Econ 302 Midterm 2

Front 1

The quantity theory of money explainsthe ways in which:_____ affects the economy in the long run.

Back 1

money

Front 2

Therevenue raised by printing money is called:

Back 2

seigniorage

Front 3

“Free Silver” movement happened in the:

Back 3

late 1800’s

Front 4

A country is experiencinghyperinflation if it is experiencing ___ percent inflation per month.

Back 4

50

Front 5

the rate at which money circulatesDefinition: the number of times theaverage dollar bill changes hands in a given time period

Back 5

Velocity

Front 6

Consideran economy in which the only goods traded are coconuts and pineapples. Lastyear, 100 coconuts were sold at $2 apiece, and 200 pineapples were sold at$2.50 apiece. If the money supply was $100, then the value of the transactionsvelocity of money was:

Back 6

7

Front 7

Supposethat the transactions velocity of money is 8. This implies that:

Back 7

onthe average, 1 one-dollar bill has to exchange hands 8 times in order tocomplete all transactions.

Front 8

TheFisher equation states that a 1 percentage point rise in the rate of inflationcauses:

Back 8

no change in the real interest rate.

· Only the nominal interest rate

· Changes in money growth or inflation donot affect the real interest rate. This is why there’s a one-for-onerelationship between changes in the inflation rate and changes in the nominalinterest rate.

Front 9

Expectationsof inflation in the future MOST likely:

Back 9

lead to a higher price level today

* Inthe short run, Eπ maychange when people get new information.

E.g.:The Fed announces it will increase M next year. People will expect next year’s P to be higher, so Eπrises.

Thisaffects P now, even though M hasn’t changedyet...

Front 10

Hyperinflationmakes it difficult for the market to have the relative prices reflect the truescarcity of goods and services because:

Back 10

itis difficult for customers to shop around for the best price.

Front 11

Hyperinflation:

Back 11

- Money ceases to function as a store ofvalue, and may not serve its other functions

- Caused by excessive money supplygrowth.

- When the central bank prints money, theprice level rises.

- If it prints money rapidly enough, theresult is hyperinflation.

Front 12

Difference between nominal GDP and thevalue of transactions?

Back 12

Nominal GDP includes the value ofpurchases of final goods; total transactions also includes the value ofintermediate goods.

- Even though they are different, theyare highly correlated.

Front 13

Ifpeople in an economy hold 20 percent of their nominal income as money, then theincome velocity of money equals:

Back 13

5

Front 14

Whensomething is deemed "not worth a continental," it usually impliesthat the item is:

Back 14

worthless

- the continental dollar became so muchless valuable than gold that it became worthless

Front 15

Dianemade a one year loan to John that specified a 10 percent nominal interest rate.At the end of one year, the inflation rate was 20 percent. This caused Diane toreceive a negative ex post real interest rate. Diane was a victim of:

Back 15

thesocial cost of unexpected inflation only.

Front 16

The price level, the inflation rate,and the dollar wage that a person earns are all examples of ____variables.

Back 16

nominal

Front 17

Supposethat the value of all transactions in an economy is $400 million. If theeconomy has 20 million one-dollar bills currently in circulation, then thetransactions velocity of money is:

Back 17

20

Front 18

Supposethat the Federal Reserve announces a higher money supply in the future, butdoes not change the money supply today. This means that, MOST likely, the pricelevel:

Back 18

willincrease today.

Front 19

A country is experiencing an inflationrate of 30 percent per month for 2 years. At the end of the 2 years, the pricelevel increases about _____ (rounded to nearest number) times in relation tothe initial period.

Back 19

500

- The price level has increased by a factorof 1.324 = 542.8 times (where 1.3 is the monthly growth factor, andthe exponent 24 is the number of months in the 2-year period).

Front 20

TheMint Act of 1792

Back 20

establishedgold and silver as the basis for a new system of commodity money.

Front 21

i – Eπ = ex ante real interest rate:

Back 21

the real interest rate people expect atthe time they buy a bond or take out a loan

Front 22

i – π = ex post real interest rate:

Back 22

thereal interest rate actually realized

Front 23

Consider an economy in which the moneysupply is growing at 8 percent per year and velocity is constant. It is MOSTlikely that real gross domestic product (GDP) is growing at:

Back 23

5 percent and inflation is 3 percent.

Front 24

The difference between savings andinvestment represents _____, and is equal to net exports.

Back 24

net capital outflow

Front 25

The symbol r* denotes the _____interest real rate, and r denotes the domestic real interest rate. Thetwo rates are equal for a small open economy with perfect capital mobility.

Back 25

world

Front 26

Accordingto the text, capital moves from poor countries with low capital-labor ratios torich countries with high capital-labor ratios for all of the following reasonsEXCEPT:

Back 26

wealthybankers in rich countries are unlikely to care about making money in poorcountries.

Front 27

Inthe small open economy, the goods market is in equilibrium when NX = S - I.The variable that adjusts in order to bring about this equilibrium is:

Back 27

thereal exchange rate.

Front 28

Brittanypurchases a wallet in a shopping mall in Salt Lake City, Utah. The wallet ismade in China. The purchase of this wallet can be classified as all of thefollowing EXCEPT:

Back 28

IM- X + C.

Front 29

Thestatement that "the trade deficit in the United States is undesirablebecause it requires future generations to pay for foreign debt" is BEST describesas a(n)

Back 29

normative statement. (an opinion)

Front 30

Assume that the nominal exchange rateis 0.8 euros/U.S. dollar, and jeans cost 40 euros in France and $50 in theUnited States. The real exchange rate for jeans is _____. An increase in thereal exchange rate will cause consumers in the United States to purchase jeans_____.

Back 30

1, abroad

The real exchange rate = (0.8 ×domestic price of jeans) / foreign price of jeans = 0.8 × 50/40 = 1.

Front 31

ABrazilian company exports 5 million reais (Brazilian currency) worth of graniteto the Arizona Tile company in the United States. The Brazilian company is paidin U.S. dollars, with which Brazil purchases U.S. Treasury bonds. As a result:

Back 31

theUnited States experiences a capital inflow.

Front 32

Whichcountry or region BEST meets the criteria of a small open economy?

Back 32

Belgium

Front 33

Which will cause a fall in the tradebalance in a small open economy?

Back 33

a lower world interest rate

Front 34

A country grows quickly by selling moregoods and services abroad than it buys from aboard, and also achieving a netinflow of capital from abroad. This describes:

Back 34

no country; this scenario isimpossible.- A country that sells more goods andservices abroad than it buys from aboard has NX > 0; it cannot alsohave a net inflow of capital from abroad.

Front 35

A small open economy with perfectcapital mobility has a domestic real interest rate of r = 5, and a worldinterest rate of r* = 3. This will cause a decrease of the _____rate, because firms will never borrow at the domestic rate, but rather in theworld financial market.

Back 35

domestic

Front 36

Assume that three countries trade withone another: the Netherlands, Belgium, and Portugal. Portugal exports 500 eurosworth of wine to Belgium, Belgium exports 300 euros worth of chocolate to theNetherlands, and the Netherlands exports 700 euros worth of tulips to Portugal.Net capital outflows for the Netherlands are _____ euros.

Back 36

400

Front 37

Because the real exchange rate ε = e(P / P*), the change in the real exchange rate equals the percent changein:

Back 37

ε + (π* - π). The real exchange rate is the rate at which people trade the goods produced by the two countries; the real exchange rate equals the nominal exchange rate multiplied by the ratio of the price levels in the two countries.

Front 38

If the Swiss franc is appreciatingagainst the U.S. dollar, then this suggests that the inflation rate inSwitzerland is ____ the United States.

Back 38

less than in

Front 39

If the United States exports $2 millionworth of motor vehicle parts to Mexico, then U.S. exports increase, U.S.imports do not change, and U.S. net exports increase. Therefore, U.S. netcapital outflow:

Back 39

increases

Front 40

If the U.S. government purchases hockeysticks from a Canadian company, then this purchase can be classified as:

Back 40

Gf and IM

Front 41

Suppose that a U.S. automobilemanufacturer exports motor vehicle parts to a Mexican company, increasing U.S.net exports. Net capital outflows from the United States MOST likely would beaffected by this transaction when the:

Back 41

U.S. company exchanges the peso revenue at a U.S. bank, which then uses the foreign currency to purchase Mexican government bonds.

Front 42

The percentage of employed peoplelosing their jobs in a particular period is called the:

Back 42

rate of job separation.

Front 43

In 2014, which country had the lowestpercentage of workers covered by collective bargaining?

Back 43

South Korea

Front 44

The percentage of the population aged16 and older that is in the labor force is called the:

Back 44

labor force participation rate.

Front 45

_____refers to the number of people currently employed in the economy, either fulltime or part time.

Back 45

Employment

Front 46

In the United States, a minimum wagehas been set at about _____ percent of manufacturing wages andwas first introduced in 1938.

Back 46

30 to 50

Front 47

Data on transitions between employmentand unemployment show that the higher unemployment rates observed for AfricanAmericans in the United States arise because of both____ rates ofjob separation and _____ rates of job finding than EuropeanAmericans.

Back 47

higher, lower

Front 48

The _____ is the total ofall people employed and unemployed.

Back 48

labor force

Front 49

About _____ workers in theUnited States earned at or below the minimum wage in 2013

Back 49

3.3 mil

Front 50

Suppose that the labor market in aneconomy can be characterized as consisting of a market for unskilled labor anda market for skilled labor, and the two types of labor cannot substitute foreach other. Both labor markets are characterized by wage rigidity and,initially, both are in equilibrium. If the demand for unskilled labor falls,then the:

Back 50

income inequality between skilled and unskilled workers will rise.

Front 51

_____ unemploymentexists when there are more people seeking jobs in a labor market than there arejobs available at the current wage.

Back 51

Structural

Front 52

In the United States, a person who isunemployed for more than _____ weeks is considered to be long-termunemployed.

Back 52

15

Front 53

In the United States, eligible unemployedworkers qualify for unemployment insurance that pays about 50 percent of theirlost earnings for a duration of _____ weeks.

Back 53

26

Front 54

The failure of wages to adjust to alevel at which labor supply equals labor demand is known as:

Back 54

wage rigidity

Front 55

Economists skeptical of EdwardPrescott's conclusion that the large differences between the U.S. labor supplyand those of Germany and France are explained by differences in tax systemsargue that to explain the difference in hours worked by tax rates alone requiresan implausibly large:

Back 55

elasticity of labor supply.

Front 56

Appropriate public policy:

Back 56

can reduce, but not completely abolish, frictional unemployment.

Front 57

Which demographic group faced thehigher rate of unemployment in the United States in 2013?

Back 57

European American males, aged 16 to 19

Front 58

In the nation of Erewhon, 10 millionworkers are unemployed, and 140 million workers are employed. The totalpopulation is 300 million, and the population that is aged 16 and older is 200million. The labor force of Erewhon is _____ million workers.

Back 58

150

Front 59

Bill's Widgets pays wages that areabove the market equilibrium level, and succeeds in substantially reducingturnover and increasing effort among its workforce. These higher wages are MOSTlikely to:

Back 59

increase firm profit, so firms do not have an incentive to lower wages and structural unemployment will persist.

Front 60

In the Isle of Fortuna, 10 millionworkers are unemployed, and 140 million workers are employed. The totalpopulation is 300 million, and the population aged 16 and older is 200 million.The labor force participation rate for the Isle of Fortuna is _____ percent.

Back 60

75

Front 61

All of the following are true regardingthe United States economy and unemployment EXCEPT that:

Back 61

the spike in the duration of unemployment after the 2008 recession was caused by the extension of unemployment benefits to 99 weeks.

Front 62

When wages simultaneously function asthe price for labor services and a motivation device to elicit more effort fromworkers, the labor market is not perfectly competitive. In this case, the labormarket experiences:

Back 62

asymmetric information.

Front 63

When demand for unskilled labor drops,and demand for skilled labor increases, with wage rigidity, unemployment will_____ for skilled labor.

Back 63

not change

Front 64

The real minimum wage: will fallwhen the price level rises.

Back 64

will fall when the price level rises.

Front 65

The job-finding rate in Europe tends tobe _____ the job-finding rate in the United States, possiblybecause unemployment insurance benefits are more generous in Europeancountries.

Back 65

lower than

Front 66

Data on transitions between employmentand unemployment show that the higher unemployment rates observed for AfricanAmericans in the United States arise because of both_____ rates of jobseparation and ____ rates of job finding than European Americans.

Back 66

lower, higher

Front 67

_____ occurs when there are more people seeking employment than there are jobs at thecurrent wage rate.

Back 67

Structural unemployment

Front 68

Karen graduated last month with a majorin classics. She has two job offers and is deciding which one to accept.Currently she MOST likely would be classified as:

Back 68

frictionally unemployed

Front 69

With a rate of job separation of 0.05and a rate of job finding of 0.25, the natural rate of unemployment is about_____ percent (rounded to the nearest integer).

Back 69

17

Front 70

If tax rates and unionization rates arepositively correlated and unions often push for shorter workweeks in contractnegotiations, then a study focused only on the role of differences in tax ratesin explaining differences in labor supply may ___

Back 70

exaggerate the role of tax rates.

Front 71

Theamount of investment that keeps the stock of capital per worker constant iscalled _____ investment.

Back 71

breakeven

Front 72

Thereare two methods to determine the Golden Rule capital level, looking atsteady-state:

Back 72

consumption, or comparing the marginal product of capital to the depreciation rate.

Front 73

Dataabout income from about 100 countries from 1960 to 2010 indicates that:

Back 73

different investment shares of output explain some, but not most, of the variation in income per person among countries.

Front 74

Accordingto the text, the observed correlation between income per person and thepopulation growth rate is:

Back 74

Strongly negative

Front 75

Theproduction function in Figure 8-1 in the text, y = f(k),implies that as k increases:

Back 75

output per worker increases at a decreasing rate.

Front 76

Thereare two methods to determine the Golden Rule capital level, looking atsteady-state:

Back 76

consumption, or comparing the marginal product of capital to the depreciation rate.

Front 77

Inthe Solow growth model, c = C / L = (1- s)y. In Chapters 3 and 6 of the text, the consumptionfunction is C = a + bY. These twoconsumption functions are identical only if

Back 77

(1 - s) = band a = 0.

Front 78

Theamount of investment that keeps the stock of capital per worker constant iscalled ___ investment.

Back 78

break-even

Front 79

TheCobb-Douglas production function Y = K1/2 L1/2 can be rearranged into the output per worker function:

Back 79

y = k1/2.

Front 80

_____ predicted that the pressures of an increasingpopulation would cause extended poverty.

Back 80

_Malthus

Front 81

Anincrease in the saving rate will have:

Back 81

a level effect but no growth effect.

Front 82

When MPK =δ + n, the slope of the production function is equal to the slopeof break-even investment; this identifies the _____ level of capital perworker.

Back 82

Golden Rule

Front 83

Whenthe economy is at steady state and the saving rate increases, investmentexceeds depreciation and the economy moves to a new steady state with __ capital per worker.

Back 83

higher_

Front 84

Inthe Solow growth model with population growth, population growth works much thesame way as:.

Back 84

depreciation

Front 85

Whenthe economy is at the steady state and the saving rate increases, the growthrate of output per worker:

Back 85

will be positive until the economy reaches a new steady state.

Front 86

Ifthe per-worker production function is given by y = k1/2, the saving rate is s = 0.25, thepopulation growth rate is n = 0.01, and depreciation is δ = 0.04,then the steady-state level of capital per worker is:

Back 86

25

Front 87

Capitalaccumulation alone in the Solow model CANNOT explain why an economy has:sustainedgrowth rates in output per worker

Back 87

sustained growth rates in output per worker

Front 88

TheSolow growth model assumes that the production function has _____returns to scale.

Back 88

constant

Front 89

Theeconomists _____ predict that population growth will decrease standards ofliving, whereas the economist _____ maintains that a large population raisesstandards of living through faster technological progress.

Back 89

Robert Solow and Thomas Malthus; Michael Kremer

Front 90

Threecountries with relatively high population growth rates from 1961 to 2010 were:

Back 90

Niger, Gambia, and Jordan.

Front 91

Assumingthat the production function has constant returns to scale implies that:

Back 91

doubling the amounts of capital and labor will double output.

Front 92

From1946 to 1972, output per person grew at a rate of about 2 percent per year inthe United States, and about _____ percent in Japan.

Back 92

8

Front 93

Themodel developed to explain economic growth over time is called the _____growth model.

Back 93

Solow

Front 94

Supposethat a natural disaster destroys most of the capital stock in a country.Assuming that the saving rate is unchanged, as the capital stock per workeradjusts, the Solow model predicts all of the following EXCEPT that:

Back 94

there will be positive growth rates for all subsequent periods.

Front 95

Thedepreciation function:

Back 95

δk, increases at a constant rate.

Front 96

Inthe Solow model, demand consists of consumption and _____;government purchases and net exports are ignored.

Back 96

investment

Front 97

Whenthe depreciation rate is constant, as in the Solow model, an economy with morecapital per worker has to invest ___ a country with alower k in order to keep constant its stock of capital perworker.

Back 97

more than

Front 98

TheCobb-Douglas production function Y = K2/3 L1/3 can be rearranged into the output per worker function:

Back 98

y = k2/3.