Test 1
Determine the type of problem due to inflation:
Grit, a coffee shop on the corner, notices that the market price of coffee is increasing. The owners cannot tell if the price increase is due to inflation or increased demand so they cannot decide whether they should produce more coffee.
b. 2.5 percent
According to the interest rate effect, an increase in the price level leads to _______ in the interest rate, and therefore to _______ in the quantity of aggregate demand.
decrease; decrease
Dollar appreciation is _____.
a) an increase the number of dollars per unit of foreign currency
b) a decrease in the number of dollars per unit of foreign currency
c) when you tell the cash in your wallet how grateful you are to have it
b) a decrease in the number of dollars per unit of foreign currency
Credit cards are counted under what part of the money supply?
e) AD; SRAS
Suppose that the consumer price index of a country was 160 at Year 1 and 164 at the end of Year 2. What was the country’s inflation rate during Year 2?
a. 5 percent
b. 2.5 percent
c. 64 percent
d. 164 percent
e. 32 percent
b. 2.5 percent
To increase the money supply, the Fed could
a) increase the discount rate
b) increase the required reserve ratio
c) discourage banks from lending money to borrowers
d) conduct an open market sale of US Treasury securities
e) conduct an open market purchase of US Treasury securities
e) conduct an open market purchase of US Treasury securities
When a country decides to impose a tariff on a good they are already importing, we can expect the ______ to decrease and the price of the good to ______.
a) supply; increase
b) supply; decrease
c) demand; increase
d) demand; decrease
e) supply & demand; remain constant
e) AD; SRAS
Suppose the price of a $2000 one-year Walmart bond is $1600. What is the rate of return on the bond? State your answer in percentage terms.
If the price of the bond goes up, what happens to the rate of return?
b. 2.5 percent
In a fractional reserve banking system, banks
a) can lend all of the deposits they receive
b) have to purchase gold that has the value of the deposits received
c) must deposit all cash from depositors with the Federal Reserve
d) face the risk of not having enough reserves to meet withdrawal needs
e) have to deposit all cash from depositors in their own bank vault
d) face the risk of not having enough reserves to meet withdrawal needs
Morgan can produce either 5,000 pounds of cheese or 20 houses per year. Trevor can produce either 5,000 pounds of cheese or 10 houses per year. Morgan has a comparative advantage in the production of _____, and Trevor has a comparative advantage in the production of _____.
e) AD; SRAS
At ________ tax rates, ________ in those tax rates lead to ________ in total tax revenue.
a) high; increases; increases
b) high; decreases; decreases
c) low; increases; increases
d) low; decreases; decreases
e) AD; SRAS
JTKB is an accounting firm in South Orange County, Florida. Company policy is that whenever JTKB decides to open up a new accounting position, the hiring manager must conduct at least five interviews over a two-week span, even if a qualified candidate is found earlier. Because of this process, JTKB is increasing ________ in South Orange County, Florida.
a. the number of discouraged workers
b. structural unemployment
c. cyclical unemployment
d. frictional unemployment
e. labor force participation
d. frictional unemployment
If Japan's central bank were to take steps to devalue the yen in foreign currency markets, the Japanese __ curve would shift right in the SR and the Japanese __ curve would shift left in the LR.
a) AD; AD
b) SRAS; AD
c) LRAS; SRAS
d) SRAS; SRAS
e) AD; SRAS
e) AD; SRAS
Name and briefly explain one of the causes of a current account deficit
e) AD; SRAS
Use the following table to calculate the unemployment rate and the labor force participation rate.
Total Population | 100 |
Employed | 55 |
Full-time students | 16 |
Homemakers | 15 |
Retired | 10 |
Seeking work, but without a job | 4 |
d. frictional unemployment
Supposed you've been hired by the Fed as a financial analyst earning a starting salary of $75,000. Calculate your total tax burden given the following schedule:
10%: $0–8,700
15%: $8,701–$35,350
25%: $35,351–$85,650
28%: $85,651–$178,650
33%: $178,651–$388,350
35%: Over $388,350
($8,700 x 0.10) + [($35,350 – $8,701) x 0.15] + [($75,000 – $35,351) x 0.25] = $870 + $3,997.35 + $9,912.25 = $14,779.60
Suppose the marginal propensity to consume is 0.4 and the required reserve ratio is 0.2. If the Federal Reserve buys 1 million Treasury Securities worth $10 each, by how much will the money supply increase?
e) AD; SRAS