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Homework answers / question archive / Midterm 3 for econ 1) President Obama is running for re-election against governor Mitt

Midterm 3 for econ 1) President Obama is running for re-election against governor Mitt

Economics

Midterm 3 for econ

1) President Obama is running for re-election against governor Mitt. Romney.  Obama proclaims that more people are working now than when he took office. Romney says that the unemployment rate is higher now than when Obama took office. You conclude that

a.

one of them must be lying.

b.

both of them could be telling the truth if the labor force and employment grew at the exact same rate.

c.

both of them could be telling the truth if the labor force grew slower than employment.

d.

both of them could be telling the truth if the labor force grew faster than employment.

 

2.  In June 2009 the BLS reported an adult population of 234.9 million, unemployment of 12.4 million, and employment of 141.6 million.  Based on these numbers the labor-force participation rate was

a.

154/234.9.

b.

141.6/234.9.

c.

141.6/154.

d.

None of the above are correct.

 

3.  The BLS counts discouraged workers as

a.

employed.  Including them as employed makes the unemployment rate lower than otherwise.

b.

unemployed.  Including them as unemployed makes the unemployment rate higher than otherwise.

c.

out of the labor force.  If the were counted as unemployed the unemployment rate would be higher.

d.

None of the above is correct.

 

4. Meredith is looking for work as a computer programmer.  Although her prospects are good, she hasn't yet taken a job.  Julie is looking for work in a steel mill.  Every time she shows up for an interview, there are more people looking for work than their are openings.  Someone waiting in line with her tells her it has been that way for a long time.

a.

Meredith and Julie are both frictionally unemployed.

b.

Meredith and Julie are both structurally unemployed.

c.

Meredith is frictionally unemployed, and Julie is structurally unemployed.

d.

Meredith is structurally unemployed, and Julie is frictionally unemployed.

 

 5.  Figure 15-1

 

Refer to Figure 15-1.  If the government imposes a minimum wage of $8, then employment will decrease by

a.

0 workers.

b.

2000 workers.

c.

3000 workers.

d.

4000 workers.

 

6. When the wage is above the equilibrium level,

a.

the labor market is functioning more efficiently than it otherwise would function.

b.

there is a shortage of labor.

c.

the quantity of labor supplied exceeds the quantity of labor demanded.

d.

job search is the primary explanation for the unemployment that is observed.

 

7. 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

a.

cyclical unemployment amounting to 0.5 percent of the labor force.

b.

frictional unemployment amounting to 0.5 percent of the labor force.

c.

structural unemployment amounting to 0.5 percent of the labor force.

d.

search unemployment amounting to 0.5 percent of the labor force.

 

8.  Which of the following is correct?

a.

The maturity of a bond refers to the amount to be paid back.

b.

The principal of the bond refers to the person selling the bond.

c.

A bond buyer cannot sell a bond before it matures.

d.

None of the above is correct.

 

9. Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

a.

Because they have the same term to maturity the interest rates should be the same.

b.

Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate.

c.

Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.

d.

It is not possible to say if one bond has a higher interest rate than the other.

 

10.   If Huedepool Beer runs into financial difficulty, the stockholders as

a.

part owners of Huedepool are paid before bondholders get paid anything at all.

b.

part owners of Huedepool are paid after bondholders get paid.

c.

creditors of Huedepool are paid before bondholders get paid anything at all.

d.

creditors of Huedepool are paid after bondholders get paid.

 

11. Which of the following statements is correct?

a.

A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.

b.

A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.

c.

A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.

d.

Expectations about the business cycle have no impact on stock prices.

 

12.   If the government institutes policies that diminish incentives to save, then in the loanable funds market

a.

the demand for loanable funds shifts rightward.

b.

the demand for loanable funds shifts leftward.

c.

the supply of loanable funds shifts rightward.

d.

the supply of loanable funds shifts leftward.

 

13.   Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

a.

The demand for loanable funds would shift left.

b.

The supply of loanable funds would shift left.

c.

The demand for loanable funds would shift right.

d.

The supply of loanable funds would shift right.

 

14.  If Japan goes from a small budget deficit to a large budget deficit, it will reduce

a.

private saving and so shift the supply of loanable funds left.

b.

investment and so shift the demand for loanable funds left.

c.

public saving and so shift the supply of loanable funds left.

d.

None of the above is correct.

 

15. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.

Refer to above Figure.  Which of the following events would shift the supply curve from S1 to S2?

a.

In response to tax reform, firms are encouraged to invest more than they previously invested.

b.

In response to tax reform, households are encouraged to save more than they previously saved.

c.

Government goes from running a balanced budget to running a budget deficit.

d.

Any of the above events would shift the supply curve from S1 to S2.

 

16. You pay for cheese and bread from the deli with currency.  Which function of money does this best illustrate?

a.

medium of exchange

b.

unit of account

c.

store of value

d.

liquidity

 

17.  Which of the following functions of money is also a common function of most other financial assets?

a.

a unit of account

b.

a store of value

c.

medium of exchange

d.

None of the above is correct.

 

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

a.

currency

b.

demand deposits

c.

other checkable deposits

d.

All of the above are correct.

 

19. Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his savings account. As a result of this transfer by itself

a.

M1 increases by $2,100 and M2 stays the same.

b.

M1 increases by $2,100 and M2 increases by $2,100.

c.

M1 decreases by $2,100 and M2 increases by $2,100.

d.

M1 decreases by $2,100 and M2 stays the same.

 

20. The agency responsible for regulating the money supply in the United States is

a.

the Comptroller of the Currency.

b.

the U.S. Treasury.

c.

the Federal Reserve.

d.

the U.S. Bank.

 

21. 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.

 

22. If a bank has a reserve ratio of 8 percent, then

a.

government regulation requires the bank to use at least 8 percent of its deposits to make loans.

b.

the bank’s ratio of loans to deposits is 8 percent.

c.

the bank keeps 8 percent of its deposits as reserves and loans out the rest.

d.

the bank keeps 8 percent of its assets as reserves and loans out the rest.

 

23.   As the reserve ratio increases, the money multiplier

a.

increases.

b.

does not change.

c.

decreases.

d.

could do any of the above.

 

24. If the reserve ratio is 100-percent, then a new deposit of $500 into a bank account

a.

eventually increases the money supply by $500.

b.

leaves the size of the money supply unchanged.

c.

eventually decreases the size of the money supply by $500.

d.

None of the above is correct.

 

 Table 16-5. 

Bank of Pleasantville

 

 

Assets

Liabilities

Reserves

     $2,000

Deposits

  $20,000

Loans

     18,000

 

 

 

 25. Refer to Table 16-5.  The Bank of Pleasantville’s reserve ratio is

a.

1 percent.

b.

5 percent.

c.

10 percent.

d.

20 percent.

 

26. Refer to Table 16-5. If the Fed’s reserve requirement is 9 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?

a.

$200

b.

$250

c.

$400

d.

$1,000

 

 27. Assume the Fed’s reserve requirement is 9 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 9 percent requirement.  Further assume that people hold only deposits and no currency.  Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

a.

$555.00.

b.

$1,200.00.

c.

$1,777.78.

d.

$2,222.22.

 

28. Which of the following increase when the Fed makes open market purchases?

a.

currency and reserves

b.

currency but not reserves

c.

reserves but not currency

d.

neither currency nor reserves

 

29. When the Fed purchases $200 worth of government bonds from the public, the U.S. money supply eventually increases by

a.

more than $200.

b.

exactly $200.

c.

less than $200.

d.

None of the above are correct.

 

30.  If the Fed sells government bonds to the public, then reserves

a.

increase and the money supply increases.

b.

increase and the money supply decreases.

c.

decrease and the money supply increases.

d.

decrease and the money supply decreases.

 

 

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