BUS 205 Exam 3

The theory of efficiency wages explains why

it may be in the best interest of firms to offer wages that are above the equilibrium level.

What is the equation for GDP in a closed economy?

Y = C + I + G

Private saving

Y-T-C

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

$11000

Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 1. For this economy, investment amounts to

$12,000

Suppose an economy had public saving of $2 trillion and private saving of $4 trillion. What are the national saving and investment for this country?

$6 trillion, $6 trillion

The labor-force participation rate is calculated by

(employed/labor force)*100`

Refer to Sample Population. How many in the sample are in the labor force?

10

Refer to Table 1. What is the adult labor force in Meditor?

160 million

Table 1 2010 Labor Data for Adults (age 16 and older) in Meditor Males not in labor force 45 million Females not in labor force 35 million Males unemployed 5 million Females unemployed 5 million Males employed 85 million Females employed 65 million Refer to Table 1. What is the adult population in Meditor?

240 million

Sample Population Allen: Unpaid stay at home dad. Has not looked for a job in several years. Ben: College president. Allison: Part-time welder. Actively looking for full time work. Brittany: Self-employed full-time wedding singer. Cathy: Full-time physician's assistant. Calvin: Retired finance professor. Last applied for work 10 weeks ago. Diane: Laid-off fork-lift operator expecting to be recalled. David: Works for a bicycle store. Age 70. Evelyn: Manager of health food store. Eli: Museum guard. Was not at work last week due to illness. Flora: Has never been employed. Looked for a job last week. Frank: Fired from job as an investment banker. Last looked for work three weeks ago.

3 (Diane, Frank, Flora)

Refer to Table 1. What is the adult unemployment rate in Meditor?

6.25 percent

Refer to Table 1. What is the adult labor-force participation rate in Meditor?

66.7 percent

Measuring unemployment is the job of the

Bureau of Labor Statistics

Refer to the figure. What would cause the demand curve to shift from D1 to D2?

Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories

Refer to the figure. Which of the following events would shift the supply curve from S1 to S2?

In response to tax reform, households are encouraged to save more than they previously saved.

What is true about the term of a bond?

Interest rates on long-term bonds are usually higher than interest rates on short-term bonds

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Only Curly Corporation's

Public saving

T-G

Refer to the figure. What is measured along the horizontal axis of the graph?

The quantity of loanable funds

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

The quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise

Refer to the figure. What is measured along the vertical axis of the graph?

The real interest rate

Debt finance

The sale of bonds to raise funds

Equity finance

The sale of stocks to raise money

Stock represents

a claim to a share of the profits of a firm, ownership in a firm, and equity finance

Two of the economy's two most important financial intermediaries are

banks and mutual funds

Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 1. This economy's government is running a

budget surplus of $3,000 S ≡ I → private savings + public savings ≡ I → (y-T-C) + (T-G) = I → 9000 + (T-G) = 12000 → T-G = 3000 3000 > 0, budget surplus

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

credit risk

Compared to bondholders, stockholders

face higher risk and have the potential for higher returns

If the current RIR is more than the original RIR, the interest rate will

fall

Institutions that help to match one person's saving with another person's investment are called

financial systems

Compared to stocks, bonds offer the holder

lower risk and lower potential return

When a country saves a larger portion of its GDP than it did before, it will have

more capital and higher productivity

If an economy is closed and if it has no government, then

national saving = private saving total income = consumption + investment saving = total income - consumption

A perpetuity is distinguished from other bonds in that it

never matures

The labor force equals the

number of people employed plus the number of people unemployed

If the current RIR is less than the original RIR, the interest rate will

rise

If the tax revenue of the federal government exceeds spending, then the government necessarily

runs a budget surplus

At the broadest level, the financial system moves the economy's scarce resources from

savers to borrowers

The economy's two most important financial markets are

the bond market and stock market

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

the government has a budget deficit and investment is 2,000 I = Y-C-G → 10000-5000-3000 = I → I = 2000 T-G → 1000 - 3000 = -2000 -2000 < 0, budget deficit

Collective bargaining refers to

the process by which unions and firms agree on the terms of employment.

In the language of macroeconomics, investment refers to

the purchase of new capital

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.

A closed economy does not

trade with other economies