Macro Final Econ Study Set
Using the equation of exchange, if velocity is stable in the long run, the inflation rate, (%∆P) can be expressed as %∆P = %∆M - %∆Y %∆P = %∆M ÷ %∆Y %∆P = %∆M * %∆Y %∆P = %∆M + %∆Y
%∆P = %∆M - %∆Y
Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by M * V = P *Y. M*Y=P*V M*P=V*Y M*V=(1/V)*P*Y
M * V = P *Y.
Net exports equal imports − exports. domestic consumption − foreign consumption. exports − imports. foreign consumption − domestic consumption.
exports − imports.
The lag in realizing that a macroeconomic problem exists is called recognition lag implementation lag impact lag market lag
recognition lag
Which of the following reduces the duration of frictional unemployment? Increasing the level of social security contributions from firms Establishing employment agencies which give out information about job vacancies Establishing labor unions which will protect workers from being laid off Subsidizing research and development in new areas of science and technology
Establishing employment agencies which give out information about job vacancies
Which of the following affects the quantity of U.S. dollars demanded in the currency market? Domestic purchases of U.S. goods and services Payments to foreign owners of U.S. assets Foreign purchases of U.S. goods and services U.S. purchases of foreign assets
Foreign purchases of U.S. goods and services
What is the difference between a shortage and scarcity? Scarcity is a result of two or more alternative uses and will always exist, and quantities of supply and demand adjusting to flexible prices will create shortages. Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level. There is no distinction between the two. They are the same thing. A surplus will exist when a good is scarce; a shortage merely implies that there isn't as much of something as people would like, which is nearly always the case.
Scarcity will always exist because choices must be made, but a shortage will only exist if the price is kept below the equilibrium level.
A shift in the demand curve to the left, all other things unchanged: will cause a movement upward along the supply curve and a higher equilibrium price. will result in a lower equilibrium price and greater equilibrium quantity. will cause the supply curve to shift to the left, too. will cause a movement downward along the supply curve and a lower equilibrium quantity.
will cause a movement downward along the supply curve and a lower equilibrium quantity.
Data from most industrialized countries show that countries with high investment rates (as a percentage of GDP) tend to be countries with high rates of economic growth. with the highest rates of inflation. with the most unequal income distribution. with the lowest rate of national saving.
with high rates of economic growth.
A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of required reserves? $10,000 $30,000 $0 $20,000
$10,000
Suppose a country has a national debt of $5,000 billion, a GDP of $20,000 billion, and a budget surplus of $130 billion. How much will its new national debt be? $5,130 billion $4,870 billion $19,870 billion $15,130 billion
$4,870 billion
Which of the following will decrease the aggregate quantity of output supplied? A decrease in the labor force A decrease in wages A decrease in net exports A decrease in the price level
A decrease in the price level
Which of the following is counted as consumption expenditure? A person buying a government bond A person buying a toaster from your neighbor in a garage sale A firm renting a two-storied building A person buying a new car
A person buying a new car
An example of a positive statement is: A high rate of economic growth is good for the country. An increase in investment spending tends to reduce unemployment. The rate of unemployment should be 4 percent. Everyone in the country needs to be covered by national health
An increase in investment spending tends to reduce unemployment.
Suppose the economy is initially in long-run equilibrium. Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run? An increase in government transfer payments An increase in the cost of a key input such as oil A sharp fall in stock market prices A decrease in health insurance premiums paid by firms raises the cost of employing labor
An increase in the cost of a key input such as oil
Which of the following is an advantage of automatic stabilizers? It is much easier to measure the impact of automatic stabilizers compared to the impact of discretionary fiscal policy. Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP. The lag for automatic stabilizers is relatively long. There is no administrative cost to implementing automatic stabilizers.
Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP.
Which of the following individuals benefits from inflation? Ben, who borrowed $1,000 from a friend and agreed to pay the same amount one year later Mark, who lent his friend $1,000 and agreed to accept repayment of the same amount one year later Randall, who lives on a fixed income of $800 per month Asuza, who keeps her savings in the form of cash in a safe at home
Ben, who borrowed $1,000 from a friend and agreed to pay the same amount one year later
If Canada has a financial account deficit, it means that the quantity supplied of Canada's financial assets exceed the quantity demanded. Canada's imports of capital goods exceed its exports of capital goods. Canadian residents purchase more foreign assets than foreigners purchase Canada's assets. Foreigners purchase more of Canada's assets than Canadian residents purchase foreign assets.
Canadian residents purchase more foreign assets than foreigners purchase Canada's assets.
The economy in a particular country is booming. Real GDP is growing at a rate of 6% per year, well above the average growth rate. Under these circumstances, which of the following types of unemployment is most likely to be the lowest? Involuntary unemployment Frictional unemployment Structural unemployment Cyclical unemployment
Cyclical unemployment
Which of the following is possible with international trade? I. Countries that engage in trade can consume at a point outside their respective production possibilities curves. II. Global production will be increased. III. World resources will be used more efficiently. I and III only I and II only I, II, and III II and III only
I, II, and III
Which of the following are monetary policy goals？ I. maintain high interest rates II. keep unemployment rates low III. reduce the size of the banking sector IV. prevent high rates of inflation II and IV I, II, III, and IV I, II, III II, III, IV
II and IV
Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable? If the money supply grows at a faster rate than real GDP, there will be inflation. If the money supply grows at a slower rate than real GDP, there will be inflation. If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation. If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP.
If the money supply grows at a faster rate than real GDP, there will be inflation.
Consider the following scenario: In January, 8 million people were seeking jobs but did not succeed. In February, 2 million of these people gave up and stopped looking for work. Holding all else constant, what happened to the unemployment rate in February? It decreased. The change in the unemployment rate will depend on the number of people aged 16 and above. It did not change. It increased.
It decreased.
What happens to the value of the deposit multiplier when banks hold excess reserves? It is only affected by the amount of loans that banks are willing to make, not the amount of excess reserves held. It is smaller than the value implied by the formula. There is insufficient information to answer the question. It is larger than the value implied by the formula
It is smaller than the value implied by the formula.
What is a business cycle? It is the economy's pattern of fluctuations in economic activity: expansion followed by contraction and then by another expansion. It refers to the peaks and troughs in the demand for luxury goods in a country. It is the seasonal pattern of fluctuations in consumer spending: increased spending during the holiday season and decreased spending at other times of the year. It is a firm's pattern of sales during a given year.
It is the economy's pattern of fluctuations in economic activity: expansion followed by contraction and then by another expansion.
What is an automatic stabilizer? It refers to a stabilization program that keeps inflation in check automatically. It refers to any government program that tends to reduce fluctuations in GDP automatically. It refers to a government program that is automatically triggered when the economy enters a recession. It refers to a discretionary policy that is triggered when actual output is not equal to potential output to improve the economy's performance.
It refers to any government program that tends to reduce fluctuations in GDP automatically.
Suppose a country's real GDP increases. At the same time, its population also increases. What happens to its standard of living? Its standard of living could rise if population growth is smaller than output growth. Its standard of living remains the same. Its standard of living depends on the price level. Its standard of living could rise if population growth exceeds output growth.
Its standard of living could rise if population growth is smaller than output growth.
The notion that there is a tradeoff between inflation and unemployment is expressed as a Schumpeter curve. Phillips curve. Friedman curve. Keynes curve.
Phillips curve.
Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects. The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase.
The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease.
Which of the following would be classified as fiscal policy? The federal government cuts taxes to stimulate the economy. States increase taxes to fund education. The Federal Reserve cuts interest rates to stimulate the economy. The federal government passes tax cuts to encourage firms to reduce air pollution.
The federal government cuts taxes to stimulate the economy.
The primary difference between a change in demand and a change in the quantity demanded is: a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve. both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions. a change in demand is a movement along the demand curve, and a change in quantity demanded is a shift in the demand curve. both a change in quantity demanded and a change in demand are shifts in the demand curve, only in different directions.
a change in quantity demanded is a movement along the demand curve, and a change in demand is a shift in the demand curve.
According to the short-run Phillips curve, which of the following would result in low rates of unemployment? a higher inflation rate a lower inflation rate weak increases in aggregate supply weak increases in aggregate demand
a higher inflation rate
The difference between iron ore deposits and the steel produced from these deposits that is later used to make factory equipment illustrates the difference between: a natural resource and entrepreneurship. labor and a natural resource. labor and capital. a natural resource and capital.
a natural resource and capital.
An unemployed person is: one who is eligible to work but chooses not to work. a person without a job who is actively seeking and available for work. a person who is looking for a job that better suits his qualifications than his current job. one who is physically disabled and is unable to work.
a person without a job who is actively seeking and available for work.
What is human capital? the manager or owner of a business a slang term for the underground labor market manufactured goods that are used to produce other goods accumulated knowledge and skills acquired by a worker
accumulated knowledge and skills acquired by a worker
In the short run, an increase in net exports causes an increase in real GDP and a decrease in the price level. a decrease in real GDP and an increase in the price level. an increase in real GDP and the price level. a decrease in real GDP and the price level.
an increase in real GDP and the price level.
Economic growth can be achieved through an increase in the production of capital goods. a decrease in the supply of labor. a decrease in the labor force participation rate.. a reduction in expenditures on research and development.
an increase in the production of capital goods.
Refer to the figure above. If real GDP is equal to Yr, there is a recessionary gap. a short-run and a long-run equilibrium. an inflationary gap. equilibrium at full employment.
an inflationary gap.
The unit-of-account function of money means that money is used as a consistent means of measuring the value of things. as the common denominator of future payments. to pay for goods and services. to accumulate purchasing power.
as a consistent means of measuring the value of things.
Suppose an economy is operating with an inflationary gap. In this case, policymakers would seek to move the economy back down the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment. up the Phillips curve toward an unemployment rate that is further from the natural rate of unemployment. back down the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment. up the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
back down the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.
The balance between spending flows into a country and spending flows out of that country is called a country's current account balance of payments capital account foreign exchange
balance of payments
When the Fed lowers the target rate of interest for federal funds, it buys government bonds. lowers the discount rate sells government bonds lowers the required reserve ratio
buys government bonds.
A factor of production that is produced in order to produce something else is called: money. capital. labor. technology.
capital.
A movement along the aggregate demand curve is called a determinant of aggregate demand. change in the aggregate quantity of good and services demanded. revealed expenditure on aggregate demand. change in aggregate demand.
change in the aggregate quantity of good and services demanded.
M1 includes currency plus checkable deposits. currency only currency in circulation plus checkable deposits. currency in circulation plus checkable deposits plus traveler's checks.
currency in circulation plus checkable deposits plus traveler's checks.
The formula for calculating a price index is: current cost of basket ÷ base-period cost of basket. base-period cost of basket ÷ current cost of basket × 100. (base-period cost of basket ÷ current cost of basket) × current nominal value of basket. percentage change in current cost of basket ÷ percentage change in base-period cost of basket.
current cost of basket ÷ base-period cost of basket.
A negative relationship between the quantity demanded and price is called the law of demand market clearing marginal returns supply
demand
Many disagreements among economists result because: economics is a social science. economics deals so much with theories and models. economists sometimes make normative judgments. economists only deal with positive economics.
economists sometimes make normative judgments.
A lower price level in the United States. discourages U.S. exports and increases U.S. imports. discourages U.S. exports and reduces U.S. imports. encourages U.S. exports and increases U.S. imports. encourages U.S. exports and reduces U.S. imports.
encourages U.S. exports and reduces U.S. imports.
When banks hold more reserves than are required, such reserves are called required reserves loan reserves total reserves excess reserves
excess reserves
The three fundamental questions of what, how, and for whom: are not relevant in the industrialized world of today. are much more serious in a socialist system. are not serious in a capitalistic system. exist because of scarcity.
exist because of scarcity.
Government tax and expenditure policies that affect real GDP are called fiscal policy discretionary fiscal policy automatic fiscal policy supply-side policy
fiscal policy
Economic development focuses on how countries can move toward their level of potential output and achieve widely shared gains in GDP per capita. examines the process by which a country's production possibilities curve shifts outward over time. concentrates on how a country can increase its human capital and labor productivity to bring about changes in productive processes. requires reductions in a country's population growth rate and at the same time, increases in real GDP.
focuses on how countries can move toward their level of potential output and achieve widely shared gains in GDP per capita.
An exchange rate system in which governments and central banks do not participate in the currency market is a(n) free-floating exchange rate system. managed float system. commodity standard system. fixed exchange rate system.
free-floating exchange rate system.
If actual inflation is less than expected inflation, actual real wages will be ________ expected real wages and unemployment will ________. less than; rise less than; fall greater than; rise greater than; fall
greater than; rise
For computing GDP, the official measure of the value of all goods produced during a period for use in the production of other goods is called: personal investment expenditure. gross private domestic investment. a transfer payment. a capital consumption allowance.
gross private domestic investment.
The theory of economic growth focuses on the growth of potential output over the long run, not on fluctuations in the level of economic activity in the short run. growth of real income equality in the long run; not on the growth of real income in the short run. growth of resources in the long run, not on the efficiency of resource use in the short run. advancements in technology over the long run, not on short-run increases in real GDP.
growth of potential output over the long run, not on fluctuations in the level of economic activity in the short run.
An economy is said to have a comparative advantage in producing a particular good if it: can produce more of all goods than any other country. has the highest opportunity cost of producing that good. has the lowest opportunity cost for producing that good. can produce less of all goods than any other country.
has the lowest opportunity cost for producing that good.
Which of the following result from a change in the money supply brought about by an open market sale? higher interest rate, decreased demand for investment lower interest rate, decreased demand for investment lower interest rate, increased demand for investment higher interest rate, increased demand for investment
higher interest rate, decreased demand for investment
An expansionary fiscal policy is likely to result in lower interest rates and higher private investment. lower interest rates and lower private investment. higher interest rates and lower private investment. higher interest rates and higher private investment.
higher interest rates and lower private investment.
Compared to middle- and high- income countries, low-income countries are often characterized by higher rates of population growth. greater government control by large, relatively poor groups. a smaller share of income used for consumption. a smaller proportion of the labor force in agriculture.
higher rates of population growth.
The time it takes for the Fed or government policymakers to enact policies to correct unemployment or inflation problems is a source of which lag? implementation lag recognition lag government lag impact lag
implementation lag
The short run in macroeconomic analysis is a period in which wages and some other prices do not respond to changes in economic conditions. of less than 12 months in which all macroeconomic variables are fixed. in which full wage and price flexibility and market adjustment have been achieved.
in which wages and some other prices do not respond to changes in economic conditions.
The natural rate of unemployment: is the same as cyclical unemployment. is the level where the quantity of labor demanded is more than the quantity of labor supplied. reduces during recessions. includes frictional and structural unemployment.
includes frictional and structural unemployment.
Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP. increases; decreases decreases; increases decreases; decreases increases; increases
increases; increases
Roads, telephone lines, power facilities, and schools are examples of a nation's infrastructure. technostructure. physiostructure. sociostructure.
infrastructure.
A liquidity trap is said to exist when a change in monetary policy has no effect on interest rate money supply the natural level of employment aggregate supply
interest rate
When the Fed sells bonds in the open market, we can expect interest rates to rise. interest rates to fall. the nominal interest rate to fall, but the real interest rate to rise. the inflation rate to rise.
interest rates to rise.
The current account keeps track of all spending flows on imports and exports of goods and services and assets. is an ongoing balance of a nation's foreign debts. keeps track of all spending flows on imports and exports of goods and services. is an ongoing balance of what is owed a nation by foreigners.
keeps track of all spending flows on imports and exports of goods and services.
Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to increase government purchases by $500 billion. more than $500 billion. less than $500 billion. None of the above are correct. Congress must act to decrease government purchases in this case.
less than $500 billion.
Which of the following is an example of a bank's assets? checkable deposits savings deposits loans made to customers reserves borrowed from the Fed
loans made to customers
Economists concerned about economy-wide trends in the unemployment of labor, the rate of inflation, and the level of economic production are studying: specific units or parts of the economy. macroeconomics. microeconomics. the "trees" of economic behavior, rather than the "forest".
macroeconomics.
Disposable personal income equals personal income minus personal tax payments. minus personal tax payments plus government transfer payments. plus government transfer payments. minus personal tax payments plus government transfer payments.
minus personal tax payments.
Any item that serves as a medium of exchange is called gold capital silver money
money
Trade can be beneficial to an economy because: it prevents specialization in those activities in which countries have a comparative advantage. it results in a more efficient use of the combined resources of some of the trading countries, even though it reduces efficiency in others. more goods and services can be obtained at a lower opportunity cost. it prevents unemployment.
more goods and services can be obtained at a lower opportunity cost.
If the opportunity costs of production of two goods is different between two countries, then: only one country can be made better off by trade. trade will only benefit both countries if one can lower its opportunity costs. trade cannot benefit either country. mutually beneficial trade is possible.
mutually beneficial trade is possible.
According to the short-run Phillips curve, the unemployment rate and the inflation rate are unrelated. negatively related. unaffected by monetary policy. positively related.
negatively related.
The GDP deflator is equal to nominal GDP divided by real GDP, multiplied by 100. real GDP divided by nominal GDP. nominal GDP divided by real GDP. real GDP divided by nominal GDP, multiplied by 100.
nominal GDP divided by real GDP, multiplied by 100.
The point on a business cycle where real GDP stops rising and begins falling is called a(n): expansion. peak. trough. recession.
peak.
Dollar bills in the modern economy serve as money because they are backed by the gold stored in Fort Knox. people have confidence that others will accept them as money. they have value as a commodity independent of their use as money. they can be redeemed for gold by the central bank.
people have confidence that others will accept them as money.
In the calculation of GDP, the value of a new house constructed by a firm is included in: personal consumption expenditures. he depreciation of capital. personal saving. private investment
private investment
Supply is best defined as the: relationship between the quantity of a good or service buyers are able to purchase, all other things unchanged. relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged. relationship between the quantity of a good or service buyers are willing to purchase, all other things unchanged. quantity of a good or service sellers are willing to offer for sale at a specific price, all other things unchanged.
relationship between the quantity of a good or service sellers are willing to offer for sale and various prices, all other things unchanged.
The quantity of reserves that banks must hold against deposits is called the reserve ratio. required reserves. total reserves. excess reserves.
required reserves.
As the incomes in foreign nations rise, their imports from the United States will rise and the U.S. dollar exchange rate will fall. rise fall as they become less dependent on other countries. not be affected.
rise
Technological improvements will: shift the production possibilities curve inward. shift the production possibilities curve outward. necessarily lead to increased unemployment. leave the production possibilities curve unchanged.
shift the production possibilities curve outward.
A period marked by rising unemployment and high inflation is called a Phillips phase. recovery phase. inflationary phase. stagflation phase.
stagflation phase.
Inflation reduces the ability of money to function as a store of value medium of value medium of exchange unit of account
store of value
What two factors are the keys to determining labor productivity? technology and the quantity of capital per hour worked the business cycle and the growth rate of real GDP the average level of education of the workforce and the price level the growth rate of real GDP and the interest rate
technology and the quantity of capital per hour worked
What are the two policy making bodies of the Federal Reserve? the Board of Governors and the Federal Open Market Committee the Board of Governors and the U.S. Congress the Board of Governors and the Presidents' office the Federal Open Market Committee and the U.S. Congress
the Board of Governors and the Federal Open Market Committee
Inflationary and recessionary gaps are closed by the economy's self-correcting adjustments mechanism that shift both the SRAS and the LRAS curves the AD curve the LRAS curve the SRAS curve.
the SRAS curve.
Recognition lags in fiscal policy stem largely from households and businesses may not respond to fiscal policy to the extent that policy makers had hoped, for example, they may not be as responsive to a tax cut . the difficulty of collecting economic data in a timely and accurate fashion. the fact that it takes time for a policy action to have its full effect on aggregate demand. the fact that it takes time before a fiscal policy, such as a change in government purchases or a change in taxes, is agreed to and put into effect.
the difficulty of collecting economic data in a timely and accurate fashion.
The rise and fall of real GDP over the course of the business cycle suggests that the economy is always at full employment. the economy is always at its potential output level. the economy may not always be in long-run equilibrium. wage and price stickiness ensures that the economy moves from a peak to a trough.
the economy may not always be in long-run equilibrium.
Each point on a Phillips curve is a different combination of aggregate output and the inflation rate. saving and disposable income. aggregate output and the unemployment rate. the inflation rate and the unemployment rate.
the inflation rate and the unemployment rate.
Potential GDP is defined as the maximum of GDP that the economy can produce. the amount of GDP produced if there is no frictional unemployment. the level of GDP attained when all firms are producing at capacity. the amount of GDP produced if there is no structural unemployment.
the level of GDP attained when all firms are producing at capacity.
The inflation rate in the year 2007 is defined as: the percentage of change between the price index in 2007 and the price index in 2006. the ratio of the nominal GDP in 2007 and the nominal GDP in 2006. the difference between the value of the price index in 2007 and the value of the price index in 2006. the ratio of the 2007 price index and 2006 price index.
the percentage of change between the price index in 2007 and the price index in 2006.
At the point where actual inflation is equal to expected inflation, the short-run Phillips curve intersects the long-run Phillips curve. the unemployment rate is zero. the short-run Phillips curve is the same as the long-run Phillips curve. there is no short-run Phillips curve, as this situation only occurs in the long run.
the short-run Phillips curve intersects the long-run Phillips curve.
If workers and firms raise their inflation expectations, actual inflation will fall to match expected inflation. unemployment will fall. the short-run Phillips curve will shift upward. the short-run Phillips curve will be vertical.
the short-run Phillips curve will shift upward.
Gross national product is defined as the value of final goods and services produced outside of the United States. the value of final goods and services produced within the United States. the value of final goods and services produced by residents of the United States even if the production takes place outside of the United States. the value of final goods and services produced within the United States, by United States residents.
the value of final goods and services produced by residents of the United States even if the production takes place outside of the United States.
The gross domestic product of an economy is defined as the: total value of all industrial goods produced and sold during a given period. value of all non-monetary transactions between consumers and firms during a given period. value of all noneconomic transactions made among consumers during a particular period. total value of all final goods and services produced during a given period.
total value of all final goods and services produced during a given period.
Social Security payments to U.S. citizens are considered: transfer payments and are not included in GDP. transfer payments and are included in GDP. income and are included in GDP. income and are not included in GDP.
transfer payments and are not included in GDP.
