Econ FINAL

If disposable income is $3,000 and saving is $1,200, how much is consumption?

$1,800

The World Bank defines extreme poverty as a person living on less than

$1.90 per day.

If eighth street bank receives a $1,000 deposit; loans out $800; and keeps $200 in reserves, the total asses for eighth street bank increased by

$1000

If U.S. exports are $8,300 and its imports are $10,300, what is the trade deficit?

$2,000

A bank has excess reserves of $5,000 and demand deposits of $40,000; the reserve requirement is 20%. If the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is

$3,000.

If you have $100,000 in a 401(k) growing 10% per year on average, how much will this be worth in 35 years when you retire

$3,200,000

If a person borrows $3,000 at 8% annual interest and never makes any payments, how much will the loan balance be after three years?

$3,779.14

Which price floor for milk would not cause a surplus in the market if the equilibrium price for milk is $3.60

$3.50

When a perpetual bond with a face value of $1,000 is issued, general interest rates are 3%, so the annual interest payment is _____. After the bond is issued, market interest rates rise to 4%, which forces the price of the bond to _____ to _____.

$30; fall; $750

if the amount of spending in an economy declines by $1,000 and the marginal propensity to consume is 0.8, the effect on the economy is a change of ____ in income or output

$5,000 1-0.8 = 0.2 = 1/5 1000/(1/5) = 5000

Suppose a $1,000 bond has a coupon rate of 3%, but interest rates in the market doubled to 6%. If the risk of the bond remains the same, what would the bond now be worth

$500

If a perpetuity bond has an interest payment of $80 and your required yield is 10%, the most you would be willing to pay for the bond is

$800

(Graph: Consumption) Based on the information provided in the graph, when income equals $1,000, the average propensity to save equals

.2

Compare the price of a pound of salmon un the United States with a pound of salmon in Japan. If we assume that the price of salmon in the United States is $4 per pound, while in Japan it is 1,488 yen, and the dollar-yen exchange rate is US$1 = 124, then the real exchange in terms of salmon is

0.33 1488/124=12 4/12 =0.33

When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save

0.5 consumption:1300-1200= 100 disposable: 1200-1000 = 200 100/200 = 0.5

Table shows data on consumption at various levels of income. Assume there is no private investment value of the average propensity to consume at equilibrium is

1

How many hours does a person have to work for pay to be counted as employed?

1 hour a week

For which growth rate would the Rule of 70 be MOST accurate?

1%

John expects to get a raise equal to the increase in the consumer price index (CPI). The CPI has gone from 160 to 164. If John's salary last year was $50,000, what salary does he expect to earn this year?

164/160 * 50000 =51250

Demand-pull inflation scenarios took place in the

1960s for the United States and from 1985 to 1995 for Japan.

U.S. interest on its national debt, measured as a percentage of GDP, rose during the _____ and fell during the _____

1980s; 1990s

The peak of Internet growth, when new "dot.com" companies sprouted up daily, occurred during

1998-1999.

The housing bubble collapsed from

2007 to 2009.

Alco electronics needs to borrow money to pay for a large capital investment. It is deciding between getting a bank loan and issuing bonds. Which statement is True about the options Alco is considering

A bank loan is borrowing a large amount from on lender while issuing bonds is borrowing small amounts form many lenders

(Figure: Effects of Policy Shifts) If the economy starts below full employment, an expansionary fiscal policy will shift the aggregate demand curve from _____ to _____, and equilibrium will move from point _____ to _____.

AD0; AD1; a; b

(Figure: Shifts in Aggregate Demand) Starting at equilibrium point b, if investment or exports increase, the demand curve will shift to _____, thus _____ the price level and _____ real output.

AD1; increasing; increasing

Which equation is correct

AE = C + I + G + (X _ M)

Which of these would NOT shift the AD curve?

An increase in market power occurs in the airline industry.

Anne and Charlie are discussing the best possible fiscal policy to bring the country out of a recession. Charlie wants to see government reduce taxes by $100 billion. Anne prefers to see government spending increase by $100 billion. Whose proposition would have the larger total impact on aggregate demand?

Anne's, because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved and not spent

In November 2016, Australia experienced a decrease in business spending on new plant, buildings, equipment, and machinery. What effect would this have had on Australian aggregate demand, all else equal?

Australian investment would decrease, and Australian aggregate demand would decrease.

What impact will a rising price level have on real GDP?

Changes in the price level do not impact real GDP.

Which statement is TRUE regarding various instruments in financial markets?

Compared with bonds, stocks provide equity and higher risk.

Which of the following would likely NOT cause inflation?

Consumer confidence falls due to global economic concerns.

_____ inflation occurs when a negative supply shock hits the economy, shifting the short-run aggregate supply curve to the left.

Cost-push

_____ is an overall decline in prices throughout the economy.

Deflation

In 1933, Congress directed the _____ to develop estimates of "total national income for each of the calendar years 1929, 1930 and 1931. . ."

Department of Commerce

Given the form of a typical production function, which of these would have the greatest impact on the output of a country?

Entrepreneurial ability/technology increases by 12%.

Which statement is NOT an effective criticism of rational expectations?

Errors about future expectations are randomly distributed.

Esteban's annual salary is $80,000 of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is true

Esteban's average propensity to consume increased

A deficit occurs when tax revenues exceed government spending.

False

A microprocessor purchased by dell is an example of a final good

False

An increase in interest rates will lead to an increase in aggregate demand.

False

Compared with stocks, bonds tend to reward investors with a higher average return on investment over the long run.

False

Expectations of large increases in income lead to lower levels of consumption.

False

Falling interest rates in the United States lead to the appreciation of the dollar.

False

Fiat money is money that is backed by gold, silver, or some other commodity.

False

Fiat money is money that is backed by gold, silver, or some other comodity

False

Like the consumer price index, the personal consumption expenditures price index is based solely on household surveys

False

Many U.S. retirement accounts have regained much of their lost value since the 2007-2009 stock market crash because investors switched their portfolio mix from stocks to bonds.

False

The Fed has a policy of not paying interest on reserves.

False

The full-employment level is greater than the natural rate of employment

False

The government spending multiplier is smaller than the government tax multiplier.

False

The performance of the past two decades illustrates the ineffectiveness of discretionary monetary policy.

False

Which law created the central bank of the United States?

Federal Reserve Act of 1913

in the keynesian model, the price level is ___; in the aggregate demand supply model, the price level is ____.

Fixed; Flexible

_____ unemployment includes workers who voluntarily quit their jobs to search for better positions.

Frictional

Which statement regarding the types of unemployment is TRUE?

Frictional unemployment is generally short-term, whereas structural unemployment is often long-term.

The broadest measure of inflation is the

GDP deflator

Which is not one of the basic economic equations that each society must answer

How much do we pay those who produce the goods and services

Which statement(s) is/are TRUE?I. The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment.II. The majority of the U.S. national debt is held by the foreign public and is owned by foreign banks, corporations, mutual funds, pension plans, and individuals.III. It's always wise for a country to pay off its debt.

I only

Which statement(s) describe(s) the unemployment rate?I. The unemployment rate includes those people who do not have a job and have ended their job search.II. The unemployment rate counts as employed those people who may be only working part-time.III. The unemployment rate is the percentage of the entire U.S. population that does not have a job but is searching for one.

II only

Which statement(s) is/are TRUE?I. People on fixed incomes will not be hurt if the United States monetizes its debt.II. If the cost of Medicare changes as health care costs increase, it would enhance the government's ability to keep deficits and the national debt under control over the long term.III. If the United States monetizes its debt, it will result in a weaker dollar if foreigners hold fewer U.S. dollars.

III only

Whose analysis serves as the foundation of modern macroeconomics

John Maynard Keynes

The cost of cyclical unemployment can be minimized bye

Keeping the economy on a steady low inflationary growth path

The difference between the Keynesian model and the aggregate demand/aggregate supply (AD/AS) model is that the

Keynesian model assumes that prices are constant.

_____ marginal tax rates and _____ are commonly used to increase aggregate supply.

Lowering; offering investment tax credits

In the keynesian aggregate expenditures model, which variable is assumed to be fixed

Price level

The output level of a country rises 5% and the money supply increases 8%. According to the equation of exchange, what can be expected in the long run in this country?

Prices will rise by 3%.

_____ occur(s) when goods are produced at the lowest possible cost, and _______ occur(s) when individuals who desire a product the most receive those goods and services

Production efficiency; allocative efficiency

According to the Phillips curve, if unemployment rises from 5% to 7%, what would be expected to happen to inflation?

The inflation rate would be expected to fall.

Which of these is a NOT a problem in measuring consumer prices?

The reference period used for the consumer price index is 1982-1984.

Which statement is NOT true?

The regional Federal Reserve Regional Bank located in Topeka serves as a banker for the U.S. Treasury.

Which statement is true in the case of the simple circular flow model with no savings

Total spending equals total income

A supply shock can be due to an increase in the price of oil.

True

An increase in French domestic income will hurt France's current account as long as exchange rates are flexible.

True

Because of the compounding effect, a $7,500 loan at 12% interest can grow to $23,293.86 after 10 years.

True

Discretionary spending by the federal government must work its way through the appropriations process of congress each year

True

Equilibrium income is reached when injections equal withdrawals.

True

Expansionary monetary policy tends to increase exports.

True

GDP per capita is found by dividing GDP by population

True

If policymakers want to keep unemployment below the natural rate, they must continually increase aggregate demand so that inflation is always greater than anticipated, thereby setting up an inflationary spiral.

True

In the simple Keynesian model, equilibrium occurs when there are no net pressures pushing the economy to move to a higher or lower level of income and output.

True

Money is anything that is accepted in exchange for other goods and services or for the payment of debt

True

Money leakages make it more difficult to use monetary policy to pull the economy out of a recession.

True

The balanced budget multiplier equals 1.

True

The collapse of housing prices in 2006-2011 caused aggregate demand to fall when homeowners increased their savings to offset the drop in the value of their homes

True

When Krista deposits $100 in her bank, her bank can lend part of that $100 to others.

True

When a tariff or quota is imposed on an import, the domestic industry benefits from higher prices and increased output

True

U.S. Treasury bonds held by which entity would NOT be considered part of internally held debt?

U.S. Federal Reserve

The government bans a toy because it has been associated with injuries to children. This relates to which basic economic question

What mix of goods and services should be produced

Which statement partly explains why the aggregate demand curve is negatively sloped

When the price of cars manufactured in the uNited sates increases, people buy more cars manufactured abroad

With no trade, the equilibrium price of grapes is $2 per pound in Macroland and $4 per pound in Econoland. After trade opens between the two countries, the price of grapes increases to $3 per pound in both countries. Which statement explains who gains and who loses when this happens

Winners include consumers in econoland and grape producers and farm workers in macroland. Losers include consumers in macroland, and grape producers and farm workers in econoland

The historical evidence show that

a country's degree of freedom is related to the level of economic growth

The meaning behind "the balance of payments must balance" is that

a deficit in either the current or capital account must be offset by an equal surplus in the other account.

Which of these would NOT cause a shift in the aggregate demand curve?

a reduction in raw material prices

Which of these is not one of the reasons for the phenomenal growth of the U.S. economy over the past century

a reduction in the capital-to-labor ratio

What does the 450degree line in the aggregate expenditures model represent

a reference line where income equals spending

If banks increase excess reserves to increase their ability to absorb a higher rate of defaults, the _____ multiplier will _____.

actual; fall

If there is a general rise in fear of the financial system, the _____ multiplier will _____.

actual; fall

When the individuals who get a good or service are the ones who desire the product the most, the economy is experiencing

allocative efficiency

If the marginal propensity to consume (MPC) rises, the multiplier

also rises.

Which fiscal policy would LEAST likely result in an increase in aggregate supply?

an increase in business regulations

Which factor is the LEAST likely to increase investment demand?

an increase in product inventories held by firms

What is an example of a final good

bacon purchased at a grocery store

If free trade occurs, producers in the net exporting country will be ____ off, and producers in the net importing country will be ___ off than before trade.

better; worse

In counteracting demand shocks, the federal reserve can achieve

both full employment and price stability

The _____ is the amount by which annual government spending exceeds tax revenues.

budget deficit

Which list represents monetary policy actions that are consistent with one another?

buy government bonds, lower reserve requirements, lower the discount rate

Suppose a major war in the Middle East cuts off the supply of oil to the United States, causing a recession and inflation. With the tools of monetary policy, the Federal Reserve

can fight either the recession or inflation.

The account that summarizes the flow of money into and out of domestic and foreign assets is called the ___ acount

capital

If the federal reserve lowers interest rates

capital flows out of the United States into other countries

Most economists agree that _____ unemployment is the area in which public policymakers can have their greatest impact.

cyclical

What is the one major category that separates national debt from public debt?

debt held by other government agencies

All of the following are true for unanticipated inflation EXCEPT

debtors are hurt during inflationary times because the amount they pay creditors back increases.

Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the _____ lag

decision

As GDP decreases, tax revenues ___, which tend to partially ____ the initial decline in GDP

decline; offset

If the stock market collapses, consumption will

decrease because people feel that they have less money.

Which even will shift the aggregate demand curve to the right

decrease in taxes

From 1999 to 2002, the Japanese inflation rate was, respectively, -0.3%, -0.6%, -0.7%, and -0.7%. During this time, the Japanese economy underwent

deflation.

Aggregate _____ is the output of goods and services demanded at different price levels.

demand

_____ refers to the goods and services people are willing and able to buy during a certain period of time, at various prices, ceteris paribus

demand

In the market for chinese takeout, suppose that the price of sushi takeout, a substitute, decreases in price. What will happen to the demand for chinese takeout

demand for chinese takeout will decrease

Which of these is NOT part of the financial system?

digital market

A glut of oil in the world market would likely result in _____ in the United States.

disinflation

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier.

disposable income; smaller

Thelma grows carrots in her garden, but she needs a winter coat. John has an extra coat he does not need but would like to bake a carrot cake. The two find each other and make an exchange. This situation is called the

double coincidence of wants.

Lexie works Monday to Friday from 4 P.M. to 6 P.M. in the after-school program at a local elementary school. She began looking for a full-time job last week and has already scheduled three job interviews. According to the Bureau of Labor Statistics, Lexie is

employed.

Which type of retirement plan does NOT involve individuals managing their accounts by choosing the preferred risk level of invested assets?

employer-provided pension plan

Which type of retirement plan does not involve individuals managing their accounts by choosing the preferred risk of invested assets

employer-provided pension plan

The taylor rule for federal funds targeting places

equal weight on the inflation and output gaps

The inflation rate is 4% and social security payments automatically rise by 4%, this adjustment is authorized by an

escalator clasue

The short-run aggregate supply curve

exhibits a positive relationship between the aggregate price level and aggregate output

The concept of scarcity

exists in all societies

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to

fall by$600

Other things equal, if U.S. disposable income falls, imports will _____ and the current account deficit will _____.

fall; decrease

Kim recently purchased a perpetual bond for $1,000. The bond pays $50 in interest per year. If market interest rates rises to 7% after her purchase, the price of the bond

falls to $714

If buyers do not value a specific product, they will pay the asking price immedialty

false

The long-run aggregate supply curve uses the classical assumptions that all variables are _____ in the long run and that long-run equilibrium occurs at _____ employment.

flexible; full

Which monetary movement is NOT a component of the current account?

flow of stocks and bonds

When the consumption schedule lies above the 45-degree reference line. consumption spending is ____ than income and saving is ____

greater; positive

If the reserve requirement is 20%, then a $1 decrease in deposits means that the money supply

has the potential to decrease by $5.

Which is NOT consistent with the level of output in the long run?

high inflation

Assume that capital is not perfectly mobile and substitutable and that the interest rate in the United States is currently 5% which includes a 1% risk premium associated with continued high budget deficits. Investors expect the euro to rise against the dollar by 2% and thus demand a ____ in the ______

higher return equal to 7%; United States

Pell Grants and the G.I. Bill are examples of government efforts to promote economic growth by increasing

human capital

Technology

improves the productivity of all factors.

Hannah is not at work because she broke her leg, but she will return once it heals. She is

in the labor force

According to the production function, which of these changes will NOT result in economic growth?

increases in consumption spending

A falling aggregate price level ___ demand for a country's exports and therefore ___ and output demanded

increases; increases

If the marginal propensity to consume increases, the spending multiplier _____ and the balanced budget multiplier _____.

increases; remains the same

if the rational expectations theory is correct, the federal reserve's announced policies will be

ineffective in both the short run and long run

Unanticipated _____ is detrimental to economic growth.

inflation or deflation

which even will not occur if policymakers want to keep unemployment below its natural rate

inflation will be lower than expected

Using demand-side fiscal policy to stimulate aggregate demand when the economy is at full employment will primarily result in

inflation.

if policymakers consistently use expansionary fiscal policy and monetary policies to push an economy's output beyond full employment, what will occur in the long run

inflationary expectations will increase, and the aggregate price level will increase

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag.

information

Exports are _____ of spending into (from) the economy, and imports are _____ of spending into (from) the economy.

injections; withdrawals

Aggregate supply shifts to the left when

input prices rise.

Property rights consist of ____ goods that ____ can be easily measured

intangible; cannot

Which of these is NOT a lag inherent in monetary policy?

interest rate

Economists believe that changes in investment spending are important for forecasting the business cycle because

investment is a key determinant of economic growth

Suppose there is unseasonably stormy weather in a summer resort town. We can expect demand for hotels to shift ___ and the equilibrium price for a room to ___.

left: fall

Bonds are considered to be _____ than stocks because _____.

less risky; bondholders are less affected by a firm's bankruptcy

When the interest rate falls, American bonds become _____ attractive to foreign investors, often leading to a(n) _____ in the value of the U.S. dollar in foreign exchange markets.

less; decrease

Labor productivity is a major determinant of

living standards

Which of these would not be included in official GDP measures

lost wages from taking time off work due to bad air polition

Which of these would NOT be included in official GDP measures?

lost wages from taking time off work due to bad air pollution

Which of these would not be included in official GDP measures

lost wages from taking time off work due to bad air pollution

Some analysts blame the last economic crisis on Federal Reserve policy. They argue that

low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.

Consumer surplus is the difference between the _______ is willing to pay and the market price

maximum price the buyer

The money multiplier

measures the maximum amount the money supply can increase when new deposits enter the banking system.

The field of economics that focuses on decision making by individuals, businesses, industries, and governments is called

micro

Which economists believe that fiscal policy is ineffective, while monetary policy is effective

monetarists

If the Federal Reserve sets a fixed rate for money supply growth, it is using

monetary targeting.

Which of these is considered near money

money market deposit accounts

Ceteris paribus means

other things being equal

If the economy is below full employment and the government uses expansionary fiscal policy in an attempt to reduce unemployment

output and the price level will rise

A production function shows the

output that is produced using different combinations of inputs combined with existing technology.

Both _____ on credit by households and _____ interest rates set in motion the events that led to the 2007-2009 financial crisis.

overspending; low

Other factors held constant, as the price of an ipad rises, the

quantity demand for ipad falls

(Figure: Determining Long-Run and Short-Run Economic Shifts) Starting at point J, the economy will move to point _____ in the long run if policymakers reduce aggregate demand.

r

Which activity would NOT qualify a person as being in the labor force?

reading help-wanted ads

According to the table, nominal GDP

real gdp = nominal/deflator real = 5865 deflator = 86.1 nominal = 5865*86.1 = 5050 billion

Decreased interest rates will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Assume initially the economy is at full employment, If aggregate demand increases, the aggregate price level and costs will ______, and ultimately, the short run aggregate supply curve shifts to the _____

rise; left

As market interest rates rise, the cost of the public debt

rises, because the government must make larger interest payments.

Which component is NOT considered to be an injection into the economy?

saving

Assume the Fed's target for unemployment is 4% to 5%, and its target for inflation is 2% to 3%. If the unemployment rate is 4.5% and the inflation rate is 6%, the Federal Reserve will most likely

sell bonds

All of these actions are performed by the federal reserve regional banks except

setting reserve requirements

The federal reserve's board of governors consists of ___ members who are appointed by the ___ and confirmed by the ____

seven; president; senate

If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply

short-run aggregate supply will rise due to lower prices on imported inputs

If Productovia has exports of $50 billion and imports of $40 billion, it has a trade

surplus of $10 billion.

A problem with supply-side fiscal policies is that they

take longer to implement than demand-side fiscal policies.

Macroeconomics was developed to explain

the Great Depression.

In the market for loanable funds, the government announces new tax breaks for saving for retirement while there is an increase in demand for products. What should be expected in the market for loanable funds as a result of these two events

the amount of funds borrowed will rise, but there is uncertainty about the direction of any change in interest rates

Monetarists and classical economists agree that

the economy is self-stabilizing in the long run

When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that

the economy tends to move toward full employment in the long run.

Which item is NOT a determinant of the demand for foreign currency?

the exchange rate

The phillips curve will shift when

the expected inflation rate changes

in a planned economy most of the productive resources are owned by

the government

Hyperinflation is usually caused by

the government printing money to finance budget deficits.

Labor productivity is NOT a major determinant of

the money supply.

Which behavior is NOT a problem caused by a lack of transparency regarding monetary policy?

the possibility of lack of coordination leading to fiscal and monetary policies that offset or overshoot each other

Whenever you construct a demand curve, which statement is true

the price of all other goods must be held constant

As the real interest rat falls

the quantity supplied of loanable funds decreases

The increase in aggregate spending needed to bring an economy back to full employment is called

the recessionary gap

if a country's population increases at a higher rate than the growth rate of its real GDP

the standard of living in the country has decreased

Suppliers of wrapping paper have reduced supply since the gift-giving season has passed. Suppliers are most likely responding to

their expectation that the price of wrapping paper will fall in the marketplace

Markets are efficient when

total surplus is maximized

The balanced budget multiplier does not depend on the marginal propensity to consume

true

the law of demand states that as the price of a good increases, the quantity demanded decreases

true

unemployment statistics in the united states are generally used to gauge the state of the economy

true

Wages that are higher than equilibrium can lead to

unemployment.

According to the equation for the Phillips curve, if nominal wages increase by 3% and productivity increases 2%, then inflation will change by

1%

If a student were not studying economics, he could be doing of the following: sleeping in (which he values at $5), playing cards with his friends (which he values at $10), or working (he would have earned and extra $8). The opportunity cost of studying economics is therefore

10

If the marginal propensity to consume is 0.9, what is the size of the multiplier?

10

The nation of workovia has a population of 15 million people, of whom 10 millions are in the labor force and 9 million are working. Workovia's unemployment rate is

10%

Suppose a market basket of goods costs $10,000 in 2009, the base period, and that same basket of goods now costs $11,200. What is the consumer price index for the current period?

11200/10000 * 100 = 112

If an economy is growing at 10%, how long will it take for $1,000 to turn into $4,000?

14 years

An absence of enforcement of contracts would encourage economic development because people would be more willing to incur risks if they did not have to worry about getting sued.

False

Bond prices and interest rates are positively related.

False

By investing heavily in the consumption of goods, the government promotes a higher level of labor productivity in the United States.

False

In the United States, the president, the senate, and the chairperson of the Fed must agree on spending and taxation policies

False

Production efficiency is defined as producing mix of goods and services most desired by society

False

Saving is zero when the economy is in macroeconomic equilibrium in the simple Keynesian model.

False

The GDP deflator is the narrowest of the measures of inflation.

False

long- rung economic growth is shown by moving from a point below the production possibilities frontier to a point on the production possibilities fronter

False

Net domestic product measures

GDP minus depreciation.

If a country's population increases at a slower rate than the growth rate of its real GDP

GDP per capita has increased

Which statement describes a difference between the consumer price index (CPI) and the producer price index (PPI)?

Only the PPI measures net revenues received by firms.

An example of physical capital is a communications network used to track shipments.

True

Examples of discretionary government spending include national defense, transportation, and education

True

One criticism of the rational expectations model is that its assumption of highly competitive labor and product markets, with wages and prices adjusting quickly, does not always occur.

True

One reason the price level did not rise after the 2008-2009 stimulus policy actions is that it may not have shifted aggregate demand to the right.

True

Policymakers can increase output by enacting policies that expand government spending, consumption, investment, or net exports. The could also reduce taxes

True

Social Security payments are included in the personal income category of national income.

True

The real exchange rate between the currencies of two countries takes into account the price levels of both countries.

True

The total of disposable income must be either spent or saved.

True

When interest rates on short-term bonds exceed those on long-term bonds, a recession is likely to occur.

True

When the economy is growing steadily, rising tax revenues and declining transfer payments have a contractionary effect on the economy.

True

When the foreign sector, government spending and taxes are added to the simple keynesian model, at equilibrium, all injections must equal all withdrawals, as stated by the equation I + G + X = S + T+ M

True

An effective price ceiling occurs at a price ____ the equilibrium price and causes a _____

below; shortage

Contractionary fiscal policy is typically used to

combat inflation stemming form an onverheated economy

When a new tariff is placed on important furniture, which of the following is expected to happen in the domestic market for future, all else being equal

consumer surplus decreases and producer surplus increases

If the price of a good is higher than the equilibrium price

consumer surplus is decreased and deadweight loss is increased

Assume that the economy is in full-employment equilibrium. If an inflation targeting rule is used and a positive demand shock hits the economy, the Federal Reserve will use _____ monetary policy to _____.

contractionary; keep the inflation rate low

To counteract a positive demand shock, the Federal Reserve uses _____ monetary policy, which _____.

contractionary; reduces both output and the price level

To counteract a positive demand shock, the federal reserve uses ___ and monetary policy, which _____

contractionary; reduces both output and the price level

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% with the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%

creditors gain at the expense of debtors.

What industry is typically believed to be more important in times of national crisis in the United States

defense

According to the equation for the Phillips curve, inflation is zero when the increase in nominal wages is _____ the rate of increase in labor productivity.

equal to

Market Failure occurs only when a market completely stops conducting business

false

One of the major limitations of supply-side fiscal policies is that they

generally take longer to impact the economy than policies targeting aggregate demand.

Assume that capital is perfectly mobile and substitutable and that the interest rate in the United States and the European Union is currently 5%. Investors expect the euro to rise against the dollar by 2% and they thus demand a _____ in the _____.

higher return equal to 7%; United States

When the national activity index is at zero, the economy is growing at ___ rates. Negative values imply ____ trends . Positive values imply that growth is ___ the long-term trend

historical; slowing; faster than

New Keynesian economists critique rational expectations by arguing that short-term wage stickiness is brought about by

imperfect information and efficiency wages.

In the national income and product accounts system, the two main approaches to measuring the size of the economy are

income and expenditures.

The federal government can finance its debt by all of the measures except an

increase in the federal fund rate

Economists believe that changes in investment spending are important for forecasting the business cycle because

investment is a key determinant of economic growth.

What were the primary causes of the 2007-2009 U.S. financial crisis

low interest rates, improperly managed financial risk, and easy lending standards

The twin goals of monetary policy are economic growth with _____ interest rates.

low unemployment and stable prices with moderate long-term

(Figure: Determining Long-Run and Short-Run Economic Shifts) Starting at point J, the economy will move to point _____ in the short run if policymakers successfully reduce aggregate demand.

m

If aggregate expenditures equal $6,200 and aggregate income equals $5,800, businesses will produce

more, raising both employment and income.

Which statement does not describe a market economy

most economic decisions are made by the central government

A bond's price and yield

move in opposite directions.

The original philllips curve showed a ___ relationship between _____ and unemployment rates

negative; wages

All of these are determinants of aggregate supply EXCEPT

net exports.

Which of these items is not a component of the capital account

net transfers

According to the table, which country will have the lowest real GDP per capita in 23.67 years? ecoland 10,000 12% macia 22,000 6% nomia 28,000 3% coland 30,000 3%

nomia

reducing global carbon emissions is difficult because of the public goods nature of climate change policy that exhibits

nonrivalry and nonexcludability

Savings deposits are

not part of M1 but are part of M2.

Saving deposits are

not part of M1, but are part of M2

The shit outward in the phillips curve in the 1970s was caused by the

oil supply shocks of the mid-1970s and the rise in inflationary expectations

Adaptive expectations theory describes the use of _____ to form expectations of inflation.

past rates of inflation only

In the United States, Social Security and Medicare are examples of

pay-as-you-go programs.

In the national income accounts, which of these is NOT classified as government spending?

payments to Social Security recipients

A(n) _____ in the business cycle usually means the economy is operating at its capacity.

peak

economics is best defined as the study of how

people make rational decisions

Which of these is NOT a withdrawal that reduces the size of the spending multiplier?

personal investment in human capital

Monetary policy involves all of these except increases in

personal taxes

One argument against using taxation to pay off the public debt is that it will redistribute wealth from

poorer people who do not own bonds to richer bondholders

Assets 28,000, 42,000 liabilities 50,000, 20,000 consider the T-account in the table. If the reserve requirement is 20% then the

potential money multiplier is larger than the actual money multiplier

If the yen is appreciating relative to the British pound, then the

pound is depreciating relative to the yen

A legal maximum price that can be charged for a product or service is known as a

price ceiling

If the economy has high levels of unemployment, the Federal Reserve will

reduce interest rates.

Under flexible exchange rates, an open economy _____ monetary policy and _____ fiscal policy.

reinforces; hampers

Automatic stabilizers include all of these EXCEPT

research and development funding.

Which item is NOT a category of personal consumption expenditures?

residential housing

A monetary rule would make it difficult to

respond to unforeseen events.

During 2010-2015, the United States underwent a _____ economic recovery with _____.

slow; persistent unemployment

The classical form of the production function states that output is determined by

some function of available labor or capital

When the Federal Reserve sells bonds, it is implementing

tight money policy.

Actions taken by the European Central Bank to address the European Union's financial crisis from 2009 to 2013 include all of these except

reducing taxes to provide stimulus packages

Under perfect capital mobility, a fiscal contraction by a country

results in a decline in the country's money supply and an additional reduction in GDP.

Increased government _____ lead(s) to a larger increase in GDP when compared to the same reduction in _____.

spending; taxes

Suppose the economy is in full-employment equilibrium. Then a positive supply shock, caused by a fall in oil prices, hits the economy. An expansionary monetary policy will

stabilize prices but at a much higher output level in the short run.

The simultaneous occurrence of rising inflation and rising unemployment is called

stagflation.

Which of these markets is one that returns quickly to equilibrium after it is disrupted

stock

What type of loans are not typically included in collateralized debt obligations

student loans

When government policies are being desgined

there is usually a tradeoff between equity and efficiency

Which term does not mean the same as the other three tight money quantitative easing accommodative monetary policy expansionary monetary policy

tight money

The labor force is defined as the

total number of the employed and unemployed.

When nations specialize according to their comparative advantage

total world production and consumption increases

If the economy is in a jobless recovery, output grows with little growth in employment

true

Money is used as a ____ because it provides a yardstick for measuring and comparing the values of a wide variety of goods and sevices

unit of account

The supply of loanable funds slopes _____ because an increase in the interest rate induces _____.

upward; more saving

Opportunity costs exist because

using resources for one activity means that their use elsewhere must be given up

If the Federal Reserve increases the money supply to bring down the federal funds rate, the

value of the dollar will decrease in foreign exchange markets.

Government expenditures include _____ and _____ but NOT _____.

wages and salaries; the purchase of products and services; transfers

If a government wishes to keep its currency undervalued relative to the U.S. dollar, it would need to

withhold dollars from the foreign exchange market

Robert Lucas argued that

workers and employers would adjust to macroeconomics inflationary policies designed to increase employment and thereby negate the policies

Econoland 50k cabbages 40k oranges Macroland 80k cabbages 72k oranges Based on the table, which statement correctly identifies opportunity cost

Macroland's opportunity cost for producing oranges is 1.11 tons of cabbages

(Table: IRA Contributions) The table shows the marginal income tax rate for four individuals and the annual contribution they make to their respective IRAs. Which woman will receive the largest dollar amount of tax breaks for her annual IRA contribution? mary 30% 3000 kathleen 25% 3200 Isabelle 40% 2000 Patricia 35% 2500

Mary

______ occurs when the mix of goods society decides to produce is produced at the lowest resource or opportunity cost

Production efficiency

Which of these illustrates the information lag

Real GDP, is an indicator of economic growth, is predicted to increase by 0.1% in july, but the numbers are revised in august to reflect an actually 2% decrease

Which statement does NOT describe a problem in measuring the consumer price index (CPI)?

The CPI includes new products in its baskets.

Suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume is 0.8. The recessionary gap is

12 trillion - 11 trillion = 1 trillion1 1trillion - ( 1 trillion * .8) $0.2 trillion.

A bank has $50,000 in deposits from its checking account customers and loans 0f $49,000. Of the $49,000 loaned out, $43,000 had remained in the checking accounts of the loan recipients but now has been withdrawn as cash by the loan recipients. The bank had $50,000 cash on hand prior to the remaining loan proceeds being converted to cash, and the reserve requirement is 25%. The reserve ratio for this bank after the remaining loan proceeds are converted to cash is ____, and it ____ meeting its reserve requirment

14%; is not

Assume the United State could produce 80 million loaves of bread if all its resources were devoted to bread production. If the United States used all its resources to produce milk, supposed it could produce 80 million gallons of milk. If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. Alternatively, if all its resources were used to produce milk. Germany cold produce 20 million gallons of milk. Which statement is true

The United States has an absolute advantage in producing both goods

Supposed that the United States and Italy are considering a trade in two products: grain and oranges. The united states produce 800 million bushels of grain or 200 million bushels of oranges, while Italy can produce 200 million bushels of grain or 100 million bushels of oranges. Which statement regarding absolute advantage is true

The United States has an absolute advantage in producing both grain and oranges

Which of these best illustrates the wealth effect

The jones family has $50,000 in the bank. But when prices rose dramatically, their purchasing power diminished by $50,0000

Which statement explains why the size and the direction of the gap between long- and short-term interest rates is a predictor of stages in the business cycle?

The time period with higher rates is likely to have higher economic activity than the time period with lower rates.

Which of these is NOT a concern raised by critics of the government's extensive policy response to the 2007-2009 recession?

The value of U.S. Treasury bonds may eventually become worthless as default risk increases.

In which situation is a country least likely to be producing on its production possibilities curve

There are legal disputes over the ownership of 15% of a factory building in the country

An increase in productivity, a decrease in taxes, and reduced regulation all shift aggregate supply to the right.

True

An intergenerational tax burden means that future generations will pay for the spending of the current generation.

True

Compounding means that growth builds on prior growth.

True

Cryptocurrencies are used by primarily for speculation

True

Each regional federal reserve branch helps to compile information about the economic conditions in its home region

True

Economists look for rational responses to incetives

True

If an employer uses an escalator clause to determine an employee's raise each year, in an inflationary environment, the employer is more likely than the employee to want to use the personal consumption expenditures price index in this clause.

True

If new technologies are not developed, China's growth rate is likely to fall.

True

In response to the financial crisis, the Fed lowered the federal funds target to 0%.

True

In september 2012, Norway's central bank said it would delay plans to tighten monetary policy. When the Norges Bank does pursue tighter monetary policy, the Norwegian krone is likely to rise against foreign currencies

True

In the short run, Keynesian monetary analysis suggests that changes in the money supply change interest rates, leading to a change in investment and a change in aggregate demand that in turn changes income, employment, and output.

True

John Maynard Keynes devised the framework for developing policies to avoid future severe macroeconomic downturns.

True

Keynes believed that more government spending was necessary to solve the unemployment problem created by the Great Depression, since it was unlikely that investment or exports would increase.

True

Keynesians argue that fiscal policy is required in depressions because the liquidity trap can render monetary policy ineffective.

True

Missing a minimum payment on a credit card can make it more expensive to get a car loan in the future.

True

The 12 regional federal reserve banks serve as the banker for the U.S treasury

True

The aggregate supply curve in the long run is vertical because wages and other input prices respond completely to a change in the price level.

True

The balance of trade is the difference between exports of goods and services and imports of goods and services.

True

The determinants of aggregate demand include the components of GDP: consumption, investment, government spending, and net exports

True

The formula for calculating the percentage change in prices between any two years is [(CPI in Current Year / CPI in Original Year) × 100] - 100.

True

The inflationary gap is the amount of aggregate spending greater than the spending necessary to result in full employment

True

The legal enforcement of contract rights is an important component of intangible infrastructure that promotes economic growth.

True

The national income and product accounts are released quarterly to ensure that accurate economic information is readily available

True

The national income and product accounts are released quarterly to ensure that accurate economic information is readily available.

True

The rate of return on investment is the main determinant of investment spending.

True

The unemployment rate does not explicitly include underemployed and discouraged workers.

True

The work of Robert Mundell was useful when the nations of the European Union established a single currency.

True

To convert a nominal value to a real value in dollar terms, the base year index must be set at 100.

True

When a scarce good or resource is consumed by the person who does not value it the most, economists refer to this situation as a misallocation of resources

True

When the foreign sector, government spending, and taxes are added to the simple Keynesian model, at equilibrium, all injections must equal all withdrawals, as stated by the equation I + G + X = S + T + M.

True

When the mix of goods and services produced is the mix most desired by society, the result is called allocative efficiency

True

kyle is working part-time as a bartender while he auditions for his dream job as a member of a ballet company. According to the bureau of labor statistics, kyle is employed

True

The 2007-2009 recession was ______ the previous two recessions, in 1990 and 2001

deeper than

Which result is not an objective of a tariff

encouraging more exports

Which statement about entrepreneurs is not correct

entrepreneurs do not take any business risks

If the money multiplier is 4, what is the reserve requirement?

25%

Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is

3%

According to the equation of exchange, if P × Q = 7 trillion and the money supply is 2 trillion, what is the velocity of money?

3.5

If income rises from $3,000 per month to $3,500 per month and consumption increases from $2,800 per month to $3,200 per month, what is the marginal propensity to consume?

3500-3000=500 3200-2800=400 400/500 = 0.8

About what percentage of the federal debt is held internally?

43.5%

John expects to get a raise equal to the increase of the consumer price index (CPI). The CPI has gone form 160 to 164. John's salary last year as $50,000, what salary does he expect to earn this year

51250

Assume that US$1 will buy 110 yen. If absolute purchasing power parity exists between the United States and Japan, and if the Big Mac meal costs $5 in the United States, it will cost _____ in Japan.

550 yen

The Taylor rule is 2 + inflation rate + 1/2 output gap + 1/2 inflation gap. If inflation is 3%, the output gap is 1%, and the inflation gap is 1%, the target interest rate is

6%

Surpluses, but not shortages, can exist when a market is in equilibrium

false

The 2007-2009 recession was brought on when the Federal Reserve used excessive tightening of the money supply to solve the period of stagflation from 2004 to 2007.

false

The fact that automatic stabilizers work without having congress or the president explicitly intervene is a major disadvantage

false

The most common type of short-term debt is college loans.

false

When quantity demanded exceeds quantity supplied, a shortage occurs and there is downward pressure on the price

false

efficiency wage theorists argue that monetary and fiscal policies will not work

false

Which of these generates the largest volume of international transactions?

financial assets

Collateralized debt obligations are

financial instruments backed by a collection of mortgages.

Robert Mundell discussed the problems of moving from a _____ to a _____.

fixed exchange rate system; flexible exchange rate system

Today, the united states' exchange rate system is

flexibl

The interest paid on public debt held by _____ is a real claim on American goods and services.

foreigners

The gold standard, which most countries used during the 19th and early 20th centuries, was characterized by _____ flows of gold and the _____ of an international coordinating body.

free; absence

Thomas Malthus believed that population increased _____ and food resources increased _____.

geometrically; arithmetically

If the government buys back bonds from the Federal Reserve while making no changes to the number of bonds held by the public and makes no asset sales, this means that the

government's budget deficit (G - T) has decreased.

If a country has a low capital-to-labor ratio, then it tends to have _____ labor productivity _____ wages.

low; and low

If government spending falls and taxes rise, both will _____, but the effects of _____.

lower equilibrium income; government spending will be larger

Which of these is an appropriate policy to address a jobless recovery?

lowering interest rates to reduce the cost of financing major projects

If mangos were widely accepted for purposes of exchange

mangos would be money.

The extra cost associated with undertaking some action is its

marginal cost

The _____ is the change in consumption associated with a change in income.

marginal propensity to consume

When quantity demanded in a market equals quantity supplied, then the

market is in equilibrium

Each point along the production possibility frontier represents

maximum output given the state of technology and resource availability

Which organization determines the beginning and end dates of a recession

national burau of economic research

The _____ is the total accumulation of past budget deficits less surpluses.

national debt

Which statement does not describe an adjustment to national income to obtain GDP

net exports are added to national income

By investing heavily in the consumption of goods, the government promotes a higher level of labor productivity in the united states

False

If inflation is too high, the Federal Reserve will raise taxes to reduce spending.

False

If the funds from deficit spending are used for public investment initiatives, it is more likely to hurt future generations than is deficit spending on current consumption.

False

Keynes defined the liquidity trap as a situation in which once interest rates decrease, individuals spend their money rather than holding onto it

False

Keynes defined the liquidity trap as a situation in which, once interest rates decrease, individuals spend their money rather than holding onto it.

False

Most OPEC nations peg their currencies to the U.S. dollar to attract foreign investment

False

Soybeans produced in Brazil, but eaten by cows in a Kansas feedlot, will be included in U.S. GDP.

False

The United States ran a federal budget surplus in 2004, but it had disappeared by 2006.

False

The balanced budget multiplier changes according to the values of the marginal propensity to consume and the marginal propensity to save.

False

The consumer price index is a measure of the changes in the cost of production

False

The consumer price index is a measure of the changes in the cost of production.

False

The national defense argument in favor of trade restrictions concerns only the protection of vital industries during times of war

False

The natural rate of unemployment occurs when the rate of increase in the wage is greater than the increase in productivity.

False

The numeric level of the natural rate of unemployment is independent of the frictional unemployment rate and the structural unemployment rate.

False

The sharp drop in the money multiplier between 2008 and 2009 enhanced the Fed's ability to fight the recession

False

The target for the federal funds rate is set by the federal government.

False

To understand the paradox of thrift, it is necessary to assume that investment is unrelated to income.

False

a person is considered to be unemployed if he or she has been either actively or passively looking for work

False

as it relates to the production possibilities frontier, an increase in technology for one good while holding all else constant will cause a complete outward shift of the production possibilities frontier

False

Which event would MOST likely lead to a decrease in interest rates and an increase in loanable funds?

an increase in the amount of pretax dollars individuals can contribute into savings plans

Voters who want federal government revenues to equal federal government expenditures every year would agree with the _____ approach to federal finance.

annually balanced budget

How is money created "out of thin air" by banks

banks loan out money that is then redeposited into other banks, creating a cycle

if a nation selects a product mix focused on ____ goods, the production possibilities frontier will expand at a greater rate than if the nation produced mostly ______ goods

capital; consumption

In effect, the Phillips curve framework implies that to fight inflationary expectations, policymakers must

cause unemployment.

Which of these would NOT cause a shift in the aggregate demand curve?

change in the price level

During times of economic expansion with inflations pressure, what type of monetary policy should the fed pursue

contractionary monetary policy to raise interest rates

Which-short run economic shock would be the MOST difficult to address through monetary policy?

decrease in short-run aggregate supply

The collapse of home values in 2008 led to a(n) _____ in Americans' consumption and a(n) _____ in their saving rates.

decrease; increase

China's recent policy of currency management has _____ U.S. import prices and _____ U.S. manufacturing employment.

decreased; decreased

On a remote highway in western colorado, Brendan operates the only gas station within 80 miles of town. Because of the lack of competition, prices in this market will be ____ than in a competitive market resulting in ______ deadweight loss

higher; greater

To say that the Federal Reserve is transparent means that the Fed

is open regarding its monetary policy.

If a bank has assets of $5 billion and labilities of $4.8 billion

its equity equals $.2 billion

Which asset is NOT included in M2?

large-denomination time deposits