MT2 S19
Bobbie purchases a bond, newly issued by the Big Time Corporation for $10,000. The bond pays $400 to its holder at the end of the first, second and third years and pays $10,400 upon its maturity at the end of four years. The principal amount of this bond is ______, the coupon rate is ______, and the term of this bond is ________.
$10,000; 4%; four years
Pat purchased a newly issued, two-year government bond with a face value of $10,000 in 2014. The coupon rate on the bond is 7%. After one year, in 2015, pat wants to sell the bond in the bond market. The market rate of interest in 2015 is 5%. What price will pat receive for the bond?
$10,190.47
In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then the output gap equals:
$2 trillion.
In Macroland there is $12,000,000 in currency. The public holds half of the currency as cash and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 12.5 percent, deposits in Macroland equal ______ and the money supply equals _____.
$48,000,000; $54,000,000
If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption.
$75
If the Central Bank of Macroland puts an additional 1,000 units of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of .10, then the banks will eventually make new loans totaling ________ and the money supply will be ______.
$9,000; $10,000
In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals:
1160
If real GDP equals 3,500, the CPI (average price level) equals 1.5, then what is velocity of circulation if the money stock equals 2,100?
2.5
If the frictional rate of unemployment equals 3 percent, the structural rate of unemployment equals 4 percent, and the cyclical rate of unemployment equals -2 percent, then the natural rate of unemployment equals:
7%.
If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ___ and the money supply is ___
800; 1,200
The follow data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Answer the next two questions based on this information. (A) July 1953 1992.2 (B) May 1954 1941.0 (C) Apr. 1957 2182.7 (D) Apr. 1958 2117.4 (E) Apr. 1960 2391.0 Which of the turning points could be a peak?
Apr. 1957, 2182.7, (C)
The follow data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Answer the next two questions based on this information. (A) July 1953 1992.2 (B) May 1954 1941.0 (C) Apr. 1957 2182.7 (D) Apr. 1958 2117.4 (E) Apr. 1960 2391.0 Which of the turning points was a recession?
July 1953 through May 1954
The vertical intercept of the consumption function equals ______ and the slope equals _____.
The autonomous part of consumption; the mpc
After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the:
actual reserve/deposit ratio is equal to the desired reserve/deposit ratio
If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving ____ and public saving ______. a. increases; increases b. increases; decreases c. does not change; increases d. does not change; decreases
c. does not change; increases
When the Chinese government buys U.S. government bonds, from the perspective of the United States, this is a(n):
capital inflow
In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm:
changes production levels to meet demand.
Your financial investments consist of U.S. government bonds maturing in twenty years and shares in a start-up Internet company. If interest rates on newly issued government bonds increase, then the price of your bonds will ______ and the price of the shares you own will ____.
decrease, decrease
Holding other factors constant, if growing concerns about job security raise precautionary saving, the the real interest rate will _________ and the equilibrium quantity of national saving and investment will _______.
decrease; increase
In the short-run Keynesian model, if the mpc equals 0.8, then to decrease planned aggregate spending by $20 billion at any output level, government spending must be _______ or net taxes must be _______.
decreased by $20 billion; increased by more than $20 billion
In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:
decreased by less than $10 billion.
Based on the information in the table above, the total amount of bank deposits ______ from _______ over the course of 1932. date | currency | rr | reserves | Money supply dec 1931 $4.59 .095 $3.11 $37.3 dec 1932 $4.82 .109 $3.18 $34.0
decreased; $32.7 billion to $29.2 billion
In the short-run, _____ determines a nation's GDP. In the long-run, _____ determines a nation's GDP.
economy-wide spending; potential output
A bank's desired reserve/deposit ratio is .33. It has deposit liabilities of $100 million and reserves of $50 million. Therefore, we may conclude that it:
has too much reserves and it should increase its lending.
When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ______ and there is a capital ______ the United States.
import increase; inflow to
All else remaining equal, if the public switches from doing most of their shopping with currency to using checks instead, the money supply will:
increase.
Suppose Congress passes a 5% investment tax credit under which a firm receives $5 in tax refunds from the government for every $100 it spends on new capital equipment. Everything else remaining equal, we can conclude that the equilibrium real interest rate will _____ and the equilibrium quantity of national saving and investment will ______.
increase; increase
The increasing availability of temporary job placement agencies and online job services has ___ the efficiency of matching workers and jobs and ___ the natural rate of unemployment in the United States.
increased; reduced
If firms sell less than expected, actual investment _________.
increases because the unsold goods are added to inventory.
An increase in the perceived riskiness of Company A stock ______ the risk premium investors require to purchase company A stock and thereby ______ the price of Company A stock.
increases; decreasing
What is the "coupon rate" on a bond? It is the:
interest payment promised when a bond is issued.
PAE=1000 + 0.75Y. If actual output equals $4,500, planned aggregate expenditure is _____ output and firms will ______ production.
less than; decrease
If the output gap equals $200 million, then
potential GDP is less than actual GDP.
An expansion occurs when either ______ or _____.
potential output grows rapidly; actual output rises above potential output
The market value of a particular bond at any given point in time is called the bond's:
price
International capital flows are:
purchases or sales of real and financial assets across international borders.
Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries:
reduce the cost of gathering information about borrowers.
The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.
smaller; smaller
Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2001 recession were each of the following indicators EXCEPT:
the consumer price index.
Two countries, Alpha and Beta have the same real GDP, average price levels and inflation rates. However, a dollar Alpha changes hands more frequently than each dollar in Beta. Therefore, we may conclude that ______ in Alpha than in Beta, holding other factors equal.
the money stock is smaller.
PAE=1000 + 0.75Y. If potential output equals $5,000, at short-run equilibrium output,
there is a recessionary gap equal to -$1000.
