Midterm 1 stuff
Recently, while Mr. Elzinga and I were grocery shopping, Mr. Elzinga complained to the manager about the high price of dog food (even though he bought some for Polly, hisEnglish Bulldog). Which statement below is a Rotunda Principle from our class that you might quote to Mr. Elzinga to get him to stop complaining?
a.Trade creates value.
b.Incentives affect behavior.
c.Trade is effing awesome.
d.Every dollar borrowed needs a dollar saved.
e.Never get involved in a land war in Asia.
f. If prices don’t adjust, output must.
a.Trade creates value.
The assumption that technological innovations are exogenous is a key part of:
a.All economic growth theories.
b.The first iteration of the Solow Model (Solow I).
c.The second iteration of the Solow Model (Solow II).
d.Modern growth theory.
e.Both B and C are correct.
f.Both C and D are correct.
c.The second iteration of the Solow Model (Solow II).
It is possible to have tax rates so high that reducing them actually increases tax revenue. Which Rotunda Principle helps to explain this phenomenon?
a.Taxes are a fourth source of economic growth.
b.Taxes suck.
c.Trade creates value.
d.Incentives affect behavior.
e.When inflation is expected unemployment is not affected.
d.Incentives affect behavior.
Which of the following is NOT part of the M2 money supply?
a.Credit Cards.
b.Certificates of Deposit.
c.Money Market Mutual Funds.
d.Savings Deposits.
e.All of the Above.
f.None of the Above.
a.Credit Cards.
The Federal Funds rate is:
a.The interest rate set directly by the Fed as a tool of monetary policy.
b.The interest rate charged on very short term (overnight) loans between banks.
c.The market interest rate targeted by the Fed as an indicator for monetary policy.
d.Both A and B are correct.
e.Both A and C are correct.
f.Both B and C are correct
f.Both B and C are correct
After the COVID recession, there may be some jobs that are newly obsolete, due to permanent changes in the way we produce goods and services. For example, if virtual meetings are more normal than previously, business travel will decline. The unemployment caused by these types of changes is generally called:
a.Cyclical unemployment
b.Pandemic unemployment
c.Frictional unemployment
d.Structural unemployment
e.Seasonal unemployment
d.Structural unemployment
The portion of the world’s population living in extreme poverty (less than $2 per day):
a.Has not changed significantly over the past few decades.
b.Has increased slightly over the past few decades.
c.Has decreased slightly over the past few decades.
d.Has increased dramatically over the past few decades.
e.Has decreased dramatically over the past few decades
e.Has decreased dramatically over the past few decades
Over the past 50 years, the U.S. federal budget has seen:
a.A larger percentage devoted to national defense spending.
b.A larger percentage devoted to mandatory programs.
c.A larger percentage devoted to discretionary programs.
d.A larger percentage devoted to spending on Social Security and Medicare.
e.Both A and B are correct.
f.Both A and C are correct.
g.Both B and C are correct.
h.Both B and D are correct.
h.Both B and D are correct.
Federal deposit insurance:
a.Helped to solve bank run problems but created new moral hazard problems in the banking industry.
b.Works great because it solved the moral hazard problem.
c.Created the dual problems of bank runs and moral hazard.
d.Solved the moral hazard problem but created the scary problem of bank runs and OPM (other people’s money) addictions.
a.Helped to solve bank run problems but created new moral hazard problems in the banking industry.
When the economy goes into a recession, our current Fed might respond by:
a.Lowering the interest rate paid on bank reserves.
b.Increasing their purchases of securities in the market.
c.Lowering reserverequirements
d.Increasing the money multiplier
e.Both A and B are correct.
f.Both A and D are correct
e.Both A and B are correct.
Which of the following is not included in GDP calculations?
a.Whole foods buys spinach for their salad bar.
b.Your mom buys a shovel from Lowes to work in your garden.
c.You buy a computer from Dell to do classwork.
d.You buy spinach at Whole Foods to make a salad at home.
e.Your friend pays an accountant to prepare her tax returns.
a.Whole foods buys spinach for their salad bar.
Making international aid dependent on institutional reforms is most consistent with atheoretical foundation built on:
a.All economic growth theories.
b.The first iteration of the Solow Model (Solow I).
c.The second iteration of the Solow Model (Solow II).
d.Modern growth theory.
e.Both B and C are correct.
f.Both C and D are correct.
d.Modern growth theory.
In 2009, President Obama ushered in expansionary fiscal policy largely focused ongovernment spending. The primary goal of this policy was to:
a.Increase both short-run and long-run aggregate supply.
b.Increase short-run aggregate supply.
c.Increase aggregate demand.
d.Both A and C are correct.
c.Increase aggregate demand.
The interest rate on reserves balances (IORB) is:
a.An important monetary policy tool that has been used only in the recent past.
b.An monetary policy target that has been used only in the recent past.
c.An monetary policy target that has been used for decades.
d.An important monetary policy tool that has been used for decades.
a.An important monetary policy tool that has been used only in the recent past.
In 1960, Paul Samuelson and Robert Solow postulated:
a.A Phillips Curve inwhich inflation expectations were assumed to be Rational.
b.A Phillips Curve in which inflation expectations were assumed to be Adaptive.
c.The Solow Growth Model.
d.The Samuelson and Solow Growth Model.
e.A Phillips Curve in which inflation expectations were ignored
e.A Phillips Curve in which inflation expectations were ignored
Laura is selling a $10,000 one-year bond to help pay for business expenses. Let’s say you are willing lend Laura some funds as long as you can earn a 5% nominal return. What price would you be willing to pay for her bond?
a.$9,500
b.$10,500
c.$9,524
d.$500
e.$9,950
f. None of the above.
c.$9,524
Assume the economy is in long run equilibrium and then consumer confidence falls. In the absence of government action, what are the predicted effects on the unemploymentrate (u) and the price level (P) in the AD-AS model:
a.In the short run, u and P both rise; in the long run, they fall back to their originallevel.
b.In the short run, u falls and P rises but in the long run they both fall back to theiroriginal level.
c.In the long run, there is no effect on P but u falls.
d.In the short run, u and P both fall; in the long run, they rise back to their originallevel.
e.In the long run there is no effect on u but P falls
e.In the long run there is no effect on u but P falls
If complete Crowding Out occurs, then expansionaryfiscal policy:
a.Increases aggregate demand.
b.Decreases aggregate demand.
c.Has no effect on interest rates.
d.Has no effect on aggregate demand.
e.Shifts both aggregate demand and aggregate supply
d.Has no effect on aggregate demand.
The British economist A.W. Phillips published a paper in 1958 in which he plotted:
a.The growth rate in nominal wages along with unemployment rates for the United States.
b.The growth rate in the price level along with unemployment rates for the United States.
c.The growth rate in nominal wages along with unemployment rates for the United Kingdom.
d.The growth rate in the price level along with unemployment rates for the United Kingdom.
e.All of the above
c.The growth rate in nominal wages along with unemployment rates for the United Kingdom.
If the reserve ratio of banks is equal to 20% and people hold no currency outside the banking system, a helicopter drop of $200 billion in new money into the economy can multiply to generate as much as:
a.$1 trillion
b.$2 trillion
c.$100 billion
d.$200 billion
e.$40 billion
a.$1 trillion
Cadmium is a raw material used in many of the batteries we use for smartphones and computers. If there is an unexpected shortage of cadmium in the world, what happens on the demand side of the market for these batteries as the market moves to a new equilibrium?
a.Demand increases and quantity demanded declines.
b. Demand declines and quantity demanded does not change
c. Demand declines and quantity demanded declines.
d. Demand does not change and quantity demanded declines.
d. Demand does not change and quantity demanded declines.
The economy of Harpland is in long run equilibrium when a research scientists develop a new cleaner energy that is also cheaper to produce. In the long run, this leads to what changes in Harpland?
a.Lower unemployment and an inward shift of the PPF.
b.Increased aggregate demand, a higher price level and higher real GDP.
c.A lower price level and more per capita real GDP.
d.A higher price level and more per capita real GDP.
e.Decreased aggregate demand and a lower price level.
c.A lower price level and more per capita real GDP.
The key concern presented by fiscal policy lags is:
a.Fiscal policy will smooth out the business cycle but only after a significant delay.
b.Fiscal policy will magnify the business cycle.
c.Fiscal multipliers may be too small.
d.Budget deficits willoverwhelm the economy.
e.Synchronizing fiscal and monetary policy.
b.Fiscal policy will magnify the business cycle.
The country of Rutvaland uses gold as its currency. Which of the following events wouldcause inflation in Rutvaland?
a.A ship carrying 10% of Rutvaland’s gold supply sinks and the wreckage is not recoverable.
b.A new vein of gold is discovered and begins being mined.
c.The moving assembly line for production is introduced in Rutvaland.
d.The Reserve Bank of Rutvaland introduces new paper currency that is backed bygold.
e.None of the above
b.A new vein of gold is discovered and begins being mined.
Assume the economy starts in long-run equilibrium and that, for several years, the inflation rate has been exactly 2 percent. In this case, if the central bank undertakes surprise monetary policy to cause the inflation rate to rise to 4 percent for all periods going forward. In the long run, all else equal, we would expect to see:
a.A decrease in Y and an increase in u.
b.An increase in Y and a decrease in u.
c.A decrease in Y and a decreasein u.
d.No change in the macroeconomy.
e.An increase and Y and an increase in u.
d.No change in the macroeconomy.