Economics Final

Assuming that Figure 7.1 is a market for money that can be borrowed or saved, Box 3 is

"r" for interest rate.

If an investment requires payment of $10,000 now and promises to return a single payout of $15,000 one year from now, the net present value of the investment at an interest rate of 12% is approximately

$3,393

Suppose an apple pie sells at a grocery store for $5 suppose that the grocery store purchased it from a baking company for $4. Suppose the baking company paid $2 for ingredients, $1 for labor, and $1 for profit. What is the GDP contribution of the pie?

$5

If the inflation rate is 3% and the real interest rate is 4%, then the nominal interest rate is around

7%

Using the Rule of 72, how long will it take something growing at 1% per year to double?

72 years

In the aggregate supply-aggregate demand diagram in Figure 8.1, Box 4 should be filled with

AD

An increase in regulation will cause which curve to shift, in which direction?

AS to decrease (move up and to the left)

Which of the following would qualify as an aggregate demand shock?

An unexpected reduction in consumer confidence

Discretionary Fiscal Policy differs from Nondiscretionary Fiscal Policy in that

Discreationary discal policy requires timely decisions, mondiscretionary fiscal policy is built into the system.

Banks

Financial institutions that accept deposits and make loans

Suppose a DVR is bought from CHina for $200 and sold in the US or $250.

GDP will count as a net of $50 ($250-200)

In a market for money, it is typically the case that we use the ________ in a supply and demand model.

Interest rate

Which monetary aggregate is the broadest?

M2

Through the taking of deposits and making loans, banks

Make more monet than physically exists

A political problem with discretionary fiscal policy is the

Political business cycle

Which of the following are goals for monetary policy?

Preventing boom and bust cycles in the economy

In the aggregate supply-aggregate demand diagram in Figure 8.1, Box 6 should be filled with

RGDP

The reward investors receive for accepting the probability that they will not be fully paid as agreed or as anticipated is called the

Risk Premium

reserve ratio

The percentage of every dollar deposited in a checking account that a bank must maintain at a Federal Reserve branch.

Which of the following would be described as the operational lag?

The time required to get a particular plan implemented with the money getting into peoples' hands.

The reason that only final sales are counted in GDP is

To avoid double counting goods that are sold as to be resold

ith 125 million people working, 8 million out of work and looking for work, and 147 million neither working nor looking for work, the unemployment rate would be

UR= (unemployed people / workforce) x 100

Which of the following will increase macroeconomic equilibrium prices?

a decrease in taxes

A political leader suggesting that an economic downturn will be cushioned by nondiscretionary fiscal policy is referring to

a progressive income tax and a welfare state.

An example of discretionary fiscal policy would be

a tax cut adopted to stimulate consumption.

Short-run contractionary Fiscal Policy would result in

aggregate demand moving to the left.

A decrease in government regulation will shift

aggregate supply to the right.

A decrease in input prices will shift

aggregate supply; right

The purpose of fiscal policy is to

alter the direction of the economy

In the market for loanable dollars, an increase in the profitability of investments overall will be revealed in

an increase in the demand for loanable dollars.

If an investment (where the costs are incurred before then profits) makes sense when the interest rate on the borrowed money to pay for it is 10%,

an increase in the interest rate will cause the investment to be less profitable, but it may still make money.

If the reserve ratio is .05, the money multiplier can be as high

as 20

An increase in the interest rate will

change neither the demand nor the supply of money; rather it will only affect the quantity demanded and quantity supplied.

The Federal Reserve's long-standing tools include

changing the level of the targeted interest rate

In a supply and demand model for the market for money, we typically use the ________ to look at borrowers' behavior.

demand curve

When domestic prices rise

exports fall

An increase in government spending will cause

increase aggregate demand AD to the right

An increase in worker productivity will

increase aggregate supply

Suppose this is the base year and there are only two goods (Good A and Good B) and the average person buys 4 of Good A in a year and 3 of Good B. If the Price of Good A is $5 and the Price of Good B is $10, the price index

is 100

One problem with using Real Gross Domestic Product as a measure of social welfare is that

it fails to count home production.

If the interest rate is positive, the present value of $1,000 to be received in ten years is

less than 1000

The Federal Funds Rate is the rate at which

one bank loans money to another to meet reserve requirements

Gross domestic product is counted using two methods:

one for counting how much people earn and another for how much they spend

Inflation measured using

percentage year-to-yea increase in a price index

The amount of money that a bank must keep on reserve at the Federal Reserve is the

reserve ratio

The target for the Federal Reserve is

the Federal Funds rate, though it has been a monetary aggregate.

When evaluating a business decision, an economist will often resort to the use of present value because

the investment occurs in one time period and the profits in another.

inflation rate

the percentage increase in the price level from one year to the next

Core rate of inflation

the rate of increase of all prices except energy and food

GDP

the total market value of all final goods and services produced annually in an economy

GDP calculated as

the ways people earn or spend money

If you were to use an aggregate supply and aggregate demand diagram to model nondiscretionary and discretionary fiscal policy in reaction to a positive aggregate demand shock, you would see the aggregate demand curve move

to the left, back toward its pre-shock position as a result of these policies.

An example of the recognition lag came in the form of it taking

until Fall 2001 to recognize that the recession of 2001 had started in January 2001.