Money and Banking Exam 2 HW Ch 8&9, 10, 12

If output grew 2.8 percent last year and labor productivity grew 1.1 percent, how much did hours worked grow? 1.1 percent 1.3 percent 1.7 percent 3.9 percent

1.7 percent

The GDP deflator in 2000 is 100. The GDP deflator in 2010 is 127. If real GDP in 2000 is $10 trillion and nominal GDP in 2010 is $14 trillion, how much has real GDP grown over that time period? 10% 17% 27% 40%

10%

The production function is Y = A ´ Ka ´ L1-a. If a = 0.4, and over the past year output grew 4 percent, total factor productivity (TFP) grew 2.6 percent, and labor grew 1 percent, what was the growth rate of capital? 4 percent 3 percent 2 percent 1 percent

2 percent

Suppose the federal reserve is considering the applications of four different banks to merge with other banks. Given the level of new HHI and the change in the HHI shown below , in which case could the fed challenge the merger

HHI must lie below 1800 and above 200. New HHI = 1850 change in HHI = 250

Assume that the Herfindahl-Hirschmann Index for banks in a geographic region is 2500. if the HHI were increased to 3500, we would expect to see:

Lower deposit interest rates and higher loan interest rates

If a business firm takes out a loan from a bank, but does not use the funds as the bank intended, the problem is

Moral Harzard

Moral hazard occurs when

the existence of a contract changes the behavior of a party to the contract.

In 2001, the number of people in the working-age population increased from 212.6 million to 215.1 million, while the labor force increased from 141.5 million to 142.3 million. By how much did the labor-force participation rate change? -0.4 percentage point -0.2 percentage point 0.0 percentage point 0.2 percentage point

-0.4 percentage point

before October 2008, banks earned interest on reserve balances at a rate of

0.0%

In 2004, the number of unemployed people decreased from 8.8 million to 8.1 million, while the labor force increased from 146.5 million to 147.4 million. By how much did the unemployment rate decrease? 0.5 percentage point 0.7 percentage point 0.9 percentage point 1.1 percentage point

0.5 percentage point

Suppose the banking market in Cedar Rapids consists of banks that have the following shares of the market: 24 percent, 18 percent, 17 percent, 14 percent, 9 percent, 8 percent, 4 percent, 3 percent, 2 percent, 1 percent. Calculate the HHI. 100 576 780 1,560

1,560

In a recent year, a bank earned $12 million in interest on its assets of $177 million, it paid out $8 million in interest on its liabilities (excluding capital) of $172 million, and it paid its workers $3 million in total compensation. The bank's spread is 2.1 percent. 2.5 percent. 2.9 percent. 3.3 percent.

2.1 percent.

If output grew 3.9 percent last year and hours worked grew 1.3 percent, how much did labor productivity grow? 2.6 percent 3.0 percent 5.2 percent

2.6 percent

If the aggregate-demand curve is given by the equation P = 400 - (2 ´ Y), and long-run aggregate supply = 100, the long-run equilibrium price level equals 50. 100. 150. 200.

200

The production function is Y = A ´ Ka ´ L1-a. If a = 0.3, and over the past year total factor productivity (TFP) grew 2.3 percent, capital grew 2 percent, and labor grew 3 percent, what was the growth rate of output? 2 percent 3 percent 4 percent 5 percent

5 percent

The country of Examplestan has 100,000,000 citizens. 50,000,000 are adults who are employed or are actively seeking work. 2 million have been laid off due to recession 1 million have quit their jobs to look for work in cities with better climates 1.5 million have skills that do not match any jobs in their region. What is the natural rate of unemployment in Examplestan?

5.0%

If the working-age population is 215 million, the labor force is 145 million, and the number employed is 137 million, then the labor-force participation rate is 2.5 percent. 67.4 percent. 45.3 percent. 94.5 percent.

67.4 percent.

Suppose a country has a population of 61 million, of which 37 million are in the working-age population. Of those, 11 million are not in the labor force and 23 million are employed. The labor-force participation rate is 42.6 percent. 60.7 percent. 70.3 percent. 88.5 percent.

70.3 percent.

Last Question from HW Ch 8&9 Which of the following is a consequence of moral hazard? A bank is reluctant to make a student loan because it cannot be certain the student won't buy a car with the money. A solvent bank chooses to take more risks because its staff has been indicted for fraud. A bank fails to diversify its holdings and becomes illiquid in a market downturn. A bank free-rides on other banks participating in a payment-system consortium. A bank chooses to pay its executive large bonuses despite losing money that year.

A bank is reluctant to make a student loan because it cannot be certain the student won't buy a car with the money.

As a group, which three factors are most relevant to the determination of long-run aggregate supply/potential GDP?

Capital, technology, labor

Last question of HW6 Ch12 Assume there was an excess of aggregate demand so that the economy was out of long-run macroeconomic equilibrium (overheating). Think about what would happen in the long run if no action was taken. Compare that to what would happen in the long run if an contractionary monetary policy was used. Compared to doing nothing, the monetary policy would:

Cause the price level to be lower

If you purchase a Ford Mondeo manufactured in Germany for $20,000

Consumption increases $20,000, Net Exports decreases $20,000

First question from HW Ch10 If you purchase a Dell computer manufactured in Round Rock, TX for $2,000

Consumption increases by $2,000

A worker has been laid off from his job due to an economic downturn and is seeking new employment. This worker is

Cyclically unemployed

The economy is in a recession, with output below potential GDP. What is an appropriate fiscal policy and what is the effect on the price level in the long run .

Decrease taxes, which increases the price level.

A predicted direct effect from an increase in the money supply is:

Downward pressure on market interest rates.

The government provides deposit insurance through the

FDIC

What action today is most likely to increase living standards in the future? All of these answers could be correct, but one of them has a direct effect while the rest propogate through other effects.

Higher levels of investment

Last question from HW Ch10 The demand for money is most closely associated with which two economic variables?

Interest rates and income.

Which is the most volatile component of GDP

Investment

Which of the following is the best measure of living standards:

Real GDP per capita

Assume that inventories show an increase of $68.6 billion next year. This might imply

a future recession.

A bank offers credit cards with a 25 percent interest rate, when its competitors' cards have just a 15 percent interest rate. Despite the high rate, the bank finds itself losing money because many of its customers fail to repay the balances on their cards. The bank's losses are most likely to have occurred because of

adverse selection.

First Question from HW Ch8&9 When one party to a transaction knows more than another, the situation is one of

asymmetric information

When all capital and labor are fully utilized, the economy is said to be

at full employment.

The failure of large, structural macroeconomic models became evident in the period from 1973 to 1975 when, in contradiction to the models,

both unemployment and inflation rose.

The total amount of physical capital in all firms and households is called the

capital stock.

First question of HW6 Ch12 The largest component of aggregate demand is

consumption

The economy is overheating, with output above its full-employment level. To return the economy to long-run equilibrium, the Fed could use ____ policy, which would cause the price level to ____.

contractionary; decline

A rise in the real interest rate will cause consumer spending to

decline

The possibility that a bank's loan customers might not repay their loans is known as

default risk

the discount rate is the interest rate on

discount loans from the federal reserve

a bank is said to have_ when its average costs decline as its volume of sales increases.

economies of scale.

Purchases of new housing are part of

investment.

Accounting rules require that bank's _equals its _.

liabilities;assets minus equity capital

the federal funds rate is the interest rate in the market for

loans of reserves between banks.

a bank run occurs when

many depositors go to a bank at the same time to withdraw their money

The U.S has a dual banking system , which means that a bank

may choose whether to be chartered by federal govt authorities or by a state government.

the S & L crisis in the late 1970s and early 1980s was made by much worse by

moral hazard, when regulators failed to close bankrupt S& Ls.

A rise in the price level causes long-run aggregate supply to

not change.

In the aggregate-demand/aggregate-supply model, an increase in taxes causes ____ to ____ in the short run.

output : decline

when the FDIC handles an insolvent bank by closing the bank, selling off the assets , paying off isured depositors, and then paying off creditors of the bank if funds remain, the method is called

payoff

Adverse selection occurs when

people or firms that are worse-than-average risks are most likely to enter a contract that is offered to everyone.

which of the following should reduce moral hazard associated with borrowing

requiring that qualified borrowers have a certain level of assets to offer as collateral

The economy is in a recession, with output below its full-employment level. If the Fed does not use policy to return the economy to long-run equilibrium, the short-run aggregate supply curve will eventually shift ____, and the price level will ____.

right; decline

A rise in foreign incomes causes net exports to

rise

A rise in income will cause consumer spending to

rise

A rise in the price level causes short-run aggregate supply to

rise

In its role as a lender of last resort , the government lends to banks that are

solvent and illiquid

The unemployment rate reflecting normal job turnover is called

the natural rate of unemployment.

In the aggregate-demand/aggregate-supply model, an increase in the expected price level causes ____ to ____ in the short run.

the price level: increase

In the aggregate-demand/aggregate-supply model, an increase in taxes causes ____ to ____ in the long run.

the price level; decrease

Interest-rate Risk is

the risk that market interest rates may change , affecting the value of a bank's assets.

According to ____, people use all available information in making their economic decisions.

the theory of rational expectations

The labor force consists of

those employed plus those unemployed.

a bank's excess reserves equal its

total reserves minus required reserves