Answer:
Deductible interest expense of $1440 and deductible education expense of $4000.
Explanation:
There are certain tax laws which allows a tax payer to deduct his expenses from the taxable amount. The tax payer can deduct interest expense from the taxable amount since it is a tax shield. Lionel can deduct an interest expense of $1440 from the taxable amount and he can deduct $4000 for his education from the taxable amount.
Which describes the role of automatic stabilizers in the economy? Automatic stabilizers are changes in the money supply that occur automatically when inflation or unemployment occurs. Automatic stabilizers refer to industries that are not subject to the fluctuations of the economy, and therefore moderate the effects of recessions. Food, housing, and the military are examples of these industries, which are usually more stable than the rest of the economy. Automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. Automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions. Automatic stabilizers are discretionary changes to taxes, government spending, and transfers that Congress makes in an attempt to improve the economy.
Answer:
person above is 100% correct
Explanation:
You just won the $114 million ultimate lotto jackpot. Your winnings will be paid as $3,800,000 per year for the next 30 years. If the appropriate interest rate is 7.1% what is the value of your windfall?
Answer:
$46,684,511.77
Explanation:
To determine the value of the windfall, we would first determine the future value of the windfall and then determine the present value
Future value = annuity x annuity factor
Annuity factor = {[(1+r)^n] - 1} / r
FV = P (1 + r) n
FV = Future value
P = Present value
R = interest rate
N = number of years
Annuity factor = [(1.071)^30 - 1] / 0.071 = 96.177470
FV = $3,800,000 x 96.177470 = 365,474,386
Present value = FV x ( 1 +r)^-n
365,474,386 x (1.071)^-30 = $46,684,511.77
Select two ratios that are equivalent to 2:9
Answer:
4:18 and 8:36
Explanation:
Match the instances to the marketing utilities that they satisfy toward value proposition.
Answer:
match place with she has her ice cream shop outside the school
match form with blends with the richest ingredients
match offers credit to school kids... with possession
match lists the nutritional value...... with information utility
Turnbull Co. is considering a project that requires an initial investment of $270,000. The firm will raise the $270,000 in capital by issuing $100,000 of debt at a before-tax cost of 11.1%, $30,000 of preferred stock at a cost of 12.2%, and $140,000 of equity at a cost of 14.7%. The firm faces a tax rate of 40%. What will be the WACC for this project
Answer:
WACC = 11.45 %
Explanation:
Weighted average cost of capital is the average cost of all of the long-term types of finance used by a company weighted according to the that amount of finance used in relation to the total pool of fund
WACC = (Wd×Kd) + (We×Ke) + (Wp × Kp)
After-tax cost of debt = Before tax cost of debt× (1-tax rate)
Kd-After-tax cost of debt = 11.1%(1-0.4) =6.66%
Ke-Cost of equity = 14.7%
Kp= Cost of preferred stock = 12.2%
Wd-Weight of debt =100/270=0.370
We-Weight of equity = 140/270=0.518
Wp= weight of preferred stock = 30/270=0.111
WACC = (0.518× 14.7%) + (0.370 × 6.7%) + (0.111×12.2) = 11.447%
WACC = 11.45 %
A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable $ 378,000 debit Allowance for uncollectible accounts 530 credit Net Sales 830,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared
Answer:
$1,738
Explanation:
Calculation to determine What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared
Using this formula
Bad Debts Expense=[(Accounts receivable*Estimated uncollectible net credit sales)-Allowance for uncollectible accounts]
Let plug in the formula
Bad Debts Expense=[($378,000*0.6%)-$530]
Bad Debts Expense=$2,268-$530
Bad Debts Expense=$1,738
Therefore the amount that should be debited to Bad Debts Expense when the year-end adjusting entry is prepared is $1,738
Morales Company sells $320,000 of its receivables to Instant Factors, Inc. Instant Factors assesses a finance charge of 3% of the amount of receivables sold. Prepare the journal entry to record the sale of the receivables on Morales Company's books. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Answer:
Dr Cash $310,400
Dr Factoring expense$9,600
Cr Account receivable $320,000
Explanation:
Preparation of the journal entry to record the sale of the receivables on Morales Company's books.
Dr Cash $310,400
($320,000-$9,600)
Dr Factoring expense$9,600
($320,000*3%)
Cr Account receivable $320,000
(Being to record the sale of the receivables on Morales Company's books
Crane Company uses a periodic inventory system. Details for the inventory account for the month of January, 2020 are as follows: Units Per unit price Total Balance, 1/1/20 150$4.00$600 Purchase, 1/15/20 705.10 357 Purchase, 1/28/20 705.30 371 An end of the month (1/31/20) inventory showed that 110 units were on hand. If the company uses LIFO, what is the value of the ending inventory
Answer:
Crane Company
If Crane Company uses LIFO, the value of the ending inventory is:
= $440.
Explanation:
a) Data and Calculations:
Units Unit Cost Total Cost
1/1/20 inventory 150 $4.00 $600
1/15/20 Purchase, 70 5.10 357
1/28/20 Purchase, 70 5.30 371
Total 240 $1,328
1/31/20 inventory 110 $4.00 $440 ($4.00 * 110)
b) The LIFO method assumes that goods that are sold first are the last that were purchased. Therefore, the cost of the ending inventory is usually based on the cost of the earlier inventory purchased. In our case, the cost per unit was based on the beginning inventory balance.
Jhumpa, Stewart, and Kelly are all one-third partners in the capital and profits of Firewalker General Partnership. In addition to their normal share of the partnership's annual income, Jhumpa and Stewart receive an annual guaranteed payment of $10,000 to compensate them for additional services they provide. Firewalker's income statement for the current year reflects the following revenues and expenses: Sales revenue $ 340,000 Interest income 3,300 Long-term capital gains 1,200 Cost of goods sold (120,000 ) Employee wages (75,000 ) Depreciation expense (28,000 ) Guaranteed payments (20,000 ) Miscellaneous expenses (4,500 ) Overall net income $ 97,000 (Leave no answer blank. Enter zero if applicable.) b. How will Firewalker allocate ordinary business income and separately stated items to its partners
Question Completion:
a.Given Firewalker’s operating results, how much ordinary business income (loss) and what separately stated items [including the partners’ self-employment earnings (loss) will it report on its return for the year?
Answer:
Firewalker General Partnership
a) In its return for the year, the partnership will report an ordinary business income of $117,000. It will also report the guaranteed payments and share of remaining profits as allocated below.
b) Allocation of business income:
Jhumpa Stewart Kelly Total
Guaranteed payments $10,000 $10,000 $20,000
Share of profit 32,333 32,333 $32,334 97,000
Total business income $117,000
Explanation:
a) Data and Calculations:
Share of profits and loss:
Jhumpa = 1/3
Steward = 1/3
Kelly = 1/3
Income Statement for the year:
Sales revenue $ 340,000
Cost of goods sold (120,000)
Gross profit $220,000
Interest income 3,300
Long-term capital gains 1,200
Income $224,500
Employee wages (75,000)
Depreciation expense (28,000)
Miscellaneous expenses (4,500)
Net income $117,000
Appropriation Section:
Net income $117,000
Guaranteed payments (20,000)
Shareable income $97,000
Allocation of business income:
Jhumpa Stewart Kelly Total
Guaranteed payments $10,000 $10,000 $20,000
Share of profit 32,333 32,333 $32,334 97,000
Total business income $117,000
At the beginning of the year, Rangle Company expected to incur $54,000 of overhead costs in producing 6,000 units of product. The direct material cost is $20 per unit of product. Direct labor cost is $30 per unit. During January, 600 units were produced. The total cost of the units made in January was: Multiple Choice $30,000 $5,400 $35,400
Answer:
Total cost of the units made in January = $35,400
Explanation:
Direct material cost in January = Direct material cost per unit * Units produced in January = $20 * 600 = $12,000
Direct labor cost in January = Direct labor cost per unit * Units produced in January = $30 * 600 = $18,000
Overhead costs in January = (Units produced in January / Expected units for the year) * Expected overhead costs for the year = (600 / 6,000) * $54,000 = $5,400
Therefore, we have:
Total cost of the units made in January = Direct material cost in January + Direct labor cost in January + Overhead costs in January = $12,000 + $18,000 + $5,400 = $35,400
For each of the following activities, select the most appropriate cost driver. Each cost driver may be used only once. Activity Cost Driver 1. Pay vendors
2. Evaluate vendors
3. Inspect raw materials
4. Plan for purchases of raw materials
5. Packaging
6. Supervision
7. Employee training
8. Clean tables
9. Machine maintenance
10. Opening accounts at a bank
# of checked issues
# of machine hours
# of deliveries
# of classes offered
# of different kinds of raw materials
# of new customers
# of units of raw materials received
# of employees
# of customer orders
# of maintenace hours
Answer:
Activities Cost Drivers
1. Pay vendors # of deliveries
2. Evaluate vendors # of checked issues
3. Inspect raw materials # of units of raw materials
received
4. Plan for purchases of raw materials # of different kinds of raw
materials
5. Packaging # of customer orders
6. Supervision # of employees
7. Employee training # of classes offered
8. Clean tables # of machine hours
9. Machine maintenance # of maintenance hours
10. Opening accounts at a bank # of new customers
Explanation:
a) Cost Drivers are the factors that give rise to the costs of activities. They are usually expressed in units or numbers, like the following:
# of checked issues
# of machine hours
# of deliveries
# of classes offered
# of different kinds of raw materials
# of new customers
# of units of raw materials received
# of employees
# of customer orders
# of maintenance hours
larry Nelson holds 1,000 shares of General Electric (GE) common stock. As a stockholder, he has the right to be involved in the election of its directors, who are responsible for managing the company and achieving the company’s objectives. True or False: Larry will receive dividends before preferred stockholders.
Answer:
False
Explanation:
Preferred shareholders are category of shareholders of company that have priority over the income of the company. This implies that whenever dividend is declared, preferred shareholders are paid first before common shareholders are paid.
This means that common shareholders are paid dividends whatever is left out of dividends declared after preferred shareholders have been paid.
Therefore, Larry will NOT receive dividends before preferred stockholders.
Isaac Inc. began operations in... Isaac Inc. began operations in January 2021. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments.
In 2021, Isaac had $670 million in sales of this type. Scheduled collections for these sales are as follows:
2021 $81 million
2022 127 million
2023 127 million
2024 160 million
2025 175 million
$670 million
Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2022, what deferred tax liability would Isaac report in its year-end 2022 balance sheet?
Answer:
$115.5 million
Explanation:
Calculation for what deferred tax liability would Isaac report in its year-end 2022 balance sheet
Deferred tax liability=($127 million+$160 million+$175 million)*25%
Deferred tax liability=$462 million*25%
Deferred tax liability=$115.5 million
Therefore the deferred tax liability that Isaac would report in its year-end 2022 balance sheet is $115.5 million
please chart this out !
Answer:
Purchases
Date Qty Unit Cost Total Cost
11 13 $47 $611
21 9 $60 $540
Cost of Sales
Date Qty Unit Cost Total Cost
14 18 $46.04 $828.72
25 10 $53.89 $538.90
$1,367.62
Inventory
Qty Unit Cost Total Cost
6 $53.89 $323.34
$323.34
Explanation:
Perpetual Inventory method calculates the Costs of Sales together with the Inventory value after each and every transaction.
Weighted Average Cost calculates a new unit cost after each and every Purchase made. This unit cost is then used to determine the Cost of Sales and Inventory Value.
New Unit Cost Calculations
Unit Cost = Total Available Cost ÷ Units Available for Sale
April 11
Unit Cost = (12 x $45 + 13 x $47) ÷ 25 = $46.04
April 21
Unit Cost = (7 x $46.04 + 9 x $60) ÷ 16 = $53.89
warfaa is setting up anew business. before selling anything he bought avan for $4500,a shop for $2000 and stock of good for $1500, he did not pay in full for the stock and still ownest $1000 from respect of them . he borrowed $5000 from farah . after the events just described and before trading start he has 400 cash in hand and 1100 cash at bank , calculate warfaa's capital.
Answer:
$3,500
Explanation:
Calculation for warfaa's capital
ASSETS
Cash $1,500
($400+$1,100)
Inventory $1,500
Fixed Assets $6,500
($4,500 + $2,000)
Total Assets $9,500
($1,500+$1,500+$6,500)
LIABILITIES
Notes Payable $5,000
Accounts Payable $1,000
Total Liabilities $6,000
($5,000+$1,000)
CAPITAL $3,500
($9,500-$6,000)
Therefore warfaa's capital is $3,500
Some hoodlums who have been earning money by stealing copper pipes and cable and selling them to recyclers are driving around one evening when they spot an unattended strange-looking building sitting out in the middle of a field, break in, and steal all of the copper wire they can haul in their truck, disabling the VOR air navigation facility.
Required:
In addition to trespassing, breaking and entering, and burglary, have they committed any aviation-specific federal crimes? If so, identify each such crime(s) and describe the penalties.
Answer:
Yes they have 18 U.S. Code § 32 (a) Clause 3Explanation:
With aviation being such a sensitive field that requires a lot of oversight, Congress enacted rules to punish aviation crimes which means that such crimes fall under Federal jurisdiction and as this crime is a crime against an aviation facility, it is a Federal crime.
The crime in question here falls under US. Code 32 - Destruction of aircraft or aircraft facilities under subsection (a)3 which talks about damaging an air navigation facility and how this can endanger the safety of flights en route.
Their punishment would be either a fine, imprisonment of not more than five years or both.
Aliya and Samuel, managers from different departments at Finger Lakes Financial, are discussing the troubling behavior of an employee. Aliya says that it is the responsibility of high-level managers to take steps to prevent legal wrongdoing by punishing offenders. However, Samuel believes that every individual should take personal responsibility for his or her own behavior and that everyone needs to understand how to do the right thing. Samuel prefers a(n) ________ ethics program.
Answer:
Ethics Program
Samuel prefers a(n) ________ ethics program.
personal (individual) ethics program.
Explanation:
But such a personal ethics program cannot work in an organization. An organization is made up of persons from different backgrounds and orientations with differing work and personal ethics. An organizational ethics program cannot succeed by being dependent on personal scruples, as being suggested by Samuel. Every organization requires a company-wide ethics program that is equally applicable to all persons in the organization. The tone of such ethics program should be set at the top of the organization's hierarchy.
Marlin Corporation reported pretax book income of $1,001,000. During the current year, the net reserve for warranties increased by $25,200. In addition, book depreciation exceeded tax depreciation by $100,100. Finally, Marlin subtracted a dividends received deduction of $15,100 in computing its current year taxable income. Marlin's current income tax expense or benefit would be:
Answer:
$233,352
Explanation:
Calculation to determine what Marlin's current income tax expense or benefit would be:.
Marlin's current income tax expense =[($1,001,000 + $25,200 + $100,100 − $15,100)*21%]
Marlin's current income tax expense= $1,111,200 × 21%
Marlin's current income tax expense=$233,352
Therefore Marlin's current income tax expense or benefit would be:$233,352
Alexa Corp. is preparing its balance sheet at December 31, 2020. The 7 items listed below are under consideration. For each of the items described, determine the amount(s) to be recognized on the balance sheet and classify each amount as one of the following: (a) current assets, (b) investments, (c) property, plant, and equipment, (d) other assets, (e) current liabilities, or (f) long-term liabilities. More than one amount may apply to an item. Round amounts to the nearest dollar
Question Completion:
1. Note payable, long term, $120,000 originating on December 31, 2020. This note will be paid in installments. The first installment of $15,000 is to be paid August 1, 2021.
2. Bonds payable, 5%, $300,000 at December 31, 2020. Annual interest on the bond is paid on January 1, 2021.
3. Bond sinking fund, $60,000; this fund is being accumulated to retire the bonds at maturity.
4. Rent paid in advance for the first quarter of 2021 on a short-term lease, $9,000.
5. Accounts payable, $21,000, due to suppliers in terms ranging from 30 to 60 days.
6. A 3-year, 8%, $60,000 note payable to bank originating on November 1, 2020, requires quarterly interest payments.
7. Year-end bonuses, based upon 2020 reported net income, are estimated to be $45,000 and are payable March 15, 2021.
Answer:
Alexa Corp.
Amount to be recognized on the balance sheet of December 31, 2020 with proper classification:
(a) current assets,
Prepaid Rent $9,000
(b) investments,
Bond sinking fund, $60,000
(c) property, plant, and equipment,
N/A
(d) other assets,
N/A
(e) current liabilities,
Note payable, short-term $15,000
Accounts payable, $21,000
Interest payable $800
Bonuses payable $45,000
(f) long-term liabilities
Note payable, long term, $105,000
Bonds payable, 5%, $300,000
8% Note payable, long-term $60,000
Explanation:
a) Data and Analysis:
1. Note payable, long term, $105,000 Note payable, short-term $15,000
2. Bonds payable, 5%, $300,000 (Long-term)
3. Bond sinking fund, $60,000 (long-term)
4. Prepaid Rent $9,000
5. Accounts payable, $21,000 (short-term)
6. 8% Note payable, long-term $60,000 Interest payable $800 ($60,000 * 8% * 2/12)
7. Bonuses payable $45,000 (short-term)
Retained earnings, December 31, 2019 $342,500
Cost of buildings purchased during 2020 49,000
Net income for the year ended December 31, 2020 55,900
Dividends declared and paid in 2020 32,000
Increase in cash balance from January 1, 2020, to December 31, 2020 22,000
Increase in long-term debt in 2020 44,500
Required:
From the above data, calculate the Retained Earnings balance as of December 31, 2020.
Answer:
the retained earnings balance as on Dec 31,2020 is $72,900
Explanation:
The computation of the retained earnings balance as on Dec 31,2020 is given below:
Ending retained earning balance = Opening retained earnings + net income - dividend paid
= $49,000 + $55,900 - $32,000
= $72,900
hence, the retained earnings balance as on Dec 31,2020 is $72,900
3. What role did CDS play in the financial crisis?
Just like an insurance policy, a CDS allows purchasers to buy protection against an unlikely event that may affect the investment. ... During the financial crisis of 2008, the value of CDS was hit hard, and it dropped to $26.3 trillion by 2010 and $25.5 trillion in 2012.
Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities?
a. Owners' equity for proprietorships and partnerships is usually referred to as capital.
b. No distinction is made between invested capital and retained earnings for a proprietorship or a partnership.
c. Neither proprietorships or partnerships issue stock.
Answer: A. Owners' equity for proprietorships and partnerships is usually referred to as capital.
B. No distinction is made between invested capital and retained earnings for a proprietorship or a partnership.
C. Neither proprietorships or partnerships issue stock.
Explanation:
The statements that are true regarding owners' equity and ownership rights held in noncorporate entities include:
• No distinction is made between invested capital and retained earnings for a proprietorship or a partnership.
• Neither proprietorships or partnerships issue stock.
• Owners' equity for proprietorships and partnerships is usually referred to as capital.
We should note that sole proprietorships and partnership typically don't have stockholders and shouldn't issue stock as they aren't separated from their founders.
Also, the owners' equity for proprietorships and partnerships is usually referred to as capital. We should note that for a sole proprietorship or a partnership, the equity is the owners capital account which can be seen on the balance sheet.
Based on the above explanation, all the options given above are correct.
Zeus, Inc. produces a product that has a variable cost of $9.50 per unit. The company's fixed costs are $40,000. The product sells for $12.00 a unit and the company desires to earn a $20,000 profit. What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations.)
Answer:
Break-even point in units= 26,087
Explanation:
Giving the following information:
Selling price= $12
Unitary variable cost= 9.7
Fixed costs= $40,000
Desired profit= $20,000
To calculate the number of units to be sold, we need to use the following formula:
Break-even point in units= (fixed costs + desired profit) / contribution margin per unit
Break-even point in units= (40,000 + 20,000) / (12 - 9.7)
Break-even point in units= 26,087
define federal deposit insurance corporation.
Consider the economy of Citronia, where citizens consume only oranges. Assume that oranges cost $1 each, and each person can buy at most 5,000 oranges. The government has devised the following tax plans:
Plan A Plan B
Consumption up to 1,000 oranges is taxed at 20%. Consumption up to 2,000 oranges is taxed at 30%.
Consumption higher than 1,000 oranges is taxed at 80%. Consumption higher than 2,000 oranges is taxed at 10%.
Required:
Derive the marginal and average tax rates under each tax plan at the consumption levels of 500 oranges.
Explanation:
We are to find marginal tax and average tax rate at a consumption level of 500 oranges for plan A and plan B
Plan A
Consumption level = 500 oranges
Tax = 20%
Tax payable on this = 500 x 20% = 500 x 0.2 = 100
Marginal tax rate = 20 %
Average tax return = 100/500 = 0.2x100 = 20%
Plan B
At tax rate = 30%
Same consumption level
Tax payable = 500 x 30% = 500 x 0.3 = 150
Marginal tax rate = 30%
Average tax rate = 150/500 = 0.3 x 100 = 30%
the primary reason business owners make investments and take risks in a private enterprise system is to
a. make a profit
b. satisfy customer needs
C. develop new products
d. meet government requirements
Answer:
I don't do business but I think it would be to a
The primary reason as to why the business owners make investments and take risks in a private enterprise system is to make a profit. Therefore, the option A holds true.
What is the significance of profit-making?A profit making activity can be referred to or considered as an activity that is conducted by an individual or an organization, where the primary motive of such activity is to ensure profits by using the factors of production as such.
Apart from a non-profit organization, all the other businesses and enterprises conduct business activities in the regular course of conduct, because business is a profit-making activity throughout the period of its existence.
Therefore, the option A holds true and states regarding the significance of a profit-making activity.
Learn more about profit-making activity here:
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Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12- and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2020, Bigham sold the following customer contracts: Length of contract Total Proceeds 12 months $44,800 24 months $89,600 Determine the income to be recognized in taxable income in 2020 and 2021.
Answer:
12 months
2020 $22,400
2021 $22,400
24 months
2020 $22,400
2021 $44,800
Explanation:
Calculation to Determine the income to be recognized in taxable income in 2020 and 2021.
Length of Contract
12 months
2020 Income=$44,800 * 6/12=$22,400
2021 Income=$44,800 * 6/12=$22,400
24 months
2020 Income=$89,600 *6/24=$22,400
2021 Income =$89,600 *12/24=$44,800
Therefore the income to be recognized in taxable income in 2020 and 2021 will be:
12 months
2020 $22,400
2021 $22,400
24 months
2020 $22,400
2021 $44,800
Blair Madison Co. issues $2.0 million of new stock and pays $291,000 in cash dividends during the year. In addition, the company took advantage of falling interest rates to borrow $1.60 million in a new bond issue and paid off existing bonds with a face value of $2.50 million. The company bought 510 of another company's $1,100 bonds at a $110,000 premium. The net cash flow provided by financing activities is:
Answer:
$809,000
Explanation:
Bliss madison offers $2,000,000 new stocks
He pays $291,000 in cash dividend
The company took advantage of the falling interest rate to borrow $1,600,000
They paid off bonds with an existing face value of $2,500,000
Therefore the net cash flow can be calculated as follows
= 2,000,000-291,000+1,600,000-2,500,000
= 809,000
Hence the net cash flow is $809,000
which one of the following best describes the human need?
a.fries
b.burger
c.pizza
d.food
e.none
Answer:
d. Food.
Explanation:
Human needs consist of numerous things, ranging from money to food to safety. And depending on the severity of a situation, one can always list what one thinks is the most important for a person.
Among the given list of things in the question, the most important that describes the human need is food. Without food, it is not possible for a person to live and survive. Food is and will always constitute one of the most important human needs.
Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time.
1. Refer to Optimism. Which curve shifts and in which direction?
a. aggregate demand shifts right.
b. aggregate demand shifts left.
c. aggregate supply shifts right.
d. aggregate supply shifts left.
2. Refer to Optimism. In the short run what happens to the price level and real GDP?
a. both the price level and real GDP rise.
b. both the price level and real GDP fall.
c. the price level rises and real GDP falls.
c. the price level falls and real GDP rises.
3. Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining?
A. The expected price level falls. Bargains are struck for higher wages.
B. The expected price level rises. Bargains are struck for higher wages.
C. The expected price level rises. Bargains are struck for lower wages.
D. The expected price level falls. Bargains are struck for lower wages.
4. Refer to Optimism. In the long run, the change in price expectations created by optimism shifts:_____.
a. long-run aggregate supply right.
b. long-run aggregate supply left.
c. short-run aggregate supply right.
d. short-run aggregate supply left.
5. Refer to Optimism. How is the new long-run equilibrium different from the original one?
a. both price and real GDP are higher.
b. both price and real GDP are lower.
c. the price level is the same and GDP is higher.
d. the price level is higher and real GDP is the same.
6. People choose to hold a smaller quantity of money if:_____.
a. the interest rate rises, which causes the opportunity cost of holding money to rise.
b. the interest rate falls, which causes the opportunity cost of holding money to rise.
c. the interest rate rises, which causes the opportunity cost of holding money to fall.
d. the interest rate falls, which causes the opportunity cost of holding money to fall.
7. When the Fed sells government bonds, the reserves of the banking system:___.
a. increase, so the money supply increases.
b. increase, so the money supply decreases.
c. decrease, so the money supply increases.
d. decrease, so the money supply decreases.
Answer:
1. a. aggregate demand shifts right.
As people are more optimistic, they will consume more in the short term because they feel as though prosperity is coming in the long term.
2. a. both the price level and real GDP rise.
Both of these would rise as Aggregate demand refers to GDP and price level would rise due to the new intersection with the Aggregate supply curve when the AD shifted right.
3. B. The expected price level rises. Bargains are struck for higher wages.
Expected price level will rise because demand is still increasing. Workers will want to benefit from this as well and so will negotiate higher wages.
4. d. short-run aggregate supply left.
As a result of the rise in expected price level and the subsequent negotiation for higher salaries, producers will find the cost of labor to be hire and so will limit production so that they do not spend as much. This will reduce supply thereby shifting the supply curve left.
5. d. the price level is higher and real GDP is the same.
The shift to the left in supply will lead to a higher price but the Real GDP will remain the same because there will be less goods produced so once prices are inflation adjusted, real GDP will be the same.
6. a. the interest rate rises, which causes the opportunity cost of holding money to rise.
If interest rates rise, people will hold less money because they could make a higher return by investing that money.
7. d. decrease, so the money supply decreases.
The money supply decreases because the Fed is taking money out of the banking system by selling bonds as people will pay the Fed for the bonds and the Fed will keep the money.