ECO 2305 Final

Refer to the figure below. (Figure) In the figure, which interval represents a business cycle expansion?

A to B

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A)July 1953 1992.2 (B)May 1954 1941.0 (C)Apr. 1957 2182.7 (D)Apr. 1958 2117.4 (E)Apr. 1960 2391.0

July 1953 to May 1954.

Which of the following statements is normative?

Large budget deficits should be avoided.

The M2 measure of money consists of the sum of:

M1, savings deposits, small time deposits, and money market mutual funds.

_____ policy focuses on the nation's money supply, while _____ policy aims at changing the underlying structures or institutions of the economy.

Monetary; structural

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

National Bureau of Economic Research

Suppose that the total production of an economy consists of 10 oranges and 5 candy bars, each orange sells for $0.20, and each candy bar sells for $1.00. Which expression of the output of this economy is most consistent with the concept of GDP?

This economy produces $7.00 worth of food.

Which of the following would not be studied in microeconomics?

Whether the federal budget should be balanced.

All of the following are considered money in the United States EXCEPT:

credit cards.

Each person who is 16 years or older is considered to be in one of the following categories:

employed, unemployed, or out of the labor force.

Short-run equilibrium output is where the level of output:

equals aggregate expenditure.

Money market mutual funds are ______ the M1 measure of money and ______ the M2 measure of money.

excluded from; included in

Savings deposits are ______ the M1 measure of money and ______ the M2 measure of money.

excluded from; included in

Economic activity moves from a trough into a period of ______ until it reaches a ______ and then into a period of _______.

expansion; peak; recession

The marginal benefit of an activity is the:

extra benefit associated with an extra unit of the activity.

People who enjoy high standards of living usually have all of the following EXCEPT:

freedom from scarcity.

If tax revenues equal 20 percent of total output and government expenditures equal 25 percent of total output, then there is a:

government budget deficit.

When government revenue is less than government spending, the nation has a:

government budget deficit.

A government is running a budget surplus if

government revenue exceeds government spending

In a recession, cyclical unemployment:

is rising.

The Cost-Benefit Principle indicates that an action should be taken if, and only if:

its benefits exceed its costs.

Average labor productivity equals:

output per employed worker.

An implication of scarcity is that:

people must make trade-offs.

An expansion occurs when ______, when _______, or when both of these occur.

potential output grows rapidly; actual output rises above potential output.

Positive economic principles are those that:

predict how people will behave.

In the United States since 1929, the duration of recessions on average has been:

shorter than the duration of expansions.

The degree to which people have access to goods and services that make their lives easier, healthier,

standard of living.

According to the Cost-Benefit Principle, you should spend an additional hour studying for an exam if, and only if,:

the benefits of studying for an additional hour exceed the costs of studying for an additional hour.

Microeconomics differs from macroeconomics in that microeconomics focuses on:

the choices made by individuals the implications of those choices.

Monetary policy refers to:

the determination of the nation's money supply.

Commercial banks create new money:

through multiple rounds of lending.

Assume an economy produces only hamburgers and hotdogs and the base year is 2005. Hamburgers 2,000 3,000 2 $3 Hotdogs 3,000 4,0001 $1.50 Given the data in the table above, what is the value of real GDP in 2006?

$10,000

The CPI equals 1.00 in year one and 1.15 in year two. If the nominal wage is $15 in year one and a contract calls for the wage to be indexed to the CPI, what will be the nominal wage in year two?

$17.25

There is $5,000,000 of currency in Econland, all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.25, then the money supply equals:

$20,000,000

In 2015, Pete Rich purchases a 1642 painting by Rembrandt for $20 million. He also pays a one percent commission to the auction house that sold the painting. What is the contribution of these transactions to GDP in the year 2015?

$200,000

Bob's Barber Shop cut 3,000 heads of hair in 2014 and 3,100 in 2015. The price of a haircut was $7 in 2014 and $8 in 2015. If 2014 is the base year, what was Bob's contribution to real GDP in 2014?

$21,000

Refer to the figure below. (Figure) In the figure, a business cycle peak is shown by which point(s)?

B and D

Refer to the figure below. (Figure) In the figure, which interval represents a business cycle recession?

B to C

Which of the following is the best example of money used as a medium of exchange?

In a prisoner of war camp cigarettes are traded for socks, candy and/or food, even by nonsmokers.

The fraction of people who would like to be employed, but can't find work is called the:

Participation rate

Decisions to cut taxes are made by _____ and are an example of _____ policy.

Congress; fiscal

The increase in the unemployment rate during a recession is associated with which type of unemployment?

Cyclical unemployment

In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.

buys; increases

A banking panic is an episode in which:

depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.

Liabilities of the commercial banking system include:

deposits

Spending on new capital goods, new homes, and the addition of unsold goods to company inventories is included in:

investment spending.

Short-term economic fluctuations are ______ in length and severity and ______ to predict.

irregular; difficult

Workers in durable-goods industries are ______ workers in service industries to lose their jobs during a recession.

more likely than

During recessions, the change in real GDP is:

most often negative, but occasionally positive.

The central bank of the United States is called:

the Federal Reserve System

In the United States decisions to increase interest rates are made by the _____ and decisions to increase taxes are made by ____

the Federal Reserve; Congress

An economy produces only 1,000,000 computers valued at $2,000 each. Of these, 200,000 are sold to consumers, 300,000 are sold to businesses, 300,000 are sold to the government, and 100,000 are sold abroad. No computers are imported. At the end of the year, the computer manufacturers hold the unsold computers in inventory. What is the value of the investment component of GDP?

$0.8 billion

The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. The total cost of a 2.5GHz computer is:

$1,000.

The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. The total benefit of a 3.0GHz computer is:

$1,700.

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: Citrus Growers Inc. $0.75 0 Florida Jam Company $2.00 $.75 The Corner Store $2.50 $2.00 What is the value added of Florida Jam Company

$1.25

Based on the following information, compute the value of the M2 measure of the money supply. M1 530 Money market mutual funds 800 Savings deposits 1,800 Demand deposits 200 Small denomination time deposits 1,100

$4,230 billion

If the desired reserve/deposit ratio is 0.25 and the banking system receives an additional $10 million in reserves, bank deposits will increase by:

$40 million.

The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. CPUGHzTotal BenefitMarginal BenefitTotal CostsMarginal Costs 2.0$1,000 $900 2.5$1,400 $100 3.0 $300$1,200 3.5$1,900 &1,500 4.0$2,000 $400ds The marginal benefit of upgrading from a 2.0GHz computer to a 2.5GHz computer is:

$400.

Based on the following information, the value of the M1 measure of the money supply is ______ and the value of the M2 measure of the money supply is ______. Assets Billions of Dollars Currency 20 Demand deposits 300 Money market mutual funds 800 Travelers' checks 10 Savings deposits 1800 Other checkable deposits 200 Small denomination time deposits 1,100

$530 billion; $4,230 billion

If a pizza maker pays $1 for tomatoes, $1 for cheese, $2 for sausage, and sells the pizza made with these ingredients for $7, then each pizza sold contributes how much to GDP?

$7

If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.

$9,000; $10,000

Based on the information in the table, what is the unemployment rate? Population 16 and older 1,000,000 Participation Rate 80% Employed Workers 720,000

10.0%

The following table provides data for an economy in a certain year. Consumption expenditures 50 Imports 40 Government purchases of goods and services 20 Construction of new homes and apartments 30 Sales of existing homes and apartments 40 Exports 50 Government payments to retirees 10 Household purchases of durable goods 20 Begining-of-year inventory 10 End-of-year inventory 20 Business fixed investment 30 Given the data in the table, compute the value of GDP.

150

The longest and most severe recession in the United States since 1925 began in:

1929.

If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

2 percent.

Based on the information in the table, how many people are out of the labor force?

200,000

Refer to the table below. According to the Cost-Benefit Principle, how many units of this activity should be carried out?

3

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

5%.

Which of the following is most likely to occur in the labor market during a recession?

The growth rate of real wages declines.

A boom is:

a particularly strong and protracted expansion.

An expansion is:

a period in which the economy is growing at a rate significantly above normal.

The Cost-Benefit Principle is:

a positive economic principle.

If actual output equals potential output, unusually slow potential output growth would tend to result in:

a recession.

When the price of a pizza is quoted in dollars, this is an example of dollars serving as:

a unit of account.

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

Money is:

any asset used to make purchases.

The components of M2 that are not also in M1:

are usable for making payments, but at a greater cost or inconvenience than currency or checks.

The CPI is a measure of the

average level of prices relative to prices in the base year.

Cash and similar assets held to meet depositor withdrawals or payments are called:

bank reserves.

The direct trade of goods and services for other goods and services is called:

barter

Real GDP is measured in ______ prices; nominal GDP is measured in ______ prices.

base-year; current

The labor force equals the number of people:

both employed and unemployed

The two main responsibilities of the Federal Reserve System are to ______ and to ______.

conduct monetary policy; oversee financial markets

Economics is the study of:

choice in the face of limited resources.

Fiscal policy refers to:

decisions to determine the government's budget.

A fiscal policy action to close an expansionary gap is to:

decrease government purchases.

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

decrease.

If average labor productivity decreases while population and the number of employed workers remain constant, then total output:

decreases

A fiscal policy action to close a recessionary gap is to:

increase government purchases.

A fiscal policy action to close an expansionary gap is to:

increase taxes.

If business inventories equal $40 billion at the beginning of the year and $55 billion at the end of the year, then, assuming no other changes, GDP must have:

increased by $15 billion.

If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living:

increased by 14 percent.

If living standards in a country, as measured by output per person, increase, then total output must have:

increased more rapidly than population increased.

Capital goods are

long-lived goods used for producing other goods and services.

The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity.

marginal benefit

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

marginal cost

The real wage is the wage:

measured in terms of purchasing power.

Double coincidence of wants is avoided if money is used as a:

medium of exchange.

The study of individual choice and its implications for the behavior of prices and quantities in individual markets is:

microeconomics.

The Federal Open Market Committee makes decisions about ______ policy.

monetary

Which of the expenditure components of GDP can be negative?

net exports.

Economic analysis is useful is resolving all of the following types of issues EXCEPT:

normative

An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:

normative economics.

One thing that distinguishes normative economic principles from positive economic principles is that:

normative principles tell us how people should behave, and positive principles tell us how people will behave.

The Federal Reserve should raise interest rates in order to keep inflation at an acceptably low level" is a _______ statement about _______ policy

normative; monetary

Three equivalent ways to measure GDP are total _____, total _____, and total ______.

production; income; expenditure

Capital income includes:

profits, rent, and interest.

Comparisons of economic activity over time should be made using:

real GDP.

A period in which the economy is growing at a rate significantly below normal is called a(n):

recession.

If the unemployment rate increases from 4 percent to 10 percent, then the economy is mostly likely in a(n):

recession.

If potential output for an economy equals $8 billion, and actual output equals $7 billion, then this economy has a(n):

recessionary gap.

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ______ gap that can be closed by _________.

recessionary; increasing government purchases

The opportunity cost of an activity includes the value of:

the next-best alternative that must be foregone.

If Country A and Country B have the same population size, then the standard of living in these two

the relative sizes of total output

The natural unemployment rate is equivalent to all of the following EXCEPT the unemployment rate when:

the unemployment rate is zero.

If the output gap equals -200 billion, then:

there is a recessionary gap.

The cyclical unemployment rate is positive when

there is a recessionary gap.

Economists recognize that because people have limited resources:

they have to make trade-offs.

A firm's revenue from selling its product minus the cost of inputs purchased from other firms is called:

value added.

Labor income includes:

wages, salaries, and earnings of the self-employed.

The Great Depression:

was a period of low production and high unemployment.

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus.

wash clothes; bigger

Refer to the table below. The marginal benefit of the 5th unit of activity is:

$10

The country of Northland produced $1,000 billion of output in one year. The population of Northland was 50 million, of whom 30 million were employed. What was average labor productivity in Northland?

$33,333

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. (A)July 1953 1992.2 (B)May 1954 1941.0 (C)Apr. 1957 2182.7 (D)Apr. 1958 2117.4 (E)Apr. 1960 2391.0 Which of the turning points are peaks?

(A), (C), and (E)

If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals:

-1 percent.

The money supply is 1,500 of which 500 is currency held by the public. Bank reserves are 200. The existing reserve/deposit ratio equals:

0.20 ((500 - 200)/1500)

If the natural rate of unemployment equals 5 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals:

1 percent.

Suppose that the total expenditures for a typical household in 2010 equaled $5,500 per month, while the cost of purchasing exactly the same items in 2015 was $6,875. If 2010 is the base year, the CPI for the year 2015 equals:

1.25

The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. Application of the Cost-Benefit Principle would lead one to purchase a ______ computer.

3.0GHz

A consumer expenditure survey reports the following information on entertainment spending: 2008 PQ 2009 PQ Movies $7 5 $8 7 Concerts $30 2 $35 2 CDs $16 7 $15 10 Using 2008 as the base year, by how much does a "cost of entertainment" index increase between 2008 and 2009?

3.9 percent

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: Fulton Family Farm $0.50 0 DeLux Popcorn Co. $2.50 $.50 Friendly Groceries $4.00 $2.50 What is the sum of the value added of all of the firms?

4

The CPI in year one equaled 1.45. The CPI in year two equaled 1.51. The rate of inflation between years one and two was ______ percent.

4.1

If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ______.

5

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:

5

In a country with 200 million people aged 16 years and older, 120 million are in the labor force, and 114 million are employed, what is the participation rate?

60 percent

The following table provides data for an economy in a certain year. Consumption expenditures 1,000 Imports 600 Government purchases of goods and services 700 Construction of new homes and apartments 500 Sales of existing homes and apartments 600 Exports 500 Government payments to retirees 200 Household purchases of durable goods 300 Begining-of-year inventory 500 End-of-year inventory 600 Business fixed investment 300 Given the data in the table, compute the investment component of GDP. Given the data in the table, how much did households spend on nondurables and services?

700

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.25, the deposits are ______ and the money supply is _____.

800; 1,200

Given the following data for the economy, compute the value of GDP. Government purchases of goods and services 10 Consumption Expenditures 70 Exports 5 Imports 12 Change in inventories -7 Construction of new homes and apartments 15 Sales of existing homes and apartments 22 Government payments to retirees 17 Business fixed investment 9

90

The following table provides data for an economy in a certain year. Consumption expenditures 1,000 Imports 600 Government purchases of goods and services 700 Construction of new homes and apartments 500 Sales of existing homes and apartments 600 Exports 500 Government payments to retirees 200 Household purchases of durable goods 300 Begining-of-year inventory 500 End-of-year inventory 600 Business fixed investment 300 Given the data in the table, compute the investment component of GDP.

900

Which of the following does not describe a characteristic of short-term economic fluctuations?

Expansions and recessions are felt in only a few sectors of the economy.

Which of the following transactions would be included in the GDP of the United States?

Honda produces cars in Ohio.

Which of the following would not be studied in macroeconomics?

How a sharp increase in gasoline prices is likely to affect SUV sales.

Major macroeconomic questions include all of the following EXCEPT:

What causes differences in wages between men and women?

Which of the following would increase the consumption component of U.S. GDP?

You purchase a vacation at Disney World in Florida.

The value of intermediate goods is excluded from the measurement of GDP in order to:

avoid double counting.

The process of steady increase in the quantity and quality of goods and services the economy can produce is called:

economic growth.

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

economic surplus; $3,000

If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ______ gap that can be closed by _________.

expansionary; decreasing government purchases

The market value of final goods and services produced within a country during a period of time is called:

gross domestic product.

The most commonly used measure of an economy's output is:

gross domestic product.

ALL of the following describe economic conditions during the Great Depression in the United States EXCEPT

high rates of inflation.

The four categories of final users of GDP are:

households, firms, governments, and the foreign sector.

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

If average labor productivity increases while population and the number of employed workers remain constant, then total output:

increases

When the central bank buys $1,000,000 worth of government bonds from the public, the money supply:

increases by more than $1,000,000.

If total output increases from $100 billion to $200 billion as population increases from 100 million to 150 million, then output per person:

increases, but by less than 100 percent.

Automatic stabilizers are provisions in the law which create automatic ______ in government spending or ______ in taxes when real output declines.

increases; decreases

The difference between the economy's potential output and its actual output relative to its potential output at a point in time is called the:

output gap.

Economic activity moves from a period of expansion to a ______ and then moves into a period of ______ until it reaches a _____.

peak, recession; trough

The unemployment rate is the:

percentage of the labor force that is out of work.

"U.S. exports will increase as a result of joined CAFTA," is an example of a ______ statement, while "The U.S. should join CAFTA," is an example of a _____ statement.

positive; normative

The three functions of money are:

serving as a medium of exchange, unit of account, and store of value.

When the actual reserve/deposit ratio is less than the desired reserve/deposit ratio banks:

stop making loans.

The natural rate of unemployment is equal to the unemployment rate when there is only:

structural and frictional unemployment.

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

the costs will be understated.

The economic surplus of an action is:

the difference between the benefit and the cost of taking an action.

In reference to short-term economic fluctuations, the "peak" refers to:

the high point of economic activity prior to a downturn.

Banks hold reserves:

to meet depositor withdrawals and payments.

Which of the following correctly ranks the amounts from largest to smallest?

total output, output per person, average labor productivity

The end of a recession is called the:

trough.

A person 16 years or older who does not work, but is actively looking for work, is officially classified as:

unemployed.

Intermediate goods and services are ______ production and ______ counted in GDP.

used up in the process of; are not