macro FINAL!
For a closed economy - i.e. an economy in which there are no international transactions - suppose for the current fiscal year that GDP is $11 trillion, consumption is $7 trillion, tax revenues equal $3 trillion, and the government runs a budget deficit of $1 trillion. Assuming transfer payments are zero, ceteris paribus, it follows that private saving is_____, and public saving is _____.
$1 trillion; - $1 trillion
Suppose U.S. nominal GDP in 2014 was $12.1. Some of the components, on the expenditure side of the equation, were as follows: Consumption = $8.2; Investment = $1.5; Government purchases of goods and services = $2.0; and Imports = $1.5, all in trillions of U.S. dollars. From this information, it follows that the nominal value of U.S. exports in 2014 was:
$1.9 trillion
Michael, a US citizen, buys $500 worth of marijuana while on vacation in Holland. Upon his return, he sells the marijuana to unsuspecting Americans for $5,000. Upon discovering this, Franz reports Hans to the FBI, which spends $10,000 to put Hans behind bars for sale of an illegal substance. What is the increase in US GDP resulting from these transactions?
$10,000
To answer Questions #1 - #5, refer to the following diagram, which shows the monthly cigarette market in Wake County, North Carolina and the demand for, and supply of, cigarettes before and after the imposition of a $5.00- dollar per unit excise tax. What numbers should be filled in the blanks on the y-axis?
$13 and $15
Refer back to the diagram for Question #6. At the "free-market" equilibrium price of $35 per unit, what is the total surplus in this market - i.e. the sum of consumer and producer surplus?
$1400
To answer Questions #1 - #5, refer to the following diagram, which shows the monthly cigarette market in Wake County, North Carolina and the demand for, and supply of, cigarettes before and after the imposition of a $5.00- dollar per unit excise tax. What is the deadweight loss from this tax?
$2.5 million
The country of Nemedia does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year, collects $4 billion in taxes. Private saving in Nemedia is $5 billion. What is consumption and investment in Nemedia?
$21 billion and $4 billion
To answer Questions #1 - #5, refer to the following diagram, which shows the monthly cigarette market in Wake County, North Carolina and the demand for, and supply of, cigarettes before and after the imposition of a $5.00- dollar per unit excise tax. By how much does consumer surplus decrease after the imposition of the tax?
$3 million
In the figure below, what is the producer surplus when the net price received by sellers is $27.50?
$337.50
To answer Questions #1 - #5, refer to the following diagram, which shows the monthly cigarette market in Wake County, North Carolina and the demand for, and supply of, cigarettes before and after the imposition of a $5.00- dollar per unit excise tax. By how much does producer surplus decrease after the imposition of the tax?
$4.5 million
Suppose that in the nation state of Craiglandia there are 2 final goods produced in the economy - food and clothing. Suppose the economy produces 10 units of food and 5 units of clothing in 2000 (the base year), and 10 units of food and 10 units of clothing in 2015. Further suppose the price of food was $2.00 per unit in 2000, and $3.00 per unit in 2015; whereas the price of clothing was $2.00 in 2000 and $2.00 in year 2015. What was the real GDP for Craiglandia in 2015?
$40.00
To answer Questions #1 - #5, refer to the following diagram, which shows the monthly cigarette market in Wake County, North Carolina and the demand for, and supply of, cigarettes before and after the imposition of a $5.00- dollar per unit excise tax. Ceteris paribus, how much will the government collect in annual tax revenue from this tax?
$5 million
Suppose that in the nation state of Craiglandia there are 2 final goods produced in the economy - food and clothing. Suppose the economy produces 10 units of food and 5 units of clothing in 2000 (the base year), and 10 units of food and 10 units of clothing in 2015. Further suppose the price of food was $2.00 per unit in 2000, and $3.00 per unit in 2015; whereas the price of clothing was $2.00 in 2000 and $2.00 in year 2015. What was the nominal GDP for Craiglandia in 2015?
$50.00
In 1914, the "typical" daily wage at the Ford Motor Company was $5.00. In 1928, the figure was increased to $6.00. The U.S. CPI was 10.0 in 1914, and in 1928 it was 17.1. It follows that if Henry Ford had kept his workers' real daily wage constant between 1914 and 1928, then the nominal 1928 wage would have been _____.
$8.55
Suppose state XYZ has a working-age population of 55 citizens. Of these, 10 are not employed and not actively seeking work; 40 are employed; and 5 are not employed but are actively seeking work. What is the labor force participation rate in XYZ?
((5+40)/55) x 100% = 81.8%
Suppose state XYZ has a working-age population of 55 citizens. Of these, 10 are not employed and not actively seeking work; 40 are employed; and 5 are not employed but are actively seeking work. What is the official unemployment rate in XYZ?
(5/(5+40)) x 100% = 11.1%
List 3 public goods
- street lights - sunshine - oceans
Ceteris paribus, if the real interest rate is 3 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate?
1%
Suppose the money supply is $4 trillion; nominal GDP is $16 trillion; and real GDP is $12 trillion. Ceteris paribus, it follows that the price level (GDP deflator) is __________, and the velocity is __________.
1.33, 4
Suppose the consumer price index (CPI) accurately measures inflation, and at the end of 2000, the CPI in the nation state of Brownville was 111.1. If the CPI at the end of 2001 was 113.2, then what was the rate of inflation (or deflation) in 2001?
1.89%
Suppose that in the nation state of Craiglandia there are 2 final goods produced in the economy - food and clothing. Suppose the economy produces 10 units of food and 5 units of clothing in 2000 (the base year), and 10 units of food and 10 units of clothing in 2015. Further suppose the price of food was $2.00 per unit in 2000, and $3.00 per unit in 2015; whereas the price of clothing was $2.00 in 2000 and $2.00 in year 2015. The GDP deflator for Craiglandia, for 2015, is _______; and it follows that Craiglandia experienced _______between 2000 and 2015.
125; inflation
If total currency in circulation is $400 billion, total deposits are $800 billion, and total excess reserves are $320 billion, then the money multiplier is approximately
2.5
A closed economy has income of $1,000, government spending is $200, taxes is $150, and investment is $250. What is private saving?
300
Ceteris paribus, suppose the money supply grew at an average annual compounded rate of 7%, velocity was constant, the nominal interest rate averaged 4%, and output grew at an average annual rate of 3%. According to the Quantity Theory of Money, inflation averaged _______ per annum, and the real interest rate was _______.
4%; 0%.
Which of the following is not correct?
A supplier of loanable funds borrows money.
Which of the following statements about economic fluctuations is true?
A variety of spending, income, and output measures can be used to measure economic fluctuations because most macroeconomic quantities tend to fluctuate together.
Which of the following statements concerning Keynesian analysis are true?
All of the above are true.
Ceteris paribus, which of the following Fed actions would most likely bring about the change in the money supply from MS1 to MS2, as indicated in the diagram above?
An open market purchase of securities, by the Fed, from commercial banks.
What type of unemployment is most likely measured by the differences between lines A and B?
Cyclical unemployment.
Which of the following describes a free rider problem?
Four roommates want to buy a couch, but each figures that if he or she just lets the other three pay for it, he or she will still be able to use it once it's bought. They don't buy the couch
Which of the following would be included in the calculation of gross domestic product?
Government purchase of a new submarine
In which of the following cases does the problem of the commons occur? I. Cattle grazing on private ranches. II. Catching lobsters off the coast of Maine. III. Raising salmon on salmon farms. IV. Using legal services provided by the courts.
II only
Which of the following statements regarding the Federal Reserve System (i.e. the Fed) is INCORRECT?
In the U.S. economy, the Fed is the primary organization for the conduct of fiscal, as well as monetary policy
In what sense do positive externalities cause the so-called "invisible hand" of the marketplace to "fail"?
In the absence of government intervention, markets with positive externalities often fail to produce the maximum total benefit to society, as measured by total surplus
What would happen in the market for loanable funds if the government were to decrease the tax on interest income?
Interest rates would fall.
The multiplier concept is important in the Keynesian model because
It explains why a small change in government spending can have a large impact on equilibrium output
The diagram below illustrates the Loanable Funds market with and without government borrowing. Ceteris paribus, it follows that, if the government runs a budget deficit, which it finances by borrowing in the loanable funds market, then the post-deficit interest rate will be _______, and the quantity of loanable funds "crowded out" of the private sector will be _______.
L; Q - T
Suppose Carmen's bank has $100 in excess reserves. Now suppose Carmen withdraws $100 from her checking account. Ceteris paribus, it follows that:
Neither M1 nor M2 will change.
Suppose an American consumer goes to a sporting goods store in Dallas and purchases a Holland & Holland shotgun manufactured in the United Kingdom. Ceteris paribus, which of the following best explains the impact of this transaction on the U.S. national income and product accounts?
Net exports and nominal GDP both decrease
Which of the following would be counted as investment when calculating gross domestic product?
The construction of a new house
Which of the following best represents an example of a "transfer payment"?
The government pays, via Medicare, a physician for treating your grandfather's illness.
Ceteris paribus, which of the scenarios below will necessarily lead to a decrease in real GDP?
The production of goods and services decreases
Congress is considering raising the minimum wage to a level above what some workers are paid. JB is called to testify at a congressional hearing as to the likely effects of this policy. At the last minute he calls in sick and asks you to replace him. How will the equilibrium unemployment rate and wage level change as a result of raising the minimum wage?
The wage level will increase and the unemployment rate will increase
In the United States, for fiscal 2016, total government spending was roughly 38% of GDP; yet, using the expenditure method for calculating GDP, government expenditures were only 18% of GDP. Which of the following most likely explains the difference?
Transfer payments are included in the first figure; but not the second.
Which of the following statements about real and nominal interest rates is correct?
When the inflation rate is positive, ceteris paribus, the nominal interest rate will be greater than the real interest rate.
If actual expenditure exceeds planned expenditure, there will be unplanned inventory _____ causing output to _____.
accumulation; decrease
Ceteris paribus, the primary advantage of investing in mutual funds over individual stocks or bonds is that mutual funds:
allow investors with relatively small amounts of money to diversify their investment portfolios.
Suppose XYZ bank has excess reserves of $20,000 and loans ABC Fishshack, a local restaurant chain, the $20,000 to remodel one of its restaurants near campus. Now suppose ABC deposits the loan in a checking account at LMN bank and pays its construction contractor with a check from that account. On their respective balance sheets, this loan is _______, and, ceteris paribus, _______:
an asset of XYZ bank and a liability of ABC; the loan will increase the money supply
In 2000 there were 200,000 gas grills demanded at a price of $500. In 2001 there were more than 200,000 gas grills demanded at the same price. This increase could be the result any of the following EXCEPT
an increase in the supply of gas grills
Bill owns 3 acres of beautiful wooded land. He has created a short walking trail through the woods. Because the terrain is hilly, the only safe entrance to the trail is at the front of Bill's property. When Bill decides to move to be closer to his grandchildren, he donates the land to the state with the understanding that the land will be used as a state park. Because the trail is short, only about 50 people can comfortably enjoy it. This state park is an example of a good that is
both rival in consumption and excludable
Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. Ceteris paribus, a shift from home-produced to market produced goods and services would:
cause GDP to increase
In modern developed economies, central banks (like the U.S. Federal Reserve System) perform at least two major tasks; they:
control the money supply and regulate banks.
M1 is defined as
currency in circulation plus demand deposits made at financial institutions.
In January 2007 the U.S. unemployment rate was 4.6 percent. During the depth of the most recent recession, in the fall of 2009, the unemployment rate was 10.0 percent. Given the definitions of the various "types" of unemployment, ceteris paribus, it is safe to characterize the majority of the 5.4 percentage point increase in the U.S. unemployment rate as __________.
cyclical unemployment
If the natural rate of unemployment is 5.5 percent and the actual rate of unemployment is 6.7 percent, then it most likely follows that:
cyclical unemployment is 1.2 percent of the labor force
Suppose the market for pizza is characterized by a downward sloping demand curve and an upward sloping supply curve. Now suppose an excise tax, to be collected by pizza sellers, is imposed on this market. Ceteris paribus, it follows that the Consumer Surplus will_______, and the Producer Surplus will_______.
decrease; decrease
When an unemployed individual quits searching for jobs forever, the unemployment rate
decreases
Suppose following the election of Donald Trump, the U.S. business community became more optimistic about the profitability of capital invested in U.S. industries. Ceteris paribus, it follows that the ______ loanable funds would _______, putting _______ pressure on the equilibrium interest rate.
demand for; increase; upward
Suppose some banks decide to increase their holdings of excess reserves relative to deposits. Ceteris paribus, this action will put _______ pressure on the money supply, and to reduce the impact of this action the Fed could _______.
downward; conduct open market purchases.
If the Fed is increasing the required reserve ratio, then one would expect, ceteris paribus, that this activity would: (1) put ________ pressure on the money supply; and (2) in the short run put ________ pressure on nominal interest rates.
downward; upward
In general, if the Fed is selling short-term government securities on the "open market," then one would expect, ceteris paribus, that this activity would: (1) put ________ pressure on the money supply; and (2) in the short run put________ pressure on nominal interest rates.
downward; upward
An individual transferable quota can be used to achieve
efficient use of a common resource
Stock represents
equity finance, a claim to a share of the profits of the firm, ownership in a firm
In the case of a negative externality, the social marginal cost will
exceed the private marginal cost
Institutions in the economy that help to match one person's saving with another person's investment are collectively called the
financial system.
Minimum wage is an example of a price _____, and results in a _____ of labor
floor; surplus
The marginal propensity to consumer MPC can be defined as that fraction of a:
given total disposable income that is consumed.
Under a fiat-money standard the value of the circulating medium of exchange is guaranteed by
government authority power.
Suppose monetary neutrality holds in the long run (money supply has no effects on output growth); further suppose the velocity of money is constant. Ceteris paribus, it follows that a 7.0 percent increase in the money supply will eventually - i.e. in the long run - _______.
increase the price level by 7 percent.
Ceteris paribus, when the Fed conducts an "open-market sale,"
it sells Treasury securities, which puts downward pressure on the money supply
In the 1970s, as more women entered the labor force, the result was that the
labor force participation rates for females increased
Market failure refers to the situation when.
market uses resources inefficiently and does not provide optimal amount of goods
Because public goods are said to be _______, it follows that _______.
non-excludable; people have an incentive to be free riders
A perfectly competitive steel mill that produces large amounts of pollution (a negative externality) will, from a social point of view,
produce too much steel
Compared to barter system, a monetary system
reduces transactions costs and facilitates exchanges.
To two farmers, a steer (owned by one of the farmers) grazing in the middle of the farmer's pasture is
rival and excludable
A medium of exchange is
something that is generally acceptable in exchange for goods and services
When an individual quits his job and decides to look for a new job immediately, the labor force participation rate
stays the same
An auto worker in Ohio who loses her job because the company relocated the plant to another country represents an example of
structural unemployment
Each of the following provides incentives to reduce a negative externality except:
subsidizing firms so that they have extra resources to reduce pollution
Ceteris paribus, the successful development of a new, pest-resistant strain of wheat (used to produce bread) will shift the _______ curve for bread, leading to a(n) _______ in the equilibrium price of bread and a(n) _______ in the equilibrium quantity exchanged. (NOTE: In this context, the expression ceteris paribus, used here and below, means "holding other variables constant.")
supply; decrease; increase
If a popular TV show on personal finance convinces Americans to save more for retirement, the _____curve for loanable funds would shift, driving the equilibrium interest rate_____.
supply; down
Which of the following is true regarding Laffer curve
tax revenue can sometimes increase if we decrease tax rate
Because consumers can sometimes substitute cheaper goods for those that have risen in price,
the CPI overstates inflation
The CPI measures approximately the same economic phenomenon as
the GDP deflator
If a Pennsylvania gun manufacturer raises the prices of rifles it sells to the US army, its price hikes will increase
the GDP deflator but not the CPI
Which of the following officials is a (or are) voting member(s) of the Federal Open Market Committee?
the President of the regional Federal Reserve Banks
Which of the following is the best example of a good or service that would be considered non-rival and non-excludable?
the United States Navy
According to the Quantity Theory of Money, if the velocity of money is constant, and if the money supply increases, while at the same time real GDP decreases, then, ceteris paribus, it follows that in the long run:
the price level will increase - i.e. the economy will experience inflation.
When an economist refers to "an efficient allocation of resources", she typically means______ is maximized
the sum of consumer and producer surplus
Ceteris paribus, goods with "positive externalities" tend to be_______ by the free-market private sector; thus, in modern developed economies these goods are often_______ by the government.
under-supplied; supplied or otherwise subsidized
Christopher (age 25) is an unpaid, stay-at-home father who works as a volunteer at the local Habitat for Humanity chapter. Currently, Christopher is looking for a full-time paid job. The Bureau of Labor Statistics counts Christopher as:
unemployed and in the labor force
Ceteris paribus, if the Fed increases the money supply from MS1 to MS2, as indicated in the diagram above, it follows that, in the short run, there will be _______ pressure on the price level, and _______ pressure on nominal interest rates.
upward, downward
In general, if the Fed is conducting "quantitative easing", then one would expect, ceteris paribus, that this activity would: (1) put ________ pressure on the money supply; and (2) in the short run put ________ pressure on nominal interest rates.
upward, downward
Which of the following statements best describes a version of the Efficiency Wages theory?
wages are kept higher than market forces would dictate because employers want to induce high effort from the workers.
