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1.Tom was laid off and is expecting to be recalled.He has not looked for work since being laid off.Bill is not employed and not laid off.Who is counted as unemployed in the U.S. labor force statistics?
| a. | Tom and Bill even if he has not looked for work during the previous 4 weeks. |
| b. | Tom and Bill if he has looked for work during the previous 4 weeks. |
| c. | Not Tom.Bill even if he has not looked for work during the previous 4 weeks. |
| d. | Not Tom.Bill if he has looked for work during theprevious 4 weeks. |
2. In 2009, based on concepts similar to those used to estimate U.S. employment figures, the Japanese adult non-institutionalized population was 110.272 million, the labor force was 65.362 million, and the number of people employed was 62.242 million.According to these numbers, the Japanese labor-force participation rate and unemployment rate were about
| a. | 56.4% and 2.8%. |
| b. | 56.4% and 4.8%. |
| c. | 59.3% and 2.8%. |
| d. | 59.3% and 4.8%. |
3.People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as
| a. | cyclically unemployed. |
| b. | structurally unemployed. |
| c. | frictionally unemployed. |
| d. | discouraged workers. |
4. All Fed purchases and sales of
| a. | corporate stocks and bonds are conducted at the New York Fed’s trading desk. |
| b. | government bonds are conducted at the New York Fed’s trading desk. |
| c. | real estate and other real assets are conducted by the Federal Open Market Committee. |
| d. | All of the above are correct. |
5.Suppose the Fed’s primary goal is price stability and it aims to keep the inflation rate at 2%.If the inflation rate rose above 2%, what should it do?
a. pursue an expansionary monetary policy
b. pursue a contractionary monetary policy
c. reduce the required reserve ratio
d. impose a temporary ceiling on the federal funds rate
6.A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can given the reserve requirement.
| a. | It has $40 in reserves and $3,960 in loans. |
| b. | It has $444 in reserves and $3,550 in loans. |
| c. | It has $400 in reserves and $3,600 in loans. |
| d. | None of the above is correct. |
7. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
| a. | $325 of new reserves. |
| b. | $3,250 of new reserves. |
| c. | $20,312.50 of new reserves. |
| d. | $2,031,250 of new reserves. |
8.When the money market is drawn with the value of money on the vertical axis, the price level decreases if
| a. | either money demand or money supply shifts right. |
| b. | either money demand or money supply shifts left. |
| c. | money demand shifts right or money supply shifts left. |
| d. | money demand shifts left or money supply shifts right. |
9.The classical dichotomy refers to the idea that the supply of money
| a. | is irrelevant for understanding the determinants of nominal and real variables. |
| b. | determines nominal variables, but not real variables. |
| c. | determines real variables, but not nominal variables. |
| d. | is a determinant of both real and nominal variables. |
10.How does the Fed decide which monetary measure it should keep track of?
a. The Fed would like to track a monetary measure that is most closely related to the market interest rate.
b. The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents.
c. The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level.
d. The Fed would like to track a monetary measure that is most closely related to government spending.
11.Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries.This increase would make foreigners
| a. | more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. |
| b. | more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. |
| c. | less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. |
| d. | less willing to purchase U.S. bonds, so U.S. net capital outflow would rise. |
12.If a country changes its corporate tax laws so that domestic businesses build and manage more business in other countries, then the net capital outflow of that country
| a. | and the net capital outflow of other countries rise. |
| b. | rises and the net capital outflow of other countries fall. |
| c. | falls and the net capital outflow of other countries rise. |
| d. | None of the above are correct. |
13.If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $2 in the U.S. and 6 pesos in Argentina what is the real exchange rate?
| a. | 3 |
| b. | 4/3 |
| c. | 3/4 |
| d. | 1/3 |
14.The aggregate quantity of goods and services demanded changes as the price level rises because
| a. | real wealth falls, interest rates rise, and the dollar appreciates. |
| b. | real wealth falls, interest rates rise, and the dollar depreciates. |
| c. | real wealth rises, interest rates fall, and the dollar appreciates. |
| d. | real wealth rises, interest rates fall, and the dollar depreciates. |
15.As the price level rises
| a. | people will want to buy more bonds, so the interest rate rises. |
| b. | people will want to buy fewer bonds, so the interest rate falls. |
| c. | people will want to buy more bonds, so the interest rate falls. |
| d. | people will want to buy fewer bonds, so the interest rate rises. |
16. When the price level falls
| a. | the interest rate rises, so the quantity of goods and services demand rises. |
| b. | the interest rate rises, so the quantity of goods and services demand falls. |
| c. | the interest rate falls, so the quantity of goods and services demand rises. |
| d. | the interest rate falls, so the quantity of goods and services demand falls. |
17. Other things the same, if the price level rises, then domestic interest rates
| a. | rise, so domestic residents will want to hold more foreign bonds. |
| b. | rise, so domestic residents will want to hold fewer foreign bonds. |
| c. | fall, so domestic residents will want to hold more foreign bonds. |
| d. | fall, so domestic residents will want to hold fewer foreign bonds. |
18.Which of the following statements is true of the economy in the long run? In the long run,
I.real GDP eventually moves to potential because all wages and prices are assumed to be flexible.
II.the economy can achieve its natural level of employment and potential output at any price level.
III.there is no cyclical unemployment.
a. I only
b. I and II only
c. I and III only
d. I, II, and III
19.The marginal propensity to consume (MPC) is defined as the fraction of
| a. | extra income that a household consumes rather than saves. |
| b. | extra income that a household either consumes or saves. |
| c. | total income that a household consumes rather than saves. |
| d. | total income that a household either consumes or saves. |
20.The logic of the multiplier effect applies
| a. | only to changes in government spending. |
| b. | to any change in spending on any component of GDP. |
| c. | only to changes in the money supply. |
| d. | only when the crowding-out effect is sufficiently strong. |
Short Answer / Essay Questions: 10 points each. Please answer precisely. Do not add irrelevant explanations. Any unnecessary statements will reduce your scores.
1. Discuss why Bitcoin is not a money. Discuss why it is money if you think it is money.
2.Explain the goals of Fed’s role as the last resort of banking system. How does it work?
3. Supposed that the U.S. economy is in recession. The President wants to conduct a fiscal policy. He wants to either cut tax by 50 billion dollars or increase government spending by 50 billion dollars. Which policy can increase GDP more? Please show your works/reasoning in answering the question.
4.Wages and prices are many times higher today than they were 30 years ago, yet people do not work a lot more hours or buy fewer goods. How can this be?
Explanation & Answer
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1.Tom was laid off and is expecting to be recalled.He has not looked for work since being laid off.Bill
is not employed and not laid off.Who is counted as unemployed in the U.S. labor force statistics?
a. Tom and Bill even if he has not looked for work during the previous 4 weeks.
b.Tom and Bill if he has looked for work during the previous 4 weeks.
c. Not Tom.Bill even if he has not looked for work during the previous 4 weeks.
d. Not Tom.Bill if he has looked for work during theprevious 4 weeks.
2. In 2009, based on concepts similar to those used to estimate U.S. employment figures, the
Japanese adult non-institutionalized population was 110.272 million, the labor force was 65.362
million, and the number of people employed was 62.242 million. According to these numbers, the
Japanese labor-force participation rate and unemployment rate were about
a. 56.4% and 2.8%.
b. 56.4% and 4.8%.
c. 59.3% and 2.8%.
d.59.3% and 4.8%.
3.People who are unemployed because wages are, for some reason, set above the level that brings
labor supply and demand into equilibrium are best classified as
a. cyclically unemployed.
b.structurally unemployed.
c. frictionally unemployed.
d. discouraged workers.
4. All Fed purchases and sales of
a. corporate stocks and bonds are conducted at the New York Fed’s trading desk.
b.government bonds are conducted at the New York Fed’s trading desk.
c. real estate and other real assets are conducted by the Federal Open Market Committee.
d. All of the above are correct.
5.Suppose the Fed’s primary goal is price stability and it aims to keep the inflation rate at 2%.If the
inflation rate rose above 2%, what should it do?
a. pursue an expansionary monetary policy
b. pursue a contractionary monetary policy
c. reduce the required reserve ratio
d. impose a temporary ceiling on the federal funds rate
6.A bank has a 10 percent reserve requirement, $4,000 in deposits, and has loaned out all it can
given the reserve requirement.
a.It has $40 in reserves and $3,960 in loans.
b.It has $444 in reserves and $3,550 in loans.
c.It has $400 in reserves and $3,600 in loans.
d.None of the above is correct.
7. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
a. $325 of new reserves.
b.$3,250 of n...
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