Econ 102 exam 3
the quantity of money in an economy is $9 million, and the velocity of circulation is 3. Nominal GDP in this economy is _____.
$27 million
the table above shows the labor market for the country of Pickett. When the labor market is in equilibrium, the real wage rate is ____ and ____ of labor a year are employed
$30 an hour; 40 billion hours
if real GDP is $800 million and aggregate labor hours are 20 million, labor productivity is _____.
$40 per hour
Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15%. How many loans can Bank A create at Bank A?
$50
at the beginning of the year, tom's tubes had a capital stock of 5 inflating machines. during the year, tom scrapped 2 old machines and purchased 3 new machines. toms net investment of the year totaled
1 machine
the above table presents the balance sheet of the TBK commercial bank. What is this bank's actual reserve ratio?
20%
the above table gives the initial balance sheet for Mini Bank. Mini Bank's actual reserve ratio equals ____
25%
at the beginning of the year tom's tubes had a capital stock of 5 inflating machines. during the year, tom scrapped 2 old machines and purchased 3 new machines. tom's gross investment for the year totaled
3 machines
when the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals
5
if the nominal interest rate is 7% and the inflation rate is 1%, the real interest rate is approximately
6%
if the nominal interest rate is 8% and the inflation rate is 2%, the real interest rate is approximately
6%
Which of the following is TRUE regarding the real interest rate? I. the real interest rate is the opportunity cost of borrowing funds II. the real interest rate equals the nominal interest rate adjusted for inflation
Both I and II
if the price level increases, but workers' money wage rates remain constant, which of the following is TRUE? I) the quantity of labor demanded will increase II) the real wage rate will decrease III) the demand for labor curve shifts rightward
Both I and II
when a bank has excess reserves
Both answers A and B are correct A) It can make loans B) it can create money
which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy?
Federal Open Market Committee
which of the following is TRUE? I. as the real interest rate increases, people increase the quantity they save II. the supply of loanable funds curve is downward sloping III. as disposable income increases, the supply of loanable funds curve becomes steeper
I only
which of the following are included in the supply of loanable funds? I. private saving II. government budget surplus III. international borrowing
I, II, and III
which of the following items are considered physical capital? I. shares of Ford stock traded on the New York Stock Exchange II. the Taco Bell store nearest to you III. the rental cars owned by Hertz Rental-A-Car IV. the salaries paid to Intel executives
II and III
Investment is financed by which of the following? I. Government spending II. national saving III. borrowing from the rest of the world
II and III only
the Fed buys $100 million of government securities from Bank A. what is the effect on Bank A's balance sheet?
Securities decrease by $100 million and reserves increase by $100 million
suppose the U.S. spends more on foreign goods and services than foreigners spend on our goods and services and the U.S. sell no foreign assets. then the
U.S. must borrow an amount equal to imports minus exports
If you invest a dollar for a year and at the end of the year the price level has risen by 10%
You must have earned a nominal interest rate of 10% to maintain the purchasing power of your loan.
When part of the quantity of money is held in currency, then
a currency drain occurs
which of the following will shift the supply of loanable funds curve leftward
a decrease in disposable income
a decrease in the demand for loanable funds and a leftward shift of the demand for loanable funds curve results from
a decrease in the expected profit
which of the following shifts the demand for loanable funds curve leftward?
a decrease in the expected profit
which of the following explains why the demand for loanable funds is negatively related to the real interest rate?
a lower real interest rate makes more investment projects profitable
an increase in a nation's population results in
a movement along the nation's production function
when the FED is ____ it is _____.
adjusting the amount of money in circulation; conducting monetary policy
when the Fed lowers the federal funds rate, it can lead to
an increase in lending by banks
the sale of $1 billion of securities to a bank or some other business by the Fed is an example of
an open market operation
in the short run, when the Fed decreases the quantity of money
bond prices fall and the interest rate rises
in the short run, when the Fed increases the quantity of money
bond prices rise and the interest rate falls
a rise in the real interest rate
creates a movement upward along the demand for loanable funds curve
depository institutions do all the following EXCEPT
creates required reserve ratios
the monetary base is the sum of
currency and reserves of depository institutions
an increase in the currency drain
decreases the size of the money multiplier
the U.S. employment-to-population ratio peaked in 2000 and in 2012 fell to 58%, a level not seen since the early 1980s. This fall in the employment-to-population ratio _____ the equilibrium quantity of labor and _____ potential GDP.
decreases; decreases
if the nation's capital stock increases so that workers become more productive, the
demand for labor will increase
in the figure above, if the interest rate is 4% there is a $0.1 trillion excess
demand for money and bond prices will fall
an increase in labor productivity shifts the labor _____ curve ____.
demand; rightward
suppose that a bond promised to pay its holder $100 a year forever. if the price of the bond increases from $1000 to $1250 then the interest rate on the bond
falls from 10% to 8%
the funds used to buy and operate physical capital are
financial capital
If foreigners spend more on U.S.- made goods and services than we spend on theirs
foreigners must borrow from the U.S. or sell U.S. assets to make up the difference
the crowding out effect refers to
government investment crowding out private investment
when a government has a budget surplus, the surplus
helps finance investment
in the absence of the Ricardo-Barro effect, an increase in the government deficit results in a _____ real interest rate and a ____ equilibrium quantity of investment
higher; lower
according to the Ricardo-Barro effect
households increase their personal saving when governments run budget deficit
if an economy has a velocity of circulation of 3, then
in a year the average dollar is exchanged 3 times to purchase goods and services in GDP
when the population increases with no change in labor productivity, employment _____ and potential GDP _____.
increases; increases
the quantity of real money demanded is
independent of the price level
the demand for labor curve
is downward sloping because productivity of labor diminishes as more workers are employed
the required reserve ratio
is the fraction of a bank's total deposits that is required to be held in reserves
due to the recession in 2008, firms decreased their profits expectations. as a result, there was a ______ shift in the ______ loanable funds curve.
leftward; demand for
In the figure above, if the interest rate is 8%, people demand $0.1 trillion
less money than the quantity supplied and bond prices will rise
the most direct way in which money eliminates the need for a double coincidence of wants is through its use as a
medium exchange
aside from being a means of payment, the other functions of money are
medium of exchange, unit of account, and store of value
controlling the quantity of money and interest rates to influence aggregate economic activity is called
monetary policy
the country if Kemper is on its aggregate production function at point W in the above figure. If the population increases with no change in capital or technology, the economy will
move to a point such as X
the country of Kemper is on the aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will
move to point such as Z
a nation's investment must be financed by
national saving plus borrowing from the rest of the world
if the economy's capital stock increases over time
net investment is positive
the capital stock increases whenever
net investment is positive
credit cards are
not part of money because they represent a loan of money to the user
in the above figure, the initial supply of loanable funds curve is SLF0 and the demand for loanable funds curve is DLF0. an increase in the expected profit would
only shift the demand for loanable funds curve rightward to a curve such as DLF1
the table above gives the quantity of money and money demand schedules. suppose that the interest rate is equal to 3%. The effect of this interest rate in the money market is that
people sell bonds and the interest rate rises
Use the figure above to answer this question. Suppose the economy is operating at point A. a move to ______ could be explained by _____.
point C; an increase in the use of credit cards
the term "crowded out" relates to the decrease in
private investment from a government budget deficit
U.S. investment is financed from
private saving, government budget surpluses, and borrowing from the rest of the world
according to the quantity theory of money, in the long run, changes in the price level are the result of changes in the
quantity of money
an increase in labor productivity _____ the real wage rate and an increase in population ____ the real wage rate
raises; lowers
people base their labor supply on the ____ because they care about ____
rea; wage; what their earnings will buy
the aggregate production function describes the relationship between
real GDP and the quantity of labor employed
the quantity of labor supplied depends on the
real wage rate not the money wage rate
when the nominal interest rate rises, the opportunity cost of holding money
rises and people hold less money
In the loanable funds market, the supply comes from
saving, the government budget surplus and international borrowing
in the figure above, an increase in the monetary base would create a change such as a
shift from the supply of money curve MS0 to the supply of money curve MS1
in the figure above, a decrease in the monetary base would create a change such as a
shift from the supply of money curve MS1 to the supply of money curve MS0
In the above figure, technological progress that increases the expected profit will
shift the demand for loanable funds curve rightward
in the figure above, new expectations of booming conditions and a higher expected profit will
shift the demand for loanable funds curve rightward ***ADD PICTURE***
in the figure above, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. an economic expansion that raises disposable income and the expected profit would
shift the supply of loanable funds curve rightward to a curve such as SLF1 and shift the demand for loanable funds curve rightward to a curve such as DLF1 ***ADD PICTURE***
Greater optimism about the expected profits from investment projects
shifts the demand for loanable funds curve rightward
the larger the public's currency drain from the banking system, the
smaller is the money multiplier
an increase in the population and hence the supply if labor causes a
surplus of labor at the original real wage and the real wage rate will fall
if net taxes exceed government expenditures, the government sector has a budget ____ and government savings is ____
surplus; positve
for a commercial bank, the term "reserves" refers to
the cash in its vaults and its deposits at the Federal Reserve
in the above figure, suppose the economy is initially on the demand for money curve MD1. what is the effect of an increase in financial innovation such as the introduction of ATMs?
the demand for money curve would shift leftward to MD0.
in the above figure, suppose the economy is initially on the demand for money curve MD1. what is the effect of an increase in the use of credit cards?
the demand for money curve would shift leftward to MD0.
the opportunity cost of holding money refers to
the interest that could have been earned if the money balances had been changed into an interest-bearing asset
suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6%. Which of the following statements is CORRECT?
the nominal interest rate is 7.5% and the real interest rate is 1.5%
according to the quantity theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in ______.
the price level
In the above figure, the economy is at point a on the initial supply if loanable funds curve SLF0. what happens if disposable income decreases?
the supply of loanable funds curve would shift leftward to a curve such as SLF1. ***ADD PICTURE***
in the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. what happens if real wealth decreases?
the supply of loanable funds curve would shift rightward to a curve such as SLF2. ***ADD PICTURE***
in the above figure, at a wage rate of $20 per hour
there is a surplus of labor
as a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market
there was a leftward shift in the supply of loanable funds curve
if the real interest rate increases from 3% to 5%
there will be a movement up along the demand for loanable funds curve
if the labor market is in equilibrium and then the labor supply curve shifts rightward
there will be a surplus of labor at the original equilibrium wage rate
Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20%. How many deposits can Bank A create?
zero, because Bank A has no excess reserves
The Fed buys $100 million of government securities from Bank A. what is the effect on the Federal Reserve's balance sheet?
Securities increase by $100 million and reserves of Bank A increase by $100 million
if velocity is 6 and the quantity of the money is $2 trillion, what is nominal GDP
$12 trillion
If real GDP is $13,500 billion and aggregate hours are 110 billion, labor productivity equals
$123 per hour
In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30%. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's gross investment totaled
$200,000
Use the information in the table above to calculate the value of private saving
$25 million ***ADD PICTURE***
Use the information in the table above to calculate the value of government saving
$5 million ***ADD PICTURE****
according to the table above, the value of M1 is ____ and the value of M2 is _____
$813 billion; $3303 billion
according to the table above, the value of M1 is _____ and the value of M2 is ____
$910 billion; $3660 billion
In January 2015, Tim's Gym, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30%. During 2015, Tim spent $200,000 on new machines. During 2015, tim's net investment totaled
-$100,000
This year Pizza Hut makes a total investment of $1.3 billion in new stores. its depreciation in this year is $300 million. Pizza Hut's gross investment is _____ and its net investment is _____.
$1.3 billion; $1.0 billion
in the above figure, what is the full-employment real wage rate and quantity of hours per year
$40 and 60 billion hours per year
the table above shows the balance sheet for Ralph's Bank. If the desired reserve ratio is 15%, Ralph's Bank has excess reserves of _____
$50
the above table gives the initial balance sheet for Mini Bank. If the bank's desire reserve ratio is 10%, how much does this bank have in excess reserves?
$60
suppose a bond promises to pay its holder $100 a year forever. the interest rate on the bond rises from 4% to 5%. the price of the bond
falls from $2,500 to $2,000
the Ricardo-Barro effect says that
government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government
the tables above show the labor market and the production function schedule for the country of Pickett. an increase in population changes the labor supply by 20 billion hours at each real wage rate. Potential GDP _____.
increases to $18 trillion
In the absence of Ricardo-Barro effect, a government budget deficit _____ the demand for loanable funds and _____ investment
increases; decreases
when price level rise, the quantity of nominal money demanded will _____ and the quantity of real money demanded will ______.
increases; stay the same
Frank spends Saturday afternoon at the Dodge dealership looking at new trucks. The model that he is interested in has a sticker price of $29,000. The fact that the price is quoted in dollars is an example of money used as a
unit of account
which of the following are major influences on the expected profit from an investment? I. technology advances II. stock market behavior III. accounting practices
I only
checks are NOT money because
are merely instructions to transfer money
the table above gives the quantity of money and money demand schedules. suppose that the interest rate is equal to 6%. the effect of this interest rate in the money market is that
people buy bonds and the interest rate falls
In the above figure, suppose the economy is at point A. If there is an increase in real GDP, there is a movement to point such as
point D
labor productivity is
real GDP per hour of labor
