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WorksheetsEcon Final Study Guide
Total questions: 87
Worksheet time: 44mins
Which of the following is NOT considered a financial intermediary?
Banks
Mutual funds
Bonds
None of the above
What happens to the supply of loans as the interest rate increases?
The supply of loans increases
The supply of loans decreases
The supply of loans remains unchanged
The supply of loans becomes zero
If the government encourages saving, what is the likely effect on the equilibrium interest rate?
It decreases
It increases
It stays the same
It becomes negative
What is national saving equal to in a closed economy?
Y – C – G
GDP – Consumption – Taxes
Taxes – Government Spending
C + I + G + NX
Which of the following is NOT considered as 'Employed' according to the unemployment measurement?
Paid employees
Full-time students
Unpaid workers in a family member’s business
People working in their own business
Who is classified as 'Unemployed'?
Someone working part-time
Someone not employed, available to work, and tried to find work within the last 4 weeks
A retiree
A full-time student
What is included in the labor force?
Only employed people
Only unemployed people
Employed and unemployed people
Only full-time students
What is the natural rate of unemployment?
The amount of unemployment that an economy normally experiences.
The unemployment rate during a recession.
The unemployment rate when everyone has a job.
The unemployment rate caused by government policies.
Why is the natural rate of unemployment not zero?
There is always a level of unemployment due to factors like frictional unemployment, minimum wage, unions, and efficiency wage theory.
Because everyone always has a job.
Because the government sets it that way.
Because of inflation.
What is frictional unemployment?
Unemployment due to the time it takes to match workers and jobs.
Unemployment caused by economic recessions.
Unemployment due to lack of education.
Unemployment caused by automation.
What is cyclical unemployment?
Unemployment due to short run ups and downs of economic activity.
Unemployment caused by technological changes.
Unemployment due to seasonal work.
Unemployment caused by minimum wage laws.
Which of the following is NOT a function of money?
Medium of exchange
Unit of account
Store of value
Increasing inflation
Which of the following is an example of commodity money?
Gold
Paper currency
Credit cards
ATM cards
Fiat money is best described as:
Money without intrinsic value
Money with intrinsic value
Money made of gold
Money that earns interest
Which of the following is included in M1?
Currency in circulation and demand deposits
Certificates of deposit
Money market mutual funds
Credit cards
How many members are on the Board of Governors of the Federal Reserve?
7
10
12
5
What is the term length for a member of the Board of Governors of the Federal Reserve?
14 years
4 years
7 years
10 years
How many Regional Federal Reserve banks exist in the United States?
12
10
15
8
If the reserve ratio is 10%, how much can a $1000 deposit increase the money supply through new lending?
$900
$100
$1000
$1100
If the reserve ratio is 10%, what is the total increase in money supply from a $1000 deposit through additional lending of excess reserves?
$10,000
$1,000
$900
$100
What is the federal funds rate?
Interest rate for banks to lend money to each other
Interest rate for consumers to borrow from banks
Interest rate on government bonds
Interest rate for international loans
What does a trade surplus indicate?
Exports are greater than imports (Net exports > 0)
Exports are less than imports (Net exports < 0)
Exports equal imports (Net exports = 0)
Imports are greater than exports (Net exports > 0)
How are net exports calculated?
Exports minus imports
Imports minus exports
Exports plus imports
Exports divided by imports
What is true in a situation of trade surplus?
Net exports > 0
Net exports < 0
Net exports = 0
Net exports is not considered
What happens to unemployment when output falls?
Unemployment rises
Unemployment falls
Unemployment stays the same
Unemployment becomes zero
Which factor is included in productivity factors (GDP per capita)?
Technology per person
Workforce
Natural resources
Aggregate demand
What is a possible result when there is less demand in the short run aggregate supply?
Firms lay off workers and leave equipment idle
Firms hire more workers for overtime
Output increases
Price levels increase
What is the effect of buying bonds as a monetary policy tool?
Increases money supply and raises aggregate demand
Decreases money supply and lowers aggregate demand
Increases taxes and decreases aggregate demand
Decreases government spending and increases aggregate demand
What action can the Fed take to increase the money supply and lower the equilibrium interest rate?
Buy bonds
Sell bonds
Increase the federal funds rate
Raise taxes
What is the effect of selling bonds on the money supply and equilibrium interest rate?
Decreases money supply and raises equilibrium interest rate
Increases money supply and lowers equilibrium interest rate
Has no effect on money supply
Decreases both money supply and equilibrium interest rate
Which of the following would NOT be counted as part of the labor force?
Someone actively seeking work
Someone who is temporarily laid off
Someone working part-time
A retired individual
What is the main purpose of the Federal Reserve buying government bonds?
To reduce government spending
To raise taxes
To increase the money supply
To decrease the money supply
Which of the following best describes structural unemployment?
Unemployment caused by temporary layoffs
Unemployment that occurs during economic booms
Unemployment due to seasonal factors
Unemployment caused by changes in the structure of the economy
What are the 2 branches of the financial system?
Financial Markets and Intermediaries
Stock market and bond market
What is the difference between financial markets and financial intermediaries?
financial markets - savers provide funds directly to borrowers; financial intermediaries, - savers provide indirectly to borrowers
financial markets - savers provide indirectly to borrowers; financial intermediaries, - savers provide funds directly to borrowers; financial intermediaries
What are examples of Financial Markets?
Stock and bond market
banks and mutual funds
What are examples of Financial intermediaries?
Stock and bond market
banks and mutual funds
What is the relationship between saving and investment in a closed economy and in an
open economy?
closed economy: National saving = investment; open economy: national saving = investment + net exports
closed economy: national saving = investment + net exports open economy: National saving = investment
Where does the Supply of Loanable Funds come from?
saving
investment
Where does the Demand of Loanable Funds come from?
saving
investment
What interest rate are used in the loans market?
Nominal interest rate
Real interest rate
Government discourages saving
Supply shifts left. Equilibrium interest rate increases, equilibrium quantity decreases.
Supply shifts right. Equilibrium interest rate decreases, equilibrium quantity increases.
Government discourages investment
Demand shifts right. Equilibrium interest rate increases, equilibrium quantity increases.
Demand shifts left. Equilibrium interest rate decreases, equilibrium quantity decreases.
Who are discouraged workers and are they unemployed?
Discouraged workers are
workers that would like to work, but have given up looking for work. They are NOT in
the labor force, so they are NOT counted as unemployed.
Discouraged workers are
workers that would like to work, but have given up looking for work. They are NOT in
the labor force, so they are counted as unemployed.
What does liquidity mean?
How easy it is to convert something into a medium of exchange
How hard it is to convert something into a medium of exchange
If the Fed wanted to increase the money supply, what could they do?
buy bonds, lower the discount rate, or lower the reserve
requirement.
sell bonds, increase the discount rate, or raise the reserve
requirement.
What is the money multiplier?
The amount of loans banks
generate with each dollar of reserves.
The amount of money banks
generate with each dollar of reserves.
If the money multiplier was 10 what does this mean?
This means that every $1 in a
bank’s reserves, the bank can generate $10 of money.
This means that every $1 in a
bank’s reserves, the bank can generate $100 of money.
What does net capital outflow measure?
Net capital outflow = purchase of domestic assets by foreigners - purchase of foreign assets by domestic residents
Net capital outflow = purchase of foreign assets by domestic residents - purchase of domestic assets by foreigners
What is the relationship between NX and NCO?
NX > NCO
NX = NCO
NX < NCO
Saving < Investment
Trade deficit
Trade surplus
Y > C+I+G
trade surplus
trade deficit
NCO < 0
trade surplus
trade deficit
Saving = Investment
trade surplus
trade deficit
balanced trade
Exports > Imports
trade surplus
trade deficit
balanced trade
NCO = 0
trade surplus
trade deficit
balanced trade
What is the difference between the nominal exchange rate and real exchange rate?
Nominal exchange rate is the rate that a person can trade the currency for one country
for the currency for another.
Nominal exchange rate is the rate that a person can trade goods and services of one country for goods and services of another country.
What is the difference between the real exchange rate and nominal exchange rate?
Real exchange rate is the rate that a person can trade the currency for one country
for the currency for another.
Real exchange rate is the rate that a person can trade goods and services of one country for goods and services of another country.
What does it mean if the US dollar appreciates?
If the US dollar appreciates, it can buy
more foreign currency and it is now stronger.
If the US dollar depreciates, it can buy
fewer foreign currency and it is now weaker.
What does it mean if the US dollar depreciates?
If the US dollar appreciates, it can buy
more foreign currency and it is now stronger.
If the US dollar depreciates, it can buy
fewer foreign currency and it is now weaker.
What does it mean in terms of net exports if the real exchange rate appreciates?
If the US real exchange rate appreciates, net exports will decrease because US goods are now
more expensive than foreign goods.
If the US real exchange rate depreciates, net exports will increases because US goods are now
cheaper than foreign goods.
What does it mean in terms of net exports if the real exchange rate depreciates?
If the US real exchange rate appreciates, net exports will decrease because US goods are now
more expensive than foreign goods.
If the US real exchange rate depreciates, net exports will increases because US goods are now
cheaper than foreign goods.
What does PPP theory and the law of one price imply about prices and exchange rates?
PPP states that unit of any given currency should be able to buy the same quantity of goods in all countries. (Sell for the same price in all locations, nominal exchange rate reflect price levels in those countries)
PPP states that unit of any given currency should be able to buy a greater quantity of goods in all countries. (Sell for the same price in all locations, nominal exchange rate reflect price levels in those countries)
What does the AD-AS model try to explain?
The AD-AS model tries to explain short run
fluctuations in the economy
The AD-AS model tries to explain long run
fluctuations in the economy
What is aggregate demand (AD)?
The AD curve shows the quantity of all goods and services demanded in the economy at any given price level
The AD curve shows the quantity of loans
demanded in the economy at any given price level
What are 3 reasons the AD curve is downward sloping?
Wealth effect
interest rate effect
exchange rate effect
nominal exchange rate effect
What is the wealth effect?
A decrease in the price level makes consumers feel wealthier so they will spend more. An increase in consumer spending means more goods and services are demanded.
A decrease in the price level will encourage you to spend less and save more. Interest rates will fall, which will encourage increased borrowing for demanding more goods and services.
A decrease in the US price level will make our goods less expensive compared to foreign goods. Our exports will increase, and our imports will decrease. So, net exports will increase and the quantity demanded of goods and services will increase.
What is the Interest rate effect?
A decrease in the price level makes consumers feel wealthier so they will spend more. An increase in consumer spending means more goods and services are demanded.
A decrease in the price level will encourage you to spend less and save more. Interest rates will fall, which will encourage increased borrowing for demanding more goods and services.
A decrease in the US price level will make our goods less expensive compared to foreign goods. Our exports will increase, and our imports will decrease. So, net exports will increase and the quantity demanded of goods and services will increase.
What is the Exchange rate effect?
A decrease in the price level makes consumers feel wealthier so they will spend more. An increase in consumer spending means more goods and services are demanded.
A decrease in the price level will encourage you to spend less and save more. Interest rates will fall, which will encourage increased borrowing for demanding more goods and services.
A decrease in the US price level will make our goods less expensive compared to foreign goods. Our exports will increase, and our imports will decrease. So, net exports will increase and the quantity demanded of goods and services will increase.
What factors shift the AD curve?
Consumption, Investment,
Government Spending, Net Exports, the Money Supply, or Taxes
Government debt, loans, currency production
What is aggregate supply (AS)?
The AS curve shows the quantity of goods and services that firms produce and sell at any given price level
The AS curve shows the quantity of loans that firms produce and sell at any given price level
What factors shift the short run AS curve?
input prices, when the long-run aggregate supply shifts first, prices expected to change
changes to land, labor, capital, human capital, or technology
What factors shift the long run AS curve?
input prices, when the long-run aggregate supply shifts first, prices expected to change
changes to land, labor, capital, human capital, or technology
Suppose government increases taxes. Which curve shifts and in which direction?
AD shifts left
AD shifts right
In the short run equilibrium, is the price level higher or smaller when the government increases taxes? Is the real GDP (Y) larger or smaller?
Short run price level and real GDP are smaller
Short run price level and real GDP are larger
What options are there to return to the long run level of output after government increases taxes?
government policy (fiscal) or wait for AS to shift right (increase)
nothing
What government policies could be used to return to the long run level of output after government increases taxes?
Increase government debt, increase taxes, reduce net exports
Increase government spending, cut taxes or
increase the money supply
What would happen to the price level if either the AS shifted or AD shifted in order to return to long run equilibrium after government increases taxes?
If AS increased, prices will be lower. If AD increases,
then prices will return to original level.
If AS increased, prices will be higher. If AD decreased, then prices will return to original level.
Suppose people become pessimistic (not hopeful) about future price level. Which curve shifts and in which direction?
AS shifts left (since producers want to sell present stock as soon as possible)
AS shifts right (since producers want to sell present stock as soon as possible)
In the short run equilibrium, is the price level higher or smaller after people become pessimistic about future price level? Is the real GDP (Y) larger or smaller?
Short run price level is smaller. Real GDP (Y) is larger since more goods produced when prices are smaller.
Short run price level is larger. Real GDP (Y) is smaller since more goods produced when prices are smaller.
What options are there to return to the long run level of output after people become pessimistic about future price level?
Increase AD by government policy or wait for AS to shift left/right
Decrease AD by government policy or wait for AS to shift left/right
What government policies could be used after people become pessimistic about future price level?
Decrease government spending, cut taxes or
increase the money supply
Increase government spending, cut taxes or
increase the money supply
What would happen to the price level if either the AS shifted or AD shifted in order to return to long run equilibrium after people become pessimistic about future price level?
If AS decreases, price level returns to the original level. If AD decreases, price level will rise higher.
If AS increases, price level returns to the original level. If AD increases, price level will rise higher.
What is the multiplier effect?
Aggregate demand will shift to the right when expansionary fiscal policy increases income and then increases consumer spending
Aggregate supply will shift to the right when expansionary fiscal policy increases income and then increases consumer spending
What is the crowding out effect?
When fiscal policy raises the interest rate which reduces investment after government increases spending, the increase in aggregate demand will be more
When fiscal policy raises the interest rate which reduces investment after government increases spending, the increase in aggregate demand will be less
What are Automatic stabilizers?
Changes in fiscal policy that increase aggregate demand when the economy goes into a recession without policymakers having to take a specific action.
Changes in fiscal policy that increase aggregate supply when the economy goes into a recession without policymakers having to take a specific action.
True or False. Automatic stabilizers can prevent recessions completely.
True
False
