Macro Econ Exam #2 UofSC Liwen Chen

Labor Force

all the members of a particular organization or population who are able to work, viewed collectively

unemplolyed

(of a person) without a paid job but available to work.

Money Multiplier

1/Reserve Ratio

What is the money multiplier equation?

1/reserve ratio

U-Rate

100 X #of unemployed/labor force

Inflation Rate

100 X CPI Current yr. - Last yr. CPI/Last yr. CPI

CPI

100 X Cost of basket in current yr./cost of basket in base yr.

Amount in todays dollars

Amount in year t $$ X CPI today/CPI in year t

What is the inverse relationship between price and money?

As price INCREASE the value of money DECREASES

Cyclical Unemployment

Cyclical unemployment is when workers lose their jobs because of downturns in the business cycle.

Relationship between unemployment and inflation?

Unemployment: RISES Inflation: FALLS Unemployment: FALLS Inflation: RISES

Velocity of Money

MV = PY

Seasonal Unemployment

Seasonal unemployment occurs when people are unemployed at certain times of the year, because they work in industries where they are not needed all year round.

The CPI is more commonly used as a gauge of inflation then the GDP deflator because,

The CPI better reflects the goods and services bought by customers

Table 28-8 Below is data about the labor market in the state of Northwoods. Wage Quantity Demanded Quantity Supplied $10 80,000 120,000 $9 90,000 110,000 $8 100,000 100,000 $7 110,000 90,000 $6 120,000 80,000 33. Refer to Table 28-8. If the state government imposed a minimum wage of $8, how many people would be unemployed? a. 0 b. 10,000 c. 20,000 d. 40,000

a. 0

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity? a. 6.75. b. 3.00. c. 1.33. d. 1.50.

a. 6.75.

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe? a. The quality of beef deteriorates and beef becomes more expensive relative to other goods. b. The quality of beef deteriorates and beef becomes less expensive relative to other goods. c. The quality of beef improves and beef becomes more expensive relative to other goods. d. The quality of beef improves and the price of beef relative to other prices remains unchanged.

a. The quality of beef deteriorates and beef becomes more expensive relative to other goods.

According to the quantity theory of money, a 3 percent increase in the money supply a. causes the price level to rise by 3 percent. b. causes the price level to rise by less than 3 percent. c. leaves the price level unchanged. d. causes the price level to fall by 3 percent.

a. causes the price level to rise by 3 percent.

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate? a. medium of exchange b. unit of account c. store of value d. liquidity

a. medium of exchange

The value of money falls as the price level a. rises, because the number of dollars needed to buy a representative basket of goods rises. b. rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of dollars needed to buy a representative basket of goods rises. d. falls, because the number of dollars needed to buy a representative basket of goods falls.

a. rises, because the number of dollars needed to buy a representative basket of goods rises.

The term inflation is used to describe a situation in which a. the overall level of prices in the economy is increasing. b. incomes in the economy are increasing. c. stock-market prices are rising. d. the economy is growing rapidly.

a. the overall level of prices in the economy is increasing.

When the money market is drawn with the value of money on the vertical axis, long-run equilibrium is obtained when the quantity demanded and quantity supplied of money are equal due to adjustments in a. the value of money. b. real interest rates. c. nominal interest rates. d. the money supply.

a. the value of money.

Table 24-13. Olivia's expenditures on clothing for three consecutive years, along with some values for the CPI, are presented in the table below. Year 2009 2010 2011 Expenditures on Clothing $1,200 $1,600 $1,800 Consumer Price Index X 180 200 10. Refer to Table 24-13. To the nearest dollar, how much is Olivia's 2010 clothing expenditure in 2011 dollars? a. $1,683 b. $1,778 c. $1,800 d. $3,600

b. $1,778

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to a. $8. b. $80. c. $92. d. $920.

b. $80.

Table 24-7. The table below applies to an economy with only two goods — hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. Year Price of hamburgers Price of hot dogs 2009 $5.00 $3.00 2010 5.50 3.30 2011 5.61 3.63 21. Refer to Table 24-7. If the base year is 2010, then the economy's inflation rate in 2010 compared to 2009 is a. 8 percent. b. 10 percent. c. 10.91 percent. d. 11.11 percent.

b. 10 percent.

If the reserve ratio is 10 percent, the money multiplier is a. 100. b. 10. c. 9/10. d. 1/10.

b. 10.

Table 28-2 Labor Data for Aridia Year 2010 2011 2012 Adult population 2,000 3,000 3,200 Number of employed 1,400 1,300 1,600 Number of unemployed 200 600 200 25. Refer to Table 28-2. The unemployment rate of Aridia in 2010 was a. 10%. b. 12.5%. c. 14.3%. d. 80%.

b. 12.5%.

Three employers have justified their actions as follows. Whose logic is not consistent with the logic of efficiency wage theory? a. Instead of spending money on an electronic timing system that monitors worker hours, Tom spends an equivalent amount of money on higher wages. b. Dick pays his workers less than the equilibrium wage so that they will not have the time or money to look for work somewhere else. c. Harry pays his workers in a developing country more than the going wage hoping that they will get a better diet and so be more productive. d. None of the above is consistent with the logic of efficiency wage theory.

b. Dick pays his workers less than the equilibrium wage so that they will not have the time or money to look for work somewhere else.

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store. a. The $80 is a real variable. The quantity of shoes is a nominal variable. b. The $80 is a nominal variable. The quantity of shoes is a real variable. c. Both the $80 and the quantity of shoes are nominal variables. d. Both the $80 and the quantity of shoes are real variables.

b. The $80 is a nominal variable. The quantity of shoes is a real variable.

On a bank's T-account, which are part of the banks liabilities? a. both deposits made by its customers and reserves b. deposits made by its customers but not reserves c. reserves but not deposits made by its customers d. neither deposits made by its customers nor reserves

b. deposits made by its customers but not reserves

Open-market purchases by the Fed make the money supply a. increase, which makes the value of money increase. b. increase, which makes the value of money decrease. c. decrease, which makes the value of money decrease. d. decrease, which makes the value of money increase.

b. increase, which makes the value of money decrease.

Table 29-4. The First Bank of Fairfield Assets Liabilities Reserves $1,000 Deposits $8,000 Loans 7,000 18. Refer to Table 29-4. If $800 is deposited into the First Bank of Fairfield, and the bank takes no other actions, its a. reserves will increase by $100. b. liabilities will increase by $800. c. assets will decrease by $800. d. loans will increase by $800.

b. liabilities will increase by $800.

The discount rate is a. the rate at which public banks lend to other public banks. b. the rate at which the Fed lends to banks. c. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. d. the percentage of deposits banks hold as excess reserves.

b. the rate at which the Fed lends to banks.

Indexation refers to a. a process of adjusting the nominal interest rate so that it is equal to the real interest rate. b. using a law or contract to automatically correct a dollar amount for the effects of inflation. c. using a price index to deflate dollar values. d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

b. using a law or contract to automatically correct a dollar amount for the effects of inflation.

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply? a. $50 b. $100 c. $150 d. $200

c. $150

If the reserve ratio is 7.5 percent, the money multiplier is a. 7.5. b. 10.3. c. 13.3. d. 11.3.

c. 13.3.

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power? a. 70 in Washington, D.C. and 42 in Austin, TX b. 140 in Washington, D.C. and 70 in Austin, TX c. 160 in Washington, D.C. and 72 in Austin, TX d. 210 in Washington, D.C. and 150 in Austin, TX

c. 160 in Washington, D.C. and 72 in Austin, TX

Table 24-9 The table below lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Month Price of Gas Price of Milk April $2.00 $3.50 May $3.50 $3.25 June $3.85 $3.58 30. Refer to Table 24-9. What is the consumer price index for May? a. 60 b. 132 c. 166 d. 123

c. 166

Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds? a. $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold more dollars. b. $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she need to hold fewer dollars. c. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars. d. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold fewer dollars.

c. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is a. 2.5 percent. b. 33.3 percent. c. 25 percent. d. 75 percent.

c. 25 percent.

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is a. -4 percent. b. 3 percent. c. 4 percent. d. 8 percent.

c. 4 percent.

Money demand refers to a. the total quantity of financial assets that people want to hold. b. how much income people want to earn per year. c. how much wealth people want to hold in liquid form. d. how much currency the Federal Reserve decides to print.

c. how much wealth people want to hold in liquid form.

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up a. in the consumer price index and in the GDP deflator. b. in the consumer price index, but not in the GDP deflator. c. in the GDP deflator, but not in the consumer price index. d. in neither the consumer price index nor in the GDP deflator.

c. in the GDP deflator, but not in the consumer price index.

The principle of monetary neutrality implies that an increase in the money supply will a. increase real GDP and the price level. b. increase real GDP, but not the price level. c. increase the price level, but not real GDP. d. increase neither the price level nor real GDP.

c. increase the price level, but not real GDP.

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics a. ignores the fact that the typical consumer buys more bananas than orange; this procedure does not affect the value of the index. b. ignores the fact that the typical consumer buys more bananas than orange; this procedure results in a potentially-serious bias in the index. c. places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers. d. places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by the extent to which those prices have changed over the previous year.

c. places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers.

When a union bargains successfully with employers, in that industry, a. both the quantity of labor supplied and the quantity of labor demanded increase. b. both the quantity of labor supplied and the quantity of labor demanded decrease. c. the quantity of labor supplied increases and the quantity of labor demanded decreases. d. the quantity of labor demanded increases and the quantity of labor supplied decreases.

c. the quantity of labor supplied increases and the quantity of labor demanded decreases.

Iggie took a university teaching job as an assistant professor in 1980 at a salary of $15,000. By 2011, she had been promoted to full professor, with a salary of $70,000. If the price index was 82 in 1980 and 225 in 2011, then what is Iggie's 1980 salary in 2011 dollars? a. $5,400 b. $20,466 c. $26,158 d. $41,159

d. $41,159

Corey deposits $1,000 in a savings account that pays an annual interest rate of 5 percent. Over the course of a year, the inflation rate is 1.7 percent. At the end of the year, Corey has a. $17 more in his account, and his purchasing power has increased by $10. b. $30 more in his account, and his purchasing power has increased by $50. c. $40 more in his account, and his purchasing power has increased by $33. d. $50 more in his account, and his purchasing power has increased by $33.

d. $50 more in his account, and his purchasing power has increased by $33.

In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered was short term, and what percentage of the unemployment you encountered in a given week was long term? a. 52% was short term; 13.3% was long term b. 52% was short term; 88.9% was long term c. 86.7% was short term; 13.3 was long term d. 86.7% was short term; 88.9 was long term

d. 86.7% was short term; 88.9 was long term

According to the classical dichotomy, which of the following is affected by monetary factors? a. nominal wages b. the price level c. nominal GDP d. All of the above are correct.

d. All of the above are correct.

Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2, a. the demand for goods and services decreases. b. the economy's ability to produce goods and services increases. c. the equilibrium price level decreases. d. None of the above is correct.

d. None of the above is correct.

If monetary neutrality holds, then an increase in the money supply a. increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the short run. b. increases real but not nominal variables. Most economists think that monetary neutrality is a good description of the long run. c. increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the short run. d. increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

d. increases nominal but not real variables. Most economists think that monetary neutrality is a good description of the long run.

employed

give work to (someone) and pay them for it.

According to the classical dichotomy, which of the following increases when the money supply increases

the nominal wage

Frictional Unemployment

the unemployment which exists in any economy due to people being in the process of moving from one job to another.

Structural Unemployment

unemployment resulting from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand.