AP MACRO FINAL

A tradeoff between unemployment and inflation is depicted by:

A Phillips curve

Use Scenario 22-. What is the government budget balance?

A deficit of $1.5 trillion

The SRAS curve is upward rising because:

A higher aggregate price level leads to higher output since most production costs are fixed in the short run

A price control is:

A legal restriction on how high or low a price in a market may go

Which of the following is an example of an imported quota?

A limit on the total number of shoes imported from Italy.

A price ceiling is:

A maximum price sellers are allowed to charge for a good or service

A price ceiling is likely to result in:

A persistent shortage, a transfer or surplus from producers to consumers, and inefficient allocations of the good to consumers

If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent:

A price ceiling has been set and a shortage rental may occur

A current account deficit is generally:

A result of imports exceeding exports

Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If HD raises the price that it chargers for its motorcycles, we can expect:

A shift to the right in the demand curve for Hondas and higher prices for Hondas

Which of the following will result in an increased price of milk?

A shift to the right of the demand curve for milk

Diminishing returns to physical capital implies that, when human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to:

A smaller increase in productivity

Which of the following would be apart of macroeconomics?

A study of recessions

Economists say an economy is efficient when:

All opportunities to make some people better off without making other people worse off have been taken

A bond is considered:

An asset that is not part of the money supply

Which of the following will shift the short-run aggregate supply curve to the right?

An economy-wide decrease in commodity prices

If during a period of several months we observe the economy to be simultaneously increasing its level of output and employment, we could assume that the economy is in;

An expansion

Which is of the following would shift the demand curve for new textbooks to the right?

An increase in college enrollments

A decrease in supply of a good is caused by:

An increase in the number of sellers in the market for the good

The law of demand is illustrated when

An increase in the purchases of personal computers results from lower prices

All else equal, a nation's aggregate production function could shift upward as a result of:

An increase in the quality of the nations technology

A decrease in the price of a good will result in:

An increase in the quantity demanded

An increase in supply, with no change in demand, will lead to _____ in equilibrium quantity and ________ in equilibrium price.

An increase; a decrease

Using the table, if the government imposes a quota on the fried Twinkie market of 5,000, the quota rent (per fried Twinkie) collected by the fried Twinkie producers will be:

$0.30

Suppose the government decides to reduce fried twinkie consumption as a part of "War on Obesity". After careful study, the government decides to limit production (the government imposes a quota on production) of fried twinkies to 5,000 for the current calendar year. Using the table, what price will producer charge, if they obey the quote law? Use the table above of the Market for Fried Twinkies.

$1.50

If the interest rate is 10%, the amount received two years from now as a result of lending $1000 today is

$1210

If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:

$15 billion

Use Scenario 22-1. How much is private saving?

$3.5 trillion

Suppose the marginal propensity to consume is equal to 0.90 and investment spending increases by $50 billion. Assuming no taxes and no trade, by how much will real GDP change?

$500 billion increase

If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5,000,000, the its GDP per capita is:

$5000

Use the table above. Considering 2008 as the base year, real GDP in 2009 was:

$69,000

Use the "Consumption and Real GDP" Figure 16-1. If real GDP were $12 trillion, consumption would be _______ trillion.

$7

Suppose that U.S. debt is $7 trillion dollars at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are $2 trillion and tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is:

$7.5 trillion

Consider an economy that only produces two goods: DVDs and DVD players. If 10 DVDs are sold at $20 each and 5 DVD players are sold at $100 each, then nominal GDP is:

$700

Use Table 25-1. If the reserve ratio in 25% , deposits are:

$80,000

Use table 23-1. Consider the information in the table. The value of M1 is:

$895 billion

When lending $Y to a friend at an interest rate of r%, you would expect to be repaid ___ in one year

$Y*(l+r)

Use the "Short-Run Equilibrium" Figure 21-1. The accompanying graph shows the economy in short run equilibrium. To move the economy to potential GDP, the government needs to reduce government spending by an amount equal to

(Y1-YP)/(1-MPC)

The Federal Reserve System was created in:

1913

Which of the following years is often described as the worst year of the Great Depression?

1933

Use table 15-1. The approximate annual rate of inflation from Year 4 to Year 5 is __ percent

20

You read in the newspaper that the CPI in 2008 was 120, you will conclude that a typical market basket in 2008 would have cost

20 percent more than the same market basket purchased in the base year.

Use table 15-1. The approximate annual rate of inflation from year 1 to year 2 is _____.

25%

Use table 15-1. The approximate annual rate of inflation from year 2 to year 3 is ____ percent.

5

In 2007, the Bureau of Labor Statistics calculated the unemployment rate to be 7.5%. If the frictional unemployment was 1% and the structural unemployment was 1.5%, then the natural rate of unemployment would be:

5%

Use the "Market for Loanable Funds with Government Borrowing" Figure 29-7 According to the accompanying figure, after an increase in government borrowing, the new equilibrium interest rate will rise from ____ and the amount of private investment will ____.

6% to 8%; fall

Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to:

Decrease taxes

The federal budget tends to move toward _____ as the economy ______

Deficit; contracts

Use the "Change in Demand for US Dollars" Figure 42-1. The change from D1 to D2 would occur, all other things being equal, if the:

Demand for dollars increases

The convergence hypothesis says that:

Differences in real GDP per capita among countries tend to narrow over time

Disposable income in a particular period is:

Income earned plus government transfer payments less taxes

Greta starts using a new baking technique and she can now do twice as much of everything - in a single day Greta can now make 10 cakes or 8 pie, rather than the 5 cakes and 4 pies she could previously bake. We now know that Greta's production possibilities curve:

Has shifted right, but her opportunity costs of making pies are unchanged

Long run-economic growth is:

Higher in countries when it has a strong rule of law and political judiciary

The production possibility curve illustrates that;

If all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced

If the opportunity cost of manufacturing automobiles is lower in the US than in Britain and the opportunity cost of manufacturing airplanes is higher in the US than in britain, then the US will:

Import airplanes from britain and export automobiles to Britain

The term human capital describes:

Improvement in the worker made possible by education, training and knowledge

Assume that the marginal propensity to consume is 0.8, and potential output is $800 billion. If current real GDP is $700 billion, which of the following policies would bring the economy to potential output?

Increase government spending by $20 billion

In the long run an increase in saving will generally:

Increase the rate of economic growth

Dora earned a salary of $60,000 in 2013, but she accepted a new job in 2014 that paid her a salary of $72,000. If the rate of inflation between 2013 and 2014 was 5%, we can determine that her real salary ______ by approximately ______.

Increased; 15%

According to the wealth effect, when the price level decreases, the purchasing power of assets

Increases and consumer spending increases

Stagflation is a combination of

Increasing unemployment and increasing inflation

Black markets may develop with price controls because:

Individuals can profit by illegal exchanges

If the natural rate of unemployment if 5%, and the actual rate of unemployment is 4%:

Inflation will increase

According to the classical model of the price level, an increase in the money supply will create:

Inflation with no long-run increases in real GDP

Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account:

There is no change in M1 and M2

The natural rate of employment is achieved when:

There is no cyclical unemployment

Although water is very abundant in most places, it is still considered a scarce resource because

There is not enough to meet all needs at zero cost

Suppose government economist recommend that policymakers should either increase taxes or decrease government spending. This recommendation was most likely based on the fact that:

Too much spending was causing inflation

A major drawback of adopting a floating exchange rate is the:

Uncertainty about the value of goods traded internationally

When a local factory closes, why does it spell bad news for the local restaurants?

Unemployed factory workers have lower incomes and are less likely to dine out

The demand for loanable funds is ____ sloping because ____ respond to lower interest rates by ____ their quantity demanded of loanable funds.

Upward; savers; decreasing

An open economy is an economy:

Which trades goods and services with other countries

Use Scenario 42-1. In Germany, exports to the U.S.:

Will decrease, and imports from the U.S. will increase

An expansionary fiscal policy:

Would shift AD to the right and increase the size of the government budget deficit

Use the "AD-AD Model" Figure 32-1. Suppose the economy is currently at Ye with a price level of P1. Which of the following would represent the long-run equilibrium position if the aggregate demand curve shifted right from AD1 to AD2 as a result of the increase in money supply?

Ye and P3

Which of the following assets is the MOST liquid?

a $50 bill

Which of the following qualify as an asset from the viewpoint of a household?

a house

The fact that the Federal Reserve had to cut the Fed funds rate to only 1% in the early 2000s suggested that the U.S. economy came dangerously close to:

a liquidity trap

(figure 3-1; Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter:

Involves a loss of 8 units of guns per period

A negative externality

Is a cost that individuals or firms impose on others without having to offer compensation

A survey reveals that on a small island initially 40 adults have jobs, 10 other adults are looking for jobs, and 30 are neither working nor looking for work. Suppose that 10 of the 30 people who weren't looking for work now begin looking for work. There are now 20 people looking for work and 40 people working. What happens to the unemployment rate?

It rises to 33.3%

The economist whose writings in the 1930's concluded that the cause of an economic depression is inadequate spending was:

John Maynard Keynes

When economists add the number of employed to the number of unemployed, the result is the

Labor force

If you transfer $1000 from your savings account to your checking account:

M1 increases by $1000, but M2 doesn't change

Which one of the following transactions is included in a current years GDP as investment spending?

Maggie bought a play-gym for her day-care business

Which of the following is false about the circular-flow diagram?

Money flows from households to firms as households offer factors of production for sale

Dr. Colgate is a dentist who employs an assistant, Ms. Crest. If Dr. Colgate worked all day at the front desk, she could answer 40 phone calls. If she worked all day with patients, she could clean the teeth of 40 patients. If Ms. Crest worked all day at the front desk, she could answer 60 phone calls. If she worked all day with patients, she could clean the teeth of 20 patients. Which of the following is true?

Ms. Crest has a comparative advantage in answering phones

The Fed affects interest rates by

Open market operations that shift the money supply curve

Use the "Shifts of the AD-AS Curves" Figure 19-1. In the short run, an increase in net exports is illustrated by

Panel A

Use the "Shifts of the AD-AS Curves" Figure 19-1. In the short run, a decrease in investment is illustrated by:

Panel B

Use the "Shifts of the AD-AS Curves" Figure 19-1. In the short run, a decrease in factor prices is illustrated by:

Panel C

Productivity declines when

Population growth exceeds real GDP growth

Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest rate of 5%, his real interest rate is:

Positive and less than the nominal interest rate

The amount of money you would be willing to lend today, in exchange for $1 paid to you one year from now is known as the

Present value of $1

Use the "A Money Market" Figure 28-2. The accompanying graph shows the money market. In this market, the equilibrium interest rate is:

R2

A sale of bonds by the Fed:

Raises interest rates by reducing the money supply

To measure each citizens average share of the inflation adjusted national output, we should compute

Real GDP per capita

The major tools of monetary policy available to the Federal Reserve System include:

Reserve requirements, open-market operations, and the discount rate

Technological progress:

Results in increases in total factor productivity

When the Federal Reserve engages in disinflationary policies, one likely result is:

Rising nominal interest rates and rising unemployment rates.

Use the "Money Market 1" Figure 31-1. If the money market is initially in equilibrium at point E and the central bank ___ bonds, then the interest rate will:

Sells; move toward point H

The economy of Foxystan currently produces $1000 of GDP. If the marginal propensity to consume is equal to .90, and net exports to Franklandia increase by $20, economists in Foxystan predict that aggregate demand will

Shift to the right by $200

Keynesian economics emphasizes _________ shifts in aggregate _______

Short-run; demand

(figure 3-1: Guns and Butter) Points A, B, E, and F:

Show the opportunity cost of more guns increases, but that of more butter decreases

An example of a tariff is a:

Tax of 10% of the value of each Honda automobile imported from Japan

The government budget balance equals:

Taxes - government purchases - government transfers

Fiscal policy attempts to affect the level of overall spending in the economy by changes in

Taxes and spending

Producers of strawberries have seen a rightward shift of the supply curve for strawberries. Which of the following choices likely explains this rightward shift?

Technology has improved in the harvesting of strawberries

The aggregate demand curve shows the relationship between the aggregate price level and:

The aggregate quantity of output demanded by households, businesses, the government, and the rest of the world

The Marginal propensity to consume is

The change in consumer spending divided by the change in aggregate disposable income

Bank reserves are:

The currency kept in the bank's vault plus deposits with the Federal Reserve

. The quota rent refers to:

The difference between the demand price and the supply price at the quota limit

Specialization and trade usually lead to:

The exchange of goods and services in markets

Use the "demand for loanable funds" Figure 29-2. According to the accompanying figure, if the interest rate was 6%, what would cause the quantity demanded of loanable funds to fall to the $40 billion?

The government runs a budget surplus (?)

Use the "Aggregate Supply Movements" Figure 18-1. Using the accompanying figure we can safely conclude that:

The has been an increase in the SRAS supply curve

When the economic situation is such that monetary policy can no longer be used because the nominal rate of interest cannot fall below zero, it is called:

The liquidity trap

Generally, the more liquid an asset is:

The lower its rate of return

Friedman and Schwartz's work A Monetary History of the United States 1867-1960 showed that the business cycle had historically been associated with fluctuations in:

The money supply

When the government imposes a limit on sales of a good or service by a quota, it usually issues a license that gives the owner the right to sell a given quantity of the good. The market price of the license is equal to:

The wedge that represents the difference between the demand price and the supply price

The process of bringing down inflation that has been embedded into expectations is called:

disinflation

Which of the following would accurately characterize the portion of a firm's profit paid to the owner of one share of its stock?

dividend

The balance between money that flows into a country from other countries, and money that flows out of that country to other countries is the:

balance of payments

A _____ is when people rush to a bank to withdraw all of their deposits because they feel that the bank could fail.

bank run

The discount rate is the interest rate the Fed charges on loans to:

banks

Use scenario 42-1. French exports to the United States will:

be more expensive

The belief that expansionary monetary policy is NOT at all helpful to the economy in fighting recessions is attributed to:

classical macroeconomics

when the value of an asset falls due to age, wear, or obsolescence, it is called:

depreciation

A floating exchange rate is:

determined by the market

Use the "The Loanable Funds Model in the U.S. Market" Figure 41-1. If the actual interest rate is greater than 4% in the U.S. Market, the the quantity supplied of loanable funds will be_____the quantity of loanable funds demanded

greater than

A business will want to borrow to undertake an investment project when the rate of return on that project is:

greater than the interest rate

. Suppose that the US Government imposes a quote on the number of japanese made cars allowed into the US (the quota is set at a quantity below equilibrium). Then we would expect the price of of japanese cars to ______ and the price of US made cars to ______

increase; increase

The tool of monetary policy that involves the Fed's buying and selling of government bonds is:

open-market operations

The level of output that the economy would produce if all prices, including nominal wages, were fully flexible is called:

potential output

In the importing country, the most likely effects of tariffs and/or import quotas is to _______ prices and _______ consumption of the protected (domestic) goods.

raise; raise

When measuring a nation's standard of living, of the following, the best measure is:

real GDP per capita

If money income remains the same, while the average price level doubles, then:

real income will fall

In a typical business cycle, the business cycle peak is immediately followed by the:

recession

Technological progress is advanced through:

research and development

If a country imposes a tariff on imported shoes, we expect the domestic price of the shoes to ______, domestic consumption to ______, and domestic production to_____.

rise; fall; rise

A fixed exchange rate is

set by government

When the demand for labor is falling and employers have committed to high wages, _____ unemployment will result

structural

Seigniorage is:

the government's cost of printing and coining money

. Real GDP is nominal GDP adjusted for

Changes in price

The consumer price index reflects the:

Changes in the prices of goods and services typically purchased by consumers

The theory that dominated economic thinking up to the 1930s was:

Classical economics

An increase in the demand for gasoline today caused by concerns that gasoline prices will be higher tomorrow is most likely attributable to which of the following?

Consumer expectations

Use the "Money Market I" Figure 31-1. If the money market is initially in equilibrium at point E and the central bank ____ bonds, then the interest rate will _____

Buys; move toward point L

The basic equation of national income accounting shows: GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:

C

An increase in the supply of money, with no change in demand for money, will led to _____ in the equilibrium quantity of money and ______ in the equilibrium interest rate.

an increase; a decrease

An Increase in the money supply causes ______ in output in the short run, and _____ in output in the long run.

an increase; no change

Use scenario 42-1. The euro has:

appreciated

Government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are known as:

automatic stabilizers

When a financial institution finances investments by borrowing money it is said to be using

leverage

Which of the following would NOT qualify as physical capital?

mineral deposits

All of the following are responsibilities of the Fed EXCEPT:

mint bills and coins

The following recommendation is consistent with which view of the macroeconomy? "Since the long-run growth of real GDP is 3%, the money supply should grow at 3%."?

monetarist

If a country sold more goods and services to the rest of the world than they purchased from the other countries, then the country has a:

trade surplus

. Most households derive the bulk of their income from which of the following sources?

wages

The opportunity cost of something is

what is given up to acquire it

If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full employment level of output, in the long run the aggregate price level increases by ________ and real GDP ________.

10%; returns to the potential level of output

In the Federal Reserve system, there are _____ districts

12

Use the "Consumption and Real GDP" Figure 16-1. The marginal propensity to consume in this example is:

0.5

The MPS plus the MPC must equal

1

The multiplier effect of changes in government purchases of goods and services is equal to

1/(1-MPC)

If a country had a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its unemployment rate is:

10%

Use the "AD-AS Model" Figure 32-1. Suppose the economy is currently at Ye with a price level of P3. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the left from AD2 to AD1 as a result of a decrease in the money supply?

??

Your firm wants to replace the furnace in the building with a more energy-efficient unit that has a two-year lifetime. Suppose the new furnace will cost $10,000 right now. In each year of operation, the new furnace will save the firm $5500 in energy expense. If the interest rate is 10%, the firm, _________ buy the new furnace because the net present value is ______________.

????

Suppose that consumer expectations about the future improve. How will this affect the aggregate demand curve?

Aggregate demand shifts to the right

Use the "Macroeconomic Equilibrium" Figure 19-2. In the accompanying figure, curve 1 refers to ________, curve 2 refers to _________, and curve 3 refers to _________.

Aggregate demand; long run aggregate supply; short run aggregate supply

. To be counted as unemployed, one must:

Be out of work and actively looking for a job

When the output gap is positive, the unemployment rate is:

Below the natural rate.

(figure 3-1: Guns and Butter) This production possibility curve is:

Bowed out from the origin because of increasing opportunity costs

Economic growth in a nation's economy is identified as

Economic expansion in the business cycle

If the Federal Reserve wants to increase the monetary base, the Fed might:

Engage in an open market purchase of Treasury bills

As a limit to economic growth, environmental problems are more difficult to solve than resource problems because:

Environmental problems don't automatically provide incentives for changed behavior

An increase in the price of wheat, an important ingredient in the production of bread, combined with an increase in the number of people consuming bread, will result in which of the following changes in the bread market

Equilibrium price will increase, but equilibrium quantity may decrease, increase, or stay the same

A cyclically-adjusted budget balance:

Estimates the actual budget balance if the unemployment rate was equal to zero

The rule of 70 is most useful in:

Estimating the doubling time of real GDP for a given growth rate

Resources are being used efficiently when:

Every opportunity to make people better off has been utilized

Suppose that the interest rate is zero and there is no inflation. In this case, the present value of $5 received one year from today is

Exactly $5

Suppose an economy has $200,000 of demand deposits and $40,000 of excess reserves with a 10% required reserve ratio. If the monetary authorities raise the required reserve ratio to 20%, then which of the following will likely follow?

Excess reserves will decrease by $20,000

(Figure 44-1 : Domestic Supply and Demand for SUVs) Use the "Domestic Supply and Demand for SUVs" figure. The graph represents the domestic supply and demands for SUVs. Suppose the world price equals $50,000 and there is free trade, then the United States would _______ SUVs.

Export 6 million

If the opportunity cost of manufacturing automobiles is higher in the US than in Britain and the opportunity cost of manufacturing airplanes is lower in the US than in Britain, then the US will:

Export airplanes to Britain and import automobiles from Britain

The Kansas marker for corn is considered a competitive market. This means there are _________ buyers and ________ sellers of corn in Kansas

Few; many

The simplest circular-flow model shows the interaction between households and firms. In this model:

Firms supply goods and services to households, which, in turn, supply factors of production to firms

Changing the level of government spending is an example of:

Fiscal policy

The modern tools of macroeconomic policy are:

Fiscal policy and monetary policy

Which of the following represents the best scenario for a bank lending its money to a customer?

Fixed interest rate of 8% with 1% inflation

The market in which foreign currencies are traded is known as the:

Foreign exchange market

The reserve ratio is the:

Fraction of deposits the banks hold in their vaults

If during 2007 the interest rate on 1-month Treasury bills was 2.5% and during 2008 the interest rate on 1-month Treasury bills was 2%, one could conclude that:

The opportunity cost of holding money decreased

The unemployment rate is defined as:

The percentage of the labor force that is unemployed

Politicians have an incentive to push the unemployment rate below the natural rate of unemployment right before their re-election because:

The political benefits are immediate and the economic costs are delayed

Excess supply occurs when:

The price is above the equilibrium price.

If the money supply decreases by 5%, in the long run:

The price level drops by 5%

Suppose that the supply curve for cucumbers at a Saturday farmer's market is vertical. This means that

The quantity of cucumbers supplied remains the same at any price

Currently banks are issuing personal loans at an interest rate of 9%. If expected inflation is supposed to be 3%, then:

The real interest rate is 6% and the nominal interest rate is 9%.

How people choose among the alternatives available to them is

The study of microeconomics

The monetary base is:

The sum of reserves held by the banks and currency in circulation

The labor force is defined as:

The total of the persons employed and unemployed

Which of the following is considered to be an IOU?

bond

The economy of Franklandia has invested in research and development of new technologies and production methods. In the long run, how would this be illustrated on the AS/AD model?

economic growth and a rightward shift of LRAS

In the U.S., the institution that is charged with determining the size of the monetary base and with regulating the banking system is the:

federal reserve

A system in which exchange rates are set by govt policy is a(n):

fixed exchange rate system

In the long run, wages and prices are considered to be:

flexible

Unemployment that is due to the time workers spend in job search is considered:

frictional unemployment

Amy just graduated from college. She recently quit her part time job to focus on finding a full time job which uses her skills she has acquired in college better. Amy is considered:

frictionally unemployed

Nearly all economists agree that increases in government spending can _______ aggregate _______.

increase, demand

Microeconomics deals with

individual decision makers in the economy

Roads, telephone lines, power facilities, and schools are examples of a nation's:

infrastructure

The price in the loanable funds market is:

interest rate

Which of the following schools of thought is the MOST likely to advocate the use of fiscal policy in fighting recessions?

keynesian

Disinflation means a decrease in:

the rate of inflation

The inflation tax is:

the reduction in the value of money, due to inflation, that is held by the public

According to the liquidity preference model, the equilibrium interest rate is determined by:

the supply and demand for money

A direct relationship between price and quantity is represented by:

the supply curve