Final Exam for Economics 2301

Professor Li

The unemployment rate measures:

unemployed workers as a percentage

During the Great Depression of the 1930s, the unemployment rate reached more than ______ of the labor force

25%

Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered:

out of the labor force

If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals:

25%

A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be:

frictionally unemployed

Frictional unemployment is:

unemployment that is due to normal turnover in the labor market

If a nation’s labor force receives a significant influx of young workers:

the natural rate of unemployment is likely to increase

The definition of market equilibrium states that at the ____, the quantity of labor demanded by employers will equal the quantity supplied

equilibrium wage

Karen chooses to go to university full-time rather than to work. Karen:

is not part of the labor force

In November 2010 the labor force in Siouxtown, was 14,800. There 14,483 persons employed. The local unemployment rate was:

2.1%

If the unemployment rate is 6% and the number of persons unemployed is 6 million, then the number of people employed is equal to:

94 million

Insofar as government public policy is concerned, the best way to battle unemployment would be ________.

to minimize recessions

Suppose that everyone who has looked for a job more than six months gave up in despair and stopped looking. What would happen to the unemployment rate?

It would fall

The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of ______.

4%-6%

During the deep recessions of the early 1980s and of 2007-2009, unemployment reached roughly ____.

10%

The type of unemployment that occurs because of a recession is called:

cyclical unemployment

The rise in unemployment that occurs because of a recession is known as cyclical unemployment, because it is closely tied to the _____.

business cycle

The most significant real economic cost of high unemployment is:

the potential goods and services that might have been produced but weren’t

The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals:

14.4%

________ argues that the productivity of workers will increase if they are paid more, and so employers will often find it worthwhile to pay their employees somewhat more than market condition might dictate.

Effciency wage theory

Freelife, New Hampshire has a labor force of 78,567 person and an employment of 74,382. The unemployment rate for the city is:

5.3%

Which of the following statements is incorrect?

Employment insurance compensation increase the opportunity cost of being unemployed

Craigburg has a working age population of 20 million. Of those, 11 million are employed and 1 million are unemployed. The unemployment rate is ___ and the participation rate is __.

8.3%;60%

Frictional unemployment occurs when:

a worker decides to quit one job to seek a different job

The development of a nationwide computerized job bank listing of all job openings would most likely to reduce:

frictional unemployment

_______ implies that pressure for price increases reaches across _____ markets, not just one.

Inflation; most

Inflation implies that the level of all prices ______

Increase

Inflation can be calculated in terms of how the overall cost of _____ changes over time.

the basket of goods

If the price index moves from 107 to 110, the rate of inflation is:

2.8%

The most commonly cited measure of inflation in the United States is

the Consumer Price Index (CPI)

One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer’s true cost of living, is:

substitution bias

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the _________.

inflation rate

The basket of goods in the Consumer Price Index consists of about ____ products; that is, several hundred specific products in over _____ broad-item categories.

80,000; 20

Two factors that complicate the calculation of the inflation rate are:

substitution and quality/new product bias

When we want to measure wage inflation in the labor market, we use the:

Employment Cost Index

The _______ is based on the prices of merchandise that are exported or imported

International Price Index

Another term used to describe negative inflation is:

deflation

In the early 1990s extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ________.

hyperinflation

The situation where the buying power of money in terms of goods and services increases is called:

deflation

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods

producer price index

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?

GDP Deflator

What distinguishes the real value of a statistic from the nominal value of a statistic?

adjusting for inflation

When a price, wage or interest rate is adjusted automatically with inflation, it is said to be _______.

indexed

In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had ______ which guaranteed that their wages would keep up with inflation.

cost of living adjustments

The ________ is the nominal interest rate minus the rate of inflation.

real interest rate

Inflation is a rise in:

the general level of prices over time

If the Consumer Price Index was 166.6 in one year and 172.2 in the next year, then the rate of inflation from one year to the next year was

3.4%

A statement that is often used to describe demand-pull inflation is:

“Too much money chasing too few goods.”

Inflation caused by a rise in per-unit production costs is referred to as:

cost-push inflation

The annual rate of inflation can be found by subtracting

lasts year’s price index from this year’s price index and dividing the difference by last year’s price index

_________ are economicsts who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the ________.

Neoclassical economists; long run

Aggregate supply (AS) denotes the relationships between the _________ that firms choose to produce and sell and the ________, holding the price of inputs.

total quantity; price level for output

The maximum quantity that an economy can produce, given its existing levels of labor physical capital, technology, and institutions, is called:

potential GDP

The term “full employment GDP” is synonymous with which of the following?

potential GDP

In macroeconomics, ________ denotes the relationships between the total quantity of goods and services and the price level for output.

aggregate supply (AS)

__________ results when an economy experiences high unemployment and high inflation at the same time.

Stagflation

Say’s Law argues that a given ___________ must create an equivalent __________ somewhere else in the economy.

value of supply; value of demand

When the economy of a country is operating close to its full capacity:

cyclical unemployment is close to zero

Referring to the above diagram, which of the following is a true statement?

There is insufficient aggregate demand to reach full employment

The graph above reflects a significant increase in world oil prices. what will the impact on aggregate supply most likely lead to?

an increase in input prices

The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?

the economy will experience lower economic growth

The following table shows the aggregate supply and demand data for a country.

What is the equilibrium price level?

400

The following table shows the intial aggregate supply and demand data for a country.

If input prices rise and AS shift to the left by 2,000 units at each price level, what output level will equal the new equilibrium price?

7000

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

higher profits will induce expanded production

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

fixed cost of inputs combined with rising prices for outputs

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

hyper-intense production will be unsustainable in the long run

Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?

it shifts the AS curve in the long-term

Aggregate supply curves are __________ for low levels of output, and _________ for high levels of output.

relatively flat; relatively steep

In an AD/ASAD/AS diagram, ____________ could explain a rise in cyclical unemployment?

a shift to the left in either AS or AD

When an economy’s output increases and the price level decreases, the _______ curve has shifted to the _______

AS; right

The ______ in an AD/AS diagram is most relevant to Keynes’s Law

flat portion of the AS curve

The _________ in an AD/AS diagram is most relevant to Say’s Law.

steep portion of the AS curve

The _______ holds that a rise in price level will make domestic goods relatively more expernsive, ________ exports and ________ imports.

foreign price effect; discouraging; encouraging

Melanie decide to save 20% of her annual earnings for 10 years so she would have a down payments for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save?

deflation

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _________ is to the potential GDP line.

equilibrium

______ serves society in three functions; medium of exchange, unit account, and store of value.

Money

Which of the following is omitted in a barter transaction?

money

__________ is a completely inadequate mechanism ____________ in a modern advanced economy.

Barter; for trying to coordinate trades

In macroeconomics, a _________ describes the common way in which market values are measured in an economy.

unit of account

In modern economies, credit cards are a _________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?

medium of exchange

Which category of the money supply would you be contributing to if you invest in money market funds?

M2

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

the credit card company’s M1 funds.

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

her M1 funds

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

$510 million

Stealth bank deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank’s loans, if sold at current market value, would be worth $600 million. What does Stealth bank’s net worth equal?

$270 million

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million, The bank’s loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth banks’s assets?

$970 million

Why do banks use a T-account?

the T-account seperates assets on the left from liabilities on the right

In modern economies, ________ receive money from savers and provide funds to borrowers.

financial intermediaries

________ are funds that the bank keeps on hand that are not loaned out or invested in bonds.

Reserves

In macroeconomics, ________ describes a situation where a bank’s liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

an asset-liability time mismatch

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ________ by adopting a strategy that will _______.

an asset-liability time mismatch; diversify its loans

The process of banks making loans in financial capital markets is intimately tied to the:

creation of money

Banks typically come under financial stress because of:

a widespread decline in the value of their assets

If loans become far less available, then sectors of the economy that _______ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

depend on borrowed money

If the central bank increases the amount of reserves banks are required to hold from 10% to 20%, then:

both money multiplier and supply of money in the economy will decrease

_________ are a form of deposits held in banks that are available by making a cash withdrawal of writing a check.

demand deposits

________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.

money markets funds

The term _______ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds

reserve ratio

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?

20