Macro Econ Midterm 2
In the above table, what is the value of Loans?
$1000
In the figure above, the economy is at point A when the price level rises to 120. Money wage rates another resource prices remain constant. Firms are willing to supply output equal to
$18.5 trillion.
Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is currently holding $200,000 in reserves, the bank's unplanned reserves are equal to
$20,000.
In January 2017, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2017, Tim spent $200,000 on new machines. During 2017, Tim's net investment totaled
-$100,000
The long-run aggregate supply curve is ________ because along it, as prices rise, the money (nominal) wage rate ________.
vertical; rises
The decreasing slope of a production function reflects
diminishing returns.
Liquidity is the
ease with which an asset can be converted into money.
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond
falls from 10 percent to 8 percent.
The demand for nominal money
increases as the price level increases.
An open market purchase of securities by the Fed
increases banks' reserves and decreases banks' securities.
Saving by households
increases when the real interest rate rises.
Activities that encourage faster growth are
investment in new capital and human capital.
In the above figure, the economy will be at full employment if the price level
is 110.
Moving along the aggregate production function, all of the following are held constant EXCEPT
labor
The more education that workers have, the blank* is their human capital and the is their productivity blank*
larger; higher
An aggregate production function shows the relationship between
real GDP and the quantity of labor employed.
Holding capital constant, the aggregate production function shows how ________ varies with ________.
real GDP; labor
An advance in technology will
shift the production function upward
At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is
$0
Which of the following is FALSE about saving? Saving equals wealth minus consumption expenditures. Saving is the source of funds used to finance investment. Income left after paying taxes can either be consumed or saved. Saving adds to wealth.
Saving equals wealth minus consumption expenditures.
When the Fed lowers the federal funds rate, it can lead to
an increase in lending by banks.
Which of the following changes would NOT shift the aggregate demand curve?
an increase in technology
Suppose the price level, the money (nominal) wage, and the price of all other resources rise by 10 percent. This set of changes leads to
an upward movement along the LAS curve.
Suppose the price level, the money wage, and the price of all other resources rise by 10 percent. This set of changes leads to
an upward movement along the LAS curve.
Checks blank** money and credit cards blank** money.
are not; are not
Money is created by
banks taking in deposits.
In the short run, when the Fed decreases the quantity of money
bond prices fall and the interest rate rises.
Depository institution create liquidity when they
borrow short and lend long.
If the real interest rate is below the equilibrium real interest rate
borrowers will be unable to borrow all of the funds they want to borrow and the real interest ratewill rise.
Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the opportunity cost of borrowed funds. II. The real interest rate equals the nominal interest rate adjusted for inflation.
both I and II
All of the following are sources of loanable funds EXCEPT
business investment.
When the Fed wants to undertake open market operations, it
buys or sells securities in the open market
Reserves are
cash in a bank's vault plus its deposits at Federal Reserve banks.
If the government has a budget deficit, crowding out might occur. Crowding out leads to all of the following EXCEPT decreased private saving. a decreased quantity of investment. a higher real interest rate. a smaller capital stock in the future.
decreased private saving.
Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and$16 trillion in 2018. Over this time period, the real GDP growth rate is
decreasing.
The relationship between the labor employed by a firm and the real wage rate is shown by the
demand for labor curve
When talking about aggregate supply, it is necessary to
distinguish between long-run aggregate supply and short-run aggregate supply.
Moving along a short-run aggregate supply curve, resource prices ________, the money (nominal) rate wage ________, and potential GDP ________.
do not change; does not change; does not change
When the price level rises, the long-run aggregate supply curve
does not shift.
The Ricardo-Barro effect says that
government budget deficits have no crowding out effect because taxpayers increase their savingsto match the quantity of loanable funds demanded by the government.
Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is
greater than 15 percent.
When a government has a budget surplus, the surplus
helps finance investment.
We are interested in long-term growth primarily because it brings
higher standards of living.
if a customer deposits $10,000 in currency into a checking account, the bank's total reserves
increase.
Suppose there is a rise in the price level, but no change in the money wage rate. As a result, the quantity of labor demanded
increases.
If the government begins to run a larger budget deficit, then assuming there is no Ricardo-Barro effect, the demand for loanable funds blank** and the real interest rate blank**.
increases; rises
If the government begins to run a larger budget deficits, then assuming there is no Ricardo-Barro effect, the demand for loanable funds ________ and the real interest rate ________.
increases; rises
A decrease in government expenditure shifts the AD curve blank** , while a decrease in taxes shifts the AD curve blank**.
leftward; rightward
If the real interest rate is above the equilibrium real interest rate
lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall.
If households expect an increase in their future incomes, they will save
less and consume more today.
The households expect an increase in their future incomes, they will save
less and consume more today.
If real GDP per person is growing at 4 percent per year, approximately how many years will it take to double?
log(2)/log(1.04) = 17.5 years
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.
The short-run aggregate supply curve is upward sloping because
money (nominal) wage rates do not immediately change when the price level changes
If you have $1,000 of money in the bank and the price level rises by 5 percent, your
money is worth less in terms of what it can purchase.
The country of Kemper is on its 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.
The aggregate demand curve shows the blank** relationship between the price level and blank** .
negative; the quantity of real GDP demanded
The opportunity cost of holding money is
nominal interest rate
The real interest rate
nominal interest rate - inflation rate
Which of the following is TRUE regarding the real wage rate? The real wage rate I. is always greater than the money wage. II. measures the quantity of goods and services an hour's work can buy.
only II
Monetary policy is conducted
only by the Federal Reserve
Which of the following is a tool that is used by the Fed to control the quantity of money?
open market operations
If the government runs a budget deficit, then
part of household and business saving finances the deficit.
Depository institutions undertake all the following activities EXCEPT they do not
print money.
If the price level rises by 3 percent and workers' money wage rate increase by 1 percent, then the
quantity of labor supplied decreases.
When the quantity of labor demanded exceeds the quantity of labor supplied, the real wage rate
raises to eliminate the labor-market shortage.
We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. In the long run
real GDP equals potential GDP.
When the labor market is at full employment
real GDP equals potential GDP.
Over the past 100 years, in the United States the average growth rate of *blank grew at a faster rate than *blank.
real GDP; the population
People base their labor supply on the ________ because they care about ________.
real wage; what their earnings will buy
As the blank**interest rate increases, the quantity of loanable funds demanded blank**.
real; decreases
The blank** interest rate approximately blank** equals the interest rate minus blank**
real; nominal; the inflation rate
The minimum percentage of deposits that a depository institution must hold and cannot use for lending is known as the
required reserve ratio.
Moving upward along the short-run aggregate supply curve results in a blank** in the price level and blank** in real GDP.
rise; an increase
The quantity of ________ by households will be less ________.
saving; the lower is the real interest rate
A commercial bank puts the funds it receives from various sources into
securities, cash assets and loans.
When the quantity of money demanded is greater than the quantity of money supplied, people bonds and the interest rate.
sell; rises
The aggregate production function
shows that real GDP can increase because of increased productivity as well as increased labor hours.
The short-run aggregate supply curve
shows the relationship between aggregate production and the price level holding constant potential GDP and all resource prices.
The discount rate is the interest rate
that the Fed charges on its last resort loans.
As a result of a tax increase
the aggregate demand curve shifts leftward
The idea that a government budget deficit decreases investment is called
the crowding-out effect.
According to the intertemporal substitution effect, when the price level rises and other things remain the same
the interest rate rises.
In the short run, firms expand their production when the price level rises because
the money wage rate remains constant so the higher prices for their products makes it profitablefor firms to expand production.
Which of the following changes while moving along the aggregate demand curve?
the price level
Holding capital constant, a movement along the aggregate production function is the result of a change in
the quantity of labor.
The long-run aggregate supply curve is blank** because along it, as prices rise, the money wage rate blank**.
vertical; rises
Which of the following statements are TRUE regarding the demand for labor? I. The quantity of labor demanded depends on the real wage rate. II. If the money wage rate increases and the price level remains the same, the quantity of labor demanded decreases.
I and II
Real GDP grows when I. the quantities of the factors of production grow. II. persistent advances in technology make factors of production increasingly productive. III. human capital grows.
I, 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
Which of the following statements is CORRECT? (a) When the real wage increases, the labor supply curve shifts rightward. (b) When the real wage increases, the labor supply curve shifts leftward. (c) When the real wage decreases, the labor supply curve shifts leftward. (d) None of the above statements are correct.
None of the above statements are correct
Same table and assume the balance sheet is for the banking system (e.g. any loan made by the bank becomes a deposit for the bank). If the Fed buys $50 in securities from the bank, what happens to deposits?
Rise by $500
Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest. During theyear, inflation was 6 percent. Which of the following statements is CORRECT?
The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent.
The short-run aggregate supply curve shifts leftward when the
The short-run aggregate supply curve shifts leftward when the
Which of the following does NOT shift the short-run aggregate supply curve?
a change in the price level
Which of the following shifts the demand for loanable funds curve leftward?
a decrease in the expected profit
Suppose consumers decrease their consumption expenditure because they worry about what their in-come will be in the future. There is
a leftward shift of the aggregate demand curve.
Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent. At the end of the year you have earned
a real return of $50.
Which of the following events will increase long-run aggregate supply?
an advance in technology
