Macro Practice Final

if the marginal propensity to consumer goes up, then

a given increase in government spending will have more impact on equilibrium GDP

All other things being equal, if the Fed buys bond

aggregate demand will increase

Which of the following shifts aggregate demand to the right?

an increase in government expenditures, but not a change in the price level

an increase in the money supply

and a decrease in the income tax both cause aggregate demand to shift right

The level of real GDP per person

and the growth rate of real GDP per person vary widely across countries

If PPP holds, a dollar will buy

as many goods in foreign countries as it does in the United States

The federal Funds rate is the interest rate

banks charge each other for short-term loans

If money growth does not affect real DP, and velocity is stable, an increase in the money supply creates a proportional increase in

both the price level and nominal GDP

the nominal interest rate is the

interest rate as usually reported by banks

as the price level rises

interest rate rises

if the per-worker production function shifts down

it now takes more capital per hour worked to get the same amount of real GDP per hour worked

According to new growth theory

knowledge capital is subject to increasing returns

Other things being equal, an increase in the price level makes the dollars people hold worth

less, so they spend less

If a country's saving rate declined, then other things the same, in the long run it would have

lower productivity and lower GDP per person

purchasing power parity theory does not hold at all times because

many goods are not easily transported; the same goods produced in different countries may b imperfect substitutes for each other

The economy's inflation rate is the

percentage change in the price level from the previous period

in the long run, changes in the money supply affect only

prices

If the Fed conducts open-market purchases which of these three increases in the short run: interest rate, prices, and investment spending?

prices and investment spending, not interest rates

Assuming no crowding out, a $100 billion increase in government expenditures shifts aggregate demand

right by more than $100 billion

When the money market is drawn with the nominal interest rate (i) on the vertical axis, a decrease in the reserve requirement would tend to shift the money supply curve to the

right, lowering the interest rate

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than otherwise?

the crowding out effect

other things being equal, aggregate expenditure increases if

the dollar depreciates

If the economy is in long-run equilibrium and then the Fed sells bonds

the price level will decrease and real GDP will be unchanged in the long run

When an economy faces diminishing returns

the slope of the per-worker production function becomes flatter as capital per hour worked increases

Which of the following is correct concerning the long-run Phillips curve?

Its position depends on the natural rate of unemployment

An increase in the saving rate would, other things being equal

increase growth more for a poor country than a rich country, but raise growth temporarily

in the short run, open-market purchases by the Fed

increase the price level and real GDP

Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005. Ruth's 1931 salary was equivalent to a 2005 salary of about

$1,026,000

If a small country has a current nominal GDP of $25 billion and the GDP deflator is 125, what is real GDP?

$20 billion

If GDP equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, and investment equals $510 billion. What is net exports?

$225 billion

During the past century the average growth rate of U.S. real GDP per person was about 2%. This implies that it doubled about every

35 years

Assume that the MPC is 0.75. The government spending multiplier is

4

If the CPI in the US is 175, the CPI in Sweden is 210, and the real exchange rate is 5, what is the nominal exchange rate, expressed as the number of Swedish krona per US dollar?

6

If the economy is currently in short-run equilibrium at a level of GDP that is above potential GDP, which of the following would move the economy back to potential GDP?

A decrease in wealth

Which of the following would not be associated with an adverse (negative) supply shock A. the long-run Phillips curve shifts left B. unemployment rises C. the price level rises D. output falls

A. the long run Phillips curve

Assume an economy experienced a higher inflation rate, as measured by the CPI, between 2004 and 2005 than it experienced between 2003 and 2004. Which of the following scenarios is consistent with this assumption? A. the CPI was 100 in 2003, 110 in 2004, 120 in 2005 B. the CPI was 100 in 2003, 110 in 2004, 124 in 2005 C. the CPI was 110 in 2003, 150 in 2004, and 200 in 2005

B. the CPI was 100 in 2003, 110 in 2004, 124 in 2005

In the short run, an increase in the money supply causes interest rate to

decrease, and aggregate demand to shift left

other things being equal, as a country's price level falls, the country's real exchange rate

falls

As recessions begin, production

falls and unemployment rises

If the stock market booms

household spending increases. To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply

in the CPI, goods and services are weighted according to

how much consumers buy of each good or service

A steep SRAS curve

implies that an expansionary open market operation by the Fed will have a bigger impact on the price level than if SRAS were flatter

foreign produced goods and services that are sold domestically are called

imports