question

Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which approach is likely to give you a more accurate picture of the living standards in both countries? A. The second approach, because it's the total dollars that matter. B. The first approach, because it's the total dollars that matter. C. The second approach, because it takes into account the relative costs for each country. D. The first approach, because the United States is the world's leader and the dollar is the global reserve currency.

answer

C. The second approach, because it takes into account the relative costs for each country.

question

Suppose that country A has higher real income per capita than country B. Explain why this does not imply that most citizens of country A have higher real income than most citizens of country B. A. A high degree of income inequality in country A may result in most of its citizens having incomes below the average income of country B. B. The higher per capita income in country A could be the result of most citizens there having unearned income. C. Most citizens in country B may be employed, while the majority of those in country B may not work. D. All of the above are plausible.

answer

A. A high degree of income inequality in country A may result in most of its citizen having incomes below the average income of country B.

question

The following table lists 2012 GDP per capita for four countries. The data are given in the national currencies of the countries. It also lists the price of a Big Mac in local currency in each country in 2012. The price of a Big Mac in the United States in 2012 was $4.20. Using the Big Mac as a representative commodity common to the countries, calculate the purchasing power parity (PPP)-adjustment factor for each country, and then the PPP level of GDP per capita in each country. 2012 GDP Per capita 2012 Big Mac Price 579,162 41 krone 41,398 9.1 zloty 19,580 6.6 Turkish lira 24,740 2.4 pounds Purchasing Power Parity(PPP) adjustment factor for each country? PPP level of GDP per capita?

answer

PPP: Norway: 4.20 / 41 = 0.102 Poland: 4.20/ 9.1 = 0.462 Turkey: 4.20 / 6.6 = 0.636 United Kingdom: 4.20 / 2.49 = 1.687 PPP level of GDP per capita: Norway: 0.102 x 579162 = 59075 Poland : 0.462 x 41398 = 19125.876 Turkey: 0.636 x 19580 = 12452.880 United kingdom : 1.687 x 24740 = 41736.380

question

Suppose you are given the following information on the country Lusitania: Population; total in Lusitania 240 mill. Employment 100 mill Real Gross Domestic Product (GDP) 2.476 bill. Real income per capita in Lusitania is $ ?

answer

Real income per capital = Real GDP / total population 2476 billion / 240 million = 8 thousands something Real income per worker in Lusitania: 2476 billion / 120 million

question

productivity varies across countries because of differences in ___________? Income Human Capital Technology GDP physical capital Human capital is?' Physical capital is?

answer

Human capital, physical capital, and technology. Each person's stock of skills to produce output or economic value. Any good, including machines, and buildings, used for production. The ability to use labor and capital more efficiently.

question

Complete the formula for the aggregate production function.

answer

Y = F x (K, H) Y = the real GDP K = physical capital stock of the nation H = efficent units of labor used in production F = relationship between 2 variables.

question

What are the two components of technology? A. The knowledge of how to produce new products. B. The enablement of globalization and the ability to use low-cost workers. C. The need for more workers to produce more complex goods. D. A more efficient means of production.

answer

A, and D.

question

What policies can be used to raise real GDP in a country? (Check all that apply.) A. Reduce the amount of investment spending in R&D. B. Improve efficiency in the allocation of resources. C. Increase technology. D. Raise physical and human capital. E. Lower income per worker.

answer

B, C, D

question

Catch-up growth is the ____________. A. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. B. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. C. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. D. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. An example of catch-up growth is ____________. A. when you move your money from a bank account earning 2 percent simple interest to one that earns 2 percent compounded interest. B. Kenya, which has managed to maintain a steady growth rate over the last 50 years. C. the change France made in 2008 by eliminating the 35-hour work week, which allowed workers to put in more hours and therefore earn more. D. South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously.

answer

C. D.

question

Sustained growth is the ____________. A. pattern of growth that occurs when workers in relatively poorer nations work extra hours so that their GDP per capita catches up with more advanced nations. B. process where GDP per capita grows at a positive and relatively steady rate for long periods of time. Your answer is correct.C. process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations. D. type of growth that occurs when growth is compounded on the rate of growth in the prior period of measurement. An example of sustained growth is ____________. A. the steady increase in the saving rate in countries such as China and the United Kingdom. B. Kenya, which has managed to maintain a steady growth rate over the last 50 years. C. the Democratic Republic of Congo, which despite a negative growth rate at times, has shown mainly steady growth. D. the United States, which demonstrated sustained growth between 1820 and 2007.

answer

B. D.

question

Currently, some of the fastest-growing countries in the world remain desperately poor. For example, of the top five fastest-growing economies, threelong dash—Sierra Leone, Mongolia, and Nigerlong dash—have real per capita GDPs that are 203rd, 154th, and 221st in the world, respectively. This seems like something of a contradiction. Using the equation for growth LOADING... given in the chapter, explain why a country that has a very low per capita GDP can also have a very high growth rate. A country with a very low per capita GDP can have a very high growth rate because mathematically, when the ratio/denominator/numerator is higher/lower/the same, even a small difference in the denominator/ratio/numerator will result in a large growth rate. Consider a $100 increase in GDP per capita. In 2012, Niger had a GDP per capita of approximately $800, and the United States had a GDP per capita of $50,700. Calculate the corresponding growth rates for these two countries. Niger's growth rate is _______________________________ nothing percent, and the U.S. growth rate is_____________ nothing percent

answer

Denominator is lower, even a small difference in numerator will result in a large growth rate. The growth equation is defined as: growth t, t+1 = yt+1 - yt / yt Niger's growth rate = 900- 800 / 800 = 12.50 United States's growth rate = 50800 - 50700 / 50700 = 0.20

question

The saving rate in an economy is defined as the ____________. A. level of total income that households save. B. fraction of total income that households save. C. rate of private saving minus the rate of government spending, G. D. fraction of total income that households invest. Factors that help households decide whether to consume or save their income are ___________. (Check all that apply.) A. the interest rate. .B. expectations of the nation's investment needs. C. expectations about taxes. .D. expectations of future income growth. Household saving decisions impact investment in the economy by having ___________. A. very little impact on investment, as banks are primarily involved with investment. B. a direct impact on investment, as saving is correlated with investment. C. no impact on investment in the economy. D. a direct impact on investment, as saving is inversely correlated with investment.

answer

B A, C, D. B

question

Which factors explain economic growth in the United States over the past few decades? (Check all that apply.) A. Human capital (H). .B. Physical capital (K). C. Technology (A). .D. An increase in the saving rate (S)

answer

A, B, C

question

Which factor is the most important contributor to growth in the United States? A. Physical capital (K). B. Human capital (H). C. Technology (A). D. Number of hours worked per capita.

answer

Technology

question

China's economy is one of the fastest-growing economies in the world. Growth in China is primarily driven by investment and exports. You are discussing the sustainability of China's growth model with your friend. He says that according to the aggregate production function, China needs to continue to increase its physical capital stock to ensure sustainable growth. Do you agree? A. No, because diminishing marginal product of capital means that growth will not be sustained. This is the correct answer. B. No, because you also need to increase the amount of human capital along with physical capital. Your answer is not correct. C. Maybe, but only if the saving rate and therefore the rate of investment also increase. D. Yes, because increasing the physical capital in an economy allows increased production.

answer

No, because diminishing marginal product of capital means that growth will not be sustained. This is the correct answer.

question

The goal of a country with a healthy economy is to have ____________ equal to zero. A. frictional unemployment. B. the overall unemployment rate. C. cyclical unemployment. D. all of the above.

answer

Cyclical unemployment

question

Which of the following is true regarding wage rigidity? A. It occurs when wages are held fixed above the competitive equilibrium level. B. It results in frictional unemployment. C. It usually causes the quantity of labor demanded to be greater than the quantity of labor supplied. D. All of the above. Which of the following is not one of the factors that can increase wage rigidity in the labor market? A. Increased union membership. B. The economy falling into a recession. C. Worker resistance to a decline in wages. D. Minimum wage legislation.

answer

A. B.

question

Which of the following factors does not cause a shift in the labor demand curve? A. Changing input prices. B. Changes in the wage rate. C. Changes in output prices. D. Changing technology.

answer

B

question

Frictional unemployment can result when

answer

firms and workers have imperfect information about each other. It takes time to find what jobs are available in a specific field It takes time for firms to find applicants with the right skills and experience.

question

Chapter 10 Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate. The credit demand curve slopes downward because ____________. A. government borrowing increases when budget deficits increase, and vice versa. B. a higher real interest rate reduces a borrowing firm's profit and hence its willingness to borrow. C. a lender's ability to make loans falls as the real interest rate rises. D. households seek to borrow more when their outlook for the future improves.

answer

B.

question

A shift in the credit demand curve can be caused by ___________. A. changes in household preferences or expectations. B. changes in government policy. C. changes in perceived business opportunities for firms.

answer

all of them.

question

Households and firms with savings lend money to banks and other financial institutions. The credit supply curve shows the relationship between the quantity of credit supplied and the real interest rate. The credit supply curve slopes upward because a ____________. A. higher real interest rate induces more investment. B. higher real interest rate encourages more saving. C. higher real interest rate discourages current consumption. D. all of the above. E. B and C only.

answer

E.

question

A shift in the credit supply curve can be caused by... A. an increase in the nominal rate of interest adjusted for inflation. B. An elevated perception on the part of households that the future may hold many rainy days. C. A decrease in the government's budget deficit. D. An aging population that is ill-prepared for retirement. E. a heightened desire on the part of firms to internally fund their future activities.

answer

B. D, E.

question

Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.5% at a time when inflation is around 1.55%. For the average saver, the real rate of interest on his or her savings is If banks expect that the rate of inflation in the coming year will be 4.55% and they want a real return of 8.5% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is If the economy experiences an unexpectedly low rate of inflation, the group that would tend to benefit is

answer

Real rate of interest: Nominal rate - the rate of inflation. x = 0.5 % - 1.55% x = -1.05% 8.5% = x - 4.55% 13.05 = x Creditors (people or institutions that owed money)

question

If π denotes the rate of inflation and ii denotes the nominal rate of interest, then the amount a borrower repays in a year on a one-dollar loan is and the inflation-adjusted purchasing power of the originally borrowed dollar is

answer

1+i 1 + pi

question

What is deposit insurance? A. A bailout program funded by taxpayers for financial intermediaries deemed too big to fail. B. A type of insurance that a bank's depositors can purchase either from the bank itself or from the government that protects deposits. C. A program implemented in most countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its withdrawals. D. A system of protection for banks in the event that depositors seek to make large and simultaneous withdrawals.

answer

C

question

When a bank experiences withdrawals of deposits and short-term loans by firms and other banks, the situation is described as ____________. A. an interindustry bank run. B. financial consolidation. C. cutthroat competition. D. an institutional bank run When large firms and the general banking community lose confidence in a weak bank, FDIC insurance is_____________ the situation.

answer

D Incapable of alleviating

question

What is the shadow banking system? A. Nonbank financial institutions that behave like banks in many respects. B. A group of several thousand disparate nonbank financial intermediaries. C. Financial institutions that make loans from funds raised by means other than by accepting deposits. D. All of the above describe the shadow banking system. .E. B and C only.

answer

D

question

Maturity transformation is the process by which banks A. transfer long-term liabilities into short-term investments. B. transform interest earnings from investments into stockholders' equity. C. transfer short-term liabilities into long-term investments. D. convert short-term assets into long-term assets.

answer

C

question

Firms, households, and governments use the credit market for borrowing. The credit demand curve shows the relationship between the quantity of credit demanded and the real interest rate. The credit demand curve slopes downward because ____________. A. a lender's ability to make loans falls as the real interest rate rises. B. a lower real interest rate raises a borrowing firm's profit and hence its willingness to borrow. C. government borrowing increases when budget deficits increase, and vice versa. D. households seek to borrow more when their outlook for the future improves.

answer

B

question

A shift in the credit demand curve can be caused by ___________. A. changes in household preferences or expectations. Your answer is not correct.B. changes in government policy. C. changes in perceived business opportunities for firms. D. all of the above. E. A and B only.

answer

D

question

6.1 Inequality Around the world Measuring differences in income per capita. What is income per capita formula?

answer

income per capita = GDP per capita = GDP / Total population For example, the United States in 2010 had GDP equal to about 14.45 trillion. With the total population of approximately 310 million, income per capita was approximately 46,613. 14.45 trill / 310 mil = 46,613

question

The Argonian dollar/U.S. dollar exchange rate was equal to 6 on 1/1/08 (meaning that $1 = Argonian $6) and reached 9 on 8/1/08. Compute an exchanged rate based measure of the GDP per capita in Argonia in U.S. dollars on these two dates.

answer

1/1/08 Argoinian dollars compared to U.S. = 100,000 x 1/6 = 16,666.67 8/1/08 = 100,000 x 1/9 = 11,111.11

question

McDonald's has a thriving business in Argonia and sold a Big Mac for a $7 in 2008, while at the same time, a big mac sold for $3.50 in the United States. Using this information, provide an alternative estimate of GDP per capita in Argonia.

answer

Per capita GDP in Argonia (PPP adjusted) = 100,000 x $3.50 U.S / $7.00 A = 50,000

question

Income per worker Formular?

answer

Defined as GDP divided by the number of people in employment. Income per worker = GDP / number of people in employment. Income per worker > income per capita

question

Productivity ?

answer

refers to the value of goods and services that a worker generates for each hour of work.

question

Income per capita does not tell us everything about stand of living including?

answer

- Poverty - Health - Human Development index

question

Productivity differences 3 main reasons?

answer

Human capital is each person's stock of skills to produce output or economic value. ex. a worker with a university degree in computer science will be much more productive in computer programming or web page design than a worker with just a high school degree. A programmer can earn and do twice the work of a high school degree person. She is twice productive. Physical capital is any good, including machines and buildings, used for production. ex. machines, and buildings, used to for production. These stuff increase the person production. Technology : An economy with better technology uses its labor and capital more efficiently and achieves higher productivity.

question

H = L x h

answer

H = total efficiency units of labor. L = total number of workers in the economy h = the average efficiency or human capital of workers. higher h means workers are more skilled.

question

Aggregate production function formula?

answer

Y = A x F (K, H) Y = GDP K = physical capital stock of the nation H = the efficiency units of labor that the economy uses in production. F = a relationship between physical capital, labor, and GDP. A = an index of technolgy. A higher A implies that the economy produces more GDP with the same level of physical capital stock and total efficiency units of labor.

question

The law of diminising marginal product?

answer

States that the marginal contribution of a factor of production to GDP diminishes when we increase the quantity used of the factor of production. -slow down the GDP as more physical capital stock increase.

question

3 main reasons why productivity differs across countries?

answer

1. Differences in human capital (per capita or per worker) 2. Differences in physical capital (per capita or per worker) 3. Differences in technology

question

Efficiency of production

answer

refers to the ability of an economy to produce the maximal amount of output from a given amount of factors of production and knowledge.

question

Which of the following will lead to a decrease in the value of Spanish income per capita in dollars? 1. A decrease in the dollar/euro exchange rate 2. An increase in the dollar/euro exchange rate 3. A decrease in the income per capita of U.S. 4. An increase in the value of the Spanish income per capita in Euro

answer

1.

question

A bundle of goods that costs $1 in the U.S. is worth 5 units in Country A's currency. If Country A's GDP in its own currency is 5,000,000 units, Country A's GDP in purchasing power parity-adjusted dollars is ________. $2,500,000 $1,000,000 $3,000,000 $50,000,000,

answer

5,000,000 x 1/5 = 1000000

question

Chapter 7: Economic growth and its formula?

answer

an increase in GDP per capita of an economy. Growth(t, t+1) = yt+1 - yt / yt ex. the U.S. economy had GDP per capita of 42,482 in 2005 and 43,215 in 2006, so the growth rate between 2005 and 2006 can be computed as : 43,215 - 42, 482 / 43,215 = 0.017 = 1.7%

question

Exponential growth

answer

IF a quantity grows at an approximately constant rate, then it undergoes exponential growth. - The effects of growth build up over time.

question

catch-up growth

answer

refers to a growth process whereby relatively poorer nations increase their income by taking advantage of knowledge and technologies already invented in other, technologically more advanced countries.

question

sustained growth

answer

refers to a growth process where GDP per capita grows at a positive and relatively steady rate for long periods of time.

question

How does a Nation's economy grow? What is the national income accounting formula?

answer

Y = C + I Y = GDP C = consumption (household expenditures on consumption of goods and services) I = investment (expenditures on investment goods by private agents)

question

Saving rate formula?

answer

Saving rate = total saving / GDP. Example: in 2013, the level of total saving in the U.S. economy was $2.18 trillion, while GDP was $16.80 trillion. The saving rate is 2.18 trill / 16.80 trill = 12.98%

question

Technological change

answer

is the process of new tecnologies and new goods and services being invented, introduced, and used in the cecnom, enabling the economy to achieve a higher level of GDP for given levels of physical capital stock and total efficiency units of labor. Technological change grows exponential. By the process of elimination, it is technological change which generates sustained growth.

question

A nation can growth by increasing K, H, or A.

answer

For example, a country can increase its K by turning household savings into investments by firms. Household savings increase future GDP.

question

What determines how much households save?

answer

- The price of savings is the interest rate - Expecctations of future growth -Taxes

question

Can accumulating capital generate steady GDP growth for an extended period of time?

answer

No, because of the law of diminishing marginal product.

question

On average, higher growth is associated with?

answer

lower rates of poverty

question

Economics suggests the following ways to reduce poverty:

answer

- International trade (have many poor countries to have natural resources and produce agricultural goods that could be exported to the European Union and United States) - Technological advances (improventments in communication technology that originated in the US and Western Europe now enbale cell phones to be used globally, which has helped improve the lives and business opportunities of billion of people elsewhere) - Accumulation of physical and human capital ( can grow technology and efficiency of production)

question

Fertility

answer

refers to the number of children per adult or per woman of childbearing age. ex. In malthus's theory, couples have more children when the stand of living is above the subsistence level.

question

Malthusian cycle

answer

refers to the preindustrial pattern in which increases in aggregate income lead to an expanding population, which in turn reduces income per capita and puts downward pressure on population.

question

Demographic transition

answer

refers to the decline in fertility and number of children per family that many societies undergo as they transition from agriculture to industry.

question

Gross saving?

answer

Gross saving = gross private saving + gross government saving

question

Consider two countries: A and B. In country A, the annual growth rate of GDP per capita is 2%, while in country B the annual growth rate of GDP per capita is 6%. At present, country B's GDP per capita is higher than country A's GDP per capita. Which of the following statements will then be true? The gap between country A's GDP per capita and country B's per capita will remain the same. The gap between country A's GDP per capita and country B's per capita will decrease over time. The gap between country A's GDP per capita and country B's GDP per capita will decrease for the first few years and then will increase later. The gap between country A's GDP per capita and country B's per capita will widen over time.

answer

D

question

The implied growth rate for a country between 1960 and 2010 is 6%. This implies that: the country needed to grow at an average rate of 6% per year between 1960 and 2010 to reach the 2010 level of GDP starting with the 1960 level. the country needed to grow by at least 6% in any of the fifty years between 1960 to 2010 to reach the level of GDP in 2010 starting with the 1960 level. the growth rate of GDP in the country was above 6% between 1960 to 1990 and above 6% between 1991 and 2010. the country needed to grow at rates above 6% per year between 1960 and 2010 to reach the 2010 level of GDP starting from the 1960 level.

answer

A

question

Chapter 9: Labor force formula?

answer

labor force = employed + unemployed

question

unemployment rate and its formula?

answer

the percentage of labor force that is unemployed. Unemployed rate = 100% x unemployed/ labor force

question

Labor force participation rate and formula

answer

the percentage of potential workers that are in labor force. Labor force participation rate = 100% x Labor force / potential workers potential workers = everyone except children under 16 years old, active duty military, institutionalized people

question

Trends in the unemployment rate Recession

answer

Recession- a period in which GDP falls - the unemployment rate tends to rise. - When the economy is healthy and expanding, the unemployment rate tends to fall. - Unemployment rate is never close to zero.

question

More educated workers tend to earn higher wages than

answer

less educated worker when working outside the home. - More educated workers therefore have a higher opportunity cost of time. Ex. An unemployed engineer might be just as good at house paining as the taxi driver, but the engineer would be much better off getting back to work. - Higher wages make the cost of unemployment higher for workers with more education.

question

The Demand the Labor

answer

- In the labor market, households supply labor and firms demand labor. Firms are now on the demand side because they need to hire workers for production. Diminishing marginal product of labor means adding more workers will eventually decrease the profit.

question

Shifts in the labor demand curve

answer

A movement along the labor demand curve occurs when the wage changes and no other economic variables change other than the quantity of labor demanded. Factors that cause entire labor demand curve to shift left or right: - Changing output price : When the price of haircuts goes down, the value of marginal product of barbers also declines. This implies that the firm would like to hire fewer barber at any given wage, shifting the labor demand to left. Changing demand for the output good or service: - When the demand for haircuts declines, this will impact the value of the marginal product of barbers even if it does not directly change the price of haircuts. Falling demand for haircuts lowers the number of customers coming to the barbershop, leading each barber to spend more time doing nothing. This output shift labor demand curve to the left. Changing technology : - When the value of the marginal product of labor increases, the labor demand curve shifts to the right. Ex. Technology that was developed enabled hair stylists to straighten or curl hair. This increases the marginal product of hair stylist and shifted the demand curve for stylist to the right. Changing input prices: Business use labor and other factors of production like machine and tools to produce goods and services. When the cost of these other factors goes down, businesses, purchase more of those other factors. This increases the marginal product of labor, shifting the demand curve to the right. For example, mechanical hair clippers enable barbe to cut hair more quickly. If a barbershop acquires more hair clippers (because the cost of hair clippers falls"), the barbers will increase the number of customers that they can serve per hour.

question

The supply of labor

answer

Changing taste: changing tastes of social norm affect people's willingness to take a paid job. For example, before WW 2, married women working for pay outside the home were frowned upon. During WW 2, government needs more women to work in factories, so the participation of women in labor force increases. Changing opportunity cost of time: Devices like vacuum cleansers, dishwashers, laundry machines lower the opportunity cost of working outside the home by freeing up time that was previously needed for home production. This encourages people to shift more time out of home production into paid employment. This generate rightward shift in labor supply curve. Changing in population: - Increases in the size of the population, corresponding to increases in the number of potential workers in the economy, also shifting the labor supply curve to the right.

question

Wage rigidity

answer

Refers to the condition in which the market wage is held above the competitive equilibrium level that would clear the labor market. Can occur: 1. Minimum wage legislation 2. Efficiency wages 3. Collective bargaining 4. Reluctance from workers to accept lower wages.

question

Structural unemployment

answer

arises when the quantity of labor supplied persistently exceeds the quantity of labor demanded.

question

Collective bargaining

answer

refers to the contract negotiations that take place between firms and labor unions. - lead to equilibrium wages and benefits that are greater than what workers would have received under the market-clearing wage.

question

Natural rate of unemployment

answer

the rate around which the actual rate of unemployment fluctuates. Ex. in Spain, the unemployment rate has 16.1 percent from 1977 to 2013. In the US the unemployment rate has average 6.5% over the same period.

question

Cyclical unemployment

answer

the deviation of the actual unemployment rate from the natural rate of unemployment. Ex. usually rises in recessions (when the labor demand curve shifts to the left)

question

Principle of optimization

answer

the fact that unemployment is lower among workers with a relatively higher level of education

question

Real interest Rate

answer

Real interest rate = Nominal interest - Inflation rate R = i - pi

question

Credit demand curve

answer

1. When the credit demand curve is relatively steep, the quantity of credit demanded doesn't change that much in response to variation in the real interest rate. 2. When the credit demand curve is relatively flat, the quantity of credit demanded is relatively sensitive to variation in the real interest rate.

question

Credit supply curve

answer

The schedule that reports the relationship between the quantity of credit supplied and the real interest rate.

question

Assets

answer

Bank reserves - cash Cash equivalent Long term investment - loans to household and firms

question

Liabilities and stockholder's equity

answer

Demand deposit Short term borrowing Long term debt

question

Total assets?

answer

Total liabilities + stockholders' equity

question

Insolvent

answer

when the value of bank's assets is less than the value of its liabilities.

question

Solvent

answer

When the value of bank's assets is greater than the value of its liabilities.

question

Bank run

answer

occur when a bank experiences an extraordinarily large amount of withdrawal.

question

An asset is liquid if: it can be easily converted into cash without loss of value. its value is more likely to increase in future. its value does not change from day to day. it offers a positive rate of interest.

answer

A.

question

One of the impacts of maturity transformation is that: it decreases the rate of inflation. relatively illiquid assets become relatively liquid. relatively liquid assets become relatively illiquid. it increases the rate of inflation.

answer

C

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