Econ101 s07 exam4

Econ101 s07 exam4 - _,,..—- ,._..- I . ._.._v‘,. ._-......

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Unformatted text preview: _,,..—- ,._..- I . ._.._v‘,. ._-... U Economics .101 — Exam #4 _ spring 2007 Professor Cynthia Bansak I INSTRUCTIONS 9 _ a H . Multiplechoice (2.75 points each — 88 points total.) ' In’esch qt! ‘_ 'nflterfigonly one correct answer. Select the answer you believe to be most correct. " ' ‘ “ ' ‘ . .. 1. Which of the following is an example of a real variable? a) the income of your economics professor b) the dollar value of the economy’s output . 7 d) the profits earng Ey iI-org float éompany in 2000 '- : - . 2. The money supply curve shifts right if \o so --’ "h a) the Fed sells bonds in the open market. ' b) 1/P_rises. Wt. (1) Both a and b are correct. takes time for workers to search for the jobs that best suit their taste and skills. Structural unemployment results because the number of jobs available in some labor markets is insufficient to provide the jobs for everyone who wants one. m b)Both sentences are false. . _ c) Only the first sentence is true. ‘ ' d)0nly the second sentence is true. 4. Which of the following would increase frictional unempiommrflfl a) a reduction in unemployment insurance . i c) increased information about job openings and worker ability d)All the above are correct. 5- thn unions raise wages in one sector of the economy, the supply of labor in other sectors of the economy " 7 H '- ~mw increases, raising wages in industries that are not unionized. c) decreases, raising wages in industries that are no unlon . (1) decreases, reducing wages in industries that are not unionized. 12. M1 is ‘ a) smaller and less liquid than M2. 0) - larger than and less'liquid than MZ. (1) larger than but more liquid than M2. 13. Credit cards are b)used as a medium of exchange. c) part of the M2 money supply. (1) equivalent to debit cards. ----n:.x.~'v 14. Which Federal Reserve Bank president is always a voting member of the FOMC? a) Boston 0) Chicago d)All of the above are correct. 15. The Fed’s find tool of monetary control is b)changes in reserve requirements. . c) changes in the discount rate. d)bank runs. 16. Which of the following is true about the Federal Reserve System? a)- The system is based on 10 regional reserve banks. b) There are 12 board members. c) 'Board members are appointed by the Chair of the Open Market Committee. W 17. Which of the following occurs when the Fed reduces the reserve requirement? ' I b)""Banks become more reluctant to lend. c) The amount of money in the economy is reduced. ~ we ‘ - “ :1) Interest rates tend to rise in the economy. 18. Which list contains only actions that decrease the money supply? a) loWer the discount rate, make open-market purchases b)lower the discount rate, make open-market sales 0) raise the discount rate, make open-market purchases X. W ,,-\\I\_ _ _ W. rm \3 \(M .‘x MM 24. When the price level rises, the number of dollars needed to buy a representative basket of goods a) decreases, so the value of money rises. b)’decreases, so the value of money falls. c) increases, so the value of money rises. M- 25. When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes . a) upward, because at higher prices people want to hold less money. b)upward, because open-market purchases make more money available. W (1) downward, because at higher prices people want to hold less mbney. 26. Economic variables whose values are measured in monetary units are called a) dichotomous variables. m 7H ) 1 '31 'b1 . ' c cass1c vana es ‘0 {\A {1) real variables. 27. Velocii is computed as ' b) (P x M)/Y: c) (Yx MJIP. d) (Yx M)/V. 28. If Y and V are constant, and M doubles, the quantity equation implies the price level ' a) more than doubles. b) less than doubles. ‘ d) might do any of the above; more information is needed. 29. If the Fed increased the supply of money, and velocity remains unchanged, according to the quantity equation: / a) P x Y must decrease. /1 b Y must decrease. - has. \i d) Ymust increase. / /\ / ' j V v _ 4:- Short Answer Questions (4 points each - total 12 points): 1. (Chapter 15) Unemployment 3) Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded, and the amount of unemployment. Wage paid \A (up or down) Quantity Supplied - - 1' down) Quantity Demanded {(up or down) Unemployment (up or down) 4 A. ' - mafia! an, \vwduh Mop U550 WM pmdubivmlgm MIde .‘fim *7 002 as:- 3;” S 3 E? 2. _ WWW M WW \ . h . * WWW Mfla Wm; WM we 4 Mm dun. ‘ \M 1‘ W WW} PYMLU-mw' I 7 _ 3. (Chapter 17) _Money Growth and Inflation a) Using a graph, demonstrate what happens to the money supply, money demand, the value of money, and the price level if the Fed increases the money supply. with” WM WWW ' b) What assumptions are necessary to argue that the quantity equation implies that increases in the money supply lead to proportional changes in the price level? Q. 6. Tom Crown operates a company that produces paintings for motels. Tom decides that if he pays his workers more that his profits will increase. Which of the following is aliker and logical explanation for his decision? a) By paying higher wages, he will be able to charge more for the paintings his workers produce. b)By payinghigher wages, competent workers are less likely to apply. 7. Which of the following is NOT a reason actual labor markets experience unemployment? a) unions b) job search d) minimum-wage legislation 8. From time to time the demand for workers has risen in one region of the United States and fallen in another. This illustrates a)" frictional unemployment created by efficiency wages. b) structural unemployment created by efficiency wages. s. d) structural punemp oym y s. 9. Current US. currency is a) commodity money with intrinsic value. b) _ commodity money with no intrinsic value. ._ 431V . H.“ 0) fiat money with intrinsic value. G" K as] 10. Which of the following best illustrates the unit of account function of money? Wm ,Ja)’; ou pay for tickets to a WNBA game with dollars. c) You keep $10 in your backpack for emergencies. _d)None of the'above is. correct. 11. Of the following assets which is the most liquid? Mfion ‘ ‘ b)a painting by van Gogh c) a used car (1) fine jewelry 19. The ability of banks to create money has its source in: a) the 100 % reserve requirement. 0) the ability oflvemment to mint as much currency as it wishes. d) the banks' ability to issue currency (banknotes) of their own. 20. If the reserve rafio is 15 percent, an additional $2,000 of reserves Will in 'i -- the money supply by ‘ I, i _ _’ I r ' a)$1,500. WW Kn” “\N‘ a? 76 . b)$3,000. i c)$13,150. Nu ‘6 1‘00) : .5 5 . ,/ \\<+, ' - - fl 4 21. On a bank’s T-account, a) deposits are assets, reserves are liabilities. a____.. \L“ l“ 0) both deposits and reserves are assets. ' ' d)both deposits and reserves are liabilities. ll 22. When theFed conductsopen market sales, L \\ 1’53 “5 3.3 a) it sells Treasury securities, which increases the money supply. c) it borrows from member banks, which increases the money supply. (1) it lends money to member banks, which decreases the money supply. ' .I r Use the balance sheet for the followin a u‘estion Last Bank of Hope D - Reserves $2,000 - - osits $10,000 $8,000 Vffib' 23. If the reserve requirement is 10 percent, the Last Bank of b)is in a posrlion to make a new loan of $2000. 0) has required reserves of $2,000. d)has less reserves than required. _ r \/ 30. She leather costs refer to M cost of more frequent price changes induced by higher inflation. we}. 0) the distortion in resource allocation created by distortions in relative prices due to inflation. ’ '- ' ' ' d) the distortion in incentives, created by inflation, by taxes that do not adjust for inflation. - 31. When inflation turns out to be higher than expected, borrowers will be off, and lenders'will be off. ‘ b) better, better c) worse, worse d) worse, better 32. ccording to the principle of monetary neutrality: PM variables do not affect nominal variables. c) neminal variables are not adjusted for inflation and real units are adjusted or inflation. . d) nominal variables are expressed in monetary units and real variables are expressed in physical units. 2. (Chapter 16) The Monetary System a) List three characteristics of successful currency. b) The Fed conducts a $5 million open-market purchase of government bonds. If the required reserve ratio is 20 percent, what is the largest possible increase inthe money supply that could result? , (H u ’00.; [U0 lMVLOWF’ mfmqma mm 11mm; x. W‘Wl ,, 3 Us . Witnoomooxz >3; XM' \ ' 3/ gmulkzvllnumim lax/L'le H; W ’ w. . ‘2 i c) Beleaguered State Bank (BSB) holds $500 million in deposits and maintains a ‘\ 3M0 1 3300 Wu SDWW 7, WWW MOSMMM {54°C {WWW Wugm‘i‘wfl @3ch st‘wfim . is ‘5 W“ ""‘ W . WP ‘Km‘w‘ *ng MM ill/10g MM Ar MUMSWH... 8 ...
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Econ101 s07 exam4 - _,,..—- ,._..- I . ._.._v‘,. ._-......

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