Exam 2

Question 1

When the consumer price index rises, the typical family…
a. Has to spend more dollars to maintain the same standard of living.
b. Can spend fewer dollars to maintain the same standard of living.
c. Finds that its standard of living is not affected.
d. Can maintain the same standard of living with a lower income.

Answer 1

a. Has to spend more dollars to maintain the same standard of living

Question 2

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy
experienced…
a. 10% inflation between Years 1 and 2, and 5% inflation between 2 and 3.
b. 10% deflation between Years 1 and 2, and 5% deflation between 2 and 3.
c. 11.1% inflation between Years 1 and 2, and 5% inflation between 2 and 3.
d. 11.1% inflation between Years 1 and 2, and 5% deflation between 2 and 3

Answer 2

d. 11.1% inflation between Years 1 and 2, and 5% deflation between 2 and 3

Question 3

Which policy would be most likely to promote economic growth?
a. Trade restrictions.
b. Restricting foreign direct investment.
c. Increasing national savings.
d. Increasing the money supply with open market Fed purchases.

Answer 3

c. Increasing national savings.

Question 4

Josh is a full-time college student who is not working or looking for a job. The BLS counts Josh
as…
a. Employed.
b. Unemployed.
c. Part-time worker.
d. Not in the labor force.

Answer 4

d. Not in the labor force.

Question 5

If an unemployed person quits looking for work, then, eventually the unemployment rate…
a. Decreases, and the labor-force participation rate is unaffected.
b. And the labor-force participation rate both decrease.
c. Is unaffected, and the labor force participation rate decreases.
d. And the labor-force participation rate are both unaffected.

Answer 5

b. And the labor-force participation rate both decrease.

Question 6

In a closed economy, what does (Y-T-C) represent?
a. National Savings.
b. Government Tax Revenues.
c. Public Savings.
d. Private Savings.

Answer 6

d. Private Savings.

Question 7

Increasing the government budget deficit will…
a. Decrease the supply of loanable funds.
b. Increase the supply of loanable funds.
c. Decrease the supply and increase the demand for loanable funds.
d. Not affect either supply or demand for loanable funds

Answer 7

a. Decrease the supply of loanable funds.

Question 8

You pay for a drink from the bar at The Brick with cash. Which function of money does this best
illustrate?
a. Unit of account.
b. Medium of exchange.
c. Store of value.
d. Liquidity.

Answer 8

b. Medium of exchange.

Question 9

If the Federal wished to decrease the supply of money, which of the following could they do?
a. Buy bonds on the open market.
b. Decrease the required reserve ratio.
c. Increase the discount rate.
d. Lower the interest rate the Fed pays for excess reserves held at a Fed branch.

Answer 9

c. Increase the discount rate.

Question 10

If a bank has a 4% (0.04) reserve ratio and $4,000 excess reserves, how much could the money
supply potentially increase if all excess reserves are lent out?
a. $160
b. $3,840
c. $16,000
d. $100,000

Answer 10

d. $100,000

Question 11

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler’s checks. As a result of these changes…
a. M1 increases by $2,500 and M2 decreases by $2,500.
b. M1 increases by $2,500 and M2 stays the same.
c. M1 and M2 stay the same.
d. M1 decreases by $2,500 and M2 increases by $2,500.

Answer 11

b. M1 increases by $2,500 and M2 stays the same.

Question 12

Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, is in equilibrium. If the money supply increases, then at the old value of money there is an…
a. excess demand for money that will result in an increase in spending.
b. excess demand for money that will result in a decrease in spending.
c. excess supply of money that will result in an increase in spending.
d. excess supply of money that will result in a decrease in spending.

Answer 12

c. excess supply of money that will result in an increase in spending.

Question 13

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year.
a. Her real and nominal salary have risen.
b. Her real and nominal salary have fallen.
c. Her real salary has risen and her nominal salary has fallen.
d. Her real salary has fallen and her nominal salary has risen.

Answer 13

a. Her real and nominal salary have risen.

Question 14

If Y and V are constant and M doubles, the quantity equation implies that the price level…
a. more than doubles.
b. changes but less than doubles.
c. doubles.
d. does not change.

Answer 14

c. doubles.

Question 15

The supply of money increases when…
a. the price level falls.
b. the interest rate increases.
c. the Fed makes open-market purchases.
d. money demand increases.

Answer 15

c. the Fed makes open-market purchases.

Question 16

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money’s function as a _______. The laptop’s price is posted as $500. The $500 price illustrates money’s function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money’s function as a ______.
a. store of value, medium of exchange, unit of account
b. store of value, unit of account, medium of exchange
c. medium of exchange, unit of account, store of value
d. medium of exchange, store of value, unit of account

Answer 16

b. store of value, unit of account, medium of exchange

Question 17

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate…
a. $10,500 of money.
b. $10,000 of money.
c. $9,500 of money.
d. $2,500 of money.

Answer 17

b. $10,000 of money.

Question 18

Which of the following is not included in M1?
a. Currency
b. Demand deposits
c. Savings deposits
d. Traveler’s checks

Answer 18

c. Savings deposits

Question 19

When conducting an open-market sale, the Fed…
a. buys government bonds, and in so doing increases the money supply.
b. buys government bonds, and in so doing decreases the money supply.
c. sells government bonds, and in so doing increases the money supply.
d. sells government bonds, and in so doing decreases the money supply.

Answer 19

d. sells government bonds, and in so doing decreases the money supply.

Question 20

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…
a. an asset for the bank and a liability for Kellie’s Print Shop. The loan increases the money supply.
b. an asset for the bank and a liability for Kellie’s Print Shop. The loan does not increase the money supply.
c. a liability for the bank and an asset for Kellie’s Print Shop. The loan increases the money supply.
d. a liability for the bank and an asset for Kellie’s Print Shop. The loan does not increase the money supply.

Answer 20

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

Question 21

If a bank with a required reserve ratio of 15 percent receives a deposit of $600, it now has a…
a. $600 increase in excess reserves and no increase in required reserves.
b. $600 increase in required reserves and no increase in excess reserves.
c. $510 increase in excess reserves and a $90 increase in required reserves.
d. $90 increase in excess reserves and a $510 increase in required reserves.

Answer 21

c. $510 increase in excess reserves and a $90 increase in required reserves.

Question 22

A bond buyer is a…
a. saver. Bond buyers must hold their bonds until maturity.
b. saver. Bond buyers may sell their bonds prior to maturity.
c. borrower. Bond buyers must hold their bonds until maturity.
d. borrower. Bond buyers may sell their bonds prior to maturity.

Answer 22

b. saver. Bond buyers may sell their bonds prior to maturity.

Question 23

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”?
a. Tatiana but not Ivan
b. Ivan but not Tatiana
c. Both Ivan and Tatiana
d. Neither Ivan nor Tatiana

Answer 23

a. Tatiana but not Ivan

Question 24

Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000, government purchases equal 4,000, and taxes equal 3,000. What are private saving, public saving, and national saving?
a. −2,000, 1,000, and 2,000, respectively.
b. 1,000, 2,000, and 3,000, respectively.
c. 2,000, −1,000, and 1,000, respectively.
d. 2,000, 1,000, and 2,000, respectively.

Answer 24

c. 2,000, −1,000, and 1,000, respectively.

Question 25

Other things being constant, when a firm sells new shares of stock, the... a. supply of the stock increases and the price decreases. b. supply of the stock decreases and the price increases. c. demand for the stock increases and the price increases. d. demand for the stock decreases and the price decreases.

Answer 25

a. supply of the stock increases and the price decreases.

Question 26

Which of the following is not correct? a. Most people who become unemployed will soon find jobs. b. In an ideal labor market, wages would adjust to ensure that all workers are always fully employed. c. The unemployment rate occasionally falls to zero. d. There are always some workers without jobs, even when the overall economy is doing well.

Answer 26

c. The unemployment rate occasionally falls to zero.

Question 27

Which of the following is an example of an efficiency wage? a. A higher wage paid to a more experienced worker b. A below-equilibrium wage paid by a small business exempt from minimum-wage laws c. An above-equilibrium wage paid by a firm to reduce turnover costs d. A wage tied to participation in a government-sponsored job training program

Answer 27

c. An above-equilibrium wage paid by a firm to reduce turnover costs

Question 28

In 2018 the Bureau of Labor Statistics reported that there were 57.4 million people over age 25 whose highest level of education was some college or an associate degree. Of these, 36.3 million were employed and 1.2 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group? a. 63.2% and 2.1% b. 65.3% and 3.2% c. 65.3% and 2.1% d. 63.2% and 3.2%

Answer 28

b. 65.3% and 3.2%

Question 29

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes? a. The demand for loanable funds shifted rightward. b. The demand for loanable funds shifted leftward. c. The supply of loanable funds shifted rightward. d. The supply of loanable funds shifted leftward.

Answer 29

c. The supply of loanable funds shifted rightward.

Question 30

Octavia does not currently have a job, but she has applied for several jobs in the previous week. Eve is an unpaid stay-at-home mom who has not searched for work in recent years. Who does the Bureau of Labor Statistics count as "not in the labor force"? a. Octavia but not Eve b. Eve but not Octavia c. Both Octavia and Eve d. Neither Octavia nor Eve

Answer 30

c. Both Octavia and Eve

Question 31

In the 1990s Ireland made unemployment benefits less generous. This change would likely have reduced... a. both structural unemployment and the natural rate of unemployment. b. structural unemployment but not the natural rate of unemployment. c. both frictional unemployment and the natural rate of unemployment. d. frictional unemployment but not the natural rate of unemployment.

Answer 31

c. both frictional unemployment and the natural rate of unemployment.

Question 32

If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as... a. $25.00 purchased in 1975. b. $33.33 purchased in 1975. c. $40.00 purchased in 1975. d. $135.55 purchased in 1975.

Answer 32

c. $40.00 purchased in 1975.

Question 33

Janet is a farmer. Which of the following are included in her human capital? a. Her tractor and what she's learned from experience b. Her tractor but not what she's learned from experience c. What she's learned from experience but not her tractor d. Neither her tractor nor what she's learned from experience

Answer 33

c. What she's learned from experience but not her tractor

Question 34

If the price of Italian shoes imported into the United States increases, then... a. both the GDP deflator and the consumer price index will increase. b. neither the GDP deflator nor the consumer price index will increase. c. the GDP deflator will increase, but the consumer price index will not increase. d. the consumer price index will increase, but the GDP deflator will not increase.

Answer 34

d. the consumer price index will increase, but the GDP deflator will not increase.

Question 35

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 this year. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. Sue Holloway's 1944 income in current year dollars is... a. $23,033. b. $136,909. c. $148,909. d. $240,960.

Answer 35

c. $148,909.

Question 36

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? a. 12 percent b. 10 percent c. 4 percent d. 2 percent

Answer 36

d. 2 percent

Question 37

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent? a. Substitution bias and introduction of new goods b. Introduction of new goods and unmeasured quality change c. Substitution bias and unmeasured quality change d. Income bias and substitution bias

Answer 37

a. Substitution bias and introduction of new goods

Question 38

Other things the same, which of the following would increase productivity? a. An increase in either human or physical capital b. An increase in human capital but not an increase in physical capital c. An increase in physical capital but not an increase in human capital d. Neither an increase in human capital nor an increase in physical capital

Answer 38

a. An increase in either human or physical capital

Question 39

The catch-up effect refers to the idea that... a. saving will always catch-up with investment spending. b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor. c. population eventually catches-up with increased output. dd. if investment spending is low, increased saving will help investment to "catch-up."

Answer 39

b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

Question 40

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that... a. the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year. b. the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year. c. neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year. d. neither the price of pretzels nor the price of cookies changes from year to year.

Answer 40

c. neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

Question 41

Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that... a. Sue's productivity is higher than Mary's. b. Mary's productivity is higher than Sue's. c. Sue's income per hour will be higher than Mary's. d. Sue's income per day will be higher than Mary's.

Answer 41

b. Mary's productivity is higher than Sue's.