Economics Final

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.