Midterm 1

# Midterm 1 - 1. Midterm2 Identify each of the following acts...

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Midterm 2 1.

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Identify each of the following acts as representing either saving or investment. a. Fr e u s e s o m of  hi in c o m to  b u g o v er n m e nt  b o n d s. b. J uli ta k e
a. Fred is  saving. b. Julie is  saving. c. Alex is  investin g. d. Elaine  is  saving. e. Henriet ta is  investin g. 2.

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Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan. c a u s th e p a le s re al  in te re st  in c o m th a th e e x p e ct e d.

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Compute how much each of the following is worth in terms of today's dollars using 177 as the price index for today. a. In  19 26  th C PI  w as  17 .7  an th pri ce  of  m ov ie  tic ke w as  \$0 .2 5 b. In  19 32  th C PI  w as  13 .1
a. The movie ticket is worth \$.25  177/17.7 = \$2.50 in today's dollars b. the cooks weekly wage is worth \$15.00  177/13.1 = \$202.67 in today's dollars c. the gallon of gas is worth \$.19  177/17.4 = \$1.93 in today's dollars a. What are the 3 tools of monetary policy? b. How does each increase the money supply? c. Which tool is used for day to day operations? Feedback: a. 1. Changing the reserve requirement 2. Changing the discount rate 3. Open market operations b. Increase RR -- lower MS / Decrease RR -- increase MS Increase in discount rate -- lowers MS / Decrease in discount rate -- increase MS FED buys bonds -- increase MS / FED sells bonds -- decrease MS c. Open market operations Suppose the Bureau of Labor Statistics reports that the noninstitutional civilian population is 250 million. Of those, 150 million are employed and 5 million are unemployed. Of the 150 million employed, 5 million would like to be working twice as many hours and of the 250 million, 5 million have given up the search for work. a. What is the unemployment rate? b. What would be the unemployment rate if discouraged workers were counted as unemployed? a .3.2% (5/155) b. 6.25% (10/160) Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control. First, the Fed does not control the amount of currency that households choose to hold relative to

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## This note was uploaded on 03/06/2010 for the course ECON 121 taught by Professor Abajan during the Spring '10 term at San Diego.

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Midterm 1 - 1. Midterm2 Identify each of the following acts...

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