Macro Econ Final KU 2017

Assume current GDP is $16 trillion and full employment output (also known as potential GDP) is $22 trillion. If the MPC is .75 an initial injection of G would need to be ______ to successfully fill the gap, while an initial tax cut would need to be _______ to successfully fill the gap.

$1.5 Trillion; $2 Trillion

As discussed in lecture, what is the current reserve requirement for a bank that has exactly $100 million in assets? What is it if the bank has $200 million in assets?

$100 million: 3% $200 million: 10%

You are looking at the market for smartphones. Consider these 2 things happening at the same time: 1. The technology used to produce smartphones improves significantly. 2. The income of buyers of smart phones increases, and smartphones are a normal good. After any and all curves have shifted, which will we see in the market?

A higher equilibrium quantity, and we cannot say about equilibrium price.

Assume that full employment output is $20 trillion, and current GDP is $17.5 trillion. If the government believes they can successfully fill the gap between those two with an initial injection of $500 billion of spending, what is the value that they believe the MPC is?

.8

Assume that GDP is 6% below where we want it to be, and inflation is 2% above where we want it to be. Also assume current inflation is 1% and the real Fed Funds Rate is 1%. According to the Taylor Rule, if the weights on the output gap and inflation gap are each .5, what should the nominal Fed Funds Rate be set at?

0%

Consider the following two statements regarding the business cycle: 1. If we're in a recession we know prices are falling. 2. If we're in an expansion we know unemployment id declining. Which is most accurate?

1 and 2 are both incorrect.

Consider these three statements: 1. Fiscal policy is enacted by the Federal Reserve 2. One example of the fiscal policy would be a reduction in taxes 3. One example of fiscal policy would be raising interest rates Which is most accurate?

1 and 3 are incorrect; 2 is correct

Consider these three statements: 1. M1 gets bigger 2. M2 gets bigger 3. M2 stays the same Assume you take $1000 out of your savings account and keep it as currency. Which of the following is most accurate regarding how this will affect the monetary aggregates we discussed in class?

1 and 3 will happen; 2 will not

Consider these three statements (in no particular order): 1. Interest rates increase 2. Government spending (G) decreases 3. Consumption (C) and Investment (I) increase Which of the following is correct regarding "Crowding out" as we discussed it in lecture?

1 is part of "crowding out" as we discussed in lecture; 2 and 3 are not

Consider the following 2 items: 1. A Ford F-150 pick-up truck made and sold in Mexico (Ford is a U.S. company) 2. A Mitsubishi Mirage made and sold in Alabama (Mitsubishi is a Japanese Company) Which of the following is correct?

1 would be included in U.S. GNP and 2 would be included in U.S. GDP

In class you learned three names for the vertical line on the graph (AD/SRAS/LRAS). What are those three names?

1. Full Employment Output 2. Potential GDP 3. Long Running Aggregated Supply (LRAS)

As discussed in class, list 4 ways that the CPI differs from the GDP deflator.

1. Who reports them 2. Released at different times 3. What they're measuring (Q+P or Just P) 4. (CPI - Market Basket) & (GDP - All Goods and Services Sold in the U.S.)

If the nominal interest rate on a mortgage is 4.2%, and inflation is the current annual measure of inflation as reported in the CPI, what is the real interest rate on that same mortgage?

1.7

As discussed in class what is the rate at which the U.S. economy is currently growing?

1.9%

As discussed in class, what is the actual current value of the GDP deflator?

112.2 or 12.2%

As discussed in lecture, what is the current value of M2?

13.35 Billion

As discussed in class what is the current value of Real GDP in the U.S. right now?

16.8 Trillion

If the value of the GDP Deflator in 2015 is exactly 110.7, and the value of nominal GDP in 2015 is 19.7 trillion, which of the following comes closest to the value of real GDP in 2015?

17.8 trillion

Consider these three statements: 1. Signed into law by President Bush 2. Approximately $840 billion 3. Included both tax cuts and government spending Which is most accurate?

2 and 3 describe the ARRA (Stimulus); 1 describes TARP

What is the year that is currently used as the base year when calculating real GDP and the GDP deflator?

2009

Regarding the Quantity Theory of Money that we discussed in class, if real GDP is $12 trillion and the price level is "2" and the money supply is 8 Trillion what must the value of velocity?

3

Assume that GDP is 7% below where we want it to be, and inflation is 3% above where we want it be be. Also assume current inflation is 4% and the real Fed Funds Rate is 1%. According to the Taylor Rule, if the weights on the output gap and inflation gap are each .5, what should the nominal Fed Funds Rate be set at?

3%

Consider the following two phenomena: 1. The dollar gets stronger compared to other currencies 2. (X-M) decreases because M increases

Both 1) and 2) are correct

What is the name (not initials) of the organization that calculates GDP

Bureau of Economic Analysis

As discussed in class and in the textbook, the entity that calculates the CPI is the _______, while the entity that determines the beginning and ends of business cycles is______.

Bureau of Labor Statistics; National Bureau of Economic Research

Recall our discussions in lecture of the financial meltdown. Which of the following is correct?

Credit default swaps were a type of insurance you could purchase on collateralized debt obligations

If buyers of jet skis expect the price to decrease in the future we will see _______ today, and if sellers of jet skis also expect the price to decrease in the future we will see ________ today.

Demand shift left, supply shift right

Products A and B are complements on the demand side. If the price for product A decreases what will we see in the market for product B?

Demand shifting right which is and increase in demand

You are looking at the market for tortilla chips. Two things happen at the same time: the price of the corn, an input to tortilla chip, decreases. And also the price of salsa, a complement to tortilla chips, decreases. In the market for tortilla chips we will see:

Demand will shift right, supply shift right, a higher equilibrium quantity and we cannot say about the equilibrium price

What are 4 of the 5 components of GDP whin it is calculated using the "income" approach that we discussed in class and was discussed in the textbook:

Depreciation, Wages, Interest, Profit, Taxes

As discussed in text and in lecture, if Aggregate Expenditure (AE) is different form GDP it is primarily because of ____ and specifically, because of______.

I; changes in inventories

If you believe you can exactly fill a gap between current GDP of $17.5 trillion and potential GDP of $19 trillion with a tax cut of $1 trillion, what must be the value of the MPC and what must be the value of the tax multiplier

MPC: .6 Tax Multiplier: 1.5 Trillion

Keep in mind the formula for the multiplier as you answer this question: Assumed that an initial injection of $750 billion dollars into the economy ultimately increases GDP from $17 trillion to $20 trillion. For this to happen, what would the value of MPC have to be? And what would the value of the multiplier be?

MPC: .75 Multiplier: 4

Assume that prices in all other countries are increasing, while prices in goods in the U.S. are not. Based on our discussion of AE in Chapter 12 (or Chapter 23 in the "big" book) this would cause...

NX to increase, which would ultimately move AD to the right

In class you were asked to memorize the four largest components (in terms of weight) in the CPI market basket. Which of the following was NOT one of those 4 largest components?

Recreation

As discussed in your text and in lecture, what is the term for taking a bunch of financial assets like mortgages and bundling them together to create a new investment instrument?

Securitization

Consider these three statements: 1. The current level of Federal debt is approximately $20 trillion 2. The current level of Federal debt is too high. 3. The current level of Federal debt should be lowered through a government austerity program. Which is correct?

Statement 1 is positive statements; Statements 2 and 3 are normative statements

Richard was fired 2 months ago from his job as an architect because he refuses to use a computer and architectural software to do his designs and blueprints; he insists on creating all his designs and blueprints using paper and pencil. That is the specific reason that the design firm fired him. Richard's situation would be best characterized as...

Structural Unemployment

Consider the following: GDP (gross domestic product) is the market value of all goods and services produced in a country during a given period of time (usually a year). As discussed in class, is this definition accurate and if it's not, what's wrong with it?

of all "final" goods and services

Assume the current reserve requirement is 10%. Also assume people keep 15% out as currency. Assume a $30,000 initial deposit is make into a bank. If the bank loans out all that it can, and all loans are re-deposited into the same bank, taking the account what people keep out as a currency, which of the following comes, closest to the total amount of deposits--including the initial deposit--once the money has worked its way entirely through the system.

$138,000

Assume the current reserve requirement is 6%. Also assume people keep 20% out as currency. Assume a $40,000 initial deposit is made into a bank. If the bank loans out all that it can, and all loans are re-deposited into the same bank, taking into account what people keep out as currency, which of the following comes closest to the total amount of deposits--including the initial deposit--once the money has worked its way entirely thought the system?

$184,000

In the country of Brianlandia there are 78 million people currently working; this includes people working both full time and part-time. There are 4 million people who are not working but have looked for a job in the past 4 weeks. There are 58 million people who are 16 years old or older, are not working, have not looked in the past 4 weeks, are not in the hospital, are not in prison, and are not in the military. If Brianlandia calculated U3 exactly as the BLS does for the United States which of the following comes closest to the value of U3 in Brianlandia?

4.9%

Suppose a tax cut successfully closes the gap between "current" GDP of $16.3 trillion and "potential" GDP of $19 trillion. If the MPC = .75 how much was the original tax cut?

900 Billion

Based on our in-class discussion of the Phillips Curve, which of the following is the correct term regarding the idea that people base their expectations of inflation on what inflation was last year?

Adaptive Expectations

The U.S. dollar becomes weaker compared to all other major currencies in the world. On a SRAS/AD/LRAS graph we would see

All: - Higher unemployment - Higher price levels - A rightward shift in AD

You are looking at the AD/SRAS curves and they are intersecting to the left of LRAS. Which of the following would cause a shift in AD in such a way to move the intersection closer the LRAS?

All: - a decrease in banks' reserve requirement - an increase in income in the rest of the world - an increase in consumer confidence and improved consumer expectations

In our discussion of the Phillips Curve which of these causes the short-run Phillips Curve to shift upward?

An increase in expected inflation

According to the textbook, economists estimate the size of the U.S. "Underground Economy" to be...

At most, 10% of GDP

What was the name of the index, discussed in lecture, created by Dr. Albert Cavallo from MIT that Tracks changes in 5 million online prices every day?

Billion Price Project (BPP)

In the text, when your author was discussing tax cuts and supply-side effect, which of the following was not listed as one of the three impacts of reducing corporate income taxes?

Corporations would hire more employees as their tax rates fell

As discussed in lecture, what was the "magic" number for "how much debt is to much" that two Harvard economists cam up with (Reinhart and Rogoff) which turned out to be not such a magic number at all when a lowly little graduate student proved them wrong.

Debt-to-GDP ratio of 90%

What is our current debt-to-GDP ratio, and approximately how much debt do we owe other countries (the dollar amount, not a percentage)

Debt-to-GDP ratio: 105% Debt we owe other counties (dollars, not percentages): 6.4 Trillion

Which of the following is not a component of "I" in GDP?

Durable Goods

Assume the MPS = .75. Which of the following is correct? An initial injection of $500 billion into the economy, after it "ripples" through, ultimately will increase overall output...

From $18 trillion to $20 trillion

Following directly from above, Richard has been looking for a new job every single day since he was fired. He has never missed a day looking. In a normal calculation of U6 by the BLS Richard would be...

Included in both the numerator and the denominator.

Throughout 2008 and 2009 the Federal Reserve spent billions of dollars buying bonds. The goal of this action was to ______ which would have the effect of _________ ultimately producing a _____ level of output.

Increasing the money supply; pushing AD to the right; higher

Which of the following was NOT listed in the book and in leacter as one of the answers to the question "Why don't more low-income countries experience rapid growth?" (or as Bria puts it, "why isn't the whole world rich?")

Insufficient natural resources

In our discussion of the government's budget in class, on the expenditure side (money flowing out), what were the two largest categories (in proper order)

Largest Category of expenditure: Transfer Payments Second Largest category of expenditure: Military Spending

Consider the following statements: 1. Reducing taxes is one example of monetary policy. 2. Monetary policy decisions made by the Federal Reserve must be approved by Congress. 3. The Chairman of the Federal Reserve must be approved by the Senate Which statement below is most accurate?

Numbers 1 and 2 are incorrect; Number 3 is correnct

Consider these three purchases that take place in 2016: 1. A house is sold in Overland Park, Kansas that was originally built and sold in 1992. 2. The highway patrol for the state of Kansas purchases 100 brand new cars for its officers 3. A newlywed couple in Kansas City purchases a new, custom-built bed from Unruh Furniture (a local company) Which is most accurate?

Only #2 and #3 would be included in 2016 GDP, but only #3 would be a part of "durable goods"

Consider these 3 statements regarding "Quantitative Easing" that we discussed in class. 1. If the interest rate on long term bonds decreases, other long term interest rates will decrease as well. 2. If the price of long term bonds decreases, the interest rate on long term bonds will decrease as well. 3. The Fed's goal was to reduce the prices of long term bonds. Which is most accurate?

Only 1 is correct

Consider these four statements: 1. Today, in April 2017, our debt is the highest it has ever been. 2. Today, in April 2017, our debt-to-GDP ratio is the highest it's ever been. 3. Last year, for 2016 our deficit was the highest it's ever been. 4. We have never had to raise the "debt ceiling" in this country before this year. Which is most accurate?

Only 1 is correct

Consider the following two statements: 1. The value of leisure is not included in GDP. 2. The purchase of financial assets, such as stock and bonds, is not included in GDP. Which is correct?

Only 1 was listed in the textbook as a "Shortcoming of GDP as a Measure of Well-Being"

Consider the following purchases: 1. A new Toyota Prius is built and sold in Alabama in 2016. (Toyota is a Japanese company) 2. A new Ford Figo is build and sold in India in 2016. (Ford is a U.S. company) As discussed in class, which is correct?

Only 1) would be included in a calculation of U.S. GDP for 2016

You are looking at the market for Diet Coke. Consider these two things happening separately (Not at the same time.) 1. The price of Diet Pepsi decreases 2. The incomes of buyers of Diet Coke increases, and Diet Coke is a normal good Which of the following is correct?

Only 1) would cause the demand curve for Diet Coke to shift left.

Consider these two statements: 1. In reality, the Fed often changes the reserve requirements if it wants to adjust the money supply. 2. In reality, the Fed often buys/sell government bonds if it wants to adjust the money supply. Which of the following is most accurate?

Only 2 is correct

As discussed in the text, sometime the CPI market basket contains one good, such as a ticket to a movie in a theatre, and an increase in the price of the movie ticket causes people to shift their purchases to something else instead, like streaming a movie on Netflix (and the Netflix streaming is not part of the market basket). This is called _____ and it means that the CPI may ______ how many changes affect consumers.

Substitution Bias; overstate

You are looking at the market for apple pies. You see that the price of apples (which are obviously an input to apple pies) has increased significantly. In the market for apple pies we will see...

Supple shift left, producing a lower equilibrium quantity and a higher equilibrium price.

What percentage of the ARRA was made up of tax cuts? What percentage was made up of government spending?

Tax Cuts: 37% Government spending: 63%

In chapter 12 we examined the factors that affect the different parts of Aggregate Expenditure (AE). Which of the following is correct as we learned in Chapter 12?

Taxes affected the "Planned Investment" part of AE but not the "Net Exports" part.

Which of the following would NOT shift SRAS to the left?

Technology advances significantly and quickly

If you believe you can successfully fill a gap between current GDP of $17.6 trillion and potential GDP of $20 trillion by Either a tax cut of $800 billion OR an injection of government spending of $600 billion you must believe that...

The MPC is .75

This is the market for loanable funds. Which of the following is not part of the graph?

The amount of net exports that makes up the (X-M)

In the market for loanable funds, if there is a decrease in corporate taxes we would see...

The demand for loanable funds shift right, producing a higher interest rate.

As discussed in lecture, if unemployment is being caused by the existence of a minimum wage it must be that...

The minimum wage is above the "market" wage (or "going" wage, same thing)

The difference between a nominal and a real interest rate is...

The nominal rate equals the real rate plus the inflation.

Assume the current number of "discouraged workers" in the U.S. in February (according to the BLS) is 6 million. Assume in March that 1 million of these "discouraged workers" start looking for a job. They do not find a job, but they start looking. Which of the following is correct assuming nothing else changes?

The numerator of U6 will be unchanged between February and March.

As discussed in lecture, which of the following parts of U.S. debt is the largest? (These are obviously not all the parts of the debt, but these are the ones I am asking about.)

The portion of the debt that we owe to individual investors (like Dr. Staihr)

Assume you have calculated the Taylor Rule and the result in 1.0. What exactly is it that you have calculated? In other words, what is the Taylor Rule used for?

To Find the Fed Funds Rate

In the Quantity Theory of Money, what exactly does "PY" represent?

Together it represents Nominal GDP P = Price Level Y = Real GDP

What is the term, discussed in your textbook, for government payments such as unemployment checks and social security payments for which the government receives no goods or services in return?

Transfer Payments

You are looking at the AD/SRAS/LRAS model and AD and SRAS are currently intersecting to the right of LRAS. Now, you open up the paper and read that real wages (labor costs) are declining. Which of the following is most accurate regarding what you could expect to see on the graph as a result of this?

Unemployment was 4% and it decreases to 3.5%

As discussed in lecture, the basic idea behind supply side economics is that lowering the taxes on an activity will do what?

Will increase that activity

Which of the following will NOT result in a lower equilibrium price in the market you're looking at?

You're looking at the market for motorcycle helmets and the price of motorcycles decreases.