Macro Economics Study Guide

(Table: Population Data for Roanoke County) Use Table: Population Data for Roanoke County. What is the labor force participation rate?

96%

In the long run, changes in the money supply _____ the aggregate price level and _____ aggregate output.

affect; do not affect

(Figure: The Money Supply and Aggregate Demand) Use Figure: The Money Supply and Aggregate Demand. Panel (b) illustrates what happens when the Federal Reserve decides to _____ the money supply and _____ interest rates.

decrease; raise

If the economy is at potential output, and the Fed decreases the money supply, in the short run, real GDP will likely:

decrease.

The federal budget tends to move toward _____ as the economy _____.

deficit; contracts

The _____ tractors will increase if gasoline prices fall.

demand for

(Figure: Cell Phones and Automobiles) Use Figure: Cell Phones and Automobiles. The movement from PPF1 to PPF2 indicates a(n):

increase in the economy's ability to produce automobiles and cell phones.

An unexpected increase in commodity prices causes a _____ shock.

negative supply

If the economy is at potential output, and the Fed decreases the money supply, in the long run, real GDP will likely:

remain the same.

(Figure: Demand for Bananas) Use Figure: Demand for Bananas. If pears are a substitute for bananas, an increase in the price of pears could be represented as a:

shift from D1 to D2.

Consider an economy that produces only smartphones and laptops. Last year, 10 smartphones were sold at $800 each, and 5 laptops were sold at $1,000 each, while this year, 15 smartphones were sold at $900 each, and 10 laptops were sold at $1,100 each. Real GDP this year, using last year as a base year, is:

$22,000.

(Table: National Income Accounts) Use Table: National Income Accounts. The value of national savings is:

$3 trillion.

If the actual unemployment rate = 3%, while the natural rate = 7%, the cyclical unemployment is __________ and the labor force is __________ .

-4% , more than fully employed

Suppose that the consumption function is C = $500 + 0.8YD, where YD is disposable income. The marginal propensity to save is:

0.2.

(Table: Peanut Butter and Jelly Prices) Use Table: Peanut Butter and Jelly Prices. Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2017 is the base year, what is the rate of inflation between 2018 and 2019?

10.1%

(Table: Population Data for Roanoke County) Use Table: Population Data for Roanoke County. What is the unemployment rate?

2.3%

(Figure: Technological Progress and Productivity Growth) Use Figure: Technological Progress and Productivity Growth. Which change in real GDP is MOST likely to have resulted from an increase in the quality (as well as quantity) of public health measures?

B to C

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. What will happen with supply and demand in the market for ethanol?

Demand for ethanol will not change , Supply of ethanol will decrease

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. Describe how reducing the subsidy will affect the equilibrium price and equilibrium quantity in the ethanol market.

Equilibrium price increases , Equilibrium quantity decreases

In the long run, a change in the money supply will affect: I. the interest rate. II. real GDP. III. prices.

III only

Suppose that a bank wishes to earn a 5% real rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which statement is TRUE?

If the bank charges 8%, and the inflation rate is less than 3%, then the bank will have earned a higher real rate of return than expected.

Which of the following is a government transfer?

Social Security payments to retired auto workers

(Figure: Loanable Funds) Use Figure: Loanable Funds. Which scenario might produce a new equilibrium interest rate of 5% and a new equilibrium quantity of loanable funds of $200 billion?

There is an increase in capital inflows from other nations.

If the price of hockey pucks goes up from $7.99 to $14.99, what can be expected from suppliers of hockey pucks as a result?

There will be an increase in quantity supplied.

Linking savers and investors is an important role of:

a well-functioning financial system.

The Smapple Corporation produced 24,000 smartphones in 2019. Only 4,000 smartphones remained unsold at the end of 2019. As a result:

all 24,000 smartphones will be included in GDP in 2011, 20,000 as consumption expenditure and 4,000 as investment expenditure.

Workers today are more productive than they were in the past because they:

are better educated and so have more human capital.

Automatic stabilizers act like:

automatic expansionary fiscal policy when the economy is in a recession.

If the economy is at potential output, and the Fed decreases the money supply, in the long run, the price level will likely:

decrease.

Three consequences of the decline in demand during the Great Depression were _____ prices, _____ output, and a surge in unemployment.

falling; falling

Investment spending is undertaken when the rate of return is:

higher than the equilibrium interest rate.

A government policy that does NOT promote economic growth is:

implementing a monetary policy that causes prices to fall.

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real GDP and ____ aggregate demand.

increase; increase

Use Figure: Aggregate Supply. If the economy is at point E, nominal wages will _____, and the short-run aggregate supply curve will shift _____ until actual output is _____ potential output.

increase; left; equal to

Suppose that U.S. deficit is decreasing from $3.1 trillion in 2020 to $2.8 trillion in 2021 to $1.4 trillion in 2022. What does this imply about US debt from 2020 till 2022? US debt is _________.

increasing at a decreasing rate

Assume that the marginal propensity to consume is 0.8 and that potential output is $900 billion. If real GDP is $700 billion, _____ government spending by _____ would bring the economy to potential output.

increasing; $40 billion

The trough of the business cycle:

is a temporary minimum level of real GDP.

Investment spending:

is financed by the savings of domestic or foreign households.

(Figure: AD-AS) Use Figure: AD-AS. Suppose the economy is producing the output level Yp, and a negative demand shock shifts the aggregate demand curve from AD1 to AD3. The economy now has a(n) _____ gap, which can be closed by _____ fiscal policy.

recessionary; expansionary

(Figure: Output Gap) Use Figure: Output Gap. If the economy is producing at Y2, it faces a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.

recessionary; potential; actual; expansionary

Cyclical unemployment is a result of _____.

recessions and economic downturns

Aggregate demand will increase if:

the public becomes more optimistic about future income.

Aminah has a calculus exam tomorrow. However, a free lecture by one of her favorite authors is taking place this evening. Aminah decides to attend the lecture instead of studying for her exam. Aminah's opportunity cost of attending the lecture is:

the transportation and time cost of getting to the lecture itself plus the reduction in her physics exam grade as a result of not studying tonight.

(Figure: Inflationary and Recessionary Gaps) Use Figure: Inflationary and Recessionary Gaps. The level of income associated with Y1 in panel (b):

would indicate an inflationary gap.