Macro Final
The current Federal Reserve Chairperson is
Janet Yellen
If the number of unemployed workers is 200 million, the number of employed workers is 300 million, and the working-age population is 800 million, what is the labor force participation rate?
Labor force participation=workers/total population ((200+300)/800) x 100= 62.5%
Which was the first company during the financial crisis that the government allowed to fail?
Lehman Brothers
Developing countries with low saving rates and poor levels of health and education are likely to experience
Low rates of growth in real GDP per capita
Consumption expenditures: $800 Investment expenditures: $200 Government purchases: $300 Exports: $100 Imports: $200 Wages: $800 Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals
$1,200
Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent Assets: reserves+$2,000 Liabilities: Deposits+$2,000 As a result of the transaction, the bank can make a maximum loan of
$1,800
What is nominal GDP in 2013 Product Quantity Price Movies 30 $7.00 Burgers 90 $2.50 Bikes 6 $1,100.00
(30x7)+(9x2.50)+(6x1,100)= 7,035
Using the table what is the approximate growth rate of real GDP from 2011 to 2012? Year Real GDP 2011 $10,950 2012 $11,425
(GDP2012-GDP2011)/GDP2011 (11,425-10,950)/10,950=2%
Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 precent, what is the maximum change in money supply?
Maximum increase in money supply: 200-20=180 Maximum increase in checking account: 20(1/0.1)=200
Which of the following is a function that money serves
Medium of exchange, unit of account, and store of value
Suppose that real GDP for 2010 was $10,000 billion and real GDP for 2011 was $11,000 billion. What is the rate of growth of real GDP between 2010 and 2011
10%
According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be
2%
The figure above shows the production possibilities frontier for Vidalia, a nation that produces 2 goods, roses and orchids. What is the opportunity cost of one dozen orchids
2.5 dozen roses
The CPI in 1990 was 131, and the CPI in 2010 was 218. If you earned a salary of $40,000 in 1990, what would be a salary with equivalent purchasing power in 2010?
40,000 x (218/131)= $66,565 or (40,000/131) = (x/218) 131x=8720000 x= $66,565
If the number of employed is 190 million, the working-age population is 230 million, and the number of unemployed is 10 million, then the unemployed rate is
5%
Disposable personal income is defined as
Personal income less personal taxes
Suppose the economy is at point A. If the economy experiences a supply shock, where will the eventual short-run equilibrium be?
B Moves from SRAS2 to SRAS1 and to the left. Does not stay on the LRAS.
An increase in taxes would be depicted as a movement from____, using the static AD-AS model in the figure above
B to A
Technological change is shown in the figure above by the movement from
B to E The point moves up from PF1 to PF2
The two government figures during the financial crisis (starting in 2008), the Fed chair and the Treasury secretary, were
Ben Bernanke and Hank Paulson
Which of the following is correct about the economic decisions consumers, firms, and the government have to make?
Each faces the problem of scarcity which necessitates trade-offs in akin economic decisions
The natural rate of unemployment is the amount of unemployment
Equal to frictional plus structural unemployment
Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy?
Exports are $15 billion, and imports are $10.5 billion
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives
2012 2013 Nominal GDP $10,000 $12,000 Real GDP $9,500 $10,500 Given the information above, calculate the GDP delator in 2013
GDP deflator= (Nominal GDP/Real GDP) x 100 =(12,000/10,500) x 100=114
The cost of Thanksgiving dinner for 10, according to the Farm Bureau
Increased by 37 cents over last year
Year CPI 2012 175 2013 180 Suppose that the date above reflects price levels in the economy. What is the inflation rate between 2012 and 2013
Inflation rate= (P2013-P2012)/P2012 ((180-175)/175) x 100=2.9%
Consider the following data for a closed economy: Y=$12 trillion C=$8 trillion I=$2 trillion G=$2 trillion TR=$2 trillion T=$3 trillion Based on the information above, what is the level of public saving?
Public saving=T-TR-G Negative $1 trillion (a deficit of $1 trillion)
If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until
Quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
Ceteris Paribus (holding everything else constant), and increase in the expected future price level would be represented by a movement from
SRAS2 to SRAS1 (SRAS2 is to the right of SRAS1)
A critical function of the government in facilitating the operation of a market economy is
Setting up and enforcing private property rights
Increasing opportunity cost along a bowed out production possibilities frontier occurs because
Some factors of production are not equally suited to producing both goods or services
For each watch that Switzerland produces, it gives up the opportunity to make 50 pounds of chocolate. Germany can produce 1 watch for every 100 pounds of chocolate it produces. Which of the following is true about the comparative advantage between the two countries?
Switzerland has the comparative advantage in watches
The tradeoff that the Federal Reserve and Department of the Treasury of the US faced at the beginning of the financial crisis of 2008 was between
Systemic risk and moral hazard
What two factors are the keys to determining labor productivity?
Technology and the quantity of capital per hour worked
In which of the following situations would the Fed conduct contractionary monetary policy?
The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP
The curve showing the short-run relationship between the unemployment rate and the inflation rate is called
The Phillips curve
German automobile exports were hurt in 2008 as a result of the recession. How would this decrease if exports have affected Germany's aggregate demand curve?
The aggregate demand curve would have shifted to the left
Which of the following is counted in GDP?
The cost of a speed boat purchased by drug smugglers
If real GDP in the US is growing at an annual rate of 3.2% per capita and Bolivia's real GDP per capita is growing at a rate of 1.3%, which of the following would we expect in the long run? Assume real GDP per capita in the US begins at a level above that of real GDP per capita in Bolivia
The difference between the level of real GDP per capita in the US and real GDP per capita in Bolivia will increase over time
Which of the following is a normative economic statement?
The price of milk is too high
Trade-offs force society to make choices when answering what three fundamental questions?
What gods and services to produce; how will these goods and services be produced; and who receives them?
The economic analysis of minimum wage involves both normative and positive analysis. Consider the following consequences of a minimum wage: a) the minimum wage law causes unemployment b) unemployment would be lower without a minimum wage law c) minimum wage laws benefit some workers and harm others d) the minimum wage should be more than $7.25
Which of the consequences are positive statements and which are normative statements? -a,b, and c are positive statements and d is a normative statement
If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania
Will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want
Which of the following is the best example of a tariff
a $5,000 per-car fee imposed on all sports utility vehicles imported into the US
When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is
a US export and a French import
Deflation refers to
a falling price level
Which of the following is an example of a worker experiencing cyclical unemployment
a freight liner employee that got laid off because of the recession of 2007-2009
The minimum wage is an example of
a price floor
Foreign investment can give a low-income country
access to funds for investment and access to technology
If the Fed pursues expansionary monetary policy
aggregate demand will rise, and the price level will rise
Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency
allow one to buy the same amount of goods and services
The____ production points on a production curve are the points along and inside the production possibility frontier
attainable
The difference between the value of the goods a country exports and the value of the goods a country imports is the country's
balance of trade
If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then
changes in the CPI overstate the true rate of inflation
The level of long-run aggregate supply is affected by all of the following except
changes in the price level
In a competitive market when there is no deadweight loss,
consumer surplus plus producer surplus is maximized
Which of the following explains the ability of the US economy to avoid diminishing marginal returns and experience accelerating growth in the early to mid-20th century?
continuing technological change
Which of the following accurately describes the impact of the rule of law on a country's economic growth rate?
countries with a strong rule of law have faster economic growth
Consider the information above for a simple economy. Assume there are no traveler's checks Currency $1,000 Checking account $2,000 Savings account $5,000 Small-denomination time deposits $6,000 Noninstitutional money market fund shares $7,000
currency+checking account+traveler's check 1,000+2,000= $3,000
Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant
decrease in investment spending
An economic expansion tends to cause the federal budget deficit to _____ because tax revenues ______ and government spending on transfer payments____.
decrease; rise; falls
Fiscal policy refers to changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives
In the dynamic AD-AS model above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
firms are producing above capacity
If a country's currency is determined only by the demand and supply for that country's currency, the country is said to have a
floating exchange rate
Which of the following policies are designed specifically to directly promote technological change in an economy
government subsidization of research and development
When the economy enters a recessionary phase of the business cycle, unemployment tends to
increase
If the Fed pursues an expansionary monetary policy, assuming no crowding out, investment in the US will ______ and net exports will______
increase; increase
The law of demand implies, holding everything else constant, that as the price of yogurt
increases, the quantity of yogurt demanded will decrease
The federal government debt_____ when the federal government runs a deficit and ______ when the federal government runs a surplus
increases; decreases
In the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS
inflation occurs
An open economy is an economy that has
interactions in trade or finance with other economies
If the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to (point A is at the intersection of SRAS and AD and, and it is to the left of LRAS)
lower interest rates
Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally
more difficult than with monetary policy
As the tax wedge associated with a given economic activity gets smaller, we would expect
more of that economic activity to occur
A decrease in aggregate demand will
move the economy to a lower point on the short-run Phillips curve
Economists refer to the series of additional increases in consumption spending that result from an initial increase in government expenditures as the ____ effect.
multiplier
According to the saving and investment equation, if net foreign investment falls by $35 million,
national savings in excess of domestic investment will decrease by $35 million
In the US today, how much gold will the Federal Reserve give you in exchange for $1?
none
If expected inflation falls, the long-run Phillips curve will
not be affected
If you transfer all of your currency to your checking account, then initially, M1 will______ and M2 will______.
not change; not change
Which of the following are goals of monetary policy?
price stability, economic growth, and high employment
Labor productivity will increase if the ____ increases and_____ .
quantity of capital per hour worked; technology improves
When individuals use all available information about an economic variable to make a decision, expectations are
rational
If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?
real interest rate= nominal interest rate- inflation rate 5%
If the Fed raises the interest rate, this will_____ inflation and ______ real GDP in the short run
reduce; lower
What factors are most important for determining exchange rate fluctuations in the long run?
relative price levels across countries, relative rates of productivity growth across countries, preferences for domestic and foreign goods across countries
A financial intermediary's main function is to match______ with excess funds to _____ with a shortage of funds
savers; borrower
If the Federal Open Market Committee wants to decrease the money supply through open market operations it will
sell U.S. Treasury Securities
According to the____ Philips curve, the unemployment rate and the inflation rate are negatively related
short-run
If banks do not loan out all their excess reserves, then the real world multiplier is
smaller than 1/RR
Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?
some goods and services produced in any country are not traded internationally
If the Fed lowers its target for the federal funds rate, this indicates that
the Fed is pursuing an expansionary monetary policy
How does an increase in the budget deficit affect the demand for dollars on the foreign exchange market?
the demand for dollars rises
When the market value of the dollar rises relative to other currencies around the world, we say that
the dollar has appreciated
When the market value of the dollar falls relative to other currencies around the world, we say that
the dollar has depreciated
Suppose the economy is at point B in the figure above. Which of the following is true?
the expected rate of inflation is 3%
Potential GDP is defined as
the level of GDP attained when all firms are producing at capacity
The balance of payments includes all of the following accounts except
the national debt account
Which of the following models relies on emphasizing the importance of sticky wages and prices?
the new Keynesian model
The terms of trade refers to
the ratio at which a country can trade its exports for imports from other countries
Deadweight loss refers to
the reduction in economic surplus resulting from not being in competitive equilibrium
If national savings decreases
the sum of domestic investment and foreign investment must decrease
If interest rates in the US rise
the value of the dollar will rises the foreign investors increase their holdings of US investments
Refer to the figure above. If the price is $25
there would be a surplus of 300 units
Without technological advancement, how can a nation achieve economic growth?
through an increase in supplies of factors of production
Examples of comparative advantage show how trade between two countries can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country
total consumption of goods is greater
The fastest growing category of government expenditure is
transfer payments
Scarcity refers to the situation in which
unlimited wants exceed limited resources
Assume that China has a comparative advantage in producing corn and exports corn to Japan. We can conclude that
China has a lower opportunity cost of producing corn relative to Japan
When Tesla, a U.S. company, purchases Italian-made Pirelli tries for its automobiles, the purchase is
A US import and Italian export
The term "market" in economics refers to
A group of buyers and sellers of a product and the arrangement by which they come together to trade
Which of the following policies would not help promote economic growth
A law requiring that the funds in an individual retirement account be taxed
If consumers decide to be more frugal (to be careful in how they use their money) and save more out of their income, then this will cause
A shift in the supply curve for loanable funds to the right
Suppose the economy is at point A in the figure above. Which of the following is true
Actual inflation and expected inflation are the same
Alejandro expects the price level to rise from 105 this year to 108 next year. If this price level rises to 110 next year instead of 108, which of the following will occur?
Alejandro's real wage falls
Which of the following will NOT shift the demand curve for a good
An increase in the price of the good
Which of the following is considered a negative supply shock?
An unexpected increase in the price of natural gas
In recent years the cost of producing wines in the US has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market?
The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
If the United States lifted the embargo on Cuban products, what would happen in the U.S. market for Cuban cigars
The supply curve would shift to the right
Which of the following best describes an assumption economists make about human behavior
They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time
The recession of 2007-2009 made many consumers pessimistic about their future income. How does this increased pessimism affect the aggregate demand curve?
This will shift the aggregate demand curve to the left
