MACRO final

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Real GDP in terms of reference base year

Price of previous Reference base-year and quantity of year being analyzed

Entrepreneurship

Profit

The source of the fiscal imbalance is​ ______.

Social Security pensions and Medicare benefits

The graph shows the supply curve of​ low-fat milk. Suppose the wage rate of diary workers rises. Draw a new supply curve that shows the effect of this event. Label the curve

Supply curve shifts right

What is the law of demand

The Law of demand states that other things remaning the same, the higher the price of the good, the smaller is the quantity demanded.

Which of the following statements illustrates fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

1) A macroeconomic equilibrium in which real GDP equals potential GDP is​ _____ equilibrium. 2) below full-employment: AD and SAS intersect to the left of LAS curve

1) a full​-employment​; an above full​-employment 2)

If the nominal interest rate is 8 percent and the current inflation rate is 3​ percent, approximately what is the real interest​ rate?

5 percent real interest rate = (nominal interest rate) - (current inflation rate)

In 2016​, a​ country's exports were ​$1847 billion and imports were ​$2557 billion. What was the value of net​ exports?

-710 billion dollars in Net Exports

Oppurtunity Cost

The oppurtunity cost of 1 unit of what you are giving up, for the one unit of what you do

interest rate =

The present value of an amount of money n years in the future is calculated as Present value​ = Future​ value/(1+ r​)^2 where r is the interest rate.

Equilibrium Price

The price at D=S

If demand increases and supply​ decreases, what is the effect on equilibrium price and equilibrium​ quantity?

The price rises and the quantity might​ increase, decrease or remain the same.

Equilibrium Quantity

The quantity at D=S

Which of the following is NOT a part of the monetary​ base? A. U.S. government securities owned by the Fed B. Federal Reserve notes C. Chemical​ Bank's deposits of reserves at the Fed D. First​ Bank's required reserves held at the Federal Reserve

US gov securities owned by the Fed is NOT part of the monetary base

Desired Reserve Ratio

Desired Reserve Ratio= (reserves / deposits) x 100

Choose the statement that is incorrect. A. A tariff creates a social loss from the decreased quantity of the good consumed at the higher price. B. With the​ tariff, part of the higher price paid to domestic producers pays the higher cost of domestic production. C. With the​ tariff, the increased domestic production could have been obtained at a lower cost as an import. D. A tariff creates a social loss because the domestic government loses revenue.

INCORRECT statement: A tariff creates a social loss because the domestic government loses revenue.

Capital

Interest

Labor

Wages

The effect of the United States returning millions of workers to their countries of origin is​ _____ the U.S. aggregate production function and​ _____ in potential GDP.

a movement down​ along; a decrease

​If, as Adrienne's income increases​, her demand for TVs increases​, then for Adrienne​, TVs are ​_______.

a normal good

market basket

a representative collection of goods and services (amount purchased) find total expenditure by multiplying price times quantity and adding them: Expenditure = (.price x quantity)

The use of purchasing power parity prices

accounts for differences in the prices of the same goods in different countries when measuring real GDP.

When real GDP exceeds potential​ GDP, then the economy has

an inflationary gap.

An economy is in a​ long-run equilibrium. An increase in aggregate demand creates​ ______ gap. A rise in the money wage rate decreases​ ______ and returns the economy to a​ full-employment equilibrium.

an​ inflationary; the quantity of real GDP demanded (SAS shifts leftward, and AD shifts rightward)

Two reasons that explain why international trade in 2017 remains restricted are that restricted international trade​ _______.

benefits domestic producers of​ import-competing goods and services and generates tariff revenue in developing countries

The tools that a country can use to restrict international trade include all of the following except​ _______.

changes in the foreign exchange rate

The consumer price index​ (CPI)

compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period.

By specialization and​ trade, two individuals can

consume at a point beyond their individual production possibilities frontiers.

When a good is​ imported, _______.

consumers gain because they pay a lower price and increase the quantity they consume

When a good is​ exported, _______.

consumers lose because they pay a higher price and decrease the quantity they consume

When the United States places a tariff on a​ good, the U.S.​ ______ and the U.S.​ ______ from the tariff.

consumers of the good​ lose; producers of the good gain

The functions of depository institutions include​ _______.

creating liquidity

Unemployment that is the result of recessions is called

cyclical unemployment

The winners from free trade​ ______ win the political argument because​ ______.

do​ not; the number of winners from free trade are large but the gain per person is too small to make the cost of political activity worth bearing

The government expenditure multiplier is the effect of a change in government expenditure on goods and services on​ _____.

equilibrium real GDP

The tax multiplier is the effect of a change in taxes on​ _____

equilibrium real GDP

he key financial institutions in the United States include all of the following EXCEPT A. the U.S. Treasury This is the correct answer.B. ​government-sponsored mortgage lenders Your answer is not correct.C. the Federal Reserve D. commercial​ banks, pension​ funds, and insurance companies

except the U.S. Treasurey

In November​ 2015, the exchange rate was 0.93 euros per U.S. dollar. By November​ 2016, the exchange rate had risen to 0.94 euros per U.S. dollar. Explain the imports effect of this change in the exchange rate. As the exchange rate rises​, the prices of​ foreign-produced goods and services to Americans​ ______ and the volume of U.S. imports​ ______.

falls; increases

Real GDP

fluctuates around potential GDP

Complements

if the price of one decreases, then the demand for the complement decreases and the demand curve shifts leftward

How can the federal government use discretionary fiscal policy to stimulate the​ economy? An economy is experiencing a recessionary gap. The government can​ ______.

increase expenditure or cut taxes to increase aggregate demand

It is unlikely that the United States is on the​ "wrong" side of this curve​ because, if it​ were, a decrease in the tax rate would​ ______ .

increase tax revenue

Why might fiscal stimulus crowd out​ investment? Fiscal stimulus that increases an existing government budget deficit​ ______ loanable​ funds, which​ ______ investment.

increases the demand​ for; increases the real interest rate and decreases

The nominal interest rate minus the real interest rate approximately equals the

inflation rate

Rent seeking​ _____.

is lobbying and other political activity that aims to capture the gains from trade

The Supply CUrve that illustrates the law of supply

is upward sloping

Circular flow model

left side: factor markets, GDP Goverment expenditure = section of right side

If households expect an increase in their future​ incomes, they will save

less and consume more today

Which of the following is an example of an import quota​? The United States​ _____ .

limits the quantity of auto parts the U.S. car makers may buy from China

CPI (Consumer Price Index)

measures the change in consumer price over a period of time. CPI for recent year= (units bought in past x current prices) / total spent in past

The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a

medium of exchange.

When real GDP​ increases, people demand

more real money

When the economy is at full employment the

natural unemployment rate equals the unemployment rate.

In calculating​ GDP, household production is

not included because there is no market transaction.

uppose the equilibrium interest rate in the money market is 5 percent and the current interest rate is 7 percent. As a​ result,

people buy bonds and the interest rate falls.

The labor force is defined as the number of

people who are employed and unemployed.

The net gain from international trade is​ _______.

positive. Consumers gain more than producers lose with​ imports, and producers gain more than consumers lose with exports.

Harry produces 7 balloon rides and 8 boat rides an hour. Harry could not produce more balloon rides without producing fewer boat rides. Harry is​ ______ his production possibilities frontier.

prodcuing on

The demand for loanable funds is the relationship between loanable funds and the​ ________ other things remaining the same.

real interest rate

Which of the following are parts of the business​ cycles?

recession and expansion

The Federal Reserve System

regulates the nation's financial instituitions and conducts the nation's monetary policy

The larger the​ public's currency drain from the banking​ system, the

smaller is the money multiplier.

When a tax is applied to labor​ income, the result is a​ ______ full-employment quantity of labor and a​ ______ potential GDP.

smaller; lower

Real GDP is calculated by​ _______.

summing together the value of the​ year's production using the prices of the reference base year

Draw a supply curve that shows what happens in the market for smartphones if the wage rates of workers who produce smartphones fall but all other influences on selling plans remain the same.

supply curve shifts right and equilibrium quantity increases as price goes down

The main reasons for imposing a tariff are​ _______.

tariff revenue and rent seeking

The Laffer curve is the relationship between the​ ______ and the​ ______ .

tax​ rate; amount of tax revenue collected

An assumption of neoclassical growth theory is that

technological change is random.

When the U.S. government imposes an import​ quota, all of the following are true except ​_______

the U.S. government gains

Generational imbalance is​ ______ .

the division of the fiscal imbalance between the current and future​ generations, assuming that the current generation will enjoy the existing levels of taxes and benefits

Tax cuts will not pay for themselves if​ ______.

the economy lies to the left of the maximum point on the Laffer curve

An individual is structurally unemployed if

the individual lacks marketable job skills because technology has changed.

Marginal Cost

the next best alternative to a choice

When does potential GDP​ increase? Potential GDP increases when​ _______.

the quantity of capital increases

A movement downward along the demand for loanable funds curve occurs when

the real interest rate falls.

An automatic fiscal policy is a fiscal policy action that is triggered by​ _____. A discretionary fiscal policy is a fiscal policy action that is initiated by​ _____.

the state of the​ economy; an act of Congress

If the price rises

there is a movement upward along the demand curve

Which of the following measurements of inflation tracks the rate at which infrequently changed prices are​ changing?

the​ sticky-price CPI

Uemployment rate

unemployment/ labor force

Business cycles are

unpredictable, but always have two phases and two turning points.

The tax wedge is the gap between the​ before-tax and​ after-tax ______.

wage rates

Given the demand and supply curves in the​ graph, draw a point at the equilibrium price

where suply and demand intersect

On Saturday​ morning, you rank your choices for activities in the following​ order: go to the​ library, work out at the​ gym, have breakfast with​ friends, and sleep late. Suppose you decide to go to the library. Your opportunity cost is

working out at the gym.

Net Growth Theory

​________ predicts that real GDP per person can grow indefinitely.

n an open market​ purchase, the Fed​ ________ government​ securities, which​ ________ bank reserves.

​buys, increases

Tax revenues​ ______ during a recession. ​Needs-tested spending​ ______ during an expansion.

​decrease; decreases

A tax cut pays for itself if the economy lies to the​ ______ of the maximum point on the Laffer curve. This statement implies that the absolute value of the tax multiplier is​ ______.

​right; greater than 1

Tariff is a​ _____ imposed on a good when it is​ _____.

​tax; imported

The growth rate of real GDP per person

(Real Gdp per person of earlier year - Real GDP per person of recent year)/ opoulation of current year note: real GDP per person= reald Gdp/ population

A financial decision should be pursued when

. the net present value is positive

How does a change in the quantity of money change the interest rate in the short​ run? 1) Starting from a​ short-run equilibrium, when the Fed increases the quantity of​ money, _______. 2) The price of a bond​ ______ and the interest rate in the short run​ ______.

1) people enter the loanable funds market and buy bonds 2) rises; falls

Growth Rate of Real GDP

Real GDP growth rate = (most recent year's real GDP - the last year's real GDP) / the previous year's real GDP

If the demand curve for bottled water shifts leftward and the supply curve of bottled water shifts​ leftward, the equilibrium

quantity of bottled water definitely decreases.

money multiplier

quantity of money / monetary base

Labor productivity is defined as

real GDP per hour of labor.

If the real interest rate is below the equilibrium real interest​ rate,

shortage of of loanable funds will cause the real interest rate to rise.

A demand curve that illustrates the law of demand

shows that the quantity demanded increases as the price falls

The idea that a government budget deficit decreases investment is called

the crowdingminusout effect.

If people expect the foreign exchange rate for dollars to rise in the​ future,

the demand for dollars today increases.

Because of the choices people make in the pursuit of​ profit, new growth theory argues that

the economy can enjoy a period of indefinite growth.

The quantity theory of money asserts that an increase in the quantity of money

will lead to an equal percentage increase in the price level.

Normative

Opinions

A recessionary gap occurs when

real GDP is less than potential GDP.

Inflation Rate

(CPI of recent year)-(CPI of past year) / CPI of Past year Note: CPI= total average spent OR price x units

If tax revenues are​ $3,500 billion and the​ government's budget balance is a​ $720 billion​ deficit, calculate the​ government's outlays.

$4220 goverment outlays = tax revenue +/- budget balance

The government is considering raising the tax rate on labor income. Explain the​ supply-side effects of such an action and use appropriate graphs to show the directions of​ change, not exact magnitudes. 1) What will happen to the supply of labor and the demand for labor and​ why? The supply of labor will​ ______ and the demand for labor will​ ______. 2)Because the tax​ ______ , the equilibrium level of employment will​ ______ , the​ before-tax wage rate will​ ______, and the​ after-tax wage rate will​ ______. 3)What will happen to potential​ GDP, and​ why? Potential GDP will​ ______ because​ ______ .

1) decrease because the tax weakens the incentive to​ work; not change because labor productivity​ doesn't change 2) drives a wedge between the​ take-home wage and the cost of​ labor; decrease;​ rise; fall 3) ​decrease; employment decreases NOTE: graph shows potential GDP move along the PF curve downwards (left)

If the present value of​ $220 one year from now is​ $200, then the interest rate is

10 percent

Positive Statement

Factual truths

Which of the following is a liability on the balance sheet of the Federal Reserve​ System?

Federal Reserve notes

The relationship between the tax rate and the amount of tax revenue collected is called the​ ______ curve. This curve shows that​ ______.

Laffer; tax cuts can increase tax revenue

Comparative Advantage

Lower oppurtunity cost

Suppose the current situation is such that the price level is​ 120, real GDP is​ $17 trillion, and GDP along the long-run aggregate supply curve is​ $16.6 trillion. What will take place to restore the longminusrun ​equilibrium?

Money wage rates will rise until real GDP reaches​ $16.6 trillion.

Full Employment

Natural unemployment rate = Unemployment rate

When the government imposes a tax on labor​ income, ______ the production function occurs and potential GDP​ ______.

a leftward movement​ along; decreases

How does a tax on labor income influence the equilibrium quantity of​ employment? A tax on labor income​ ______. The equilibrium quantity of labor​ ______.

decreases the supply of​ labor; decreases At the new equilibrium quantity of​ labor, the​ before-tax wage rate rises and the​ after-tax wage rate falls .

The present value of​ $200 two years from now when the interest rate is 7 percent is

$175

During a​ year, a​ firm's net investment is ​$6400 and depreciation is ​$1600. What is the​ firm's gross investment​?

$8000 gross Investment = net investment + depreciation

Using the Rule of​ 70, if the country of​ Huttodom's current growth rate of real GDP per person was 10 percent a​ year, how long would it take the​ country's real GDP per person to​ double?

7 years

Nominal GDP is

GDP valued at prices of that year

Employment to population ratio

It is calculated by dividing the number of people employed by the total number of people of working age, and is used as a metric of labor and unemployment. OR (Labor force - Unemployment)/(Labor Force+Not in Labor Force)

The two main official measures of money in the United States today are​ ______. The two main official measures of money in the United States​ ______ really money.

M1 and​ M2; are

allocative efficiency

MC=MB

The Law of Supply

The law of supply states that other things remaninging the same, the higher the price of a good, the greater is the quantity supplied.

As a result of the recession in​ 2008, the default risk increased. How did this change affect the loanable funds​ market?

There was a leftward shift in the supply of loanable funds curve

Because of the biases in calculating the​ CPI, actual inflation is

less than the measured inflation rate.

Facebook sold shares of stock for the first time in an IPO on May​ 18, 2012. The stock originally sold for​ $38 per share. As of October​ 19, 2012, a share of Facebook stock was valued at​ $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called

a capital loss

Which of the following always raises the equilibrium​ price?

an increase in demand combined with a decrease in supply

Discouraged workers​ ________ counted as officially unemployed because they​ ________.

are​ not; are not actively seeking work

If the price of a good changes but everything else influencing​ suppliers' planned sales remains​ constant, there is a

movement along the supply curve.

The equilibrium price will fall and the equilibrium quantity might​ increase, decrease, or stay the same when the

demand for a good decreases and the supply of it increases.

A Keynesian economist believes that

if the economy was left​ alone, it would rarely operate at full employment.

Normal goods are those for which demand decreases as

income decreases.

An increase in the interest rate in the United States compared to the interest rate in Great Britain will

increase the U.S. interest rate differential AND shift the demand curve for dollars rightward.


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