MACRO ECONOMICS FINAL EXAM REVIEW
Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is
$2. Total output is 20 units, 10 units of inputs are needed to produce that quantity, and the price of each input is $4. Per-unit cost of production is $2: total input cost ÷ total output: [(10 × $4) ÷ 20].
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by
$20 billion.
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by
$20 billion. The multiplier is 2.5 (1 ÷ 0.4). Divide the desired increase in aggregate demand by the multiplier: $20 ($50 ÷ 2.5). Increase government spending by $20 billion.
What percentage of business costs is accounted for by wages and salaries?
75
Which of the following is the best example of financial investment?
A retiree purchases Tesla stock
(Last Word) The strategy for measuring the value of an economy's output has become more challenging over the past 20 years because
All of the answers are correct.
Which of the following would an economist consider to be investment?
Boeing builds a new factory.
Which of the following is a difference between stocks and bonds?
Bonds may be issued by corporations or government; stock is only issued by corporations.
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Which of the following effects best explains the downward slope of the aggregate demand curve?
an interest-rate effect
The buying and selling activities that tend to equalize the rates of return on identical or nearly identical assets is called
arbitrage
The process by which investors seek to profit by simultaneously selling an asset with a lower rate of return and buying an otherwise identical asset with a higher rate of return is known as
arbitrage.
Index funds
are passively managed.
In recent years, the United States has had large
balance of trade deficits.
Debt contracts (also called instruments) issued by government and corporations are known as
bonds.
The long-run aggregate supply analysis assumes that
both input and product prices are variable.
Given the annual rate of economic growth, the "rule of 70" allows one to
calculate the number of years required for real GDP to double.
Which of the following would be considered to be the most liquid?
checkable deposits
As a percentage of GDP, U.S. exports are
considerably lower than in several other industrially advanced nations.
Which of the following is the basic economic policy function of the Federal Reserve Banks?
controlling the supply of money
GDP does not include which of the following activities?
couples remodeling their own homes
There is a trade-off between
current consumption and future consumption.
Other things equal, an increase in taxes on businesses will
decrease aggregate supply, decrease aggregate demand, and cause real GDP to fall.
The main cause for the vast differences in per-capita GDP levels seen across the globe today is the
different starting dates of modern economic growth in different parts of the world.
Equal shares of a firm's profit are paid out to stockholders as
dividends.
A movement upward along a given aggregate demand curve is equivalent to a(n)
downward shift in the aggregate-expenditures schedule.
In order for mutually beneficial trade to occur between two otherwise isolated nations,
each nation must have a comparative advantage in at least one product.
Limited liability rules
encourage stock investing by limiting shareholder risk of loss.
One major advantage of money serving as a medium of exchange is that it allows society to
escape the complications of barter.
If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)
expansionary fiscal policy.
The immediate-short-run aggregate supply curve is
horizontal
In 2021, the United States
imported more goods than it exported.
The Federal Reserve could reduce the money supply by
increasing the interest rate on reserve balances.
The Federal Reserve System is an
independent agency of government.
The M2 money supply includes
individual shares in money market mutual funds.
When deriving the aggregate demand (AD) curve from the aggregate-expenditures model, an increase in U.S. product prices would cause an increase in
interest rates and lower investment expenditures.
Expansionary fiscal policy is so named because it
is designed to expand real GDP.
(Consider This) The rise of mutual funds has radically changed the way corporations are controlled in that
it shifted ownership away from individual investors toward "institutional" investors like mutual funds.
Refer to the given list of assets. Large-denominated ($100,000 and over) time deposits Savings deposits Currency (coins and paper money) in circulation Small-denominated (under $100,000) time deposits Corporate stock certificates Checkable deposits Money market mutual fund balances held by individuals Money market mutual fund balances held by businesses Currency held in bank vaults Credit card balances The M2 definition of money includes
items 2, 3, 4, 6, 7, 8.
Refer to the given list of assets. Large-denominated ($100,000 and over) time deposits Savings deposits Currency (coins and paper money) in circulation Small-denominated (under $100,000) time deposits Corporate stock certificates Checkable deposits Money market mutual fund balances held by individuals Money market mutual fund balances held by businesses Currency held in bank vaults Credit card balances Which of the following are considered to be near monies?
items 4 and 7
A higher rate of investment now will generate
more future production.
What is the difference between financial investment and economic investment?
Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.
Assume that the size of the underground economy increases both absolutely and relatively over time. As a result,
GDP will tend to increasingly understate the level of output through time.
The World Trade Organization is the successor to the
General Agreement on Tariffs and Trade (GATT).
Which of the following is a supply factor in economic growth?
Increases in the quantity and quality of natural resources.
Which of the following is both an economic and a financial investment?
Intel builds a new computer chip factory
Which of the following does not correctly characterize modern economic growth?
It has not affected the average lifespan of human beings.
Assuming no other changes, if balances in money market mutual fund accounts increase by $50 billion and small-denominated time deposits decrease by $50 billion, the
M1 and M2 money supplies will not change.
What us M1 comprised of ?
M1 is composed of currency in circulation, checkable deposits, and savings deposits. M1 = $180 ($60 + $70 + $50). The MMMFs in M2 include only the MMMF accounts held by individuals; those held by businesses and other institutions are excluded.
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
M1 stays the same and M2 stays the same
Money market deposit accounts are included in
M2 only.
Madison, the CPA, is faster than Mason, the house painter, at both accounting services and painting. This means that
Madison should trade her accounting services for Mason's painting services, so long as Madison is relatively more efficient at accounting services.
An appropriate fiscal policy for a severe recession is
a decrease in tax rates.
An asset's liquidity refers to its ability to be
a means of payment.
An appropriate fiscal policy for severe demand-pull inflation is
a tax rate increase.
When a banker records how many dollars each of his borrowers owes the bank, money is serving as
a unit of account.
Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?
the purchase of government bonds in the open market and an increase in government spending
Per-unit production cost is
total input cost divided by units of output.
If the Fed is trying to make interest rates go down, it may want
unemployment to decrease.
The long-run aggregate supply curve is
vertical
Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed
will have to increase the money supply to keep the price level from falling.
GDP understates the amount of economic production in the United States because it excludes
work performed by people for their own benefit.
As of 2021, how many European nations belonged to the European Union (EU)?
27
The production possibilities for country X are either 6,000 bushels of soybeans or 10,000 bushels of wheat. The production possibilities for country Y are either 2,000 bushels of soybeans or 4,000 bushels of wheat. Which of the following is true?
The domestic opportunity cost of wheat production is lower in country Y.
Which of the following countries had the smallest share of exports as a percentage of GDP in 2021?
United States
When the Fed undertakes "reverse repo" transactions with nonbank financial firms, it is trying to influence the behavior of the
nonbanks that operate in the money market.
The slopes of the production possibilities curves for two nations reflect the
opportunity costs of production in the two nations.
An aggregate supply curve represents the relationship between the
price level and the production of real domestic output.
The reason the Fed is set up as an independent agency of government is to
protect it from political pressure.
Trade adjustment assistance
provides cash assistance for workers displaced by imports or plant relocations abroad.
The growth of GDP may understate changes in the economy's economic well-being over time if the
quality of products and services improves.
The labels for the axes of the aggregate demand graph should be
real domestic output on the horizontal axis and the price level on the vertical axis.
Which of the following actions by the Fed will most likely increase bank lending?
reducing the interest paid on reserve balances held at the Fed
The effect of expansionary fiscal policy is shown as a
rightward shift in the economy's aggregate demand curve.
The aggregate supply curve (short-run)
slopes upward and to the right.
Index funds are a portfolio of
stocks or bonds that exactly match a particular index.
The "underground economy" is mostly made up of
tax-evasion activities.
NAFTA established a free-trade area and eliminated trade barriers between
the United States, Mexico, and Canada.
When the price level decreases,
the demand for money falls and the interest rate falls.
The U.S. federal government is unlikely to default on its bonds because
the federal government has the ability to collect taxes and to sell securities to the Fed.
Research suggests that
the less independent the central bank, the higher the average annual rate of inflation.
The exchange-rate system currently used by the industrially advanced nations is
the managed float.
Suppose total output (real GDP) is $4,000 and labor productivity is $8. We can conclude that
the number of hours worked must be 500.