1 when economists talk about growth in the economy, they measure that growth as the

Absolute change in real gdp from one period to another

2 which of the following statements about the term of a bond is correct ?

Interest rates on long-term bonds are usually higher than interest rates on short-term bonds

3 the cpi differs from the gdp deflator in that

Increase in the prices of foreign produced goods that are sold to US comsumers show up in the cpi
but no in the GDP deflator.

4 a bank has 8000$ in deposits and 600$ in loans . it has loaned out all it can given the reserve
requirement. It follows that the reserve requirements is

25 percent

Decreased from year1 to year 2 and increased from year 2 to year 3

6 which of the following is included in the calculation of gdp ?

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides
within the country

7 which of the following is a certificate of indebtedness ?

Bonds but not stocks

8 in the GDP account production equals ?

Income

9 in the long run, money demand and money supply determine ?

The value of money but not real interest rate

10 on a bank’s Taccount, which are part of the bank’s assets ?

Reserves but not deposits made by its customers

11 long-term bonds are

Risker than short term bonds, so interest rates on long tem bonds are usually higher than on short-
temr bond

12

25 percent

13 Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement
of 6 percent. If you deposit $8,000 into First Raven Bank,

First Raven’s assets and liabilities both will increase by $8,000, required reserves increase by $480,
and they will be able to lend out $7,520.

400

15

14 A company sells titanium to a bicycle company for $300. The bicycle company uses the titanium
to produce a bicycle, which it sells for $400. Taken together, these two transactions contribute

15 who would be included in the labor force ?

Lisa who is unhappy with her current job

16 In a closed economy, what does the difference between the tax revenue and government
purchases, (T-G), represent?

Public saving

17 When the Fed purchases $1000 worth of government bonds from the public, the U.S. money
supply eventually increases by ?

More than 1000$

18 Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had
expected it to be. The real interest rate she earns is ?

Lower than she had expected, and the real value of the loan is lower than she had expected
19 On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

The 80 is a nominal variable. The quantity of shoes is a real variable

20 In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a
consumer price index of 15.2 for 1931 and 237 for 2015. President Hoover’s 1931 salary was
equivalent to a 2015 salary of about

1,169,408

21 Which of the following is an asset of a bank and a liability for its customers?

Loans to its customers but not the deposits of its customers

22 Suppose that some country had an adult population of about 46 million, a labor-force
participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were
employed?

31.74m

23 The economy’s two most important financial markets are

The bond market and the stock market

24 The money supply increases when the Fed

Buys bonds. The increase will be larger, the smaller is the reserve ratio.

25 GDP is defined as the

Value of all final goods and services produced within a country in a given period of time.

26 The Fed purchases $200 worth of government bonds from the public. The reserve requirement is
12.5 percent, people hold no currency, and the banking system keeps no excess reserves. The U.S.
money supply eventually increases by

1600

27 A farmer produces carrots and sells them to Fresh Juice, which makes carrot juice. The carrots
produced by the farmer are called

Intermediate good

28 For any given year, the CPI is the price of the basket of goods and services in the

Given year divided by the price of the basket in the base year, then multiplied by 100.

29 As an alternative to selling shares of stock as a means of raising funds, a large company could,
instead,

Sell bonds.

30 The CPI and the GDP deflator

Generally move together

31 When the Fed conducts open-market sales,

It sells Treasury securities, which decreases the money supply.

32 Changes in real GDP reflect

Only changes in the amounts being produced.

33 Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5
percent, and excess reserves are $30 billion. What is the level of loans?

5100b

34 The price index was 105 in Year 1 and 108 in Year 2. What was the inflation rate?

2.9%

35

Negative in year 2 , + in year 3

36Lucy quit her job because she was unhappy at work. Genevieve was fired because she frequently
surfed the Internet rather than working on her assigned tasks. Who is eligible for unemployment
insurance benefits?

Neither lucy nor geneviene

37 Christopher is an unpaid, stay-at-home father who works as a volunteer at the local Habitat for
Humanity chapter. Currently, Christopher is not looking for a paid job. The Bureau of Labor Statistics
counts Christopher as

Neither in the labor force nor unemployed

38 Which of the following items is included in M2?

Money market mutual funds

39 The classical dichotomy refers to the idea that the supply of money

Determines nominal variables, but not real variables

40 Katherine, a French citizen, works only in the United States. The value of the output she produces
is

Included in US GDP, but it is not included in US GND

41

154/234.9

42 Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has
been selected as the base year. In Year 1, the basket’s cost was $50; in Year 2, the basket’s cost was
$52; and in Year 3, the basket’s cost was $55. The value of the CPI in Year 3 was

110

43 The nominal interest rate tells you

How fast the number of dollars in your bank account rises over time.

44 Northwest Wholesale Foods sells common stock. The company is using

Equity financing and the return shareholders earn depends on how profitable the company is.

45 On which of these bonds is the prospect of default most likely?

A junk bond

46 The price of a Honda Accord

Is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic is a real
variable.

47 Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are
employed and 5 million are unemployed, then

30 not in the labor force

48 The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring
the cost of living; that problem is the problem of

Introduction of new goods

49 As the price level decreases, the value of money

Increases, so people must hold more money to purchase goods and services.

50 Other things the same, when the interest rate falls, people would want to lend *

Lesss, quantity loanable funds supplied decreased

If I rise -> moremaking the quatity of loanable funds supplied increasw

If I fall-> firm will want to borrow more, increase the quantity of loanable fund demand

51 The slope of the supply of loanable funds curve represents the

Positive relation between the interest

Rate and saving.

The slope of the demand of loanable funds curve represents the

Negative relation between the real interest rate and investment.

52 You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent,
and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

2.55

53 a budget deficit

Change the demand for loanable funds

54 Suppose that in a closed economy GDP is equal to $35,000, consumption equal to $16,000,
government purchases equal $4,500, and taxes equal $8,000. What are private saving, public saving,
and national saving?

11000,3500, 14.500 respectively

55 If the central bank in some country raised the reserve requirement, then the money multiplier for
that country*

Would increase

56 If inflation is lower than what was expected,

Debtors pay a higher real interest rate than they had anticipated.

If inflation is higher than what was expected, *

Creditors receive a lower real interest rate than they had anticipated.

57
Time with amy

58 The discount rate is the interest rate that

The fed charged bank for loan

59 The manager of the bank where you work tells you that your bank has $10 million in excess
reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in
loans. Given this information you find that the reserve requirement must be

Reserve requirement= (bank deposit- loans- excess reserves) / bank deposits

( 400-375-10)/400= 15/400

60 Daniel, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there.
His purchase is included in *

Mexico’s GDP, but it is not included in U.S. GDP.

61 gps included all

Legal final goods and services, but it excludes illegal final goods and services.

62 If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation
rate is

Real= nominal- inflation = -2

63 The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200
billion. What are the price level and velocity in Muckland?

The price level is 4 and velocity is 8.

64 You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the
nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the
tax rate?

RIR(after tax real) =NIR*(1-R%)-IR

= 43.75%

65 By far the largest category of goods and services in the CPI basket is

Housing

66 like 56

67 Noah is an unpaid stay-at-home father who is not currently searching for paid work. Pete is a full-
time student who is not looking for a job. Who is included in the labor force by the Bureau of Labor
Statistics?

Neither noah nor pêt

68 Bob is looking for work after school, but everywhere he fills out an application, the managers say
they always have a lot more applications than open positions. Tom has a law degree. Several firms
have made him offers, but he thinks he might be able to find a firm where his talents could be put to
better use.

Bob is structural unemployed, tom is fictionally unemployed

69 Suppose private saving in a closed economy is $15b and investment is $7b.

The government budget deficit must equal $8b.

70 Suppose a closed economy had public saving of -$1 trillion and private saving of $17 trillion. What
are national saving and investment for this country?

16, 16

71 If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7
percent, then by definition there is

Cyclical unemployment amounting to 0.5 percent of the labor force

72 Harvey, a U.S. taxpayer, purchased 10 shares of MVC stock for $100 per share; one year later he
sold the 10 shares for $130 a share. Over the year, the price level increased from 140.0 to 147.0.
What is Harvey’s beforetax real capital gain?

$1,300-$1,000(1.05) but he is to report a $300 gain on his income tax

73 When the consumer price index rises, the typical family

111.2

74 When the consumer price index rises, the typical family

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

75 A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair
of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and
$220 on groceries from a local store. As a result, U.S. GDP

Increases by 220

76 A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can
given the reserve requirement.

It has $250 in reserves and $4,750 in loans.

77 In the actual economy, households

Divide their income among spending, taxes, and saving.

78 The Carters’ oldest son attends Big State University. He and his parents pay all his fees and
tuition. These payments count in GDP as

Consumption of services.

79 A bond buyer is a

Saver. Bond buyers may sell their bonds prior to maturity.

80 A recession has traditionally been defined as a period during which

Real GDP declines for two consecutive quarters.

81 Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has
$18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this
bank now have to lend out if it decides to hold only required reserves?
27000

82 The nominal interest rate is 4%, the inflation rate is 1% and the tax rate is 20%. Given U.S. tax
laws, how is after tax real return computed?

.04(120) -.01

83 Given that Monica’s income exceeds her expenditures, Monica is best described as a

Saver or as a supplier of funds.

84 When inflation rises, people

Make more frequent trips to the bank and firms make more frequent price changes

When inflation falls, people

Make less frequent trips to the bank and firms make less frequent price changes

85 If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold
currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Decrease by $20 million and the money supply eventually decreases by $400 million

86 If in some year nominal GDP was $40 billion and the GDP deflator was 70, what was real GDP?

57.1b

87 Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from
$8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

Prices increased by 45 percent, hence the right price of milk should be 1.45 and the right price of
tshirt should be 11.60, since both current prices are lower than expected prices, then demand will
increase

More milks and more t shirts

88 When the Fed conducts open-market purchases,

It buys treasury securities, which increases the money supply

When the Fed conducts open market operations, it

Buys or sells government bonds from the public

When the Fed conducts open market sales,

It sells Treasury securities, which decreases the money supply

89 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

An asset for the bank and a liability for Kellie’s Print Shop. The loan increases the money supply
90 In 2010 the U.S. government was running a large deficit. Some were concerned that pressures
might be put on the Federal Reserve to purchase government bonds to help the government finance
this deficit. If the Fed were to buy government bonds to help the government finance its
expenditures, then

The price level would rise, so the value of money would fall

91 The steps involved in calculating the consumer price index and the inflation rate, in order, are as
follows:

Fix the basket, find the prices, compute the basket’s cost, choose a base year and compute the
index, and compute the inflation rate

92 People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars
of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty,
banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank
loans?

They fall $200 million

93 Cyclical unemployment refers to

Short-run fluctuations around the natural rate of unemployment.

94 On a bank’s T account, which are part of the banks assets?

Reserves but not deposits made by its customers.

On a bank’s T account, which are part of the banks liabilities?

Deposits made by its customers but not reserves

95 Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8
percent, and excess reserves amount to $5 billion. What is the level of deposits?

$4,937.5 billion

We have Reserves = $400 billion and Excess Reserves = $5 billion so Required Reserves = $395

Billion. We also know that Required Reserves = RRRDeposits so $395 billion = 0.08Deposits.

Solving for Deposits = $395 billion/0.08 = $4937.5 billion

96 Money demand refers to

How much wealth people want to hold in liquid form.

97 The classical theory of inflation

Is also known as the quantity theory of money; was developed by some of the earliest economic
thinkers; is used by most modern economists to explain the long-run determinants of the inflation
rate

98 If the price of Italian shoes imported into the United States increases, then

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

99. Which of the following is included in both M1 and M2?

Demand deposit

100 Financial intermediaries are

Financial institutions through which savers can indirectly provide funds to borrowers.