Macroeconomics Exam 2: 29, 30, 31, & 34
Inflation hurts individuals because: A. higher prices reduce the quantities demanded by consumers. B. it affects the ability of market prices to send signals about the value of resources. C. they can perfectly see the increases in prices. D. it raises all prices in the economy.
B. it affects the ability of market prices to send signals about the value of resources.
In the United States, the amount of cash per capita is about $3,000. This figure A. shows how much the world depends on the U.S. monetary system. B. misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country. C. accurately represents the size of the underground economy in the United States. D. shows how much currency each American holds in their checking accounts.
B. misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country.
France, Germany, Italy, and Spain have experienced ______ unemployment compared to the United States since 1980. A. less B. more C. the same D. None of these answers is correct. Germany experienced less unemployment, while the other nations experienced more.
B. more
Table: Consumer Price Index Reference: Ref 12-1 (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. What was the approximate inflation rate over the period 2009 to 2010? A. 1.68 percent B. 18.10 percent C. 21.81 percent D. 3.60 percent
A. 1.68 percent
Suppose a nation's inflation rate is 5.8 percent from Year 1 to Year 2. If the CPI in Year 2 is 200, what was the CPI in Year 1? A. 189 B. 180 C. 190 D. 208
A. 189
If the required reserve ratio is 4 percent, the money multiplier is A. 25. B. 20. C. 16. D. 4.
A. 25.
A country has a population of 160 million. Thirty million of its people are under the age of 16, and ten percent of the population is either in the military or institutionalized. Seventy million people have jobs and five million are looking for work. What is the labor force participation rate in your country? A. 66 percent B. 62 percent C. 70 percent D. 52 percent
A. 66 percent
What is the overnight lending rate from one bank to another? A. Federal Funds rate B. money multiplier rate C. money market rate D. Federal Reserve rate
A. Federal Funds rate
Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs A. I and II only B. I only C. II only D. III only
A. I and II only
The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending. A. I, II, and III only B. I, II, III, and IV C. I and II only D. III and IV only
A. I, II, and III only
Financial intermediation can break down as a result of I. low and stable inflation II. government controls on interest rates III. bank failures A. II and III only B. I and II only C. I, II, and III D. I and III only
A. II and III only
The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector. A. II and III only B. I and II only C. I, II, and III D. I only
A. II and III only
Which of the following chains of logic explain the functions of banks in the process of economic growth? A. Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth. B. Firms borrow from stock and bond markets. These funds are used for investment, which leads to the capital accumulation that furthers economic growth. C. The demand for loanable funds shows an inverse relationship between the real interest rate that banks charge and the quantity of loans demanded. D. Savers deposit their savings in banks. Banks engage in capital accumulation, which plays an important role in economic growth.
A. Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.
Which of the following assets would you classify as being most liquid? A. demand deposits B. gold bullion C. a home D. small-time deposits
A. demand deposits
Since 1950, the female labor force participation rate in the United States A. has risen. B. has first fallen and then risen. C. has remained relatively constant. D. has fallen.
A. has risen.
Time preference is the desire to A. have goods and services sooner rather than later. B. increase longevity in order to have a greater income. C. save for a time when income will be reduced. D. maximize return on investment in the shortest amount of time.
A. have goods and services sooner rather than later.
When the Federal Reserve makes an open market purchase, the reserves of the banking system will A. increase. B. remain constant. C. decrease. D. become difficult to predict
A. increase.
A major problem with inflation is that after it starts A. it is difficult to stop without experiencing high unemployment. B. it can never be stopped with any government policy. C. it always stops quickly because the economy always corrects itself naturally. D. it is easy to stop as long as it is fully expected.
A. it is difficult to stop without experiencing high unemployment.
You earned $10 an hour in 2005, when the CPI was 90, and earn $12 an hour today, when the CPI is 120. As compared to 2005, in 2010 your real wage rate is ______ . A. lower B. stayed the same C. not enough information. D. higher
A. lower
The supply of savings is positively sloped because A. people are enticed to forgo consumption when interest rates are higher. B. of time preference. C. firms borrow more when interest rates are low. D. when people have more incomes they save more.
A. people are enticed to forgo consumption when interest rates are higher.
Which of the following is NOT a function of the Federal Reserve? A. providing loans to small businesses B. regulating the U.S. money supply C. regulating the U.S. financial system D. serving as the lender of last resort
A. providing loans to small businesses
The supply of loanable funds comes from ______ and the demand for loanable funds comes from ______. A. saving; investment B. investment; saving C. investment; consumption D. saving; consumption
A. saving; investment
What is one of the causes of frictional unemployment? A. scarcity of information B. overabundance of job vacancies C. uneducated work force D. willingness to take lower level jobs
A. scarcity of information
Firms primarily raise money by using which two methods? A. selling stocks and issuing corporate bonds B. borrowing from international countries and the government C. borrowing from banks and borrowing from the government D. selling stocks and issuing treasury bills
A. selling stocks and issuing corporate bonds
Which of the following assets would you classify as being most liquid? A. small-time deposits B. small-cut diamonds C. money market mutual funds D. an oil painting by Claude Monet
A. small-time deposits
All of the following are means of payment in the United States EXCEPT A. stock options. B. Federal Reserve notes. C. checkable deposits. D. savings deposits.
A. stock options.
An open market operation occurs when A. the Fed buys or sells government bonds. B. banks loan funds to each other. C. banks increase the reserve ratio. D. the Fed enforces regulations on the banking industry.
A. the Fed buys or sells government bonds.
Which of the three price indexes measures the average price level of the largest total number of goods? A. the GDP deflator B. Each price index accomplishes the same task. C. the consumer price index D. the producer price index
A. the GDP deflator
The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus, A. they are somewhat insulated from the political process. B. the chairman of the board of governors also has a 14-year term. C. every president of a federal reserve district bank will serve at least 14 years on the BOG. D. the New York Federal Reserve District Bank President can only serve 14 years on the FOMC.
A. they are somewhat insulated from the political process.
What is the unemployment rate for a nation with 6 million employed and 2 million unemployed? A. 10 percent B. 25 percent C. 15 percent D. 20 percent
B. 25 percent
Figure: Labor Market Reference: Ref 11-1 (Figure: Labor Market) Refer to the figure. What is the number of people who are employed at the market clearing wage? How many people end up unemployed due to the implementation of a $10 minimum wage? A. 40 thousand; 20 thousand B. 60 thousand; 40 thousand C. 60 thousand; 20 thousand D. 40 thousand; 40 thousand
B. 60 thousand; 40 thousand
In a country, where both the labor force participation rate and the unemployment rate are very low, which of the following answers explains why this may be the case? A. A large percentage of the population consists of children. B. A large percentage of the population is aging and thus has retired. C. A large percentage of the population is unemployed. D. None of these answers is correct.
B. A large percentage of the population is aging and thus has retired.
How might changes in marginal tax rates on married couples affect labor force participation rates? A. Lower marginal tax rates on married couples encourage lower labor force participation rates by the secondary income earner. B. Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner. C. Higher marginal tax rates on married couples encourage lower labor force participation rates by the secondary income earner. D. Higher marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.
B. Lower marginal tax rates on married couples encourage higher labor force participation rates by the secondary income earner.
Why is the demand for loanable funds downward sloping? A. People save less when the interest rates are low. B. More people borrow money when interest rates are low than when they are high. C. Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates. D. Each of these answers is correct.
B. More people borrow money when interest rates are low than when they are high.
Which of the following can be defined as saving according to economics? A. Microsoft sells stock at an initial public offering. B. Sandra purchases a certificate of deposit from a bank. C. Andrea finances her new car through an auto loan. D. General Motors issues corporate bonds.
B. Sandra purchases a certificate of deposit from a bank.
Which of the following best describes the effects of a major labor union that maintains a union wage above the market equilibrium wage? A. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate decreases. B. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases. C. The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate decreases. D. The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate increases.
B. The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases.
To increase the money supply in the economy, the Fed would A. carry out open market sales and/or lower the discount rate. B. carry out open market purchases and/or lower the discount rate. C. increase the discount rate and/or lower the reserve ratio. D. carry out open market purchases and/or raise the reserve ratio.
B. carry out open market purchases and/or lower the discount rate.
For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to A. become unpredictable. B. decrease. C. remain relatively constant. D. increase.
B. decrease.
At lower interest rates, the cost of investing ______ and the funds that are demanded for investment ______. A. increases; increase B. decreases; increase C. increases; decrease D. decreases; decrease
B. decreases; increase
Discouraged workers are people who A. are working for fewer hours than they want to. B. have given up looking for work but would still like to work. C. are willing and able to work but cannot find a job. D. are looking for a job that pays more than they are currently earning.
B. have given up looking for work but would still like to work.
When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing A. deflation. B. hyperinflation. C. high disinflation. D. falling GDP per capita.
B. hyperinflation.
Inflation generally causes the taxes paid by individuals and business firms to A. become less of a burden. B. increase. C. remain relatively constant. D. decrease.
B. increase.
Negative real rates of interest tend to: A. exist only in poor countries. B. reduce economic growth. C. have no impact on economic growth. D. increase economic growth.
B. reduce economic growth.
Compared to other countries, inflation in the United States has been A. relatively high. B. relatively low. C. extremely unpredictable. D. about the same.
B. relatively low.
If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then the real of price milk is A. more than $4.80. B. same as $4.80. C. less than $4.80. D. unknown without further information.
B. same as $4.80.
What do we call income that is NOT spent on consumption goods? A. profit B. saving C. asset retention D. investment
B. saving
Oil shocks, the shift from manufacturing to service jobs, and the use of new technologies are reasons for _____unemployment. A. permanent B. structural C. cyclical D. frictional
B. structural
The actual real rate of return for lenders is equal to A. the nominal rate of return plus the inflation rate. B. the nominal rate of return minus the inflation rate. C. the nominal rate of return divided by the inflation rate times 100. D. the nominal rate of return times the inflation rate.
B. the nominal rate of return minus the inflation rate.
Investment is A. the purchase of shares of stock on the New York Stock Exchange. B. the purchase of new capital goods. C. the purchase of new consumption goods. D. the purchase of gold and silver during inflationary times.
B. the purchase of new capital goods.
An increase in the supply of savings will cause the interest rate A. to increase. B. to decrease. C. to remain unchanged. D. to increase or decrease depending on the elasticity of demand for loanable funds.
B. to decrease.
When the U.S. government borrows, it sells A. federal paper. B. treasury bonds. C. government stocks. D. Each of these answers is correct.
B. treasury bonds.
To be considered money, an asset must be A. backed by gold or other precious metals. B. widely accepted as a means of payment. C. currency. D. Each of these answers is correct.
B. widely accepted as a means of payment.
At an 8 percent interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5 percent? A. $300 billion B. $250 billion C. $190 billion D. $500 billion
C. $190 billion
Table: Unemployment Statistics for Country X Reference: Ref 11-2 (Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 1995? A. 2.5 percent B. 3.4 percent C. 4 percent D. 1.5 percent
C. 4 percent
Which of the following individuals can be counted as unemployed? A. a woman who works only part time B. a temp worker, who is currently responding to job advertisements from the newspaper C. a man who was laid off from an auto manufacturing plant in Detroit D. Each of these answers is correct.
C. a man who was laid off from an auto manufacturing plant in Detroit
The reserve ratio is the ratio of bank reserves to A. the monetary base. B. currency demand. C. bank deposits. D. bank loans.
C. bank deposits.
Which of the following is the most liquid asset? A. savings deposits B. checkable deposits C. currency D. money market mutual funds
C. currency
For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to A. increase. B. become difficult to predict. C. decrease. D. remain constant.
C. decrease.
If the interest rate rises from 5 percent to 9 percent, the number of new businesses will A. increase. B. remain the same. C. decrease. D. sharply increase, then level off.
C. decrease.
The labor force is made up of A. all adult non-institutionalized civilians. B. unemployed workers, employed workers, and students over 16. C. employed and unemployed workers. D. institutionalized people, the military, and employed workers.
C. employed and unemployed workers.
During recessions the unemployment rate A. fluctuates randomly. B. decreases. C. increases. D. remains relatively constant.
C. increases.
What do we call an increase in the average level of prices in an economy? A. deflation B. stagflation C. inflation D. recession
C. inflation
Holding reserves is costly for banks because A. it leads to the risk of bank robberies. B. the Fed charges banks interest on required reserves. C. it leads to fewer profits. D. it forces banks to pay for ATMs.
C. it leads to fewer profits.
When changes in nominal prices are confused with changes in real prices, people experience A. cyclical price confusion. B. inflationary delusion. C. money illusion. D. consumer bias.
C. money illusion.
All else being equal, a working-age person who has more patience tends to have A. more collateral. B. fewer savings. C. more savings. D. less investment.
C. more savings.
Firms primarily raise money by using which two methods? A. selling stocks and issuing treasury bills B. borrowing from international countries and the government C. selling stocks and issuing corporate bonds D. borrowing from banks and borrowing from the government
C. selling stocks and issuing corporate bonds
Which of the following individuals can be counted as part of the labor force? A. someone who just celebrated a fifteenth birthday B. someone who retired four months ago C. someone who is collecting unemployment benefits D. someone who is on active military duty in Afghanistan
C. someone who is collecting unemployment benefits
If consumers expect to have shorter life expectancy and desire to save less, then the A. demand for loanable funds will increase, and the equilibrium interest rate will increase. B. demand for loanable funds will decrease, and the equilibrium interest rate will decrease. C. supply of loanable funds will decrease, and the equilibrium interest rate will increase. D. the supply of loanable funds will increase, and the equilibrium interest rate will decrease.
C. supply of loanable funds will decrease, and the equilibrium interest rate will increase.
When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on A. the discount rate. B. M1. C. the Federal Funds rate. D. M2.
C. the Federal Funds rate.
The supply of savings function shows the relationship between saving and A. income. B. age. C. the interest rate. D. consumption.
C. the interest rate.
The presence of discouraged workers causes the measured unemployment rate to be A. overstated. B. either overstated, understated, or correctly stated. C. understated. D. correctly stated.
C. understated.
Discouraged workers and underemployed workers are examples of A. users of unemployment insurance. B. poor national employment planning. C. workers not included in the unemployment rate. D. populations that cause higher unemployment taxes.
C. workers not included in the unemployment rate.
Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change? A. $1.76 million B. $160,000 C. $16 million D. $1.6 million
D. $1.6 million
If $100 is saved at an annual interest rate of 10 percent, what will be the return in one year? A. $11 B. $110 C. $111 D. $10
D. $10
If $100 is saved at an annual interest rate of 10 percent, what will be the return in one year? A. $111 B. $110 C. $11 D. $10
D. $10
A country has 24 million people in the labor force and 21.5 million of them are employed. What is the unemployment rate in this country? A. 2.5 percent B. 89.6 percent C. 21.5 percent D. 10.4 percent
D. 10.4 percent
Table: Consumer Price Index Year Reference: Ref 12-1 (Table: Consumer Price Index) Refer to the CPI values in the table for the years 2005 to 2010. In which year was the inflation rate the highest? A. 2006 B. 2009 C. 2007 D. 2008
D. 2008
Mario is saving if he does which of the following? Answers: A. makes a deposit in a savings account at the bank B. buys a share of stock in a computer company C. buys a corporate bond D. Each of these answers is correct.
D. Each of these answers is correct.
The Federal Reserve is the A. federal government's bank. B. U.S. central bank. C. banker's bank in the United States D. Each of these answers is correct.
D. Each of these answers is correct.
Which of the following programs could help overcome structural unemployment? A. worker retraining B. limitations to unemployment benefits C. job search assistance programs D. Each of these answers is correct.
D. Each of these answers is correct.
Which of the following did NOT contribute to the financial crisis of 2007-2008? A. highly leveraged investment banks B. highly leveraged homeowners C. fear on the part of short-term lenders D. Each of these contributed to the crisis.
D. Each of these contributed to the crisis.
Why do firms and individuals borrow? A. They want to smooth consumption. B. Debt is often necessary for large purchases. C. They believe their return will be greater than the interest rate. D. Each of these explanations provides a reason for borrowing.
D. Each of these explanations provides a reason for borrowing.
Which of the following raises structural unemployment? I. higher union membership II. more unemployment benefits III. higher minimum wages A. II and III only B. I and III only C. I and II only D. I, II, and III
D. I, II, and III
Trading in the market for loanable funds determines the equilibrium A. interest rate. B. amount of borrowing. C. level of savings. D. It determines all three of these.
D. It determines all three of these.
The main difference between M1 and M2 is that A. M1 includes more liquid assets in addition to the assets in M2. B. M2 includes more liquid assets in addition to the assets in M1. C. M1 includes some less liquid assets in addition to the assets in M2. D. M2 includes some less liquid assets in addition to the assets in M1.
D. M2 includes some less liquid assets in addition to the assets in M1.
Which of the following individuals can be counted as unemployed? A. Darren, a ten-year-old child B. Moesha, a full-time college student C. Nazma, a stay-at-home mom D. None of the answers is correct.
D. None of the answers is correct.
Which of the following statements highlights the difference between the CPI (consumer price index) and the GDP deflator? A. The CPI measures the average prices of inputs in the production process, whereas the GDP deflator measures the average prices of goods purchased by consumers. B. The CPI measures the average prices of retail goods, whereas the GDP deflator measures the average prices of wholesale goods. C. The CPI measures the average prices of all final goods consumed by consumers, whereas the GDP deflator measures the average prices of all inputs used in the economy. D. The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy.
D. The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy.
The demand to borrow function is A. upward sloping. B. vertical. C. horizontal. D. downward sloping.
D. downward sloping.
What is a service that banks specialize in providing? A. making sure all funds are distributed in the most equitable fashion B. providing the highest return available in the market C. seeking to pass all of the returns on investment to the savers D. evaluating the quality of investment opportunities
D. evaluating the quality of investment opportunities
Compared to the United States, unemployment rates in Western Europe tend to be A. higher because of fewer labor regulations. B. lower because of fewer labor regulations. C. lower because of more labor regulations. D. higher because of more labor regulations.
D. higher because of more labor regulations.
When workers lose their jobs and become officially unemployed, the unemployment rate A. decreases. B. becomes difficult to predict. C. remains constant. D. increases.
D. increases.
When workers lose their jobs and become officially unemployed, the unemployment rate A. becomes difficult to predict. B. decreases. C. remains constant. D. increases.
D. increases.
The percentage of adults in the labor force is the A. work force participation rate. B. unemployment rate. C. employment rate. D. labor force participation rate.
D. labor force participation rate.
The money multiplier equals A. one divided by the difference between the reserve ratio and the required reserve ratio. B. the amount of money supply divided by the amount of reserves. C. one divided by the discount rate. D. one divided by the reserve ratio.
D. one divided by the reserve ratio.
When workers lose their jobs and become officially unemployed, the number of people in the labor force A. increases. B. decreases. C. becomes difficult to predict. D. remains constant.
D. remains constant.
When the Fed wants to increase interest rates, it A. buys bonds in the open market. B. adjusts the fractional reserve ratio. C. instructs banks across the nation that they must raise their rates. D. sells bonds in the open market.
D. sells bonds in the open market.
Investment is A. the purchase of shares of stock on the New York Stock Exchange. B. the purchase of gold and silver during inflationary times. C. the purchase of new consumption goods. D. the purchase of new capital goods.
D. the purchase of new capital goods.
True or False: All individuals who do not have a job are counted as unemployed.
False
True or False: In times of rising prices, lenders benefit at the expense of borrowers.
False
True or False: Negative real interest rates among countries result when they print too little money.
False
True or False: The unemployment rate in the United States has typically been higher than the unemployment rate in Europe.
False
True or False: When information about jobs becomes scarcer, frictional unemployment tends to decrease.
False
True or False: Bonds sold by the U.S. government have almost zero default risk.
True
True or False: If someone buys a bond, economists would say that person is saving, not investing.
True
True or False: If the Fed decides to increase the money supply by $200 million, it can buy government bonds in the open market for less than $200 million.
True
True or False: If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.
True
True or False: Monetizing the debt occurs when the government pays off its debts by printing money.
True
True or False: The most liquid asset is cash.
True