macro final pt 2

In an imaginary economy, GDP falls from $100 billion to $95 billion while output per worker rises from $5000 to $5020. In this economy there has been:

A fall in production and an increase in productivity.

Which of the following statements regarding Adam Smith are correct?

Adam Smith claimed that coordination among large number of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it.

Cuts in public expenditure do not guarantee a reduction in the government's deficit because:

Aggregate demand will fall, reducing government revenue

People are more productive when they specialize (focus on a limited range of activities) due to:

All of the above 1

When the Federal Reserve wants to change the money supply, it most commonly

Conducts open market operations.

Deflation refers to a situation where prices are generally falling. Why is deflation generally undesirable?

It might lead to a reduction in aggregate demand as firms and households wait for prices to fall further.

Which of the following statements are correct? 3

Net income is the maximum amount that you can consume and leave your wealth unchanged.

In an economy where the MPC is 0.7, the proportional tax rate is 0.25 and the marginal propensity to import is 0.2, the multiplier will be:

1.48

According to the revised version of the Phillips curve, as shown in Figure 15.7 (Links to an external site.), if the rate of inflation last year was 3 percent and the bargaining gap this year and next year is 1 percent, then inflation this year and next will be:

4% then 5%

Imagine an economy that grows at a constant rate for the 21st century. A plot of the level of GDP over time will fit:

A convex line on a linear scale, and a straight upward-sloping line on a ratio scale.

Which of the following cases would the wage-setting curve shift up?

A more generous unemployment insurance scheme.

An overseas bank announces that it is introducing a new type of savings account paying a 3 percent fixed rate of interest for deposits of one year duration. This 3 percent is:

A nominal rate of interest

Suppose that we begin again at A and that this is a full-employment level of output. An increase in aggregate demand in these circumstances will most likely cause:

A rise in the general level of prices

Interest rates can influence the macroeconomy by influencing

All of the above 2

Which of the following is likely to lead to a fall in the level of investment spending?

An official forecast of a downturn in the economy

Potential solutions to the principal-agent problem in the credit market include:

Both b. and c.

The Federal Reserve helps prevent bank runs by

Both by providing deposit insurance and by operating as banks' lender of last resort.

It is often said that independent central banks are more likely to run a successful monetary policy than governments because their commitment to low inflation is more 'credible' than government promises. One reason for this is that:

Central banks are less subject to political pressures (e.g. for lower unemployment) than governments.

Imagine that the rate of inflation has been 10 percent per year for a number of years. The central bank then introduces a 'tight' monetary policy and the rate of inflation comes down to 5 per cent per year. This reduction is an example of:

Disinflation

Which of the following statements is correct regarding disposable income?

Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions.

The weakness of the original Phillips curve is that it ignored:

Expectations

Which of the following might help to minimize the costs of adapting to new technology?

Government re-training schemes

The 'paradox of thrift' refers to the fact that:

If we all save more, aggregate income will fall

Which of the following statements is correct regarding the model of the labor market?

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

The Beveridge curve will shift downward (toward the origin) if:

Information about job vacancies improves.

In periods of rapid inflation, which of the following groups tend to lose out?

Lenders (creditors)

The introduction of a new labor-saving technology results in:

Lower wage share of output and higher income inequality in the short run

The Federal Reserve does all except which of the following?

Make loans to individuals

Which of the following statements is correct? 1

Money allows purchasing power to be transferred between consumers.

In the short run, successive additions to capital produce smaller and smaller increases in output. In the long run, however, GDP continues to rise. This is because:

New capital equipment incorporates the latest technological developments.

Which of the following statements is correct? 2

Providing collateral is a signal to the lender that the project is of sufficient quality to succeed.

In Figure 15.4b, when employment is at level C, the real wage lies below the profit curve. Assume inflation is zero. In a competitive system, firms will begin to _____ prices and this will start a process of _____.

Reduce; deflation

A fall in the world price of commodities will:

Shift the price setting curve up and the Phillips curve down

Which of the following statements regarding the multiplier is correct? 3

Taxation and imports are "leakages" from the circular flow of income, which reduce the size of the multiplier.

The relationship between the unemployment rate and the job vacancy rate (each expressed as a fraction of the labour force) is known as:

The Beveridge curve

The widespread introduction of new technology into an economy takes time. The length of time between first appearance and general acceptance is known as:

The diffusion gap

The figure depicts a labor market. Now consider an inflow of half a million immigrant workers who are all looking for employment. Which of the following statements is correct?

The firms' marginal cost of production is temporarily reduced.

In the expression for aggregate consumption LaTeX: C=C_0+C_1Y C = C 0 + C 1 Y , the term LaTeX: C_1 C 1 is known as:

The marginal propensity to consume

Figure 1.2 shows the distribution of income across and within countries in 2014. The height of each bar represents the annual income of the population (for each decile), measured in 2005 US$, while the width of each country's bar represents its population. The red countries were the poorest countries in 1980, while the green countries were the richest in 1980. Based on this information, which of the following statements is correct?

The poorest decile in the US earns more than the richest decile in some poor countries.

Unemployment is a stock. The size of that stock will increase if:

The rate of job destruction is 2% per year and the rate of job creation is 1% per year

A household's net worth (or equity) is best described as:

The total value of assets minus the total value of its liabilities

The figure shows the wage-setting curve and the real wage w*. Based on this figure, which of the following statements is correct?

The unemployment rate is 5%

Which of the following is a distinctive characteristic of 'inclusive unions'?

They set their wage demands in accordance with the productivity of labor

Which of the following statements regarding fiscal policy is correct? 4

Unemployment benefits and a proportional tax system are both automatic stabilizers.

Which of the following best describes the short-run relationship between inflation and unemployment?

Unemployment rises; inflation falls

In the context of aggregate demand, which of the following constitutes investment:

Upgrading your firm's IT equipment.