Name: ________________________ Class: ___________________ Date: __________ ID: A1Econ 2 Winter 2014 Midterm 2Multiple ChoiceIdentify the choice that best completes the statement or answers the question. 1. Capital widening is:a. when the rate of growth of the capital stock is greater than the rate of growth of workersb. an increase in the varieties of machinery used to produce goodsc. when the rate of growth of the capital stock equals the rate of growth of workersd. results in more capital and more capital per worker 2. Skill-biased technological change (SBTC) a. decreases wages of skilled workersb. has been suggested as a cause for increased income inequalityc. increases the demand for all types of labord. none of the aboveFirst Bank of Mason CityAssets LiabilitiesReserves $20.00 Deposits $100.00Loans $80.00 3. Refer to the table of the First Bank of Mason City. If $1,000 is deposited into the First Bank of Mason City and the bank takes no other actions, which of the following must be true given the information provided?a. Assets will increase by $1,000. b. Liabilities will decrease by $1,000. c. Required reserves will increase $800.d. Total reserves will initially increase by $200. 4. The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 8 percent and at the same time buys $10 billion worth of bonds, then what is the maximum amount the money supply can change?a. It rises by $300 billion.b. It rises by $125 billion.c. It rises by $375 billion.d. None of the above is correct. 5. You are risk-averse and have $121.50 to invest in either a stock or bond. The stock is expected to give you either $147.25 or $X with equal probability, while the bond will give you $136.75 with certainty. For which value of X could you possibly prefer the stock?a. $122.75b. $128.50c. $126.25d. $124.00 6. The Fed wants to increase the money supply. Which of the following methods can they use to achieve this goal?a. Increasing the reserve requirementb. Buying bondsc. Increasing the interest rate that banks can earn for holding reservesd. Decreasing unemploymentName: ________________________ ID: A2 7. In order to promote the solar energy sector in the US, the government recently announced a policy to give tax credits to companies making this technology. What will this do to the market of loanable funds?a. Shift the supply curve to the rightb. Shift the demand curve to the leftc. Shift the demand curve to the rightd. Shift the supply curve to the left 8. If the Fed raised the reserve requirement, the demand for reserves woulda. decrease, so the money supply would fall.b. decrease, so the money supply would rise.c. increase, so the money supply would fall.d. increase, so the money supply would rise. 9. Suppose that changing demographics have caused a rightward shift in the supply of labor. What effect does this have on the equilibrium wage and employment level?a. wages decrease and employment increasesb. wages decrease and employment decreasesc. wages increase and employment decreasesd. wages increase and employment increases 10. The slope of the supply of loanable funds curve represents thea. positive relation between the real interest rate and investment.b. positive relation between the real interest rate and saving.c. negative relation between the real interest rate and investment.d. negative relation between the real interest rate and saving. 11. The Bureau of Labor Statistics reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent, 36.40 million of whom were employed and 1.93 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?a. 63.9% and 3.2%b. 60.7% and 5.0%c. 63.9% and 5.0%d. 60.7% and 3.2% 12. Two years ago Daniel put some money into an account. He earned 6 percent interest on this account and now he has about $1,000. About how much did Daniel deposit into his account two years ago if we assume interest is compounded annually?a. about $890b. about $870c. about $860d. about $880 13. Suppose today you spend $100 on purchasing of stock in a company. After 1 year, the company has a 20% chance of bankruptcy, making the stocks worthless, a 15% chance of stagnation, stocks neither gain nor lose value, a 60% chance the stocks give a 2% real interest and a 5% chance the stocks give 300% real interest. What is the future value of the $100 purchase?a. $96.20b. $400.00c. $102.00d. None of the above is correctName: ________________________ ID: A3 14. Suppose that you buy a bond that will pay you $300 per year forever. If the bond is worth $1,500 today in present value terms, how much is the interest rate?a. 5%b. 500%c. 0.2%d. None of the above 15. If an economy is closed and if it has no government, thena. national saving = private saving.b. gross domestic product = consumption.c. public saving = investment.d. national saving = 0. 16. What would happen in the market for loanable funds if the government were to decrease the tax on interest income? a. The change in loanable funds borrowed would be ambiguous. b. There would be a reduction in the amount of loanable funds borrowed. c. There would be an increase in the amount of loanable funds borrowed. d. There would be no change in the amount of loanable funds borrowed. 17. In a town, there are 35 working adults, 25 unemployed but looking, 5 discouraged workers, 10 retired seniors, and 25 students. Which is greater: the unemployment rate or the labor force participation rate?a. Labor force participation rateb. Unemployment ratec. They are equald. Cannot be determined 18. Which of the following is an implication of the Efficient Market Hypothesis:a. Buying stocks is a riskless investment.b. If you see a profit opportunity, it’s because other traders have ignored available information.c. If a stock is currently over-priced traders will buy more shares until the correct price is reached.d. None of the above. 19. If the government wanted to reduce the budget deficit without affecting the interest rate then they shoulda. Decrease taxes on interest incomeb. Decrease government spendingc. Increase income taxesd. Increase transfer payments 20. The portfolio diversification of mutual funds makes them less risky