Econ Final chapters 6-11 Flashcards

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If the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be



Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the baskets cost was $50, in 2014 the baskets cost was $51, and in 2016 the baskets cost was $52. The value of the CPI in 2014 was:



If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was

6 percent.


The price index was 136 in one year and then 142 the next year, what was the inflation rate between the two years?

4.41 percent.


Janelle earned a salary of $62,000 in 2004, and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is



If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest is:

5 percent.


Which of the following items plays a role in determining productivity?

All of the above.


All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by 1 unit?

Output will rise but by less than it did when the previous unit was added.


Assuming diminishing returns,

The increase in output growth from an increase in the savings rate falls over time, and that, other things the same, poor countries should grow faster than rich ones.


The logic behind the catch up effect is that

New capital adds more to production in a country that doesnt have much capital than in a country that already has much capital.


Thomas Malthus's predictions turned out to be wrong due to

Technological advances such as those in the Industrial Revolution.


In a small closed economy, investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

$5 billion and $50 billion.


When public saving falls by $2b and private saving falls by $1b, in a closed economy

Investment falls by $3b.


Suppose the economy is closed with national saving is $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

$17 trillion.


If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

9 percent.


If the nominal interest rate is 7 percent and the real interest rate is 2 percent, what is inflation rate?

5 percent.


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

The supply of loanable funds shift leftwards.


Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The future value of the $500 after 2 years is



If the interest rate is 7 percent, then what is the present value of $4000 to be received in 6 years?



A manufacturing company is thinking about building a new factory. If built, the factory will yield the company $300 million in 7 years, and it would cost $220 million today to build. The company will decide to build the factory if the interest rate is

No greater than 4.53 percent.


At an annual interest rate of 14 percent, about how many years will it take $100 to double in value?

5 years


What is an example of adverse selection?

A high risk person being more likely to apply for insurance.


What best illustrates moral hazard?

After a person obtains life insurance, she takes up sky diving.


The value of a stock is based on:

The present values of a the dividend stream and final price. As a result, the value of a stock falls when interest rates rise.


An economy's natural rate of unemployment is the

amount of unemployment that the economy normally experiences.


The deviation of unemployment from its natural rate is called:

Cyclical unemployment


The Bureau of Labor Statistics reported in 2005 that there were 53.23 million people over age 25 who had at least a bachelor's degree, 40.59 million of whom were employed and 0.98 million oh whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

78.1% and 2.4%


Suppose that some country has an adult population of about 50 million, a labor-force participation rate of 60 percent, and an unemployment rate of 5 percent. How many people were employed?

28.5 million.


The natural unemployment rate includes

Both frictional and structural unemployment.


From time to time, the demand for workers has risen in one region of the United States and fallen in another. This illustrates

frictional unemployment created by sectoral shifts.


What does not help reduce frictional unemployment?

unemployment insurance


When a union raises the wage above equilibrium,

it raises the quantity of labor supplied and reduces the quantity of labor demanded.


When a union bargains successfully with employers, in that industry

both wages and unemployment increase


What is not included in either M1 or M2?

US treasury bills.


In a 100 percent reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then

M1 would not change.


If the reserve ratio is 10 percent, then the money multiplier is



The bank's reserve ratio is

8.5 percent.


If all banks in an economy have the same reserve ratio as the bank, then the value of the economies money multiplier is



When the Fed conducts open market purchases,

It buys treasury securities, which increases the money supply.


When the fed conducts open market sales,

It sells treasury securities, which decreases the money supply.


If the money multiplier is 3 and the fed buys $50,000 worth of bonds, what happens to the money supply?

It increases by $150,000


The interest rate that the Fed charges banks that borrows reserves from it is the

discount rate


When the fed decreases the discount rate, banks will

borrow more from the Fed and lend more to the public. The money supply increases.


A problem that the Fed faces when it attempts to control the money supply is that

Since the US has a fractional reserve banking system, them amount of money in the economy depends in part on the behavior of depositors and bankers.