Q&A Hero

Q: The aggregate-demand curve shows the combinations of___ and___ that are consistent with equilibrium in the market for goods services and the market for money.a. the price level; outputb. the price level; the real interest ratec. the real interest rate; the money supplyd. the money supply; output

Q: Government spending consitutues about of U.S. economy's aggregate demand. a. 1/10b. 1/6 c. 1/4 d. 1/2

Q: A rise in the incomes of domestic consumers causes net exports to a. decline.b. not change. c. rise.d. rise at first, then decline later.

Q: A rise in the incomes of foreign consumers, everything else remaining unchanged, causes net exports to a. decline.b. not change. c. rise.d. rise at first, then decline later.

Q: A rise in the real interest rate, everything else remaining unchanged, will cause household investment in housing to a. decline.b. not change. c. rise.d. rise at first, then decline later.

Q: A rise in wealth, everything else remaining unchanged, will cause household investment in housing to a. decline.b. not change. c. rise.d. fall at first, then rise later.

Q: A rise in the real interest rate, everything else remaining unchanged, will cause business investment spending to a. decline.b. not change. c. rise.d. rise at first, then decline later.

Q: A rise in future consumption spending, everything else remaining unchanged, will cause business investment spending toa. decline.b. not change. c. rise.d. fall at first, then rise later.

Q: Which of the following is an investment spending?a. Purchase of stocks b. Purchase of bondsc. Purchase of office buildingd. Purchase of refrigerator by a household

Q: The total amount of physical capital in all firms and households is called the a. human capital.b. capital stock.c. household income. d. physical product.

Q: Investment spending on physical capital is about of aggregate demand. a. 1/10b. 1/6 c. 1/4 d. 1/2

Q: A rise in the real interest rate will cause consumer spending to a. decline.b. not change.c. rise.d. rise at first, then decline later.

Q: A rise in income will cause consumer spending to a. decline.b. not change. c. rise.d. fall at first, then rise later.

Q: Consumption spending is about of aggregate demand. a. 2/3b. 1/2 c. 3/4 d. 5/6

Q: Suppose, the money-demand equation is given by MD = P × [(0.25 × Y) − (15 × i)], where P is the price level, Y is the level of output in billions, and i is the interest rate in percentage points. Initially, P = 2, Y = $500, and i = 3. If Y rises to $600 and the price level does not change, by how much should the Fed change the money supply if it wants to keep the nominal interest rate unchanged? Should the money supply rise or fall, and by how much? Use the liquidity-preference framework and show a diagram of this situation.

Q: Describe in words the relationships established in the two equations used by the Federal Reserve to forecast the demand for M2.

Q: Describe the standard equation used to describe the demand for money. In that equation, what would happen to the demand for money if prices were to double?

Q: Consider the standard dynamic model of money in which the economy is in a steady state with constant levels of output, inflation, and the nominal interest rate. Suppose initially that the steady-state nominal interest rate is 4 percent, the steady-state inflation rate is 2% percent, and the growth rate of the money supply is 2 percent. How will an unanticipated permanent decline in the growth rate of the money supply to 0 percent affect the level of output, the inflation rate, and the nominal interest rate?

Q: In a dynamic model, what three key assumptions are needed to make the prices of goods and services endogenous?

Q: Suppose the money demand function is MD = P × [(0.25 × Y) − (100 × i)], where Y is expressed in billions of dollars and i is expressed in percentage points. a. Suppose that initially P = 2, Y = 5,000, and i = 5. If income rises to 6,000, what is the new equilibrium nominal interest rate? b. Suppose that initially P = 3, Y = 4,000, and i = 7. If the price level falls to 2, what is the new equilibrium nominal interest rate?

Q: What will happen to the nominal interest rate and the equilibrium quantity of money because of the following changes?a. A decline in people's incomesb. An increase in the level of pricesc. A decline in the supply of money

Q: Describe three different changes in the ATM model that would increase the time between ATM visits and increase the quantity of money demanded.

Q: Suppose you have a 20 percent probability of having your cash lost or stolen, and you spend $25 each day. Your total cost of holding cash is (182.50/T) + (3.75 × T).a. What is your cost of going to the ATM?b. What is the nominal interest rate?c. How often will you go to the ATM to minimize your costs?

Q: Assume that the nominal interest rate in an economy is 3 percent and the cost of going to the ATM is $1.50. You spend $5 each day, and there is also a 12 percent probability of having your cash lost or stolen.a. What is your total cost of holding cash as a function of the number of days between trips to the ATM?b. How often will you go to the ATM to minimize your costs?

Q: The Friedman rule suggests thata. the optimal nominal interest rate in an economy should be negative. b. the optimal nominal interest rate in an economy should be positive. c. the optimal nominal inflation rate in an economy should be positive.d. the optimal nominal inflation rate in an economy should be negative.

Q: Research by Laurence Ball showed thata. the coefficients of money demand were smaller by half than what previous researchers had found. b. nominal interest rates fell with an increase in money demand.c. earlier researchers had estimated the money-demand function very precisely and their results held up when additional data was available.d. increase in money supply can accelerate inflation.

Q: Regression analysis is a key method used in econometrics in which the coefficients of an equation are calculated by finding values for them that make the as small as possible.a. correlationb. standard errorc. sum of the squared error terms d. confidence interval

Q: Econometrics isa. a system of measuring economic variables. b. the study of public finance.c. the use of statistical techniques on economic data.d. the use of mathematical techniques on economic data.

Q: The income effect refers to the situation when a higher nominal interest rate results from a(n)a. decrease in income that increases the demand for money. b. increase in income that increases the demand for money.c. increase in the price level that increases the demand for money. d. decrease in the price level that increases the demand for money.

Q: In the dynamic model of money, an increase in the price level causes an increase in money demand, thus leading to a higher nominal interest rate. This effect is referred to as thea. price-level effect. b. income effect.c. liquidity effect.d. inflationary effect.

Q: Which of the following statements is true?a. In a static model, an economy is assumed to start at a point where all variables are constant.b. In the dynamic model of money, the longer prices take to adjust to shocks, the more long­lived is the liquidity effect.c. In the dynamic model of money, all variables are initially growing at an increasing rate but they eventually reach a steady state.d. Money supply is the only endogenous variable in the dynamic model of money.

Q: In a dynamic model of money, if money supply and trend output is constant over timea. nominal supply of money will increase, while nominal demand for money will be constant. b. nominal supply of money will decrease, while nominal demand for money will be constant. c. nominal supply of money will be constant, while nominal demand for money will decrease. d. both the nominal supply of money and nominal demand for money will be constant.

Q: In the country of Aargh, in the equation for TFP,Y= A× Ka× L1−a,the coefficient is a= 2. The capital stock is growing 6 percent per year, employment is growing 1 percent per year, and output is growing 4 percent per year. In the country of Blargh, the coefficient is a= 25, the capital stock is growing 10 percent per year, employment is growing 2 percent per year, and output is growing 5 percent per year. In which country is TFPgrowing the fastest? In which country is output per worker growing the fastest? Explain your answer and show all your calculations.

Q: In the United States the number of people not in the labor force, employed, and unemployed is shown in the table below for years 1973, 1974, and 1975 All numbers are in millions. 197319741975Not in labor force 57.758.259.4Employed 85.186.885.8Unemployed 4.45.27.9a. For each year, calculate the number of people who are in the labor force.b. For each year, calculate the number of people who are in the working-age population. c. Calculate the labor-force participation rate.d. Calculate the unemployment rate.e. By how much did the labor-force participation rate change from 1973 to 1974 and from 1974 to 1975?f. By how much did the unemployment rate change from 1973 to 1974 and from 1974 to 1975?

Q: Suppose a country has a population of 76 million, of which 53 million are in the working-age population. Of those, 3 million are unemployed and 46 million are employed.a. Calculate the number of people who are in the labor force.b. Calculate the number of people who are not in the labor force. c. Calculate the labor-force participation rate.d. Calculate the unemployment rate.

Q: Suppose a country has a population of 122 million, of which 71 million are in the working-age population. Of those, 16 million are not in the labor force and 50 million are employed.a. Calculate the number of people who are in the labor force. b. Calculate the number of people who are unemployed.c. Calculate the labor-force participation rate. d. Calculate the unemployment rate.

Q: The difference between labor productivity growth and growth in compensation per hour has been the greatest in the a. long boom period.b. economic liftoff period.c. Great Depression period. d. reorganization period.

Q: The growth rate of compensation per hour was slowest during the a. long boom period.b. economic liftoff period. c. Great Depression.d. reorganization period.

Q: The Federal Reserve's surveys of bank loan officers can help the Fed determine whether: A. a drop in the quantity of loans granted resulted from fewer applications or a tightening of credit standards.B. an increase in the quantity of loans granted resulted from fewer applications or a tightening of credit standards.C. climbing interest-rate spreads are the result of more borrowers or fewer loans being granted.D. an increase in the quantity of new loans was due to a decrease in supply or an increase in demand.

Q: Compensation of workers per hour in the U.S. grew the fastest in the a. long boom.b. economic liftoff period. c. Great Depression.d. reorganization period.

Q: The Federal Reserve's surveys of bank loan officers contain questions about: A. the interest rates being charged.B. the supply of and demand for loans.C. the quantity and quality of loans.D. all of the answers given are correct.

Q: Compensation of workers is defined asa. wages and salaries plus benefits earned by the workers. b. wages and salaries earned by the worker.c. non-monetary benefits earned by the workers.d. the tax rates which are applicable on the wages earned by the workers.

Q: Research by Stock and Watson on the cause of the increased stability of output growth in the long boom suggests that the main cause of the stabilitya. was improved monetary policy. b. was efficient financial markets. c. was unknown.d. was better inventory management by firms.

Q: The Federal Reserve surveys lending officers regularly to: A. determine the interest rates they charge.B. get a feel for the supply and demand for loans.C. get a feel for the quantity and quality of loans.D. all of the answers given are correct.

Q: Which of the following statements is most correct? A. High real interest rates cause recessions.B. Central bankers raise real interest rates to cause recessions.C. There is no evidence that high real interest rates are followed by lower levels of growth.D. There is evidence that high real interest rates are followed by lower levels of growth.

Q: Output and employment in Country Y has fallen below its equilibrium level. Which of the following groups of economists is likely to believe that output and employment will return to its equilibrium level without government intervention?a. Keynesian economistsb. Post-modern economists c. Monetaristsd. Classical economists

Q: Classical economists believe that the economya. is unable to return to equilibrium because wages and prices are sticky and do not adjust right away. b. will not return to equilibrium without government intervention.c. is unable to return to equilibrium because wages and prices are flexible.d. will return to equilibrium quickly without the need for government intervention.

Q: The direct impact on spending of short-term interest rate changes by central banks is: A. definitely the strongest of all transmission mechanisms.B. not that powerful.C. only effective for consumption but not investment.D. only effective for net exports but not for investment and consumption.

Q: The impact of monetary policy on the exchange rate and net exports is best described as: A. the strongest of all the parts of the transmission mechanism.B. powerful, but lagging.C. difficult to forecast.D. nonexistent.

Q: If output grew 3.9 percent last year and hours worked grew 1.3 percent,then by how much did labor productivity grow over the year?a. 0.3 percent b. 2.6 percent c. 3.0 percent d. 5.2 percent

Q: With respect to consumer behavior, the interest-rate channel of monetary policy transmission appears to be: A. weak because people's decisions to purchase cars or houses depend more on short-term rates rather than long-term rates.B. weak because people's decisions to purchase cars or houses depend more on long-term rates rather than short-term rates.C. strong because people's decisions to purchase cars or houses depend on the short-term rates that policymakers can change.D. strong because it affects both spending and saving decisions.

Q: Labor productivity multiplied by the number of hours worked gives a. the hourly wage rate.b. the average product of labor. c. total factor productivity.d. total output.

Q: Changing short-term interest rates have a(n): A. strong and immediate impact on household purchase decisions.B. no impact on household purchasing decisions.C. somewhat modest impact on household purchasing decisions.D. none of the answers provided is correct.

Q: Labor productivity is calculated as a. output minus net exports.b. the average product of labor minus the marginal product of labor. c. total factor productivity divided by the amount of capital.d. output produced by labor divided by hours worked.

Q: The interest-rate channel of monetary policy transmission appears to be: A. weak because the investment component of total spending isn't very sensitive to interest rates.B. weak because the investment component of total spending is very sensitive to interest rates.C. strong because the investment component of total spending isn't very sensitive to interest rates.D. strong because the investment component of total spending is very sensitive to interest rates.

Q: In 2001, the number of people in the working-age population in a country increased from 212.6 million to 215.1 million, while the labor force increased from 141.5 million to 142.3 million. By how much did the labor-force participation rate change?a. −0.4 percentage point b. −0.2 percentage point c. 0.0 percentage point d. 0.2 percentage point

Q: Which of the following traditional channels of monetary policy transmission can be described as powerful? A. The interest-rate channelB. The exchange-rate channelC. Both the interest-rate channel and the exchange-rate channel can be described as very powerfulD. Neither the interest-rate channel nor the exchange-rate channel can be described as very powerful

Q: IIn 2004, the number of people in the working-age population in a country increased from 221.2 million to 223.4 million, while the labor force increased from 146.5 million to 147.4 million. By how much did the labor-force participation rate change?a. −0.2 percentage point b. 0.0 percentage point c. 0.2 percentage point d. 0.4 percentage point

Q: Decreases in the real interest rate will result in a(n): A. increase in net exports because it will lead to a depreciation of the dollar.B. decrease in net exports because it will lead to a depreciation of the dollar.C. increase in net exports because it will lead to an appreciation of the dollar.D. decrease in net exports because it will lead to an appreciation of the dollar.

Q: In 2004, the number of unemployed people in a country decreased from 8.8 million to 8.1 million, while the labor force increased from 146.5 million to 147.4 million. By how much did the unemployment rate decrease?a. 0.5 percentage point b. 0.7 percentage point c. 0.9 percentage point d. 1.1 percentage point

Q: An easing of monetary policy should: A. increase spending by households and businesses and increase net exports.B. raise net exports but lower spending by households and businesses.C. decrease spending by households and businesses as well as net exports.D. increase investment and household spending but lower net exports.

Q: In a market with six banks of equal size, two of the banks propose merging. Does the merger violate the U.S.Department of Justice's guidelines?

Q: Suppose a banking market consists of banks that have the following shares of the market: 34 percent, 28 percent, 16 percent, 10 percent, 8 percent, and 4 percent. Calculate the HHI.

Q: The monetary policy transmission mechanism refers to the concept that monetary policy: A. always seems to work the way central bankers think it will.B. works quickly.C. only works through changes consumption and investment.D. affects the economy in potentially many ways.

Q: All of the following could represent the transmission of monetary policy, except: A. households altering their spending on durable goods.B. income tax rates changing.C. firms altering their growth plans.D. net exports changing.

Q: a.What measure is used by banking authorities who wish to calculate the degree of monopoly power in a banking market (give the name or the acronym)? Write the equation that is used and describe what each term means.b.Suppose the banking market in Charlottesville consists of five banks that each having a market share of 15 percent and five more banks each having a market share of 5 percent.Calculate the measure of monopolypower.c.Three of the banks that currently have 15 percent of the market would like to merge and form First Super Bank of Charlottesville. If the merger were allowed, calculate the new measure of monopolypower.d.Under the standard set of guidelines of the U.S. Department of Justice, would the merger be allowed? Explain why or why not, describing the guidelines and your results from parts (b) and(c).

Q: During the financial crisis of 2007-2009 which of the following countries experienced a decline in real GDP roughly twice that of the United States? A. CanadaB. United KingdomC. JapanD. Turkey

Q: What is the Basel III Accord?

Q: The Japanese experience of the 1990s shows: A. monetary policy is always more effective than fiscal policy.B. monetary policy always works.C. sometimes monetary policy does not work.D. central bankers should not try to counter the business cycle.

Q: Describe the moral hazard problem of deposit insurance.

Q: Discuss the impact of the evolving financial system on the bank-lending channel of monetary policy transmission? Evaluate what that is likely to mean for future changes in the target federal funds rate.

Q: The Community Reinvestment Act attempts to prevent a banking practice known as a. redlining.b. credit scoring. c. credit diving.d. term intermediation.

Q: What are the arguments for and against monetary policymakers intervening to address equity and property price bubbles?

Q: The agreement concluded in 2010 imposed higher capital requirements on banks all over the world. a. Basel III.b. Basel II. c. Basel I.d. Basel IV.

Q: If greater stock prices can lead to greater investment spending, should central bankers ever worry about stock prices becoming too high?

Q: Bank supervisors around the world use a common measurement standard for capital adequacy, based on agreement known as the .a. Bank Holding Recordb. balance sheet c. Redliningd. Basel Accord

Q: Why is it more correct to say that there may be correlation between high interest rates and the growth rate of output but there is no clear causation?

Q: Which of the following is NOT a component evaluated under the CAMELS rating system?a. Managementb. Sensitivity to risk c. Strategic planning d. Asset quality

Q: The chapter seems to imply that the direct influence of short-term interest rate changes by central bankers is not that powerful in terms of their direct impact on spending. Why then do so many people pay attention to the monetary policy?

Q: In the CAMELS rating system, the letter L stands for a. liquidity.b. losses.c. legal environment.d. loan documentation.