When the Fed changes interest rates, lithe result is a change inconsumption, investment , and net exports. If the Fed decreas interest rates, then this makes American assets________ appealing, which causes the dollar (relative to foreign currencies) to ________, which causes net exports to _________.
Less, depreciate, rise
Which of the following is FALSE if the economy is at point B?
Inflation is more likely to occur in the near future
Suppose the. Economy is at point A. If there is an Unexpected increase in oil prices, then the economy will move from point ___ in the short run, and point __ in the long run. (Assume there is no monetary or fiscal policy pursued by the government.)
B to A
Suppose the economy is inline run equilibrium. If investment falls due to increased pessimism about future business conditions' then wwe would expect that in the short run, real GDP to
Fall and the price level will decline
Last week, six Swedish kronor could purchase one US dollar. This week, four Swedish kronor can purchase one US dollar. This change in the value of the dollar will ______ exports from the US to Sweden and ______ US aggregate demand.
If the current unemployment rate is less than the natural unemployment rate, then the economy is most likely
In an inflationary gap
Which of the following shift the LRAS curve rightward
An increase in the education level of the labor force
Assume government increases personal income taxes for all households. As a result, in the short run, real GDP will
Decreases and the price level will fall
When the Fed purchases government securities on the open market, bank reserves _____ and the interst rate ______.
The term ecpansionary fiscal policy refers to the government's attempt to stimulate the economy by
increasing government experniture or decreasing taxes
Using fiscal policy, the best way to get the economy out of a svere recession is to________ government expenditures on goods and services and/ or ________ taxes
If t he federal government adopted a contractionary fiscal policy, then aggregate demand ______ and real GDP ________
In the absence of any policy action, long-run equilibrium in this economy:
could occur if short-run aggregate supply curve shifts upward and to the left due to upward pressure on wages
Reer to the figure above. If the economy is currently at long-run equlibrium with price level P1, andoutput at Y2, an adverse supply shock would:
shift AS from AS1 to AS2
Assume evonomy is currently at long-run equilibrium with price level P! and output at Y2. If an adverse supply shock occurs, policymakers may be able to use stabilization policy (monetary or fiscal) to restore output to potential GDP by ____. Doing so would cause ______.
shift AD to the right; the price level to increase further
The Federal Reserve systekm consists of ______ regional Banks,______ governors on the Board of Governors, and ________ voting members of the Federal Open Market Coommittee.
If potential output equals 4000 and short run equilibrium output equals 3500, there is a ________ gap and the Federal Reserve must ______ real interest rates in order to close the gap.
The money demand curve will shift to the right if
real income increases and/ or the price level increases
If the Fed wishes to reduce nominal interest rates, it must engage in an open market ________ of bonds that ____ the money supply.
If the Federa ;Reserve wants to decrease the money sypply, it could
increase reserve requirements and/ or increase the discount rate and/ or conduct open market sals
To increases investment, the Rederal Reserve should
conduct expansionary monetary policy (lowering the interest rate)
If real income decreases, demand for money will _______, and nominal interest rate will ______
Each of the following helps explain a downward-sloping aggregate demand curve except
the inflation effect
The wealth effect describes
the fact that changes in the price level affect real household wealth, which affects planned consumption
The aggregate demand curve shifts when there are changes in
planned spending that are not caused by changes in output of the price level
firms suddenly becoming pessimistic about future business prospects is an example of a _______ demand shock, which would shift the AD to the _______
For given price level, if a rise in the stock market makes consumers more willing to spend, then the_______ shifts _______
aggregate demand curve; right
For a given price level, if an increase in threats to domestic security causes the government to increase military spending, then the _______ shifts ______
aggregate demand curve; right
The aggregate demand curve shifts to the right if the Fed
increases the money supply and, therefore, interest rates fall
The AD curve would shift to the right in response to an increase in_______ or a decrease in ______.
government spending or the money supply; taxes
If households and firms increase their expectation for the future price level, the ______ curve will shift ______.
short-run aggregate supply; leftward
When actual output equals potiental output, there is _____ output gap and the price level will _______.
no; be equal to the expected price level
When actual ouptu is less than potential output, there is ______ output gap and the price level will ____.
recessionary; be lower than the expected price level
Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following EXCEPT:
a negative supply shock
Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will shift the _____ curve to the right and generate ______
aggregate demand; an expansionary output gap
Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will shift the ____ curve to the right and generate _____
aggregate demand; expansionary output gap
The self-correcting property of the economy means that output gaps are eventually eliminated by:
rising or falling in price
To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the price level must:
Policymakers' use of stabilization policy to eliminate output gaps in more appropriate when an economy self corrects very___ and when the output gap is very ____
Shocks to aggregate demand _____ require the Fed to choose between price level and output stability; shocks to aggegate supply _____ require the Fed to choose between price level and output stability.
do not; do
The US government used _____ to respond to the two negative demand shocks that caused the Great Recession of 2009.
monetary and fiscal policy
Starting from long-run equalibrium, assume consumer confidence in the economy rises, and as a result, real GDP rises above potential GDP. To move US GDP back to potential GDP, the Federal Reserve could:
raise the interest rate
Starting from long-run equlibrium, if Congress lowers personal income taxes, real output will _____ and price level will _____, in the short-run, other things held constant
Suppose prices are quoted in dollars and transactions are conducted in pesos. The peso serves as a _____ and the dollar serves as a _____.
medium of exchange; unit of account
The reserves of a commercial bank
consist of vault cash and deposits at the Federal Reserve
are the funds the bank can use to satisfy the cash demands of its customers
are a small fraction of the bank's deposits
A bank with $100 million in deposits has $15 million cash in it's vault, $10 million in deposits at the Fed, and $15 million in government securities. Its total reserves equal
According to the equation of exchange, V = 5, P = $3, and Y = 50, then the quantity of money equals
5 = 3 (50)/ M
5M = 150
M = 150/5
M = $30
Assume desired reserve-depositratio is 10%. If the Federal Reserve sells securities of $2 million in the open market, then chackable deposits will (assuming change is currency is zero):
MULTIPLIER is 1/ (.1) desired reserve-deposit ratio = 10
10 * securities of $2 million
since securities where sold it is a decrease
ANSWER: decrease by $20 million
In an open market sale, the Federal Reserve _____ government bonds and the bank reserves _____
Bobby deposits $5000 cash in his checkable deposit at the Bank of America. If the required reserve ratio is 10%, Bank of America's
required reserves increase by $500 and its reserves increase by $4500
The "double coincidence of wants" is
eliminated with the use of money.
( has to do with the barter system)
If real GDP is $200, the price level is 2.5, quantity of money is 100, then the velocity must equal:
V = P*Y/ M
V = 2.5 * 200/ 100
V = 5
Suppose that real GDP grows by 3 % a year, the quantity of money grows 5% a year, and velocity does not change. In the long run, the inflation rate equals
LOOK UP INFLATION RATE!!!
An increase in the nominal exchange rate, e, defined as the number of units of the foreign currency that one unit of the domestic currency will buy, indicates that the domestic currency has ______ relatice to the foreign currency.
When the nominal exchange rates changes from 4 francs per dollar to 6 francs per dollar, the dollar has:
If the exchange rate moves from 10 mexican pesos per US dollar to 8 Mexican pesos per US dollar, then the Mexican peso has _____ and the US dollar has _____
An exchange rate that varies according to the supply and demand for the currency in the foreign exchange market is called a ______ exchange rate.
The principal suppliers of US dollars to the foreign exchange market are:
US households or firms wishing to purchase foreign goods and assets
European firms wishing to purchase American goods and services are _____ the foreign exchange market.
demanders of the US dollar in
As the dollar exchange rate, e increases, the quantity of dollars supplied in the foreign exchange market_____ and the quantity of dollars demanded in the foreign exchange market______
Each of the following would increase the supply of US dollars, shifting the supply curve for dollars to the right, EXCEPT:
an appreciation of the US dollar relative to other currencies
Holding all else constant, an increase in the preferences of Americans for Mexican foods will ______ the supply of dollars in the foriegn exchange market and ______ the equilibrium Mexican peso/ US dollar exchange rate.
Holding all else constant, a decrease in the real interest rate on Mexican assets will ______ the supply of dollars in the foreign exchange market and _____ the equilibrium Mexican peso/ US dollar exchange rate.
The US dollar exchange rate, e, where e is the nominal exchange rate expressed as Jap yen per US dollar, will appreciate when:
real GDP in Japan increases
All else equal, if US stocks are perceived to have become riskier compared to financial investments tin other countries, then the market equilibrium value of the exchange rate for the US dollar will:
When the Fed tightens US monetary policy, domestic interest rates_____, making US assets relatively more attractive to foreign investors, and _____ the equilibrium exchange rate.
Tight monetary policy raises the real interest, which _____ the demand for dollars, _____ the supply of dollars, and _____ the equilibrium value of the dollar.
increases; decreases; increases
As the US dollar appreciates relative to other currencies, the dollar price of goods imported to the US ______ causing net exports to ______.
The CPI in 1980 was 82, and the CPI in 2006 was 202. If you earned salary of $30,000 in 1980, what would be a salary with equivalent purchasing power in 2006?
30000(202/82) = $73902
On Jan 1, 2004, Edward invested $10,000 at 5% interest for one uear. The CPI on Jan 1, 2004 stood at 1.60. On Jan 1, 2005, the CPI was 1.76. The real rate of interest earned by Edward was _____ %.
refer to chart above # 6 on Quiz 4.
How many workers will Joe hire if he must pay each one $35 a day?
refer to chart above # 6 on Quiz 4.
How many workers will Joe hire if he must pay each one $45 a day?
Holding other factors constant, if a larger proportion of the population enters the labor force as a result of a growing social acceptance of women working, then the real wages of workers will _____ and employment of workers will _____.
In a small town of 1000 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. All but one of these had actively looked for a job in the previous four weeks. What is the unemployment rate in this town?
Ina country with 200 million people aged 16 years and older, 120 million in the labor force, and 114 million employed, what is the participation rate?
Decentralized market-based finanical systems improve the allocation of saving by:
providing information and risk-sharing services
If the prinipal amount of a bond is $10,000,000, the coupon rate is 7%, and the inflation rate is 4%, then the annual coupon payment made to the holder of the bond is:
Fred 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 $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
When a baker exchanges a pie for follars, this is an example of dollars serving as:
medium of exchange
If you post your car on eBay with a Buy-it-Now price of$1800, you are using money as
a unit of account
The main disadvantage of using money as a store of value is that:
other assetspay reatively high interest than money
The components of M2 that are not also in M1:
are usable for making payments, but at a greater cost or inconvenience than currency or checks.
When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:
money is created
If the Central Bank of Macroland puts an additional 1000 units of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling _____ and the money sypply will increase by _____
When an individual deposits currency into a checking account:
bank reserves increase, which allows banks to lend more and increases the money supply
If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:
When the Fed sells government securities, the banks'
reserves decrease and lending will contract; causing a decrease in money supply
Assume in Macroland, currency held by the public is $2000, bank reserves are $300, and the desired reserve/ deposit ratio is 10%. If the Central Bank buys $200 worth of government bonds from the public, the money supply in Macroland will increase from _____ to _____, assuming that the public does not wish to change the amount of currency it holds.
When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:
increases by more than $1,000,000
The two main responsibilities of the Federal Reserve System are to ____ and to ____.
conduct monetary policy; and oversee financial markets
The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:
conducting open-market operations
In an open-market purchase the Federal Reserve _____ government bonds and the supply of bank reserves ______.
The money supply in Macroland is currently 2500, bank reserves are 200. Currency held by public is 500, and banks' desired reserve/ deposit ratio is 0.10. Assuming the values of the currency held by the public and the desired reserve/ deposit ratio do not change, if the Central Bank of Macroland wishes to increase the money supply to 3,000, then it should conduct and open-market _____ government bonds.
purchase of 50
If real GDP equals 5,000, nominal equals 10,000, and the price level equals 2, then what is velocity if the money stock equals 2,000?
If the money supply equals 2,000, velocity equals 3, and real GDP equals 4,000, then the price level equals:
According to the quantity theory of money, if velocity and real GDP are constant, and the central bank increases the money supply by 5%, then the price level.
increases by 5%
The Investment function has a _____ slope because the lower the interest rate, the _____ number of investment projects are profitable, and the _____ the quantity of funds demanded.
negative; greater; greater
Using the savings and investment graph, which of the followng has the potential to raise the real interest rate, other things held constant?
a decrease in national savings and an investment tax credit which reduces the after-tax cost of buying a new equipment
The savings curve has a _____ slope because the greater the interest rate, the ______ the reward to savings, and the _____ the quantity of funds supplied.
positive; greater; greater
If technological change increases the profitability of new investment for firms, then the _____ curve will shift to the _____ and the equilibrium real interest rate will _____.
investment; right; rise
An increase in government budget surplus will shift the _____ curve to the _____ and the equilibrium real inerest rate will _____.
savings; right; fall
Pat earns $1,000 per week and spends $850 per week on iving expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund. Pat's saving is_____, and Pat's savings rate is _____%.
If total government tax collections = $200 billion, transfer payments = $75 billion, and government interest payments = $10 billion, then net taxes equal:
Social security benefits, welfare payments, and farm support payments are examples of:
Which of the following contributed to the turn-around in the government from a surplus in the early 2000s to record deficits by the end of the decade?
an increase in governmental spending on homeland securities and wars
The marginal product of new capital depends on _____ and _____.
productivity of capital; relative price of the firm's output
Joe's Taco Hut can purchase a delivery truck for $20,000 and he estimates it will generate a net income (after taxes, maintenance and operating costs) of $2,000 per year. He has no other opportunities. He should:
purchase the truck if the real interest rate is less than 10%
Holding other factors constant, a technological improvement that increases the marginal product of capital will:
Holding other factors constant, an increase in the tax rate on revenue generated by capital will:
The supply and demand for saving are brought into equilibrium by adjustments of the _____ rate.
As the real interest rate increases, the quantity of saving supplied ____ and the quantity of saving demanded______.
The introduction of new technology that raises the marginal product of new capital will:
increase real interest rate and the equlibrium quantity of saving supplied and demanded
Holding other factors constant, if a tax increase moves the government budget from deficit to surplus, then the real interest rate will _____ and the equilibrium quantity of national saving and investment will ______.
Holding other factors constant, if growing concerns about job security raise precautionary saving, then the real interest rate will _____ and the equilibrium quantity of national saving and investment will ____.
Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to savings, then the real interest rate will _____ and the equalibrium quantity of saving and investment will _____.
Holding other factors constant, if the income tax is replaced with a consumption tax so that saving is not taxed, then the real interest rate will_____ and the equilibrium quantity of saving and investment will _____.
At the household level, higher saving rates lead to _____ and greater economic security.
At the national level, higher saving rates lead to _____ and higher standards of living.
COmpound interest is:
the payment of intererst on the original deposit as well as all accumulated interest
Bank C promises to pay a compund annual interest rate of 6%, while Bank S pays 10% simple annual intererst rate of deposits. If you deposit$1,000 in each bank, after 10 years, your deposit in Bank C equals ______, while your deposit in Bank S equals ______.
If you left $2500 on deposit with a bank promising to pay you a 6% compound annual rate of interest, then after 50 years your deposit would be worth approximately:
Small differences in annual growth rates of real GDP generate large differences in real GDP over time because of the:
power of compounded interest
If real GDP per person was equal to $2000 in 1900 and grew at a 1% annual rate, what would be the value of real GDP per person 100 years later?
Rea; GDP per person in both Alpha and Omega is equal to $2000. Over the nexr 100 years, real GDP per person grows at a 1.5% annual rate in Alpha and at a 2.5% annual rate in Omega. After 100 years, real GDP per person in Alpha is _____ smaller than real GDP per person in Omega.
Real GDP per person in Richland is $20,000, while real GDP per person in Poorland is $10,000. However, Richland's real GDP per person is growing at 1% per year, and Poorland's real GDP pe person is growing at 2% per year. After 50 years, real GDP per person in Richland minus real GDP in Poorland is:
positive but less than $10,000
Average labor productivity times the proportion of the population employed equals:
real GDP per person
If the share of population employed in two countries is the same, average living standards will be higher in the country with:
higher average labor productivity
If 50% of the population in a country is employed and average labor productivity equals $30,000, then real GDP per person equals:
If real GDP per person in a country equals $40,000 and 60% of the population is employed, then average productivity equals:
Which of the following is an example of an investment in human capital?
a firm paying for workers to take college classes
Countries with small amounts of capital per worker tend to have _____ levels of real GDP per person and _____ levels of average labor productivity.
Most economists agree that _____ are the single most important source of productivity improvements.
Three workers run a house painting business and always work the same numbe of hours together. The paint they use requires applying two coats. Each worker paints 200 sq.ft. per hour using a roller or 80 sq.ft. per hour using brush. If a techological advance provides a paint that only requires one coat, their average labor productivity per hour as a team:
Governments contribute to increased average labor productivity in each of the following ways EXCEPT by:
imposing taxes on wages
The quantity and quality of human capital, technology, and natural resources, entrepreneurship, and the legal and political environment determine the:
average labor productivity
An example of a government policy to increase human capital formation is:
the provision of publicly-funded education
An example of a government policy to increase physical capital formation:
the construction of an interstate highway system.
An example of a government policy to enhance techological progress is:
government support for basic research.
The biggest problem thwarting economic growth in he poorest countries, compared to the richest countries is:
a legal and/ or political environment unfavorable to economic growth
A government policy that allows retirement savings to accumulate tax-free is an example of a policy to promote:
increasing physical capital
In the US the real wages of the least-skilled, least-educated workers have _____ and the wages of best-educated, highest skilled workers have _____.
According to the priciple of diminishing returns to labor, if the amount of capital and other inputs are held constant, employing additional workers:
increases output at a decreasing rate
The introduction of a new technology that increases the productivity of labor will:
increase the demand for labor
As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _____.
Holding other factors constant, if a larger proportion of the population enters the labor force as a result of a growing social acceptance of women working, then the real wages of workers will _____ and employment of workers will ______.
Holding other factors constant, if the education and skills of the typical worker in an economy increases, then the real wages of workers will_____ and employment of workers will _____.
Holding other factors constant, technological progress_____ the real wage and _____ employment.
Long-term increases in productivity that have increased the demand for labor and the real wages of labor have resulted primarily from _____ and _____.
technological progress; a ,pdernized capital stock
Holding other factors constant, an increase in the capital stock _____ the real wage and _____ employment.
As a result of a wage in the country of Omega, refugees flee to the country of Alpha to seek employment. Holding other factors constant, the influx orefugees will ______ the real wage in Alpha and _____ employment in Alpha.
Two explanations for increasing wage inequality are _____ and _____.
globalization: skill biased technological change
Initally, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As result of these changes, the demand for labor in the shoe industry _____ and the demand for labor in the computer industry_____.
Initally, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As result of these changes, the wages in the shoe industry _____ and the wages in the computer industry_____.
An increase in the demand for workers producing computers for export versus producing agricultural products that can be imported more cheaply from abroad is an example of how increasing wage inequality can result from:
Skill-biased technological change increases wage inequality by altering the ____ high-skilled workers relative to low-skilled workers.
Most economists generally argue _____ trying to block technological advances because these technological advances _____.
against; are necessary for improved standards of living.
From an economic perspective, the best response to increased wage inequality is to:
provide transition aid to disadvantaged workers.
Frictional unemployment is:
short-term unemployment that is associated with process of matching workers with jobs.
Structural unemployment is:
long-term and chronic unemplotment that exists even when the economy is producing at a normal rate.
Which of the following is an example of cyclical unemployment?
Marsha was laid off from her job with the sirline because the recession has reduced the demand for airline travel. SHe expects to get her job back when the economy picks up
WHich of the following is an examaple of structural unemployment?
Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year.
WHich of the following is an example of frictional unemployment?
Hector looked for a hob for five weeks after finishing college. He turned down several jobs that didn't make good use of his skills, but now has job that requires the expertise he gained in college.
Unemployment insurance contributes to structural unemployment by:
allowing unemployed workers to search longer ot less intensively for jobs.
The consumer price index (CPI) for the current year measures the cost of a standard basket in the _____ year relative to the cost of the same basket in the ______ year.
THe consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2000, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2005, the typical consumer purchased 15 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2005 on Planet Econ equals:
The CPI in year one equaled 1.45. The CPI in year two equaled 1.51. The rate of inflation beween years one and two was _____ percent.
In 1929, the CPI equaled .171 and in 1930, the CPI equaled .0167. These data provide evidence of a period of: