Question

QUESTION 1

1. The Bluth Company builds new residential homes and owns a frozen banana stand in Newport Beach, CA.  The following transactions take place in the US. (The Bluth Company is a US company.)

   (1) Bluth Company pays for some real estate training course for one of its employees

   (2) Bluth Company sells a frozen banana to a US family

   (3) Bluth Company buys some chocolate from Switzerland for its banana stand

   (4) One of Bluth Company employees pays for a real estate master’s degree out of her own pocket

   In the expenditure approach to measuring US GDP, transactions above would appear as (C = Consumption, I = Investment, G = Government Spending, X = Exports, M = Imports):

   		(1) C; (2) C; (3) M; (4) C
   		None of the above/below
   		(1) I; (2) C; (3) M; (4) I
   		(1) I; (2) C; (3) M; (4) C
   		(1) I; (2) C; (3) I; (4) I

5 points   

QUESTION 2

1. Assume that banks keep 30% of deposits as reserves. Households hold money such that the currency-deposit ratio is 70%. The money multiplier is given by

   		1.5
   		1.7
   		1.6
   		None of the above/below
   		1.4

5 points   

QUESTION 3

1. Which of the following is true

   		A fractional-reserve banking system cannot create money, only the Federal Reserve can
   		A fractional-reserve banking system creates money, but it doesn’t create wealth because bank loans give borrowers new money and an equal amount of new debt
   		None of the above/below is true
   		A fractional-reserve banking system creates money, therefore it creates wealth

5 points   

QUESTION 4

1. Say that the economy is in steady state. Assume now that the government implements an important educational program that makes college more accessible to the population. As a result, productivity in the economy increases. The other parameters in the economy remain constant. Comparing the new steady state with the original steady state, you can claim that

   		investment per worker and consumption per worker have risen
   		investment per worker has fallen, but consumption per worker has risen
   		investment per worker has risen, but consumption per worker has fallen
   		investment per worker and consumption per worker have fallen
   		None of the above

5 points   

QUESTION 5

1. Say that the job finding rate f is twice as large as the separation rate s. Then the steady state unemployment rate is

   		1/2
   		2
   		None of the above/below
   		1/3
   		1/4

5 points   

Answer 1

Question 1

(1) I; (2) C; (3) M; (4) C

(As the company pays for the course of its employees, so it is investing in them. Sale of banana is a consumption expenditure. Purchase from Switzerland is an import. The employee pays for itself so its a consumption expenditure.)

(Note: As HOMEWORKLIB's policy, one question is to be answered at a time.)