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Quiz #4

Terms in this set (19)

For the U.S., which of the following is included in this year's GDP (Gross Domestic Product)?

a. Tires bought by Ford to put on their new cars

b. The cost for Roberto to have his car cleaned at Sparkle Car Wash

c. Shirts made in Honduras

d. The refrigerator you bought last year for your dorm room
b. The cost for Roberto to have his car cleaned at Sparkle Car Wash
Using the expenditure approach and the information below, what is the Gross Domestic Product for this country?

Capital $14
Taxes $5
Exports $11
Consumption $93
Sales of Stocks and Bonds $20
Government Purchases $48
Investment $14
Imports $20
Rent $15
146

GDP = Consumption + Investment + Government Purchases + Net Exports (Exports - Imports)

GDP = 93 + 14 +48 + (11 - 20)
The working age population is the total number of people aged _____ years and older.
16
Suppose a country has a frictional unemployment rate of 2%, a structural unemployment rate of 3%, and a cyclical unemployment rate of 2.5%.

True or False: The country is at its natural unemployment.

True

False
False
Vanda used to repair flip-phones. Since we have all switched to smart phones, Vanda's skills are no longer needed and despite looking for a job, she can't find one. Vanda is:

a. structurally unemployed

b. a discouraged worker

c. frictionally unemployed

d. cyclically unemployed
a. structurally unemployed
Karen works for a engineering firm and last week she took a vacation to the Bahamas.

True or False: If the BLS (Bureau of Labor Statistics) surveyed Karen's household, Karen would be counted as unemployed because she did not work the week before the survey.

True

False
False
If the CPI is 280 in April 2020, this means that the prices paid on the fixed market basket of goods was _________ higher in April 2020 than in the base period.

a. 280%

b. 100%

c. 180%

d. 200%
c. 180%
If the cost of the CPI market basket in the base period is $50 and the cost of the CPI market basket in the current period is 76, what is the CPI in the current period? Round to one decimal place if necessary.
152

The CPI in the current year is the cost of the basket in the current year divided by $50 and then multiply by 100.
In 2010, the cost of the CPI market basket is $50. In 2020, the cost of the CPI market basket is $60.

Using 2010 as the base year, what is the inflation rate in 2020?
20

The first step is to find the CPI in 2020. CPI in 2020 = ($60/$50)*100 = 120. If the base year is 2010, the CPI is 100 in 2010. The inflation rate = ((120 - 100) / 100) x 100 = 20
If the nominal wage rate in 1950 was $2 and the CPI in 1950 was 90, what is the real wage rate in 1950?

Round to two decimal places.
2.22
Sam put $1000 into a savings account that earns 10% a year in nominal interest.

If the inflation rate was 18% over the past year, what is the real interest rate that Sam will earn at the end of the year?
-8

The real interest rate is the nominal interest rate minus the inflation rate
Real GDP is produced using several factors of production. At any given time, the quantities of these resources are all fixed with the exception of which one?

a. physical capital

b. labor

c. natural resources

d. land
b. labor

Only labor is variable -- the real GDP depends on the quantity of labor supplied.
If you put $5000 into a savings account that earns 6% in interest, how many years will it take for you to have $10,000? Round your answer to one decimal place.
11.7

Use the rule of 70: 70 / 6
Commercial banks earn profits by:

a. holding reserves at the Fed

b. keeping the same interest rate on deposits as they charge for their loans.

c. lending money at a lower interest rate than they pay on deposits

d. lending money at a higher interest rate than they pay on deposits
d. lending money at a higher interest rate than they pay on deposits

Banks make money by paying a low rate on deposits and charging a higher rate on loans
In the money market, at any one point in time, the money supply curve is:

a. upward sloping

b. vertical

c. downward sloping

d. horizontal
b. vertical
If the Federal Reserve decreases the required reserve ratio, this will lead to a(n) ________ in the money supply and a(n) _______ in the interest rate.

a. increase; decrease

b. increase; increase

c. decrease; decrease

d. decrease; increase
a. increase; decrease

If the Fed decreases the RRR, banks will have more money to lend, so the money supply in the economy will increase. The increase in the money supply causes the equilibrium interest rate to fall.
If the Federal Reserve decreases the discount rate, this will lead to a(n) ________ in the money supply and a(n) _______ in the interest rate.

a. decrease; increase

b. increase; decrease

c. decrease; decrease

d. increase; increase
b. increase; decrease

If the Fed decreases the discount rate, this makes it cheaper for banks to borrow from the Fed, so they borrow more and lend more out. When they lend more out, the money supply in the economy increases and this lowers the equilibrium interest rate.
If the Federal Reserve sells securities in an open market operation, this will lead to a(n) ________ in the money supply and a(n) _______ in the interest rate.

a. increase; increase

b. increase; decrease

c. decrease; decrease

d. decrease; increase
d. decrease; increase

If the Fed sells securities, the banks receive the securities and give the Fed money. This decreases the money supply in the economy and increases the interest rate.
If the currency drain ratio is 0.10 (10%) and the desired reserves ratio is 0.15 (15%), what is the money multiplier? Round to one decimal place.
4.4

The money multiplier is 4.4 = (1 + .1) / (.15 + .1)
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