Macro Midterm 2 Study Guide

If it could increase its growth rates slightly, a country with low income would catch up with rich countries in about ten years.

False

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

22.5 percent.

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

$10,000 of money.

If GDP = $1,000, consumption = $600, taxes = $100, and government purchases = $200, how much is saving and investment?

$200 and $200

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves?

$27,000

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

$5,100 billion

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is

$6 billion and consumption is $6 billion.

Suppose Joe changes his $1,000 demand deposit from Bank A to Bank B. If the reserve requirement is 10 percent, what is the potential change in demand deposits as a result of Joe's action?

0

Table 26-1. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. ​ GDP $8.7 trillion Consumer Spending $6.1 trillion Taxes Minus Transfers $1.0 trillion Government Purchases $0.8 trillion

1.8 trillion

Person Status Allen Unpaid stay-at-home dad. Has not looked for a job in several years Ben College president Allison Part-time welder. Actively looking for full-time work Brittany Self-employed full-time wedding singer Cathy Full-time physician's assistant Calvin Retired finance professor. Last applied for work 10 weeks ago Diane Laid-off fork-lift operator expecting to be recalled David Works for a bicycle store. Age 70 Evelyn Manager of health food store Eli Museum guard. Was not at work last week due to illness Flora Has never been employed. Looked for a job last week Frank Fired from job as an investment banker. Last looked for work three weeks ago How many people are in the labor force

10

Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year?

2%

Suppose that some country had an adult population of about 46 million, a labor-force participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were unemployed?

2.76 million

Board of governers consists of how many members/appointed by who

7 by president

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 ended within one week and therefore was short term, and what percentage of the unemployment you encountered in a given week was long term?

86.7% was short term; 88.9% was long term

Which of the following is an example of a reason why firms might pay efficiency wages? a. At equilibrium wages, workers often quit to find better jobs. b. At equilibrium wages, workers sleep when the boss is not looking because workers are not deeply concerned about being fired. c. At equilibrium wages, only minimally qualified workers apply for the job. d. At equilibrium wages, workers cannot afford a healthy diet so they fall asleep at work due to a lack of energy. e. All of the above are true.

All of the above

Esmerelda worked part-time for her mother's business without pay. Tabitha was absent from work because she had strep throat. Who is counted as "employed" by the Bureau of Labor Statistics?

Both Esmerelda and Tabitha

Which of the following functions as both a store of value and a medium of exchange?

Cash but not stocks

Which of the following is an explanation for the existence of frictional unemployment?

Job search

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Medium of exchange

The equipment and structures available to produce goods and services are called

Physical capital

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?

Public saving

Tatiana is waiting to be recalled to a job from which she was laid off. Ivan was fired but has not looked for work during the last two months. Who does the Bureau of Labor Statistics count as "unemployed"?

Tatiana but not Ivan

A country with a relatively low level of real GDP per person is considering adopting two policies to promote economic growth. The first is to decrease barriers to trade. The second is to restrict foreign portfolio investment. Which of these policies do most economists say promote growth?

The first but not the second

Which of the following can be measured by the level of real GDP per person?

The standard of living but not productivity

Who of the following is not included in the Bureau of Labor Statistics' "employed" category?

Those waiting to be recalled to a job from which they had been laid off

If a production function has constant returns to scale, then if all inputs double so does production.

True

Which of the following statements is true? a. Municipal bonds pay less interest than comparable corporate bonds. b. A stock index is a directory used to locate information about selected stocks. c. Longer-term bonds tend to pay less interest than shorter-term bonds. d. Mutual funds are riskier than single stock purchases because the performance of so many different firms can affect the return of a mutual fund.

a. Municipal bonds pay less interest than comparable corporate bonds.

Which of the following statements is true? a. Prime-age men and women tend to have similar unemployment rates. b. The labor-force participation rate of men is rising. c. Blacks have a lower unemployment rate than whites. d. Most spells of unemployment are long term, but most unemployment observed at any given time is short term.

a. Prime-age men and women tend to have similar unemployment rates.

If the Fed engages in an open-market purchase, and at the same time, it raises reserve requirements, what happens to the money supply

a. we cannot be certain what will happen to the money supply.

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.

If the demand for loanable funds shifts to the right, then the equilibrium interest rate

and quantity of loanable funds rise.

Which of the following statements about a bank's balance sheet is true? a. An increase in a bank's capital increases its leverage ratio. b. Assets minus liabilities equals owner's equity or capital. c. The largest liability on the bank's balance sheet is its loans. d. Because a bank is highly leveraged, a large change in the value of its assets has little impact on its capital.

b. Assets minus liabilities equals owner's equity or capital.

If the supply of loanable funds is very inelastic (steep), which policy would likely increase saving and investment the most?

b. a reduction in the budget deficit

An increase in the budget deficit will

b. raise the real interest rate and decrease the quantity of loanable funds demanded for investment.

A financial intermediary is a middleperson between

borrowers and lenders.

If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is

cyclical unemployment amounting to 0.5 percent of the labor force.

Unions tend to increase the disparity in pay between insiders and outsiders by a. increasing the wage in the unionized sector, which may create a decrease in the supply of workers in the nonunionized sector. b. decreasing the demand for workers in the unionized sector. c. increasing the wage in the unionized sector, which may create an increase in the supply of workers in the nonunionized sector. d. increasing the demand for workers in the unionized sector.

c. increasing the wage in the unionized sector, which may create an increase in the supply of workers in the nonunionized sector.

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

crowding out

Required reserves of banks are a fixed percentage of their a. assets. b. deposits. c. government bonds. d. loans

deposits

To be counted as "employed" in the U.S. labor force statistics, a person

does not have to be working for pay if they are working for a family business and does not have to be working full time.

If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in

foreign direct investment.

Greg learns how to bake from his grandmother. This is an example of

human capital, but not technological knowledge.

If the government's expenditures exceeded its receipts, it would likely

sell bonds directly to the public.

Esther is considering expanding her dress shop. If interest rates rise she is

less likely to expand. This illustrates why the demand for loanable funds slopes downward.

Which of the following sets of government policies is the most growth oriented?

lower taxes on the returns to saving provide investment tax credits and lower the deficit

When the government's budget deficit increases the government is borrowing

more and public savings falls.

Other things the same, when the interest rate rises, people would want to lend

more, making the quantity of loanable funds supplied increase.

Unions might increase efficiency in the case where they a. offset the market power of a large firm in a "company town." b. threaten a strike but don't actually follow through, so there are no lost hours of work. c. raise the wage for insiders above the competitive equilibrium. d. lower the wage of local outsiders.

offset the market power of a large firm in a "company town."

An increase in the government's budget surplus means public saving is

positive and increasing.

National Savings equals

public saving + private saving

Dollar bills, rare paintings, and emerald necklaces are all

stores of value.

Which one of the following types of unemployment results from the wage being held above the competitive equilibrium wage? a. structural unemployment b. cyclical unemployment c. frictional unemployment d. sectoral unemployment

structural

In a closed economy, private saving is

the amount of income that households have left after paying for their taxes and consumption.

Sheila is on a temporary layoff from her automobile factory job but has not looked for work in the last four weeks. The Bureau of Labor Statistics counts Sheila as

unemployed and in the labor force.

Civilian labor force 100 million Persons unemployed 15 weeks or longer 1.6 million Job losers and persons who have completed temporary jobs (excludes job leavers) 3.1 million Total unemployed 6.2 million Total unemployed plus discouraged workers 7.0 million Total unemployed plus all marginally attached workers 8.1 million Total unemployed plus all marginally attached workers plus total employed part-time for economic reasons 9.2 million ​ Refer to Table 28-3. What is the U-1 measure of labor underutilization?

1.6%