Econ Final Study Guide

A bank has $100,000 checkable deposits and $30,000 in reserves. If the required reserve ratio is 20% what is the maximum amount of loans this bank can create?

$10,000

Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves?

$25,000

In the long run, an increase in investment shifts _________ because of an increased capacity to produce.

The long-run aggregate supply curve

Government purchases are defined as:

The sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies.

When new roofing contractors entered the southern California market after the El Nino storms of 1997:

The supply increased

What contributes to implementation lag for discretionary fiscal policy?

The time it takes to secure legislative approval for policy actions

Economic growth can be represented by

a rightward shift of an economy's long-run aggregate supply curve.

In the long run, international trade

does not affect the natural level of employment or the real wage

determinants of net exports

domestic and foreign incomes, relative price levels, domestic and foreign trade policies

A market surplus occurs if the:

equilibrium price is below the actual price

What is a source of wage stickiness?

fixed wage contracts minimum wage laws workers and firms want to avoid complexity of negotiating contracts frequently

The law requires banks to maintain

fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities

An exchange rate system in which governments and central banks do not participate in the currency market is a (n)

free-floating exchange rate system

The three major categories of government spending are

government purchases, transfer payments, and net interest

The value of an economy's total output of goods and services is called:

gross domestic product

The equation of exchange states that

gross domestic product equals the money supply multiplied by its velocity

A cost that farm subsidies and price floors imposes on the rest of the economy is:

higher consumer commodity prices

The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the

implementation lag

The short run in macroeconomic analysis is a period

in which wages and some other prices do not respond to changes in economic conditions

An expansionary fiscal policy:

includes an increase in government government spending Includes tax cuts Increases a government budget deficit or reduces a government budget surplus

In the long run, a country's material standard of living is determined by:

its output relative to its population

the government has a balanced budget if

its total revenues are equal to its total expenditures

What is an example of a bank's assets?

loans mad to customers

what is true if the interest rates were zero?

people will hold their wealth in the form of money rather than in bonds

Supply is best defined as the:

relationship between the quantity of a good or service sellers are willing to offer for sale and the independent variables that determine quantity.

One source of high health care costs is the:

relatively small fraction of health-care expenditures paid directly by patients.

What is the cost of economic growth?

sacrifice current consumption.

All other things unchanged, an increase in personal income tax rates will

shift the aggregate demand curve to the left

All other things unchanged, an increase in government spending will:

shift the aggregate demand curve to the right

An increase in autonomous aggregate expenditures

shifts the aggregate demand curve to the right

Alexa keeps $500 readily accessible in her checking account so that she can take advantage of changes in the prices of other financial assets. This illustrates the

speculative demand for money

Value added is defined as:

the amount by which the value of a firm's final output exceeds the total value of the intermediate goods and services used to produce the good.

the consumption function shows

the amount of consumption at each level of disposable income, holding all other determinants constant

The rise and fall of real GDP over the course of the business cycle suggests that

the economy may not always be in long-run equilibrium

Researchers demonstrate conclusively that drinking 4-6 ounces of ginger ale each day increases life expectancy by 3 years. What happens in the market for ginger ale?

the equilibrium price and quantity rise

The delay between the time a policy is enacted and the time the policy has its effect on the economy is called

the impact lag

An important reason for the rapid increase in output in the computer industry after 1980 was:

the invention of the microchip, a reduction in the size and cost of computers, a great increase in the number of computer producers

We would expect that nations that devote a larger share of GDP to gross private domestic investment

to have higher growth rate in potential real GDP

The rational expectations argument relies on

wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short run aggregate supply curve to shift quickly to restore long run equilibrium

Assuming a constant level of nominal income, the real income of an individual rises:

when deflation occurs in the economy

In the short run, a decrease in the interest rate

will shift the aggregate demand curve to the right

If the velocity of money is constant then a 2% increase in the money supply

would change the nominal GDP by an equal percentage

Suppose that real GDP per capita of a rich country is $40,000. Real GDP per capita in a poor country is $10,000. Suppose that rate of growth of GDP per capita in the rich country is 3.6% per year and in the poor country is 7.2% per year. Using the rule of 72, calculate how many years it will take for real GDP per capita in the poor country to catch up with GDP per capita in the rich country?

40 years

If the population of the United States is 260 million, the labor force is 130 million, and 120 million workers are employed, the rate of unemployment is

7.69%

What causes a movement along the investment demand?

A change in the interest rate

What contributed to the U.S. recession of 2001

A decrease in business investment both for computers and software and in structures An appreciation in the value of the us dollar relative to the currencies of its trading partners A fall in stock market prices NOT an increase in new residential construction

What would result in an increased price of milk?

A shift to the right of the demand curve for milk

What will NOT cause a change in aggregate demand?

An increase in an economy's price level

What increases the demand for money?

An increase in the costs of transferring between money and non-money accounts

What is an advantage of automatic stabilizer?

Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP

what will NOT shift the investment demand curve?

Changes in monetary policy that affect interest rates

The substitution bias in the construction of the CPI arises because:

Consumers alter the goods they buy, switching from relatively high priced goods toward lower priced alternatives.

What is a disadvantage of a free-floating exchange rate system?

Fluctuating exchange rates make international transactions riskier and thus increase the cost of doing business with other countries

What characterizes government purchases in the united states between 2001 and 2011

Government purchases as a share of GDP have increased

An increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter?

Income

There is a ____________ relationship between the quantity of investment demanded and the rate of interest

Negative

The price of apples falls. What happens in the market for apple pies?

The equilibrium price falls, and the equilibrium quantity rises

How does the Fed decide which monetary measure should be the focus of its monetary policy choices?

The fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level.

Suppose that an increase in government purchases of $100 million caused the aggregate demand curve to shift to the right by $350 million at each price level.. What is the value of the multiplier

3.5

If the rate of growth of output is 10% and the rate of growth per capita real GDP is 6% what is the rate of growth of population?

4

What is true about the US national debt?

Relative to the level of economic activity, the debt is well below the levels reached during World war II The ratio of debt to GDP rose from 1981 to 1996 and fell in the last years of the twentieth century; it began rising again in 2002 Judged by international standards, the US national debt relative to its GDP is above average among developed nations

If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes:

Shifts to the left

What is an example of income earned but not received

Social security payroll taxes

When would an economist focus on GNP rather than GDP?

When the economist wants to measure total income earned or total amount of factors of production supplied by the residents of a country

According to the permanent income hypothesis,

a change in income regarded as temporatry will not affect consumption much since it will have little effect on average lifetime income.

To eliminate an inflationary gap, policy-makers may pursue

a contractionary policy that decreases aggregate demand

A graph that depicts the relationship between the total quantity of goods and services demanded and the price level is the

aggregate demand curve

What is an automatic stabilizer?

aid to families with dependent children

A decision to produce more investment goods and fewer consumption goods

allows the production of more of both types of goods in the future requires an increase in current savings

In the short run, an increase in net exports causes

an increase in real GDP and the price level

According to Professor Boatai Wang who examined the crowding out phenomenon in Canada between 1961-2000, as discussed in the case in point, expenditures for protection of persons and property

may involve some crowding out but they also simulated private investment by firms winning government contracts for defense purchases

Vikram, an indian national working for microsoft in New York, sends $300 every month to his elderly parents who live in bagalore, India. this activity will:

not affect the GDP or GNP of either country

The purchase of a bond is

not considered capital.