ECO 204

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

False

The following table presents information about a closed economy whose market for loanable funds is in equilibrium. The quantity of loanable funds demanded is a. $1.8 trillion. b. $0.8 trillion. c. $1.4 trillion. d. $1.6 trillion.

a. $1.8 trillion.

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP a. increases by $220. b. increases by $40. c. increases by $1500. d. increases by $280.

a. increases by $220.

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2017. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income? a. 141 percent b. 165 percent c. 71 percent d. 198 percent

a. 141 percent

Suppose your uncle offers you $100 today or $150 in 10 years. You would prefer to take the $100 today if the interest rate is a.5 percent. b.3 percent. c.2 percent. d.4 percent.

a.5 percent.

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty. The first one gives her $100,000 one year from today and $100,000 two years from today. The second one gives her $132,000 one year from today and $66,000 two years from today. As her agent, you must compute the present value of each contract. Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first? a. 9 percent b. 7 percent c. 10 percent d. 8 percent

b. 7 percent

If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity a.and real GDP per person rise. b.and real GDP per person fall. c.falls and real GDP per person rises. d.rises but real GDP per person falls.

d. rises but real GDP per person falls.

What is a mutual fund?

An institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

True

Suppose Will's Year 2 food expenditures in Year 3 dollars amount to $6,235. Then x, the consumer price index for Year 3, has a value of a.177.5. b.175.0. c.180.6. d.171.2.

C. 180.6

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced a.11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. b.11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. c.10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. d.10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3.

a. 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

The following figure shows a utility function for Dexter. Refer to Figure 27-3. From the appearance of the utility function, we know that a. Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars. b. Dexter does not enjoy engaging in risky behavior. c. Dexter is risk averse. d. the property of decreasing marginal utility applies to Dexter.

a. Dexter gains more satisfaction when his wealth increases by X dollars than he loses in satisfaction when his wealth decreases by X dollars.

price index was 128 in Year 2, and the inflation rate was 24 percent between Year 1 and Year 2. The price index in Year 2 was a.103.2. b.158.7. c.152.0. d.104.0.

a. 103.2

Adriana says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Cassie says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest. a. Only Cassie is correct. b. Both Adriana and Cassie are correct. c. Only Adriana is correct. d. Both Adriana and Cassie are incorrect.

a.Only Cassie is correct.

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely a. increased. b. decreased. c. stayed the same. d. may have increased, decreased, or stayed the same.

b. decreased.

During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4-year term in office. You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person a. grew by more than 12 percent. b. grew, but by less than 12 percent. c. decreased. d. was unchanged.

b. grew, but by less than 12 percent.

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

b. is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

Suppose you win a small lottery and you are given the following choice: You can (1) receive an immediate payment of $10,000 or (2) three annual payments, each in the amount of $3,600, with the first payment coming one year from now, the second two years from now, and the third three years from now. You would choose to take the three annual payments if the interest rate is a.2 percent, but not if the interest rate is 3 percent. b.3 percent, but not if the interest rate is 4 percent. c.4 percent, but not if the interest rate is 5 percent. d.5 percent, but not if the interest rate is 6 percent.

b.3 percent, but not if the interest rate is 4 percent.

Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles. Each bicycle would cost them $249.66. At the end of the first year the increase to their revenues would be $140 per bicycle. At the end of the second year the increase to their revenues again would be $140 per bicycle. Thereafter, there are no increases to their revenues. At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle? a.6 percent b.8 percent c.5 percent d.7 percent

b.8 percent

Recently, Venus's wealth increased by $500. If her wealth were to increase by another $500 in the near future, then her utility would increase, but not by as much as it increased with the recent increase to her wealth. Based on this information, and graphing wealth on each horizontal axis, Venus's utility function a. and marginal utility function are both downward sloping. b. is downward sloping and her marginal utility function is upward sloping. c. is upward sloping and her marginal utility function is downward sloping. d. and marginal utility function are both upward sloping.

c. is upward sloping and her marginal utility function is downward sloping.

Japan is a.a middle-income country, and over the past century its rate of economic growth has been lower than that of the United States. b.an advanced economy, and over the past century its rate of economic growth has been lower than that of the United States. c.an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States. d.a middle-income country, and over the past century its rate of economic growth has been higher than that of the United States.

c.an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States.

Mixster Concrete Company is considering buying a new cement truck. The owners and their accountants decide that this is the profitable thing to do. Before they can buy the truck, the interest rate and price of trucks change. In which case do these changes both make them less likely to buy the truck? b. Interest rates fall and truck prices fall. Answers: a. Interest rates rise and truck prices fall. b. Interest rates fall and truck prices fall. c. Interest rates fall and truck prices rise. d. Interest rates rise and truck prices rise.

d. Interest rates rise and truck prices rise.

The following table contains data for country A for the year 2019. What were country A's net exports in 2019? a. $32 b. $88 c. $120 d. −$32

d. −$32

The following table contains data for Chereaux for the year 2019. Refer to Table 23-1. Personal income for Chereaux in 2019 is a. $196. b. $178. c. $259. d. $201.

d. $201.

The following figure shows a utility function for Britney. From the appearance of the utility function, we know that a.if Britney owns a house, she would not consider buying fire insurance. b.Britney would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent to a portfolio of stocks with an average return of 6 percent and a standard deviation of 3 percent. c.Britney is not risk averse. d.Britney would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 2 percent to a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent.

d.Britney would prefer to hold a portfolio of stocks with an average return of 8 percent and a standard deviation of 2 percent to a portfolio of stocks with an average return of 8 percent and a standard deviation of 5 percent.

Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. a.Country B had the higher level of real GDP and Country A had the higher level of real GDP per person. b.Country A had the higher level of real GDP and Country B had the higher level of real GDP per person. c.Country A had the higher level of real GDP and real GDP per person. d.Country B had the higher level of real GDP and real GDP per person.

d.Country B had the higher level of real GDP and real GDP per person.

Suppose the consumer price index was 184 in Year 1 and 198.17 in Year 1. The nominal interest rate during this period was steady at 5.8 percent. What was the real interest rate during this period? a.-2.6 percent b.-1.9 percent c.0.4 percent d.1.2 percent

b.-1.9 percent

Suppose that interest rates unexpectedly rise and that FineLine Corporation announces that revenues from last quarter were down but not as much as the public had anticipated they would be down. According to the efficient markets hypothesis, which of the following makes the price of FineLine Corporation Stock fall? a.Only the revenue announcement b.Only the interest rate rising c.Both the interest rate rising and the revenue announcement d.Neither the interest rate rising nor the revenue announcement

b.Only the interest rate rising

Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity a.in both the short run and the long run. b.more in the short run than in the long run. c.more in the long run than in the short run. d.in neither the short run nor the long run.

b.more in the short run than in the long run.

Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably raise a.productivity but not real GDP per person in Eurnesia. b.real GDP per person and productivity in Eurnesia. c.real GDP per person but not productivity in Eurnesia. d.neither productivity nor real GDP per person in Eurnesia.

b.real GDP per person and productivity in Eurnesia.

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

default risk, The interest rate falls.

When the government increases spending (holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

falls, increase, decrease