a positive rate of return.

c This is the definition of a passive mutual fund

During the Great Depression, the number of bank failures: a) was a minor issue, with approximately 5 percent of banks failing. b) was not an issue, as the Great Depression was primarily a phenomenon of the goods market. c) was short-lived, as the Federal Reserve rescued the system before widespread panic. d) was a major issue, with approximately 50 percent of banks failing.

d Between 1929 and 1933, 11,000 US banks failed

On the supply curve for savings, the vertical axis represents the interest rate as a percent rather than the price of expressed in dollars, as on other supply curves. This is because: a) most lay people would not be able to read the supply curve for savings if the price were expressed in dollars. b) savings accounts pay interest, not dollars. c) the supply curve for savings, unlike other supply curves, is actually the demand curve for borrowing. d) prices are expressed as dollars per unit, but in the market for savings the unit is dollars, so it's dollars per dollar, which is most easily expressed as a percentage.

d In fact, an interest rate, if expressed as a decimal, is really a number of dollars per dollar.

Financial intermediation may fail if any of the following occur EXCEPT: a) a reduction in the supply of savings. b) an increase in the cost of intermediation. c) an increase in the politicization of lending . d) an increase in equilibrium interest rates.

d Increases in equilibrium interest rates can occur naturally if the demand for borrowing increases, which can happen even when financial intermediation works well.

Money illusion occurs when: a) people mistake the prices of goods in foreign markets for prices in domestic markets. b) people mistake monetary changes for fiscal changes. c) people assume that changes in real prices will lead to future changes in nominal prices. d) people mistake changes in nominal prices for changes in real prices.

d Prices are signals, and inflation makes price signals more difficult to interpret

The standard of living in a country could be measured by the change in: a) employment. b) income. c) real GDP. d) real GDP per capita.

d The standard of living in a country could be measured by the change in real GDP per capita,as this implies a distribution of a larger GDP and a higher average standard of living.