Economics Exam 3
Real GDP does not show the state of economic welfare in a country in part because GDP omits I. household production. II. leisure time available. III. the quality of the environment.
I, II and III
Suppose the Consumer Price Index is 143.6. What does that number mean?
Prices rose 43.6 percent over the reference base period, on average
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
Which of the following institutions is NOT part of the structure of the Federal Reserve system?
The Federal Government
n the figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of an increase in real GDP?
The demand for money curve would shift rightward to MD2
Which of the following statements is INCORRECT?
The working age population includes everyone over the age of 16
In the figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of a rise in the interest rate?
There would be a movement upward along the demand for money curve MD1
Suppose you hold $50 to buy groceries weekly and then the price of groceries increases by 5 percent. To be able to buy the same amount of groceries, what must happen to your nominal money holdings?
They must increase by $2.50
Unemployment caused by the fluctuation of the business cycle is called ________ unemployment
cyclical
Which of the following is NOT a monetary policy tool of the Federal Reserve?
deposit insurance
Gross domestic product is the total ___________ produced within a country in a given time period.
market value of all final goods and services
The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a
medium of exchange
Frictional unemployment is the result of
normal labor market turnover
Structural unemployment is the result of
technological change or foreign competition
Intermediate goods are excluded from GDP because
their inclusion would involve double counting
Based on the data in the table, what is the value of M2?
$8,587 billion
Use the information in the table above to calculate the value of net exports
$10 million
The table shows some (but not all) national income accounting data for a hypothetical country. According to these data, the value of GDP is ________ billion
$2100
Gross domestic product (GDP) is
-the value of all final goods and services produced in a country during a year. -the sum of compensation of employees, proprietors' income, net interest, rental income, corporate profits, depreciation, and indirect business taxes minus subsidies. -the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports.
If 2009 is the reference base period, what is the price index for the CPI basket of goods for 2015 in the above table?
102.8
Assume that the total labor force is 100 individuals with 10 unemployed. The unemployment rate is ________. Now assume that 10 people drop out of the labor force and that 10 remain unemployed. The new unemployment rate is ________.
10 percent, 11 percent
If the CPI was 121.5 at the end of last year and 138.3 at the end of this year, the inflation rate over these two years was
13.8 percent
If the basket of goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals
225
If the number of people unemployed is 100, the number of people employed is 1000, and the working - age population is 1400, then the labor force participation rate is
78.6 percent
When the interest rate falls in the money market, the quantity of money demanded ________ and the quantity of money supplied ________.
B) increases; stays the same
An increase in the price level is defined as
B) inflation.
The demand for money is ________ related to the nominal interest rate.
C) negatively
Based on the data in the table above, what is the value of M1?
$1,361 billion
If an economy tried to use bananas as money, which function would bananas likely have the most difficult time fulfilling?
B) a store of value
Of the following, which is CORRECT? A) Nominal GDP increases when the prices of goods and services increase. B) Nominal GDP does not change when the production of goods and services increases. C) Nominal GDP is not affected by changes in prices of goods and services. D) Real GDP changes only when the prices of goods and services really change.
A) Nominal GDP increases when the prices of goods and services increase
Nominal GDP is the value of final goods and services
A) at the prices of that year
Which of the following is money? 19) A) checking deposits B) credit cards C) checks in the checkbook D) All of the above are money.
A) checking deposits
GDP does not directly include intermediate goods because
A) that would count the intermediate goods twice.
Two methods of measuring GDP are
A) the income approach and the expenditure approach.
In an economy, 42 million people are in the labor force, 38 million are employed, and 47 million are of working age. How many people are not in the labor force?
B) 5 million
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?
B) The demand for money curve would shift leftward to MD0.
An increase in the nominal interest rate
B) leads to an upward movement along the demand for money curve.
12) Frictional unemployment is the result of
B) normal labor market turnover.
If the CPI is 120, this means that
B) prices are 20 percent higher than in the reference base period.
20) Which of the following is NOT included in M1?
B) saving deposits
Suppose the labor force in Tiny Town is 100 people. If the ________ in Tiny Town is 150 people, the labor force participation rate equals ________ multiplied by 100.
B) working age population; 100/150
Based on the following data for the country of Tiny Town, the unemployment rate equals Population = 100 Labor force = 80 Number of employed persons = 70 Number of discouraged workers = 5
C) 10/80 × 100.
Suppose that last year the Consumer Price Index was 124; this year it is 130.7. What was the inflation rate between these years?
C) 5.4 percent
Let C represent consumption expenditure, S saving, I gross private domestic investment, G government expenditure on goods and services, and X - M net exports of goods and services. Then GDP equals
C) C + I + G + X - M.
An individual who has stopped looking for a job because he is convinced that he cannot find a job is referred to as
C) a discouraged worker.
Aside from being a means of payment, the other functions of money are
C) medium of exchange, unit of account, and store of value
Suppose that over a period of years the country of Quasiland switched from being an agriculturally-based economy to a technologically-based economy. As a result, many people lost jobs because they lacked the correct skills. As they search for new jobs, these people are part of
C) structural unemployment.
GDP equals
C+I+G+(X-M)
Which of the following is the central bank of the United States?
D) Federal Reserve System
Which of the following pieces of information do you need to calculate the labor force participation rate? I. the number of employed persons II. the number of unemployed persons III. the population IV. the working age population
D) I, II and IV
The definition of M2 includes A) time deposits. B) M1. C) savings deposits. D) all of the above
D) all of the above
An open market purchase of securities by the Fed
D) increases banks' reserves and decreases banks' securities.
In the above figure, if the interest rate is 4 percent, people
D) sell bonds so as to convert them into money.
An increase in real GDP
D) shifts the demand for money curve rightward.
Which of the following is NOT one of the Fed's monetary policy tools? A) last resort loans B) the required reserve ratio C) buying and selling U.S. government securities D) the income tax rate
D) the income tax rate
The ________ is the total number of people aged 16 years and older (and not in jail, hospital or institutional care) while the ________ is the number of people employed and the unemployed.
D) working-age population; labor force
A $25,000 price tag on a new car is an example of money as
a unit of account
If Nike, an American corporation, produces sneakers in Thailand this would
add to Thailand's GDP but not to U.S. GDP
According to the BEA, in the second quarter of 2012 nominal GDP rose by 3.3 percent and real GDP rose by 1.7 percent. The difference between the change in nominal GDP and the change in real GDP could be explained by
an increase in prices of final goods and services produced
Nominal GDP is the value of final goods and services
at the prices of that year
