Question

Question 20(Multiple Choice Worth 1 points)

If nominal interest rate equals 12 percent and inflation is 4 percent, then nominal and real interest rates are respectively

12 percent and 8 percent.

12 percent and 16 percent.

16 percent and 8 percent.

16 percent and 12 percent.

8 percent and 4 percent.

Question 21(Multiple Choice Worth 1 points)

If the workforce is paid more frequently, then

real output will decrease.

the money supply will increase.

price level will decrease.

velocity of money will increase.

nominal output will decrease.

Question 22(Multiple Choice Worth 1 points)

If the prime interest rate is 14 percent and the consumer price index is rising at a rate of 6 percent each year, then the real rate of interest is

20 percent.

14 percent.

8 percent.

6 percent.

1.3 percent.

Question 23(Multiple Choice Worth 1 points)

Which of the following interest rates is correctly matched to its definition?

The prime interest rate is the rate the Fed charges member banks to borrow money.

The discount rate is the rate banks charge their best customers when they borrow money.

The federal funds rate is the rate the Fed charges member banks to borrow money.

The prime interest rate is the rate banks charge one another to borrow money.

The federal funds rate is the rate banks charge one another to borrow money.

Question 24(Multiple Choice Worth 1 points)

When a bank’s excess reserves increase by $375 after $500 was deposited in the bank, the reserve requirement must be

10 percent.

15 percent.

20 percent.

25 percent.

30 percent.

Question 25(Multiple Choice Worth 1 points)

Juan can either mow 2 lawns or clean 4 windows in 5 hours. Danny can either mow 5 lawns or clean 25 windows in 5 hours. Based on this information, which of the following is true?

Juan has a comparative advantage in window cleaning, while Danny has an absolute advantage in mowing lawns.

Juan has a comparative advantage in window cleaning, while Danny has a comparative advantage in mowing lawns.

Juan has a comparative advantage in mowing lawns, while Danny has a comparative advantage in window cleaning.

Juan has a comparative advantage in the production of both goods.

Danny has a comparative advantage in the production of both goods.

Question 26(Multiple Choice Worth 1 points)

S1 52 5 51 52 S1 D2 D1 D1 01 S1 S2 S1 D1 D2 D2 D1

Suppose the U.S. Surgeon General announces that eating a high fiber diet while in your twenties decreases chances of developing Alzheimer’s disease by 50 percent. Which of the above market changes for cream of wheat, a food that is low in fiber, are likely to occur?

A

B

C

D

E

Question 27(Multiple Choice Worth 1 points)

If the Producer’s Price Index changes from 100 to 90, economists will know that

inflation is decreasing in the economy.

inflation is increasing in the economy.

unemployment is increasing in the economy.

unemployment is decreasing in the economy.

the PPI has no relation to unemployment or inflation.

Question 28(Multiple Choice Worth 1 points)

A worker who is unemployed while he switches from building houses to teaching school is

cyclically unemployed

frictionally unemployed

structurally unemployed

an employed individual

not unemployed

Question 29(Multiple Choice Worth 1 points)

In the circular flow diagram, tourists spend money in

the product market that provides goods and services to firms.

the product market that provides profit for firms.

the product market that provides revenue for firms.

the factor market that provides profit for firms.

financial markets that provides profit for firms.

Question 30(Multiple Choice Worth 1 points)

In the circular flow diagram, profit flows from the

product market to the firms.

factor market to the firms.

firms to the product market to the households.

product market to the households.

factor market to the households.

Answer 1

20. Real interest rate = Nominal interest rate - Inflation rate = 12% - 4% = 8%. Therefore, the nominal and real interest rates are respectively 12% and 8%.

21. Here, the velocity of money will increase if workers are paid more frequently as even the number of hands remain constant but the frequency increases of the flow money. Earlier, once in a month the workers would have been paid, but if they are paid weekly then the number of times the money change in hand for giving money increases hence the velocity of money will increase.

22. If the prime interest rate is 14% and the consumer price index increases at a rate of 6% each year, then real interest rate = Prime interest rate -.Increase of CPI (inflation)

= 14% - 6% = 8%.

23. Federal funds rate is the rate at which depository institutions lend to other depository institutions. Hence, in this case, the most matched option will be; federal funds rate is the rate banks charge one another to borrow money.

25. The opportunity cost for mowing lawns for Juan is 4/2 = 2 and that of Danny is 25/5 = 5.

The opportunity cost of window cleaning for Juan is 2/4 = 1/2 and that of Danny is 5/25 = 1/5.

Hence, the opportunity cost for mowing lawns is lower for Juan than that of Danny.

The opportunity cost of cleaning windows for Danny is lower.

Hence, the comparative advantage will be in that good where the opportunity cost is lower.

Hence, Juan has a comparative advantage in mowing lawns and Danny has a comparative advantage of cleaning windows.

26. Here, as cream has low fibre content, so after the announcement by the US Surgeon General, the demand for cream will decrease, but supply will remain constant atleast initially. So, option D will be the answer, which states demand decreases, but supply remains constant.

27. Producer Price index tells about unflainfl but from the producer's point of view. So, if the PPI (Production Price Index) decreases the price of the goods produced by the producers will also decrease. Hence, inflation will be decreasing in the economy.

28. In this case the person will be structurally unemployed, as this unemployment has caused due to technical changes. As building houses and teaching are two different professions, hence, it's a case of structural unemployment.

29. Here, tourists will be spending money to the product market that provides revenue to the firm's. Tourists will be buying goods from the product market which in turn will raise revenue. Tourists will not provide any factors of production as they have come to that place to visit.

30. In the circular flow diagram profit flows from product market to the firms. The goods sold in the product market incurs a revenue, which in turn incurs profit.