Which of the following is not included in M1?
a $5 bill in your wallet
$100 in your checking account
$500 in your savings account
The $5 bill in your wallet and $500 in your savings account
All of the choices
Which of the following does the Federal Reserve not do?
it controls the supply of money
it acts as a lender of last resort to banks
it makes loans to any qualified business that requests one
it tries to ensure the health of the banking system
none of the choices
A bank's reserve ratio is 6.5% and the bank has 1,950 in reserve. Its deposits amount to . . .
$62.25
$126.75
$22,500
$30,000
$126.75 and $22,500 added together
Wealth is redistributed from debtors to creditors when inflation was expected to be . . .
high and it turns out to be high
low and it turns out to be low
low and it turns out to be high
high and it turns out to be low
If US residents want to buy more foreign bonds, then in the market for foreign-currency exchange the exchange rate . . .
and the quantity of dollars traded rises
rises and the quantity of dollars traded falls
falls and the quantity of dollars traded rises
and the quantity of dollars traded falls
When a country experiences capital flight, its . . .
net capital outflow increases and its real exchange rate rises
net capital outflow increases and its real exchange rate falls
net capital outflow decreases and its real exchange rate rises
net capital outflow decreases and its real exchange rate falls
In an open-economy, GDP equals $1,850 billion, consumption expenditure equals $975 billion, government expenditure equals $225 billion, investment equals $500 billion, and net exports equals $150 billion. What is the national savings?
$0
$500 billion
$650 billion
$975 billion
If the Canadian nominal exchange rate does not change, but prices rise faster in Canada than in all other countries, then the Canadian real exchange rate . . .
does not change
rises
declines
rises and declines
Which of the following is an example of US foreign portfolio investment?
Paulo, a German citizen, buys stocks in a US computer company
Nohora, a citizen of Columbia, opens a fish and chips restaurant in the US
Dawit, a US citizen, buys bonds issued by a Japanese bank
Yoseph, a US citizen, opens a country-western tavern in New Zealand
all of the choices
Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?
the demand for loanable funds shift right
the demand for loanable funds shift left
the supply for loanable funds shift right
the supply for loanable funds shift left
the demand for loanable funds shift left and the supply for loanable funds shift right
Which of the following is not included in GDP?
carrots grown in your garden and eaten by your family
carrots purchased at a farmer's market and eaten by your family
carrots purchased at a grocery store and eaten by your family
carrots grown in your garden and eaten by your family and carrots purchased at a farmer's market and eaten by your family
Which of the following is correct?
nominal GDP never equals real GDP
nominal GDP always equals real GDP
nominal GDP equals real GDP in the base year
nominal GDP equals real GDP in all years but the base year
When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?
the quantity of the goods and services purchased
the price of the goods and services
the goods and services making up the basket
the quantity of the goods and services purchased and the goods and services making up the basket
Frederick earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Frederick's 2001 salary in 2006 dollars is . . .
$25,000
$33,333.33
$44,250
$75,000
Which of the following items plays a role in determining productivity?
physical capital
natural resources
technological know-how
physical capital and technological know-how
The slope of the production function with capital per worker on the horizontal axis and output per worker on the vertical axis . . .
is positive and gets steeper as capital per worker rises
is positive and gets flatter as capital per worker rises
is negative and gets steeper as capital per worker rises
is negative and gets flatter as capital per worker rises
The economy's two most important financial markets are . . .
the investment market and the savings market
the bond market and the stock market
banks and the stock market
financial markets and financial institutions
Suppose a close economy had public savings of $3 trillion and private savings of $2 trillion. What are the national saving and investment for this country?
$5 trillion; $5 trillion
$ 5 trillion; $2 trillion
$1 trillion; $5 trillion
$1 trillion; $2 trillion
none of the above
If the interest rate is 7.5%, then what is the present value of $4,000 to be received in 6 years?
$2,420.68
$2,591.85
$2,996.33
$3,040.63
JoEllen puts a greater proportion of her portfolio into government bonds. JoEllen's action . . .
increases both risk and the average rate of return
decreases both risk and the average rate of return
increases risk but decreases the average rate of return
decreases risk but increases the average rate of return
Unemployment data are collected . . .
from unemployment insurance claims
through a regular survey of about 60,000 households
through a regular survey of about 20,000 firms
from unemployment claims and through a regular survey of about 60,000 households
The labor-force participation rate is computed as . . .
(employed/adult population) x 100
(employed/labor force) x 100
(labor force/adult population) x 100
(adult population/labor force) x 100
Suppose some country had an adult population of about 50 million, a labor force participation rate of 60%, and an unemployment rate of 5%. How many people were employed?
1.5 million
28.5 million
30 million
47.5 million
If you deposit $900 into an account for two years and the interest rate is 4%, how much do you have at the end of the two years?
$972
$973.44
$974.19
$966.50
Two of the economy's most important financial intermediaries are . . .
suppliers of funds and demanders of funds
banks and the bond markets
the stock market and the bond market
banks and mutual funds
Suppose that in a close economy GDP is equal to $11,000, taxes are equal to $2,500, consumption equals $7,000, and government purchases equals $3,000. What are private savings and public savings?
$1,500; $-500
$1,500; $500
$1,000; $-500
$1,000; $500
The key determinate of the standard of living in a country is . . .
the amounts of goods and services produced from each hour of a worker's time
the total amount of goods and services produced within the country
the total amount of its physical capital
its growth rate of GDP
The consumer price index is used to . . .
convert nominal GDP into real GDP
turn dollar figures into meaningful measures of purchasing power
characterize the types of goods and services that consumers purchase
measure the quantity of goods and services that the economy produces
The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate?
5.7%
6.0%
7.2%
27.2%
Tyree, a US citizen, works only in Germany. The value of Tyree's production is included in . . .
US GDP and German GDP
US GDP and German GNP
US GNP and German GDP
US GNP and German GNP
Which of the following is an example of US foreign direct investment?
A Swedish car manufacturer opens a plant in Tennessee
A Dutch citizen buys shares of stock in a US company
A US based restaurant chain opens new restaurants in China
A US citizen buys stock in companies located in Japan
All of the above
A US firm opens a factory that produces camping equipment in Estonia
This increases US net capital outflow and decreases Estonian net capital outflow
This decreases US net capital outflow and increases Estonian net capital outflow
This increases US net capital outflow
This increases Estonian net capital outflow
None of the choices
The inflation tax . . .
transfers wealth from the government to households
is the increase in income taxes due to lack of indexation
is a tax on everyone who holds money
transfers wealth from the government to households and is the increase in income taxes due to lack of indexation
The real interest rate is 8% and the nominal interest rate is 10.5%. Is there inflation or deflation? What is the inflation or deflation rate?
deflation; 2.5%
deflation; 20.5%
inflation; 2.5%
inflation; 20.5%
The federal funds rate is the . . .
percentage of face value that the Federal Reserve is willing to pay for Treasury Securities
percentage of deposits that banks must hold as reserves
interest rate at which the Federal Reserve makes short term loans to banks
interest rate at which banks lend reserves to each other overnight
Which of the following lists two things that both decrease the money supply?
Make open market purchases, raise the reserve requirements
make open market purchases, lower the reserve requirements
make open market sales, raise the reserve requirements
make open market sales, lower the reserve requirements
A debit card is more similar to a credit card than to a check.
If the Fed buys bonds in the open market, the money supply decreases.
Suppose the nominal interest rate is 5%, the tax rate on interest income is 30%, and the after-tax real interest rate is 0.8%. Then the rate of inflation is 2.7%.
If the Fed increases the money supply, the equilibrium value of money decreases and the equilibrium price level increases.
When net capital outflow is negative, it means that on net the value of domestic assets purchased by foreigners exceeds the value of foreign assets purchased by domestic residents.
Purchasing power parity says that nominal exchange rate must equal the real exchange rate.
US GDP includes estimates of the value of items that are produced and consumed at home such as house work and car maintenance.
If exports are $500, GDP is $8,000, government purchases are $1,200, imports are $700, and investment is $800, then consumption is $6,200.
The contents of the basket of goods and services used to compute the CPI changes every month.
If nominal interest rate is 5% and the inflation rate is 2%, then the real interest rate is 7%.
Like physical capital, human capital is a produced factor of production.
A country that made its courts less corrupt and its government more stable would likely see its standard of living rise.
When economists refer to investment, they mean the purchasing of stocks and bonds and other types of savings.
To state that national saving is equal to investment, for a close economy, is to state an accounting identity.
The sale of either stocks or bonds to raise money is known as equity financing.
If GDP deflator in 2006 was 160 and the GDP deflator in 2007 was 180, then the inflation rate in 2007 was 12.5%.
For an economy as a whole, income must exceed expenditure.
Expenditures by households on education are included in the consumption component of GDP.
If the GDP deflator in 2004 was 150 and the GDP deflator in 2005 was 120, then the inflation rate in 2005 was 25%.
Economists use the term inflation to describe a situation in which the economy's overall production level is rising.
The goal of the CPI is to gauge how much incomes must rise to maintain a constant standard of living.
Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
If the real interest rate is 5% and the inflation rate is 2%, then the nominal interest rate is 7%.
A dollar figure from 1908 is converted into 2009 dollars by dividing the 2009 price level by the 1908 price level, then multiplying by the 2009 dollar figure.
Human capital is the term economists use to refer to the knowledge and skills that workers acquire through education, training, and experience.
An increase in capital increases productivity only if it is purchased and operated by domestic residents.
An increase in the saving rate does not permanently increase growth rate of real GDP per person.
Productivity can be computed as number of hours worked divided by output.
If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private savings must amount to $12,500.
An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.
Public saving is T-G, while private saving is Y-T-C.
When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling shares of stocks.
The sooner the payment is received and the higher the interest rate, the greater the present value of a future payment.
A person with diminishing marginal utility of wealth is risk averse.
According to the efficient markets hypothesis, at any moment in time, the market price is the best estimate of the company's value based on publicly available information.
The future value of $1.00 saved today is $1.00/(1+r).
Cyclical unemployment refers to the year-to-year fluctuation in unemployment that the economy normally experiences.
The unemployment rate sometimes falls to zero.
Changes in the composition of demand among industries or regions are called sectoral shifts.
Full time students and homemakers are included in the Bureau of Labor Statistics "unemployed" category.
A drop in a country's real interest rate reduces that country's net capital outflow.
In the open economy model, the supply of loanable funds comes from national savings and net capital outflow.
In the open economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.
A higher US interest rate discourages Americans from buying foreign assets and encourages foreigners to buy US assets.
Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.
An increase in the government budget deficit shifts the demand for loanable funds to the right.
An import quota imposed by the US would reduce US imports but have no impact on US exports.
A country with negative net exports has a trade surplus.
If Wal-Mart buys $50 million worth of consumer goods from China and sells them in the US, and China uses the $50 million to purchase US bonds, then US net exports and US net capital outflow both fall.
A drop in the French real interest rate reduces French net capital outflow.
If prices in the US rise faster than prices in the UK, then according to the doctrine of purchasing power parity, the US nominal exchange rate should fall.
Net capital outflow is the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.
To increase domestic investment, a country must increase its savings.
If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.
If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.
Shoeleather costs and menu costs are both costs of anticipated inflation.
If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.
If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.
Monetary neutrality means that while real variables change in response to changes in the money supply, nominal variables do not.
Demand deposits are balances in bank accounts that depositors can access by writing checks or using debit cards.
The money supply of Princess Anne is $10,000 in 100% reserve banking system. If the Central Bank of Princess Anne decreases the reserve requirement ratio to 10%, the money supply could increase by no more than $9,000.
Because of the multiple tools at its disposal, the Fed can control the money supply very precisely.
US dollars are an example of commodity money and hides used to make trades are an example of fiat money.
Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loan.
Money allows people to specialize in what they do best, thereby raising everyone's standard of living.
