ECON CH. 11, 12, 13

If the principal amount of a bond is $20,000, the coupon rate is 6 percent, and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is

$1,200.

Sydney purchases a newly issued, two-year government bond with a principal amount of $10,000 and a coupon rate of 6 percent paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if newly issued one-year government bonds are paying a 5 percent coupon rate?

$10,095

You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 8 percent return?

$62

According to Okun's law, when cyclical unemployment increases from 1 percent to 2 percent, the recessionary gap increases from ______.

-2 percent to -4 percent

In Macroland, potential output equals $20 trillion and the natural rate of unemployment is 3 percent. If the actual unemployment rate is 5.5 percent, then the output gap equals

-5 percent.

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals

1 percent.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:

1,160.

Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals

1,200.

Graph Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y ) is equal to:

16,000

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Planned aggregate expenditure equals

290 + 0.75 Y.

Graph Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals:

400

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals

5 percent.

The increase in the unemployment rate during a recession is associated with which type of unemployment?

Cyclical unemployment

Which of the following does not describe a characteristic of short-term economic fluctuations?

Expansions and recessions are felt in only a few sectors of the economy.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.60Y and potential output (Y*) equals 3,000, then this economy has

a recessionary gap.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has:

an expansionary gap.

When an American buys stock in a French company, from the perspective of the United States this is a(n)

capital outflow.

When the Chinese government buys U.S. government bonds, from the perspective of China this is a(n)

capital outflow.

Menu costs are the costs of:

changing prices.

Shares of stock are

claims to partial ownership of a firm.

The four components of planned aggregate expenditure are:

consumption, planned investment, government purchases, and net exports.

As disposable income decreases, consumption

decreases.

When housing prices decrease, household wealth _____, and consumption _____.

decreases; decreases

The sum of national saving and capital inflows from abroad must equal

domestic investment in new capital goods.

The slope of the consumption function

equals the marginal propensity to consume.

A period in which the economy is growing at a rate significantly above normal is called a(n)

expansion.

Government policies intended to increase planned spending and output are called ______ policies.

expansionary

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n):

expansionary output gap.

If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ______ gap that can be closed by _________.

expansionary; decreasing government purchases

The basic Keynesian model is built on the key assumption that:

firms meet the demand for their products at preset prices.

Stock prices increase when expected future dividends _____, interest rates _____, and/or the risk premium _____.

increase; decrease; decreases

Holding constant risk and the real returns available abroad, higher domestic real interest rates ______ capital inflows, ______ capital outflows, and ______ net capital inflows.

increase; decrease; increase

In a short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, government purchases must be:

increased by $1 billion.

As disposable income increases, consumption:

increases.

An increase in the perceived riskiness of Company A stock ______ the risk premium investors require to purchase Company A stock and ______ the price of Company A stock.

increases; decreases

If firms sell more output than expected, planned investment:

is greater than actual investment.

According to Okun's law, when the output gap is positive, cyclical unemployment

is negative.

In a recession, the cyclical unemployment

is positive.

The larger the mpc, the ________ the income-expenditure multiplier and the ________ the effect of a change in autonomous spending on short-run equilibrium output.

larger; larger

The coupon rate on newly issued bonds is usually ______ for bonds with favorable tax treatment, such as municipal bonds, and ______ for bonds that are very risky, such as junk bonds.

lower; higher

If the United States has a $300 billion trade deficit, then there must be

net capital inflows of $300 billion.

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the

output gap.

A period in which the economy is growing at a rate significantly below normal is called a(n)

recession.

When actual output is less than potential output there is a(n)

recessionary gap.

In Macroland potential GDP equals $20 billion and real GDP equals $19.2 billion. Macroland has a(n) ______ gap equal to ______ percent of potential GDP.

recessionary; -4

In the basic Keynesian model, a decline in autonomous spending

reduces short-run equilibrium output.

The natural rate of unemployment is equal to the unemployment rate when there is only

structural and frictional unemployment.