MACRO FINAL

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals a.900 + 0.80Y. b.990 + 0.20Y. c.940 + 0.80Y. d.990 + 0.80Y.

a. 900 + 0.80Y.

An upward shift in the Fed's reaction function is equivalent to a.a decline in the Fed's long-term target for inflation. b.a downward shift of short-run aggregate supply. c.an upward shift of short-run aggregate supply. d.an increase in the Fed's long-term target for inflation.

a. a decline in the Fed's long-term target for inflation

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.60Y and potential output (Y*) equals 2,000, then this economy has a.a recessionary gap. b.no output gap. c.an expansionary gap. d.no autonomous expenditure.

a. a recessionary gap.

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.80Y and potential output (Y*) equals 4,000, then this economy has a.a recessionary gap. b.an expansionary gap. c.no autonomous expenditure. d.no output gap.

a. a recessionary gap.

When actual output is less than potential output, there is ____ output gap and the rate of inflation will tend to ____. a.a recessionary; decrease b.a recessionary; increase c.an expansionary; increase d.an expansionary; decrease

a. a recessionary; decrease

If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will _____ their loans based on current deposits, and the money supply will _____. a.decrease; decrease b.decrease; increase c.increase; increase d.increase; decrease

a. decrease; decrease

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap. a.increase by 200 b.decrease by 1,000 c.decrease by 200 d.increase by 1,000

a. increase by 200

When a currency is undervalued, international reserves _____ and the country has a balance-of-payments _____. a.increase; surplus b.increase; deficit c.decrease; deficit d.decrease; surplus

a. increase; surplus

In the long run, total spending only influences a.inflation. b.actual output. c.potential output. d.productive capacity.

a. inflation.

When actual output equals potential output there is ____ output gap and the rate of inflation will tend to ____. a.no; remain the same b.an expansionary; decrease c.an expansionary; increase d.a recessionary; increase

a. no; remain the same

An economy that trades with the rest of the world is a(n) a.open economy. b.closed economy. c.command economy. d.trade economy.

a. open economy

An expansion occurs when ______, when _______, or when both of these occur. a.potential output grows rapidly; actual output rises above potential output b.potential output grows slowly; actual output rises above potential output c.potential output grows slowly; actual output equals potential output d.potential output grows rapidly; actual output equals potential output

a. potential output grows rapidly; actual output rises above potential output

The U.S. dollar exchange rate, e, expressed as Japanese yen per U.S. dollar, will depreciate when a.real GDP in Japan decreases. b.U.S. consumers decrease their preference for Japanese cars. c.the U.S. Federal Reserve tightens monetary policy. d.real GDP in Japan increases.

a. real GDP in Japan decreases.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.8, net taxes are fixed at 60, planned investment is fixed at 50, government purchases are fixed at 145, and net exports are fixed at 35. Autonomous expenditure equals a.330. b.330 + 0.2Y. c.270. d.282.

a.330.

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____. a.less than $20 billion; less than $20 billion b.$20 billion; more than $20 billion c.more than $20 billion; more than $20 billion d.$20 billion; $20 billion

b. $20 billion; more than $20 billion

Jan's Dry Cleaning holds $10,000 on a typical day, although only $2,000 is essential for carrying out business. Making a midday deposit is estimated to reduce cash holdings to $8,000 and cost an extra $80 per year in lost production. If, in addition, an armored car service is engaged to pick up cash more frequently for a fee of $120 per year, cash holdings will be further reduced to $6,000 per day. Employing a computerized cash management service for an annual fee of $180 would reduce cash holdings further to $4,000. If any reduction in cash holdings will be invested in government bonds earning 10 percent, then how much money should Jan's hold? a.$6,000 b.$4,000 c.$8,000 d.$10,000

b. $4,000

In a certain economy, the components of planned spending are given by C = 500 + 0.8(Y-T ) − 300r I P= 200 − 400r G = 200 NX = 10 T = 150 Given the information about the economy above, how much would autonomous expenditures decrease for each one-percentage-point increase in the real interest rate (r)? a.700 units. b.7 units. c.35 units. d.5.6 units.

b. 7 units.

Adaeze has the assets and liabilities shown in the accompanying table. Credit card balance$ 2,000Cash500Government bonds2,000Stock5,000Checking750Car loan balance5,000Car15,000 Which of the following actions would increase Adaeze's money demand by $300? a.Adaeze writes a check for $300 to pay down her credit card balance. b.Adaeze sells $300 worth of stocks and puts the proceeds in her checking account. c.Adaeze buys a $300 government bond with funds from her checking account. d.Adaeze writes a $300 check for cash and holds the cash.

b. Adaeze sells $300 worth of stocks and puts the proceeds in her checking account.

An economy has two workers, Paula and Ricardo. Every day they work, Paula can produce 4 computers or 16 shirts, and Ricardo can produce 6 computers or 12 shirts. ________ has the comparative advantage in computers and _______ has the comparative advantage in shirts. a.Paula; Paula b.Ricardo; Paula c.Ricardo; Ricardo d.Paula; Ricardo

b. Ricardo; Paula

Which of the following will shift the aggregate demand curve to the right? a.Consumers become pessimistic about the future. b.The government increases spending on education. c.Income taxes are raised. d.Business managers become pessimistic about the future.

b. The government increases spending on education.

In a certain economy, the components of planned spending are given by C = 500 + 0.8( Y-T) − 300 r I P= 200 − 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression gives autonomous expenditures? a.[910 − 700 r] b.[790 − 700 r] c.[760 − 700 r] d.0.8 Y

b. [790 − 700 r]

A period in which the economy is growing at a rate significantly above normal is called a(n) a.depression. b.expansion. c.peak. d.recession.

b. expansion.

Stock prices tend to _____ when the Federal Reserve raises interest rates because higher interest rates _____ dividends. a.fall; increase b.fall; reduce c.rise; reduce d.rise; increase

b. fall; reduce

Starting from long-run equilibrium, the long-run impact of a war that raises government purchases, compared to the original equilibrium, is a.lower inflation and the same output. b.higher inflation and the same output. c.lower inflation and lower output. d.higher inflation and higher output.

b. higher inflation and the same output.

Higher real income ______ the demand for money and a higher price level ______ the demand for money. a.increases; decreases b.increases; increases c.decreases; increases d.decreases; decreases

b. increases; increases

If a country is a net importer of a good, domestic suppliers will supply _____ of that good after it opens itself to international trade. a.none b.less c.more d.the same amount

b. less

An expansion occurs when ______, when _______, or when both of these occur. a.potential output grows slowly; actual output rises above potential output b.potential output grows rapidly; actual output rises above potential output c.potential output grows rapidly; actual output equals potential output d.potential output grows slowly; actual output equals potential output

b. potential output grows rapidly; actual output rises above potential output

In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the _____ and affects net exports by changing the _____. a.inflation rate; unemployment rate b.real interest rate; exchange rate c.growth of domestic real GDP; growth of foreign real GDP d.exchange rate; real interest rate

b. real interest rate; exchange rate

To close a recessionary gap, the Fed ______ interest rates which ______ aggregate spending and ______ short-run equilibrium output. a.reduces; increases; decreases b.reduces; increases; increases c.raises; decreases; decreases d.raises; decreases; increases

b. reduces; increases; increases

Graphically long-run equilibrium occurs at the intersection of the aggregate demand curve and the a.expenditure line. b.short-run aggregate supply line and the long-run aggregate supply line. c.short-run aggregate supply line. d.long-run aggregate supply line.

b. short-run aggregate supply line and the long-run aggregate supply line.

If monetary policy must be used to set the market equilibrium value of the exchange rate equal to the official value, it a.is no longer available to stabilize the domestic economy. b.will simultaneously stabilize the domestic economy. c.will be unable to stabilize the market equilibrium value of the exchange rate. d.will increase the rate of growth in the economy.

b. will simultaneously stabilize the domestic economy

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and the actual rate of unemployment equals 5 percent, then the cyclical unemployment must be a.7 percent. b.−2 percent. c.1 percent. d.2 percent.

b. −2 percent.

The accompanying table provides nominal exchange rates for the U.S. dollar. CountryForeign currency/dollarDollar/foreign currencyCanada (Canadian dollar)1.2560.796Mexico (peso)20.190.050 Based on these data, the nominal exchange rate equals approximately ______ pesos per Canadian dollar or, equivalently, ______ Canadian dollars per peso. a.0.039; 25.359 b.25.359; 0.039 c.16.075; 0.062 d.0.062; 16.075

c. 16.075; 0.062

If short-run equilibrium output equals 15,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 15,500, then government purchases must ______ to eliminate any output gap. a.increase by 500 b.decrease by 50 c.increase by 50 d.decrease by 500

c. increase by 50

Holding all else constant, an increase in the real interest rate on U.S. assets will ______ the demand for dollars in the foreign exchange market and ______ the equilibrium Mexican peso/U.S. dollar exchange rate. a.decrease; decrease b.decrease; increase c.increase; increase d.increase; decrease

c. increase; increase

Forward guidance refers to a.lending of reserves by the Federal Reserve to commercial banks. b.a process similar to open-market sales. c.information that a central bank provides to the financial markets regarding its expected future monetary policy path. d.a process similar to open-market purchases.

c. information that a central bank provides to the financial markets regarding its expected future monetary policy path.

As inflation decreases, households become _____ uncertain leading to _____ spending. a.more; less b.more; more c.less; more d.less; less

c. less; more

If planned aggregate expenditure (PAE) in an economy equals 1,500 + 0.75Y and potential output (Y*) equals 6,000, then this economy has a.no autonomous expenditure. b.a recessionary gap. c.no output gap. d.an expansionary gap.

c. no output gap.

Suppose the government of New Country fixes the exchange rate of its currency, the Newo, in terms of the U.S. dollar. Initially the exchange rate is set at $0.50 per Newo. Later the government changes the exchange rate to $0.75 per Newo. This is an example of a(n) a.appreciation. b.depreciation. c.revaluation. d.devaluation.

c. revaluation.

A flexible exchange rate is an exchange rate whose value a.reflects the comparative advantage of the home country versus other foreign countries. b.is determined by the law of one price. c.varies according to supply and demand for the currency in the foreign exchange market. d.is established annually by the International Monetary Fund.

c. varies according to supply and demand for the currency in the foreign exchange market.

The demand for microwaves in a certain country is given by: D = 8,000 − 30P, where P is the price of a microwave. Supply by domestic microwave producers is: S = 4,000 + 10P. If this economy opens to trade while the world price of a microwave is $140, how many microwaves will be imported or exported? a.1,200 exported b.1,600 imported c.1,600 exported d.1,200 imported

c.1,600 exported

Tamara can produce either 5,000 pounds of cheese or 20 cars per year. Jamal can produce either 5,000 pounds of cheese or 10 cars per year. Tamara has a comparative advantage in producing _____, and Jamal has a comparative advantage in producing ______. a.cars; cars b.cheese; cars c.cars; cheese d.cheese; cheese

c.cars; cheese

Olivia has the assets and liabilities shown in the accompanying table. Credit card balance$ 1,000Cash200Government bonds3,000Checking300Car loan balance10,000Car15,000 What is Olivia's money demand? a.$200 b.$1,500 c.$300 d.$500

d. $500

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 80, planned investment is fixed at 50, government purchases are fixed at 140, and net exports are fixed at 30. Planned aggregate expenditure equals a.320 + 0.25Y. b.320 + 0.75Y. c.260 + 0.25Y. d.260 + 0.75Y

d. 260 + 0.75Y.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Planned aggregate expenditure equals

d. 290 + 0.25 Y.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals a.320 + 0.25 Y. b.0.75 Y. c.0.25 Y. d.290 + 0.75 Y.

d. 290 + 0.75 Y.

Holding all else equal, if the U.S. government imposes tariffs on imported products, then the equilibrium value of the U.S. dollar will a.remain fixed. b.depreciate. c.be determined by the Federal Reserve. d.appreciate.

d. appreciate.

The consumption function is the relationship between consumption and a.total spending. b.planned aggregate expenditure. c.investment. d.disposable income.

d. disposable income.

A fiscal policy action to close a recessionary gap is to a.decrease government purchases. b.increase taxes. c.decrease the marginal propensity to consume. d.increase transfer payments.

d. increase transfer payments.

If firms sell more output than expected, planned investment a.equals zero. b.is less than actual investment. c.equals actual investment. d.is greater than actual investment.

d. is greater than actual investment.

One reason why banks might increase their reserve-deposit ratio above the minimum level in times of economic uncertainty is that banks a.are initiating quantitative easing. b.may have insufficient required reserves. c.are most profitable when new loans are issued. d.may find only limited lending opportunities that seem sufficiently safe.

d. may find only limited lending opportunities that seem sufficiently safe.

In an economy where planned aggregate spending is given by PAE = 3,000 + 0.75Y− 10,000r, the central bank is currently setting the interest rate at 0.06 (6 percent). If potential output equals 9,500, the central bank must _____ the interest rate to close the _____ gap. a.lower; expansionary b.lower; recessionary c.raise; recessionary d.raise; expansionary

d. raise; expansionary

To close an expansionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output. a.raises; decreases; increases b.reduces; increases; decreases c.raises; increases; increases d.raises; decreases; decreases

d. raises; decreases; decreases

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n) a.expansionary output gap. b.decrease in potential output. c.increase in potential output. d.recessionary output gap.

d. recessionary output gap.

The rate at which two currencies can be traded for each other is called the _____ exchange rate. a.real b.fixed c.flexible d.nominal

d.nominal