Econ Final 123

Major macroeconomic questions include all of following EXCEPT:

What causes differences in wages between men and women?

What might cause a demand curve to shift to the right?

An increase in the price of a substitute

Which of the following would NOT be studied by macroeconomists?

The effects of tax cuts on consumer spending

Economic activity moves from a trough into a period of __________ until it reaches a ___________ and then into a period of __________.

expansion; peak; recession

If potential output equals $8 billion and actual output equals $9 billion, then this economy has a(n):

expansionary gap

In a fractional- reserve banking system the reserve/ deposit ratio equals:

less than 100 percent

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

1 percent

TABLE- John's benefit from his first hour cleaning windows is:

$14

The CPI equals 1.00 in year one and 1.15 in year two. If 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

TABLE- Based on the following information, compute the value of the M2 measure of the money supply

$4230 billion

TABLE- What is John's opportunity cost of cleaning windows for an hour?

$7

The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was _________ percent.

-11.8

The CPI in 1931 equaled 0.15. The CPI in 1932 equaled 0.14. The rate of inflation between 1931 and 1932 was __________ percent

-6.7

If the absolute value of slope the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is

0.3

Suppose that the total expenditures for a typical household in 2010 equaled $2500 per month, while the cost of purchasing exactly the same items in 2015 was $3000. If 2010 is the base year, the CPI for 2010 equals

1.00

Suppose that the total expenditures for a typical household in 2010 equaled $5500 per month, while the cost of purchasing exactly the same items in 2015 was $6875. If 2010 is the base year, the CPI for 2015 equals

1.25

TABLE- How many hours a day should John spend cleaning windows?

2

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

3

TABLE- The following table shows the relationship between the speed of a computer's CPU and it benefits and costs. Assume that all other features of the computer are the same, and only the CPU speeds listed below are available for purchase. Application of the Cost-Benefit Principle would lead one to purchase a ________ com[uter.

3.0 GHz

In a country with 200 millions 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

Which of the following is NOT true of a perfectly competitive firm

It seeks to maximize revenue

Normative analysis:

addresses the question of whether a policy should be used

When the production process extends over more than one year, the value of the final product is:

allocated to GDP in each year according to the value added in that year

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:

at least $1.75 but less than $2

Two groups of workers not counted as unemployed in the official unemployment statistics are ______ workers.

discouraged and involuntary part-time

Suppose the value of the CPI is 1,100 in year one, 1210 in year two, and 1331 in year three. Assume also that the price of computers increases by 3% between year one and year two, and by another 3% between year two and year three. The price level is increasing, the inflation rate is_____________, and the relative price of computers is ____________.

constant; decreasing

The largest expenditure component of U.S GDP is

consumption

The four components of aggregate expenditure are:

consumption, investment, government purchases, and net exports

The four components of aggregate expenditures are

consumption, investment, government spending, and net exports

Government policies intended to decrease aggregate spending and output are called __________ policies

contractionary

If two products are substitutes, then the:

cross-price elasticity of demand between them will be positive.

If the cross-price elasticity of demand between lettuce and salad dressing is negative, then when the price of lettuce rise, the demand for salad dressing will ___________

decrease

Higher nominal rates__________ the amount of money demanded and a higher price level ___________ the amount of money demanded.

decrease; increases

The __________ is the interest rate commercial banks pay to the Fed; the ___________ is the interest rate commercial banks charge each other for short-term loans.

discount rate; federal funds rate

If the nominal interest rate is below the equilibrium value, then the quantity demanded of money is __________ than the quantity supplied of money, bond prices will__________, and the nominal interest rate will ____________.

greater; fall; increase

All else equal, the price elasticity of demand for a good tends to be lower:

if the good has few close substitutes

A fiscal policy action to close a recessionary gap is to

increase transfer payments

Suppose the CPI does indeed overstate the inflation rate. When the CPI increases by 5 percent and household incomes increase by 5 percent, we should conclude that real incomes of households have

increased

A higher real interest rate _________ saving and ___________ consumption spending

increases; decreases

To ensure that your salary maintains its real purchasing power from year to year, your nominal salary must be:

indexed

If demand is ______ with respect to price, a price increase will ______ total revenue.

inelastic; increase

A change in the average price level is called _____, while a change in the price of a specific good in comparison with other goods and services is called _______.

inflation; a change in a relative price

You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is -0.7. You should conclude that generic shampoo:

is an inferior good

If prices in the current year are higher on average than in the base year, real GDP in the current year ______ nominal GDP in the current year.

is less than

The Cost-Benefit Principle predicts that a person:

is more likely to take an action if its benefit increases.

All else equal, the price elasticity of demand for small-budget items such as soap tends to be _________- than the price elasticity of demand for big-ticket items such as flat-screen TVs.

lower

In general, perfectly competitive firms maximize their profit by producing the level of output at which:

marginal cost equals price

If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.

purchase; increases

If the demand for electricity is inelastic, then if the local electric company wants to increase it total revenue, it should __________ its price.

raise

If short-run output equal 20,000 and potential output (Y') equal 25,000, then this economy has a(n)________ gap that can be closed by_____________.

recessionary; increasing government purchases

The Federal Reserve can increase the money supply by:

reducing reserve requirements

Efficiency occurs if the

socially optimal quantity of goods and services

If the actual reserve/deposit ratio equals 8% and the desired reserve/deposit ratio for this bank is 10%, the bank should

stop making loans

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

A CPI that equal 1.34 in 2008 (when 2000 is the base year) means that:

the average level of prices is 34 percent higher in 2008 than in the base year

Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:

the cross-price elasticity between plane tickets and train tickets is positive

TABLE- In response to a news story explaining that coffee causes heart disease, you should expect

the demand curve to shift to D(A) because some people will stop drinking coffee

TABLE- In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect:

the demand curve to shift to D(B) in anticipation of higher future prices

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall

You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:

the income effect of a price change

Macroeconomics differs from microeconomics in that macroeconomics focuses on:

the performance of national economies and ways to improve that performance

A trade imbalance occurs when:

the quantity of a country's exports differs significantly from the quantity of imports.

TABLE- Refer to the figure below. If the current market price were $20

there would be an excess demand of 25 units.

Commercial banks create new money:

through multiple rounds of lending

TABLE- Given the data in the table, compute the government purchases component of GDP

700

TABLE- When the price of a doughnut is 50 cents, what is the market demand for doughnuts

9 doughnuts

TABLE- Give the following data for the economy, compute the value of GDP

90

Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:

Eventually prices will equalize across all three lemonade stands

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

conduct monetary policy; oversee financial markets

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400

The most important challenge facing a firm in a perfectly competitive market is deciding

how much to produce

An open-market purchase of government securities by the Fed will:

increase bank reserves, and the money supply will increase

All else equal, a decrease in the demand for oranges will lead to a(n) ________ in equilibrium price and a(n) ________ in equilibrium quantity.

increase; decrease

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

increased more rapidly than population increased

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

increased more slowly than population increased

A trade surplus occurs when:

exports exceed imports

TABLE- Refer to the figure below. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, the the equilibrium price will_________ and the equilibrium quantity will___________.

fall ; rise

After the price of Revlon nail polish increased, Jen stopped buying Revlon nail polish and started buying a cheaper brand of nail polish instead. This is called:

the substitution effect of a price change

As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:

the substitution effect of a price change

TABLE- If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2016?

$0.50

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was:

$10

If the desired reserve/deposit ratio equals 0.10, then every dollar of currency in bank reserves supports ______ of deposits and the money supply, while every dollar of currency held by the public contributes ______ to the money supply.

$10; $1

TABLE- What's the average benefit of 4 car washes per month?

$14

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

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the buyer's surplus from this transaction was:

$20

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

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 2015?

$21,000

You won a free ticket to see the latest Star Trek movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Trek movie on Friday?

$35

If he 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

TABLE-The marginal benefit of upgrading from a 2.0 GHz computer to a 2.5 Ghz computer is

$400

In 2015, Janice Quinn sells a fiver-year-old car to Used Car, Inc. for $6,000. In the same year, Used Car, Inc resells the car to Hilda Goner for $6,500. What is the contribution of these transactions to GDP in the year 2015?

$500

TABLE- When the pizzeria makes 100 pizzas a day, its fixed cost is _________ and its total cost is _________

$500; $1350

TABLE- 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 ___________.

$530 billion; $4230 billion

TABLE- Refer to the figure below. The equilibrium price is _______, and the equilibrium quantity is ____________

$6 ; 4

Suppose that the total production of an economy consists of 4 oranges and 10 candy bars, each orange sells for $0.25, and each candy bar sells for $0.50. What is the market value of production in this economy?

$6.00

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.20, the deposits are __________ and the money supply is __________.

1,000; 1,400

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

60 percent

In which of the following situations would GDP not change?

As domestic consumers buy fewer tobacoo products, tabacoo manufacturers instead sell their products, at the same price, to foreign buyers

Suppose Bianca buys a used a textbook from Sebastian for $55. If Bianca's surplus from this transaction was $10, we can infer that:

Bianca's reservation price was $65

For which of the following products is demand likely to be least elastic with respect to price

Food

Which of following would not be studied in macroeconomics

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

Aggregation means the:

The adding up of individual economic variables to obtain economy-wide totals

You want to buy a TV that regularly costs $250. You can either buy the TV from a nearby store or from a store that's downtown. Relative to going to the nearby store, driving downtown involves additional time and gas. The downtown store, however, has a 10% off sale this week. Last week you drove downtown to save $20 on some concert tickets, a 15% savings. Should you drive downtown to buy the TV?

Yes, because you will save more than $20

After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the:

actual reserve/deposit ratio is equal to the desired reserve/deposit ratio

In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of:

deflation

A demand curve is _________ sloping because_________

downward; fewer people are willing to buy an item at higher prices

If a firm shuts down in the short run, then its:

economic loss will equal its fixed costs.

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

excess demand will lead the price of oranges to rise

Two methods used to adjust nominal values for inflation are:

indexing and deflating

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic

A college graduate in 1972 found a job paying $7200. The CPI was 0.418 in 1972. A college graduate in 2005 found a job paying $30000. The CPI was 1.68 in 2005. The 1972 graduate's job paid________ in nominal terms and ___________ in real terms than the 2005 graduate's job>

less; less

A college graduate in 1972 found a job paying $7200. The CPI was 0.418 in 1972. A college graduate in 2005 found a job paying $28000. The CPI was 1.68 in 2005. The 1972 graduate's job paid________ in nominal terms and ___________ in real terms than the 2005 graduate's job>

less; more

TABLE- If the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then at his profit-maximizing level of output, Chris will earn a _______ of ____________ per day

loss ; $2

If supply increase and demand decreases, the new equilibrium price will be _________ and the new equilibrium quantity will be

lower ; uncertain

A firm that produces a good with many substitutes will most likely find that:

lowering its price will increase total revenue

If the actual reserve/deposit ratio equals 15% and the desired reserve/deposit ratio for this bank is 10%, the ban should:

make more loans in order to earn interest

The Federal Reserve makes decisions regarding ________ policy while the Congress makes decisions regarding _______ policy.

monetary; fiscal B. structural; fiscal

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

A profit- maximizing perfectly competitive firm must decide

only how much to produce, taking price as fixed

Jody has purchased a non-refundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include:

only the entertainment value of the concert

The most important tool of monetary policy is:

open market operations

The standard of living in an economy is best measured by:

output per person

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that:

peanut butter and jelly are substitutes

"if Congress cuts income taxes, demand for output is likely to increase" is a ____________ statement about _________ policy.

positive; fiscal

TABLE- When the pizzeria makes 100 pizzas per day, it earns an economic __________ of __________.

profit, $650

Assume that each day a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ________ of __________

profit; $170

The price elasticity of demand for a good measures the responsiveness of:

quantity demanded to a one percent change in price of that good

When the Fed sells government securities, the banks':

reserves will decrease and lending will contract, causing a decrease in the money supply

Aggregation allows economists to ______ at the cost of ________.

see the big picture; obscuring the details

The three functions of money are:

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

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

total output, average labor productivity, output per person