Macroecon 2020
You decide whether to eat one more slice of pizza based on how hungry you feel. Which economic principle does this statement BEST represent?
"How much" is a decision at the margin.
If the government imposes a quota limiting sales of shrimp to 1,000 pounds, the quota rent per pound is:
$0
If the reserve ratio is 5% and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply?
$1 million
The value of national savings is:
$1.6 trillion
If the real money supply is $500 billion and the money supply grows by 2%, then real seignorage is:
$10 billion
The present value of a $110 payment in one year, given an annual 10% interest rate, is:
$100
When real GDP is $700 billion, there will be a _____ in unplanned inventory investment.
$125 million increase.
A surplus of the good will result if the price is:
$15
Determine the value add to GDP by these four firms.
$16,000
Suppose that real GDP per capita of the U.S. is $32,000 and its growth rate is 2% per year and that real GDP per capita of China is $4,000, and its annual growth rate is 7%. According to the rule of 70, how large will China's real GDP per capita be in 20 years?
$16,000
If the money help by the public is $3 billion and inflation is 6%, the inflation tax is:
$180 million
Given the initial equilibrium of S1 and D, any price lower than ____ will exert pressure for the price to ______.
$2.50; rise
If the market interest rate declines from 15% to 13%, then the amount of investment demanded will increase by:
$200
Suppose that the aggregate consumption function is given by the equation C = 200 + 0.8YD, where C represents consumption and YD represents disposable income. If disposable income is $500, autonomous consumption is:
$200
How much is total government spending?
$220
The value of M2 is:
$3,355 billion
Suppose that a bank receives a $5,000 deposit and the reserve ration is 25%. Based on this deposit alone, the bank can lend out:
$3,750
If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is:
$4 billion
Total expenditures on GDP by the household sector are:
$500 billion
Suppose that, in year 1, an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year, the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each. The value of nominal GDP in years 1 and 2, respectively, is:
$900 and $1,077.50
Suppose that the Federal Reserve sells $500 in U.S. Treasury bills, and as a result the money supply falls by $5,000. The reserve ratio can be as low as:
0.1
In a simple, closed economy (no government or foreign sector), if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is:
0.60
Suppose that the consumption function is C = $500 + 0.8* YD, where YD is disposable income. The marginal propensity to consume is:
0.8
The multiplier effect of changes in government purchases of goods and services is equal to:
1/(1-MPC)
If the MPS = 0.1, then the multiplier equals:
10
What is the budget balance as a percentage of GDP in Northlandia?
10%
If a price floor of $15 is imposed on this market and the government chooses to purchase the surplus, the government must buy _____ units of the good and spend a total amount of _______ on its purchase.
10; $150
If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by ____% and real GDP _____.
10; returns to the potential level of output
The total population is _____ million.
278
The opportunity cost of moving from producing ONLY wheat to producing at point D is _____ tons of wheat.
3
If marginally attached workers are included in the labor force, the labor force is ____ million.
33
The growth rate of per capita nominal GDP was:
33%
If the slope of the aggregate expenditures curve is 0.75, the multiplier is:
4
In 1982, the cyclical unemployment rate was approximately:
4%
Assume that an economy produces only lemonade and cookies. Assuming that 2014 was the base year, the growth rate of real GDP from 2013 to 2014 was:
4.7%
At what interest rate will the market for loanable funds be in equilibrium?
5%
If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is:
5%
If each country specializes completely in the good for which it has the comparative advantage, which combination represents a maximum possible amount of total production of the two goods, given the specialization?
50 wheat and 75 toys
If the cost of a market basket is $150 in year 1 and $200 in year 2, the price index for year 1 using year 2 as the base is:
75
The opportunity cost of producing the fourth unit of consumer goods is _____ units of capital goods.
8
U.S. real GDP per capita in 2015 was _____% as much per person as it was in 1900.
804
If the price of lemonade is $1 per cup, the total quantity of lemonade supplied will be ____ cups per day.
90
Economists mostly agree that the problem of climate change necessitates government action in the form of market-based incentives such as:
A carbon tax or a cap and trade system.
If the aggregate demand curve is AD"
A contractionary fiscal policy may be warranted.
If the Federal Reserve conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is:
A decrease of $50 million.
If this economy is at Y1 and the price level decreases:
A downward movement along the AD1 will take place, reflecting a decrease in the price level.
A negative demand shock can cause:
A recessionary gap.
Consider two competing motorcycle manufacturers, Harley-Davidson and Honda. If Harley-Davidson raises the price of its motorcycles, we can expect:
A shift to the right in the demand curve for Hondas and higher prices for Hondas.
Other things being equal, if there is an increase in the interest rate above 8%, _____ quantity of loanable funds will be demanded.
A smaller
If the supply and demand curves intersect at a price of $47, then any price about that would result in:
A surplus.
Which shape accurately portrays the long-run Phillips curve?
A vertical curve.
Assuming that tablets are normal goods, which factor will NOT increase demand for tablets?
A very large company that makes tablets going out of business.
Assume that PA is the autarky price and PW is the world price. Total surplus before international trade is equal to the area:
A+B+C
Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _____ curve to _____.
AD2;AD1
Normally the discount rate is ______ the federal funds rate.
Above
According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP.
Accelerator principle.
Investment spending in macroeconomics refers to:
Adding to physical capital.
If the government increases its borrowing, then at every interest rate there is a(n) _____ funds.
Additional demand for
The relation between a country's level of saving and investment:
Affects its trade balances.
If ______, expansionary fiscal policy is most likely to crowd to private spending.
Aggregate income is $500 billion above its potential level.
The Arcadia Entertainment Co. produced 20,000 DVDs of the movie Thor in 2011. Only 4,000 copies remained unsold at the end of 2011. As a result:
All 20,000 DVDs will be included in GDP in 2011, 16,000 as consumption expenditure and 4,000 as investment expenditure.
Suppose that the average cost of a doctor visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor visit, there will be:
An excess demand for doctor visits.
If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in government spending, holding everything else constant, which outcome is likely to occur?
An increase in the nominal GDP.
A decrease in the price of a good will result in:
An increase in the quantity demanded.
Economists in general agree that rent controls are:
An inefficient but sometimes effective way to help low-income families.
When the economy is producing output above the potential, it has:
An inflationary gap.
Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:
And increases in the price level were roughly proportional.
An important advantage of bonds as a financial asset is that they:
Are standardized and therefore are easier to sell than loans.
Which of the graphs shows what may happen if D1 or S1 is the original curve and D2 or S2 is the new curve and if some of the online stores that rent online movie rentals close?
B
An improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from:
B to C
Which change in real GDP is MOST likely to have resulted from an increase in the quality (as well as quantity) of government spending on education?
B to C
Which factor would cause a LEFTWARD shift in the supply curve for a good? A) An increase in the number of buyers. B) An increase in the cost of an input. C) A technological improvement in production. D) An increase in the number of sellers.
B) An increase in the cost of an input.
Which federal agency calculates and reports the official unemployment rate?
Bureau of Labor Statistics
The switching between recessions and expansions is known as the:
Business cycle
Which expression represents Mark's individual consumption function?
C = 450 + 0.5YD
Which statement is TRUE? A) If a market is in equilibrium, the price in that market will not fluctuate by more than 5%. B) The concept of equilibrium requires that all individuals have an equal amount of income. C) If a market is in equilibrium, there will be no remaining opportunities of individuals to make themselves better off. D) A market is in equilibrium when the number of buyers is equal to the number of sellers.
C) If a market is in equilibrium, there will be no remaining opportunities for individuals to make themselves better off.
Deflation:
Can cause decreases in output.
Price controls:
Can result in inequitable outcomes.
Tahoe has an absolute advantage in producing:
Cattle only
An increase is capital stock would:
Cause a movement to the right along a stationary production function.
Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55. This price floor will:
Cause a surplus of corn.
Included in M1 are:
Checkable bank deposits.
The notion that the real quantity of money is always at its long-run equilibrium level is associated with the ____ of the price level.
Classical model
This table shows the maximum amounts of coffee and salmon, both measured in pounds, that Brazil and Alaska can produce if they just produce one good. Brazil has a comparative advantage in producing:
Coffee only
If the demand for tires goes down when the price of gas goes up, then tires and gas are:
Complements
If the economy is at equilibrium at E1, the government should use ______ fiscal policy to shift the aggregate demand curve to the ______.
Contractionary; left
Which asset is the MOST liquid?
Currency
In September 2007, reversing its course, the Federal Reserve began a series of:
Cuts in the federal funds target rate to lower the interest rate, reversing its previous policy of raising interest rates, to fight the financial crisis.
The natural level of unemployment contains no ______ unemployment.
Cyclical
Which statement about the U.S. economy is FALSE? A) Long-run growth per capita is the key to higher wages and a rising standard of living?. B) Since the Second World War, macroeconomic policy has helped make the economy more stable. C) Since the Second World War, aggregate output has grown more rapidly than the population. D) Since the Second World War, aggregate output has grown more slowly than the population.
D) Since the Second World War, aggregate output has grown more slowly than the population.
Which statement is normative? A) Women's labor force participation rate has increased during the past 100 years. B) Children in the United States are required to go to school until they reach a certain age. C) The federal minimum wage is higher today than it was in 1900. D) The best way to encourage growth in the economy is through government spending.
D) The best way to encourage growth in the economy is through government spending.
Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. As a result of the withdrawal, required reserves:
Decrease by $1,600
Suppose the required reserve ratio is 10% and a depositor withdraws $500 from her checkable deposit. The money supply will _____ if the banking system does NOT hold any excess reserves.
Decrease by $4,500
If interest rates rise, there will be a(n):
Decrease in aggregate demand.
Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _______ unemployment.
Decrease in frictional.
A decrease in the demand for money would result from a(n):
Decrease in real GDP
In the U.S., recessions are typically associated with a(n):
Decrease in the percentage of Americans with health insurance.
When the price level decreases, firms in imperfectly competitive markets will:
Decrease output and decrease price.
Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $700 billion, which of the following policies would bring the economy to potential output?
Decrease taxes by $25 billion.
If goods A and B are substitutes, a decrease in the price of good B will:
Decrease the demand for good A.
One reason financial institutions become very large is to:
Decrease transaction costs.
If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____.
Decrease, $40 billion.
Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will ______ by ______.
Decrease; $500 billion
If the Federal Reserve wanted to increase the money supply, it could ____ the required reserve ratio, ______, and ______ bonds on the open market.
Decrease; decrease the discount rate; buy
To close an inflationary gap using monetary policy, the Federal Reserve should _____ the money supply to ______ investment and consumer spending and shift the aggregate demand curve to the _____.
Decrease; decrease; left
Suppose the world price equals $50,000 and there is free trade. In the United States, consumer surplus would _____ and producer surplus would _____.
Decrease; increase
A decrease in demand and a decrease in supply will lead to a(n) ____ in equilibrium quantity and a(n) ______ in equilibrium price.
Decrease; indeterminate change.
Deflation is a:
Decreasing aggregate price level.
The annual percentage change in the aggregate price level is negative when there is:
Deflation
The total income of households after taxes and government transfers is called:
Disposable income.
The demand curve for loanable funds slopes:
Downward because quantity demanded is lower when the price to borrow money is higher.
The aggregate demand curve slopes:
Downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases.
If the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport coconuts decreased, it could be represented in the figure as a movement from:
E to B.
Suppose that the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. Finally, the economy moves to E3. The classical model of price level assumes that the economy moves from _____; thus, inflation ____ and real GDP ______.
E1 to E3, ignoring E2; increases; remains the same
Okun's law is less than a 1:1 ratio because some:
Employers change the working hours of current employees as demand changes.
France and England both produce wine and cloth with constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. Using this information, we can conclude that:
England has a comparative advantage in cloth production.
If the economy is operating at point B, producing 16 cars and 12 computers per period, a decision to mover to point E and produce 18 computers:
Entails a loss of 8 cars per period.
Suppose the U.S. auctioned off all import quotas, the auctions were perfectly competitive, and the government received the revenues from the auction. In this case, the deadweight loss from a quota would be _____ the deadweight loss from an equivalent tariff.
Equal to
Suppose that actual aggregate output is equal to the potential output; the actual unemployment rate is:
Equal to the natural rate of unemployment.
The rule of 70 is MOST useful in:
Estimating the doubling time of real GDP for a given growth rate.
The Fisher effect states that the:
Exepected real rate of interest is unaffected by the change in expected inflation.
An upward shift in the aggregate consumption function can be caused by:
Expectations of higher incomes.
An important factor determining planned investment spending is:
Expected real GDP
When an economy is expanding, unemployment tends to _____ and overall prices tend to _____.
Fall; rise
Suppose the state of Mississippi sets a price floor in the market for cotton. If the floor is set below the market-clearing price of cotton, the floor will cause a surplus of cotton.
False
The classical model of the price level is more accurate during low inflation than high inflation.
False
The U.S. dollar is defined as:
Fiat money, because it was established as money by an act of law.
Unemployment that is due to the time workers spend in job search is ______ unemployment.
Frictional
Aggregate demand will shift to the RIGHT if:
Government purchases increase.
Consumer spending will likely rise if:
Government transfers rise.
If we add up the consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's:
Gross domestic product (GDP)
In the U.S. economy, the circular-flow diagram does NOT illustrate:
Growing income inequality.
Economists use the term long-term growth to indicate:
Growth of the economy over several decades.
Suppose the government sets a price floor below the current price of a good. This price floor will:
Have no immediate effect on the price of the good.
The model suggesting that countries will specialize in producing the good that uses its relatively abundant factor of production MOST intensively is referred to as the ______ model.
Heckscher-Ohlin
Long-run economic growth is:
Higher in countries with a strong run of law and political stability.
When labor unions successfully bargain for wage rates that are _____ the equilibrium wage rate, they may cause ____.
Higher than; an increase in structural unemployment.
Compared with autarky, international trade leads to _____ domestic production in exporting industries and _____ domestic production in import-competing industries.
Higher; lower
Which question is the MOST appropriate to the study of macroeconomics?
How does the aggregate price level affect overall consumer spending?
The skills, training, and education possessed by workers that contribute to economic growth are known as:
Human capital
Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. What is a real outcome?
If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected.
If Medicaid is expanded to cover a greater percentage of the population:
Implicit liabilities will increase.
Which statement does NOT describe a source of comparative advantage?
In general, France has absolute advantage over Italy in production of goods and services.
One difference between a closed and an open economy is that:
In the latter, foreign savings complement domestic savings in financing investment spending.
The long run in macroeconomic analysis is a period:
In which prices and nominal wages are flexible.
Disposable income equals:
Income plus government transfers minus taxes.
If the marginal propensity to consume increases, the multiplier will:
Increase
When the unemployment rate is high, there is political demand to increase the benefit period for unemployment compensation. In a standard analysis, doing so will lead to:
Increase in the unemployment rate.
A decrease in energy prices will:
Increase short-run aggregate supply.
If the Federal Reserve wants to discourage banks from borrowing directly from the Federal Reserve and thus decrease the monetary base, it will likely:
Increase the discount rate.
The effect of international trade on U.S. factor markets is to:
Increase the wage of highly educated workers.
Suppose the United States removes its sugar quotas and the market price of sugar drops. Since sugar is an input in candy, in the candy bar market, we would expect consumer surplus to:
Increase.
Assume that the U.S. imposes an import quota on Scottish wool suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the U.S. will most likely ____ and the equilibrium price of suits in Scotland will most likely ____.
Increase; decrease.
If demand is downward sloping, an increase in supply with no change in demand will lead to a(n) ____ in equilibrium quantity and a(n) _____ in equilibrium price.
Increase; decrease.
Suppose the equilibrium aggregate price level and the equilibrium level of real GDP are both rising. This is probably the effect of a(n) _____ in aggregate ______.
Increase; demand.
If the economy is at point h because of an open market purchase by the Federal Reserve and no further monetary policy is implemented, in the long run nominal wages will _____, SRAS will shift _____, real GDP will ______, and the price level will ______.
Increase; to SRAS'; decrease; increase
Suppose that the economy is in a recessionary gab. A $100 billion _____ is likely to increase real GDP by the LARGEST amount.
Increases in government purchases.
Federal Reserve policy to increase the supply of money, hence to lower the interest rate from 6% to 4%, is accomplished by action that _______ Treasury bills.
Increases the demand for
An increase in the marginal propensity to consume:
Increases the multiplier.
An expansionary fiscal policy either ______ government spending or ______ taxes.
Increases; decreases
According to the concept of monetary neutrality, _____ in the money supply _____ real GDP _____ the price level.
Increases; do not change; but do raise
If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy _____.
Ineffective; effective
The topics studied in macroeconomics include:
Inflation
A short-run Phillips curve implies a negative relationship between:
Inflation and unemployment.
If the natural rate of unemployment is 5% and the actual rate of unemployment is 4%:
Inflation will increase.
Which factor contributes to economic development?
Investment in infrastructure.
Inflation:
Is an increase in the overall level of prices.
If Tealand is producing 10 million scones and 10 million cups of tea (point A), we know that the economy:
Is using its resources inefficiently.
Which statement accurately describes disinflation?
It is a reduction of the inflation.
A price ceiling will have NO immediate effect if:
It is set above the equilibrium price.
The quantity demanded for money is higher in Japan than in the U.S. because:
Japanese interest rates are lower than those in the U.S.
If they spend all night writing computer programs, Laurence can write 10 programs while Carrie Anne can write 5. If they spend all night making sunglasses, Laurence can make 6 while Carrie Anne can make 4. We know that:
Laurence has an absolute advantage in both programs and sunglasses.
To acquire human capital a person would:
Learn to use a printing press.
Who gains when there is unexpected deflation?
Lenders
The multiplier effect of changes in government transfers is:
Less than the multiplier effect of a change in government spending.
Suppose that Jim just got a $20,000 loan from his credit union to buy a new car. The loan is a _____ for Jim and a _____ for the credit union.
Liability; financial asset
The government has almost eliminated the possibility of bank runs by instituting protective measures. What is NOT a measure?
Loan guarantees.
When a country utilizes more physical capital per worker over time, there will be:
Lower but always positive growth rates of productivity.
If the marginal propensity to save is small, it will:
Make the multiplier larger.
If in Equitania, 20% of the population receive 80% of the income and the remaining 80% of the population receive 20% of the income, Equitania's economy:
May be efficient
_______ has/have an absolute advantage in producing crude oil.
Mexico
The government budget balance equals taxes _____ purchases _____ transfers.
Minus; minus
In the short run, the interest rate is determined in the ______ market.
Money
In 2011 the output gap was:
Negative
Okun's law finds that output gaps and unemployment rates are ____ related in a _____ ratio.
Negatively; less than one-to-one
If a country has a trade surplus, we can conclude that it also has a:
Net capital outflow
A price ceiling of P1 causes:
No change to the market.
In the long run, the aggregate price level has:
No effect on the quantity of aggregate output.
Do most economists believe that the budget should be balanced each fiscal year?
No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well.
Inflation does NOT reduce purchasing power if:
Nominal wages rise at the same rate as prices.
If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the SRAS will:
Not change, since in the classical model the SRAS and LRAS are both vertical at potential output.
To be officially unemployed, a person must:
Not have a job and must have looked for work in the past four weeks.
The intersection of an economy's aggregate demand and long-run aggregate supply curves:
Occurs at the economy's potential output in long-run equilibrium.
The aggregate supply curve shows the relationship between the aggregate price level and the aggregate:
Output supplied
When people want more goods and services than are available, the economy undergoes inflation. Which economic principle does this statement best represent?
Overall spending sometimes gets out of line with the economy's productive capacity.
The figure shows how supply and demand might shift in response to specific events. Suppose the birthrate decreases. Which panel BEST describes how this will affect the market for diapers?
Panel B
Fiat money is:
Paper money with no intrinsic value.
For the past several months, per capita output has increased at a slower and slower rate. Over the same period, the unemployment rate has been falling, but it appears that both have leveled off. Where in the bussiness cycle is the economy?
Peak
When a market is in equilibrium:
People have exploited all opportunities to make themselves better off.
Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are an example of this economic principle:
People usually respond to incentives, exploiting opportunities to make themselves better off.
Disinflation:
Policy may plunge the economy into a recession.
Productivity is declining when:
Population growth exceeds real GDP growth.
Unemployment decreased to its lowest level in 10 years last month. This statement is a(n):
Positive economic statement.
An amount that would equal a particular future value if deposited today at the prevailing interest rate is the:
Present value
When price controls take the form of maximum prices set below the equilibrium price, they are:
Price ceilings.
Liquidity traps are most likely to occur when the:
Public expects deflation.
Suppose the labor market is in equilibrium at E when the government imposes a minimum wage of WF. Structural unemployment, assuming all worker without a job are searching, will equal.
QS-QD
The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:
Quantity of output demanded by households, businesses, the government, and the rest of the world.
If the price of a commodity increases, you can usually expect the:
Quantity supplied to increase.
The difference between the demand price and the supply price at the quota limit amount is the:
Quota rent.
A business will be likely to borrow to fund projects if the:
Rate of return on the project is at least as high as the interest rate on the loan.
When economists measure economic growth, they often use:
Real GDP
The key measure used to track economic growth is:
Real GDP per capita.
If real GDP is greater than planned aggregate spending:
Real GDP will fall.
Menu costs are the:
Real costs of changing listed prices.
Which topic is studied in macroeconomics?
Recessions
When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and there's a net _____ to total surplus of ____.
Reduction; I+K
If the economy is at potential output and the Fed increases the money supply, in the long run real GDP will likely:
Remain the same.
The existence of banks:
Results in the money supply being larger than the amount of currency in circulation.
Suppose that the budget deficit of a country remains level for five years. The federal debt will:
Rise
Suppose that the economy is operating at potential output and the money supply increases. Aggregate output will _____ potential output, nominal wages will ______, and the SRAR will shift _______.
Rise above; rise; leftward
Suppose that this economy has an unemployment rate 6%, no inflation, and no expectation of inflation. If the central bank increases the money supply such that aggregate demand shifts to the right and unemployment falls 4%, then inflation will:
Rise to 2%
Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. If the central bank increases the money supply such that aggregate demand shifts to the right and unemployment falls to 4%, then inflation will:
Rise to 2%.
If real GDP falls while nominal GDP rises, then prices on average have:
Risen
A survey reveals that, on a small island, initially 100 people have jobs, 25 people don't have jobs but are looking for jobs, and 45 people are neither working nor looking for work. Suppose that 15 of the 45 people who weren't looking for work now begin looking for work. There are now 40 people looking for work and 100 people working. The unemployment rate:
Rises to 28.6%
All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of ______ capital.
Savings; investment; physical
Corner offices in high-rise office buildings usually cost more to rent than other offices. This best illustrates the economic principle of:
Scarcity
To avoid falling into a liquidity trap, most central banks:
Seek a positive but small inflation rate rather than zero inflation.
Fiscal policy entails:
Setting levels of taxation and/or government spending.
Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a:
Shift to the left
If Congress places a $5 tax on each ATM transaction, there will likely be a:
Shift to the right of the money demand curve.
If planned investment spending increases, the planned aggregate spending line:
Shifts up
The negative relationship between the inflation rate and the unemployment rate is known as the ______ curve.
Short-run Phillips
The Federal Open Market Committee sets the target interest rate for the next:
Six weeks
If the economy is operating well below potential output, the cyclically adjusted budget balance deficit is ____ than the actual budget balance.
Smaller than
If rent controls are set at Rent0:
Some renters will be willing to pay a price as high as Rent4 for Q0 units.
An example of an intermediate good is:
Steel purchased by aircraft manufacturers.
In the short run, wages and some prices are considered to be:
Sticky
The long-run Phillips curve:
Suggests that policies have little effect on the natural rate of unemployment in the long run.
According to the liquidity preference model, the equilibrium interest rate is determined by the:
Supply of and demand for money.
A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.
Supply; short-run aggregate supply; left
Long-run growth is a(n):
Sustained upward trend in the economy's overall output per person, which generates higher incomes and a higher standard of living for its members.
Fiscal policy attempts to affect the level of overall spending by making changes in:
Taxes and spending.
China, which is labor-abundant, has a comparative advantage in clothing production, which is labor-intensive. Which of the model explains this pattern of comparative advantage?
The Heckscher-Ohlin model.
The opportunity cost of 1 computer for ______ is ______ box(es) of roses.
The United States; 0.5
National savings is the sum of private savings and:
The budget balance.
The eurozone is:
The countries that use the euro as their common currency.
To achieve gains from trade, each nation should specialize in the production of a good or service if:
The country can make that good or service while forgoing the production of fewer alternative products than any other country.
Bank reserves are:
The currency held at bank vaults plus bank deposits at the Federal Reserve.
On a production possibility frontier, opportunity cost is:
The decrease in the output of one good when the output of the other good is increased.
You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:
The enjoyment you would have received from the candy bar.
Keynesian economics promotes ideas that:
The government can help a depressed economy via fiscal and monetary policies.
If the Federal Reserve increases the discount rate:
The money supply is likely to decrease.
When a chef prepares a dinner for a customer, which of the following is physical capital?
The oven
Suppose Indiana produces only steel and corn, with fixed amounts of land, labor, and capital resources. Which scenario BEST sets the stage for economic growth?
The percentage of Indiana residents with a college degree rises from 25% to 30%.
The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound:
The price floor will not affect the market price or output.
Which factor is NOT included in investment spending in the national income accounts?
The purchase of stocks and bonds by a business.
Which item would NOT be included in the year's GDP?
The purchase of your neighbor's house, which was built in 1994.
Disinflation means a decrease in:
The rate of inflation.
GDP does NOT exclude:
The value of owner-occupied housing.
In the long run, when the actual inflation rate gets embedded in people's expectation:
There is no longer a trade-off between inflation and unemployment.
If disposable income increases:
There will be a rightward movement along the consumption function.
People forgo interest and hold money:
To reduce their transaction costs.
An open economy:
Trades goods and services with other countries.
Government payments to households for which no good or service is provided in return are called:
Transfer payments.
In economies with persistently high inflation, an increase in the money supply will:
Translate into a proportional increase in the aggregate price level much faster than usual.
The additional profit earned by Microsoft Corporation by marketing and using a proprietary method of coding software is a microeconomic issue.
True
The difference between the actual and potential GDP is the output gap.
True
The worst inflation in the U.S. in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%.
True
When a factory closes, why is it bad news for the local restaurants?
Unemployed factory workers have lower incomes and are less likely to dine out.
The unemployment rate is the ration of all of the people:
Unemployed to those in the labor force.
During a recession:
Unemployment increases and the growth rate of real GDP decreases.
"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?
Unit of account
When planned investment is less than actual investment, there must be:
Unplanned inventory investment.
Producing a short-run level of aggregate output that exceeds the economy's potential output results in a(n) _____ adjustment in ______.
Upward; nominal wages.
In the liquidity preference model, the money supply is represented by a(n):
Vertical line
Which would NOT be classified as a macroeconomic question?
What determines a university's cost of offering a new course?
Margo spends $30,000 on one year's tuition. The opportunity cost of spending one year in college for Margo is?
Whatever she would have purchased with the $30,000 plus whatever she would have earned had she not been in college.
The federal government regulates how much carbon dioxide a factory can emit. Which economic principle does this statement BEST represent?
When markets don't achieve efficiency, government intervention can improve society's welfare.
Many countries engage in trade protection by imposing import tariffs or quotas for at lease some goods. This is because:
While such restrictions harm consumers, they benefit producers, who are usually a more cohesive and politically influential group.
Which equation measures an inflationary gap?
Y3-Y2
An economy is efficient when:
all opportunities to make some people better off without making other people worse off have been taken.
From the standpoint of economic growth, banks are important to:
channel savings into investment.
You are analyzing a trade-off when you compare the ________ and _________ of doing something.
costs; benefits
If an economy is producing at a point on its production possibilities frontier, it is:
efficient in production but not necessarily in allocation.
The importance of an economic model is that it allows us to:
focus on the effects of only one change at a time.
A movement from point A on AD1 to point C on AD2 could have resulted from a(n):
increase in the total quantity of consumer goods and services demanded.
The figure shows production possibility frontiers for two countries that produce only radishes and bicycles. The axes of the two graphs are measured in equivalent units. Country A is operating at point M, and country B is operating at point N. Suppose country A discovers a new technology that greatly increases its ability to produce bicycles but has no effect on its ability to produce radishes. This would:
increase the opportunity cost of producing radishes in country A.
Scarcity exists when:
individuals can have more of one good but only by giving up something else.
When a nation's economy grows:
its production possibility frontier shifts outward.
If every individual were required to be self-sufficient:
living standards would fall.
Economists usually assume that production is subject to increasing opportunity costs because:
not all resources are equally suited to producing every good.
When the economy expands, income tax receipts will:
rise, and sales tax revenues will rise.
For consumers, pizza and hamburgers are substitutes. A rise in the price of a pizza causes a _____ in the equilibrium price of a hamburger and a(n) _____ in the equilibrium quantity of hamburgers.
rise; increase
Economists who are asked to choose between two government policies may disagree because:
they base their conclusions on models that make different assumptions.
After swimming 100 laps at the pool, Erik decides to swim 10 more before lifting weights. This statement best represents this economic concept:
"How much" is a decision at the margin.
