ECON 2301 Macroeconomics Final Exam Study Guide

If nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a​ year, then real GDP increases by​ _______. A. 10 percent a year B. 7 percent a year C. 2.5 percent a year D. 3 percent a year

3 percent a year

If real GDP increases from​ $5 billion to​ $5.25 billion and the population increases from 2 million to 2.02​ million, real GDP per person increases by​ ______ percent. A. 4.0 B. 1.0 C. 2.5 D. 5.0

4.0

The federal​ government's major outlay in its budget is​ _______ and its major source of revenue is​ _______. A. subsidies to​ farmers; corporate taxes B. debt​ interest; sales of government bonds C. expenditure on goods and​ services; taxes on goods and services D. Social Security and other​ benefits; personal income taxes

Social Security and other​ benefits; personal income taxes

The​ Fed's operational goals include​ _______. A. an economic growth rate of 3 percent a year and an unemployment rate equal to the natural unemployment rate B. a strong U.S. dollar on foreign exchange markets and a positive output gap C. a core inflation rate of 2 percent a year and an output gap as small as possible D. maximum growth of stock prices and a low core inflation rate

a core inflation rate of 2 percent a year and an output gap as small as possible

The​ Fed's choice of monetary policy strategy is​ _______. A. setting the foreign exchange rate of the dollar B. adjusting the federal funds rate to best fulfill its dual mandate C. discretionary monetary policy D. the k​-percent rule for money growth

adjusting the federal funds rate to best fulfill its dual mandate

A tax cut increases​ _______. A. aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor B. aggregate demand but has no effect on aggregate supply C. aggregate demand because it increases consumption expenditure and decreases aggregate supply because labor productivity falls D. aggregate supply but has no effect on aggregate demand

aggregate demand because it increases disposable income and increases aggregate supply because it is an incentive to supply more labor

All of the following increase labor productivity except ​______. A. an increase in consumption B. the employment of a new technology C. the accumulation of skill and knowledge D. an increase in capital per hour of labor

an increase in consumption

An economy can achieve faster economic growth without ​______. A. an increase in the population growth rate B. incentives to encourage the research for new technologies C. markets and property rights D. people being willing to save and invest

an increase in the population growth rate

An efficiency wage results in all of the following situation except ​_______. A. a decrease in the rate of labor turnover B. greater work effort C. when work effort cannot be monitored D. an increase in the​ full-employment quantity of labor

an increase in the​ full-employment quantity of labor

Holding money provides a benefit​ _______. A. because most money is in bank deposits B. because it is a means of payment C. which is constant no matter how much money is held D. because its opportunity cost is low

because it is a means of payment

When the CPI increases from 200 in 2018 to 210 in 2019 and the nominal wage rate is constant at​ $10 an​ hour, the real wage rate​ _______. A. increases by 10 percent B. is​ $10 an hour C. increases to​ $15 an hour D. decreases by 5 percent

decreases by 5 percent

The money multiplier​ _______. A. increases if the currency drain ratio increases B. increases if banks increase their desired reserve ratio C. is 1 if the desired reserve ratio equals the currency drain ratio D. decreases if banks increase their desired reserve ratio

decreases if banks increase their desired reserve ratio

When the government lowers the income tax​ rate, _______. A. labor productivity rises and employment decreases B. both labor productivity and potential GDP increase C. employment does not change but labor productivity falls D. employment increases and potential GDP increases

employment increases and potential GDP increases

A government expenditure multiplier​ _______. A. exceeds 1 B. equals 1 C. equals the tax multiplier D. is less than the tax multiplier

exceeds 1

The​ Fed's monetary policy instrument is the​ _______. A. ​long-term interest rate B. monetary base C. inflation rate D. federal funds rate

federal funds rate

A commodity or token is money if it is​ _______. A. generally accepted as means of payment B. a store of value C. completely safe as a store of value D. used in a barter transaction

generally accepted as means of payment

The​ full-employment quantity of labor​ _______. A. increases as the economy moves along its production function B. increases if labor becomes more productive C. decreases if the income tax rate decreases D. cannot increase because everyone who wants a job has one

increases if labor becomes more productive

The natural unemployment rate​ _______. A. increases if unemployment benefits become more generous B. increases as the average age of the labor force rises C. increases in a recession D. decreases as firms outsource manufacturing jobs

increases if unemployment benefits become more generous

Job rationing​ _______. A. increases labor turnover as firms compete for high quality labor B. increases the natural unemployment rate C. has no effect on the natural unemployment rate D. decreases the demand for​ labor, which lowers the real wage rate

increases the natural unemployment rate

The increase in real GDP per hour of labor that results from an increase in capital per hour of labor​ ______. A. is smaller at a small quantity of capital than at a large quantity of capital B. is constant and independent of the quantity of capital C. decreases as technology advances D. is larger at a small quantity of capital than at a large quantity of capital

is larger at a small quantity of capital than at a large quantity of capital

Commercial​ banks' assets include​ _______. A. government securities and borrowed funds B. bank deposits of individuals and businesses and bank reserves C. bank reserves and the deposits in M2 D. loans to individuals and businesses and government securities

loans to individuals and businesses and government securities

The​ Fed's "dual​ mandate" is to achieve​ _______. A. a government budget surplus and low interest rates B. zero unemployment and a stable means of payment C. a stable quantity of money and stable prices D. low inflation and maximum employment

low inflation and maximum employment

Discretionary fiscal policy to stimulate the economy includes​ _______. A. raising the tax on gasoline B. the rise in tax revenue collected from businesses as their profits increase C. lowering the tax rate paid by households with middle incomes D. the fall in tax revenue as the economy goes into recession

lowering the tax rate paid by households with middle incomes

The classical growth theory is that real GDP per person​ ______. A. only temporarily rises and then returns to the subsistence level B. grows forever C. is constant and does not change D. increases as the population grows

only temporarily rises and then returns to the subsistence level

Automatic fiscal policy​ _______. A. is weak unless the government cuts its outlays to reduce the deficit B. operates as the economy moves along its business cycle C. requires an action of the government D. reduces the deficit as the economy goes into recession

operates as the economy moves along its business cycle

A commercial bank creates money when it does all the following except ​_______. A. creates deposits B. makes loans C. decreases its excess reserves D. puts cash in its ATMs

puts cash in its ATMs

The Fed fights inflation by​ _______. A. decreasing the monetary​ base, which raises the interest rate and increases saving B. lowering the federal funds​ rate, which lowers interest rates and decreases aggregate demand C. lowering the​ long-term real interest​ rate, which increases investment and spurs economic growth D. raising the federal funds​ rate, which raises interest rates and decreases aggregate demand

raising the federal funds​ rate, which raises interest rates and decreases aggregate demand

When the price level​ _______ the inflation rate​ _______. A. rises​ rapidly; increases B. rises​ rapidly; is high C. rises​ slowly; falls D. ​falls; is zero

rises​ rapidly; is high

To fight unemployment and close a recessionary​ gap, the Fed​ _______. A. stimulates aggregate supply by lowering the federal funds​ rate, which increases potential GDP B. increases bank​ reserves, which banks use to make new loans to​ businesses, which increases aggregate supply C. increases​ employment, which increases real GDP D. stimulates aggregate demand by lowering the federal funds​ rate, which increases the quantity of money

stimulates aggregate demand by lowering the federal funds​ rate, which increases the quantity of money

The​ Fed's policy tools include all the following except ​_______. A. discount rate B. required reserve ratio and open market operations C. quantitative easing D. taxing​ banks' deposits at the Fed

taxing​ banks' deposits at the Fed

Money in the United States today includes​ _______. A. currency in ATMs and​ people's bank deposits B. the​ banks' reserves and bank deposits owned by individuals and businesses C. currency and deposits at both banks and the Fed D. the currency in​ people's wallets,​ stores' tills, and the bank deposits that people and businesses own

the currency in​ people's wallets,​ stores' tills, and the bank deposits that people and businesses own

The CPI bias arises from all of the following items except ​_______. A. the goods and services bought by poor people B. ​consumers' responses to price changes C. the improved quality of goods D. the introduction of new goods and services

the goods and services bought by poor people

Households' labor supply decisions are influenced by all of the following except ​_______. A. the opportunity cost of taking leisure and not working B. unemployment benefits C. the​ after-tax wage rate D. the number of​ full-time jobs available

the number of​ full-time jobs available

In new growth​ theory, the source of economic growth is​ ______. A. more leisure B. the persistent want for a higher standard of living C. new and better jobs D. an ever increasing growth rate of capital per hour of labor

the persistent want for a higher standard of living

The BLS reported that the CPI in July 2018 was 252. This news tells you that​ _______. A. the prices of consumption goods and services have​ risen, on​ average, by 152 percent since the base year B. the CPI inflation rate in July was 52 percent a year C. consumer prices rose by 52 percent during the month of July D. consumer prices during July were 252 percent higher than they were during the base year

the prices of consumption goods and services have​ risen, on​ average, by 152 percent since the base year

The CPI measures the average prices paid by​ _______ for​ _______. A. urban​ consumers; the average basket of goods and services they buy B. everyone who earns an​ income; the necessities of life C. all​ consumers; housing,​ transportation, and food D. urban​ consumers; a fixed basket of consumption goods and services

urban​ consumers; a fixed basket of consumption goods and services

The BLS counts Jody as being unemployed if she​ _______. A. wants a job and looked for a job last year but has now stopped looking B. had a job last month but not this month C. ​doesn't have a job because the U.S. factory where she worked cannot compete with cheap Chinese imports D. wants a job and is willing to take a job but after searching last week cannot find a job

wants a job and is willing to take a job but after searching last week cannot find a job

U.S. potential GDP is the value of the goods and services produced in the United States​ _______. A. in the reference base year B. when the U.S. unemployment rate is zero C. when the U.S. inflation rate is zero D. when the U.S. economy is at full employment

when the U.S. economy is at full employment

If the population growth rate is 2​ percent, real GDP per person will double in 7 years if real GDP grows by​ ______ percent per year. A. 10 B. 7 C. 14 D. 12

12

When the price level is rising at​ _______ and the real interest rate is 1 percent a​ year, the nominal interest rate is 3 percent a year. A. 2 percent a year B. 1 percent a year C. 3 percent a year D. 4 percent a year

2 percent a year

Rick withdraws​ $500 from his savings​ account, keeps​ $100 as​ currency, and deposits​ $400 in his checking account. A. M1 increases by​ $400 and M2 decreases by​ $500. B. M1 does not​ change, but M2 decreases by​ $500. C. M1 increases by​ $500 and M2 does not change. D. M1 does not​ change, but M2 decreases by​ $400.

M1 increases by​ $500 and M2 does not change.

The demand for labor curve shows the relationship between​ _______. A. the labor force and the real wage rate B. the quantity of labor businesses are willing to hire and the real wage rate C. all​ households' willingness to work and the real wage rate D. the quantity of labor employed and​ firms' profits

the quantity of labor businesses are willing to hire and the real wage rate

The supply of labor is the relationship between​ _______. A. the labor force participation rate and the real wage rate B. the quantity of labor supplied and leisure time forgone C. the real wage rate and the quantity of labor supplied D. ​firms' willingness to supply jobs and the real wage rate

the real wage rate and the quantity of labor supplied

Of the alternative measures of the price​ level, _______ overcomes the bias of the CPI and is a better measure of the cost of living because it​ _______. A. PCEPI excluding food and​ energy; is less volatile B. ​PCEPI; uses a current basket of all consumption goods C. GDP price​ index; includes all goods and services bought by Americans D. GDP price​ index; uses a current basket

​PCEPI; uses a current basket of all consumption goods

Needs-tested spending is​ _______ fiscal policy because it​ _______. A. ​discretionary; is determined by economic hardship B. ​discretionary; increases when tax revenue increases C. ​automatic; increases in recession and decreases in expansion D. ​automatic; increases when the​ government's budget deficit falls

​automatic; increases in recession and decreases in expansion

A marginally attached worker is a person who​ _______. A. works part time for economic reasons B. works part time for noneconomic reasons C. has no job but would like one and has gone back to school to retrain D. ​doesn't work, is available and willing to​ work, but​ hasn't looked for a job recently

​doesn't work, is available and willing to​ work, but​ hasn't looked for a job recently

U.S. national debt​ _______ when the federal​ government's _______. A. ​decreases; tax revenue rises faster than outlays B. ​increases; tax revenue rises faster than outlays C. ​decreases; outlays exceed tax revenue D. ​increases; outlays exceed tax revenue

​increases; outlays exceed tax revenue

The increase in real GDP per hour of labor that results from an advance in technology makes labor​ ______ productive​ ______. A. ​more; at all quantities of capital B. ​more; and capital less productive C. ​less; and capital more productive D. ​more; only at a large quantity of capital

​more; at all quantities of capital

An open market​ _______ of​ $100 million of securities​ _______. A. ​purchase; increases bank reserves B. ​sale; increases bank reserves C. ​purchase; decreases the​ Fed's liabilities D. ​sale; increases the​ Fed's liabilities

​purchase; increases bank reserves

A monetary policy rule is​ _______ to discretionary monetary policy because​ _______. A. ​superior; a rule keeps inflation expectations anchored B. ​inferior; a rule makes it harder for people to forecast the inflation rate C. ​equivalent; the Fed uses its discretion to set the rule D. ​superior; discretion limits what the Fed can do in a financial crisis

​superior; a rule keeps inflation expectations anchored